1 Nikolai J. Sklaroff,
Capital Finance Director
March 28, 2023
Wastewater Financing
Authorization
2023 Wastewater Revenue Bond Sales
Agenda
• FY 2022-23 C apital Financing Plan
• Wastewater Capital Financing Strategy
• Series 2023 ABC Revenue Bonds
• Commission Authorization
• Authorize the issuance of Series 2023 Wastewater
R
evenue Bonds, including up to $630 million of
Series 2023A Bonds, up to $418.7 million of Series
2023B Bonds, and up to $178.6 million of Series
2023C Bonds
2 FY 2022-23 Capital Financing Plan
3 Description
Approx. Issue
Size
Comm.
Action
1. Water - Clean Water State Revolving Fund
(SRF) amended Loan Agreement - Westside
Recycled Water Project
$4.9M increase
to $191M total 11/2022
2. Wastewater & Power - Renewal or
replacement of bank credit facilities for
interim funding programs
$125M - Power
$100M -
Wastewater
2/2023
3. Wastewater - Revenue Bonds Issuance $775M New
Money 3/2023
4. Wastewater - Water Infrastructure Finance
and Innovation Act (WIFIA) Loan Agreement
- Resilience Projects
$791M
Agreement and
$369M Loan
4/2023
Dates and amounts are subject to change
FY 2022-23 Capital Financing Plan
4 Description
Approx. Issue
Size
Comm.
Action
5. Water - Revenue Bonds Issuance $425M New
Money 5/2023
6. CleanPowerSF Credit Agreement -Amend
credit agreement $20M increase
to $40M total
5/2023
7. Power - Revenue Bond issuance $110M 9/2023
Dates and amounts are subject to change
Capital Financing Strategy
(Wastewater Enterprise)
• Mitigate upward pressure on rates and charges
o Large, growing capital plan requires complex financing s
trategy
o 10-y ear financial plan* calls for issuance of
$4.1 billion of Wastewater Revenue Bonds
o Focus on most efficient use of project funding; only
i
ssue funding when needed
• Actively manage capital financing costs
o Alternatives to long-te rm, fixed-rate debt
o Low-c ost alternative ways to issue bonds
o Refinance outstanding debt for savings and flexibility o Leverage investor demand for green bonds
5*10-Year Financial Plan (FY 2023-24 to FY 2032-33), February 2023 Enterprise Debt Overview
6 Outstanding as of March 1, 2023 ($ million)
Water Wastewater Power
Revenue Bonds $4,459 $2,040 $160
Federal WIFIA Loans
• Executed
• Drawn
-
-
1,213
122
-
-
State Revolving Fund
Loans
• Executed
• Drawn*
424
185
401
324
-
-
Commercial Paper
• Authorized
• Drawn
500
210
750
553
250
63 *Does not include reimbursements submitted but not yet received Enterprise Debt Ratings
(as of March 1, 2023)
7 Moody’s
Investors Service
S&P Global
Ratings
Fitch
Ratings
Long‐Term Outlook Long‐Term Outlook Long‐Term Outlook
Water Enterprise Aa2 Stable AA- Stable -- --
Wastewater Enterprise* Aa2 Stable AA Stable -- --
Power Enterprise -- -- AA Stable AA- Stable
CleanPowerSF** A2 Stable -- -- -- --
* On March 14, 2023, S&P Global Ratings affirmed the AA rating and Stable Outlook; as of March 20, 2023, the Moody’s Investors Service review of the Wastewater rating is pending. ** On December 9, 2020, Moody's Investors Service, assigned a first-time A2 Issuer Rating to CleanPowerSF, with a Stable outlook, however no outstanding debt is associated with this rating.
Low-Cost Borrowing Alternatives
• SRF Loans
o 7 loans executed, total $401M - benef it SSIP
o 30-y ear financing, interest rates of 1.60% - 1.80%
o 3 applications submitted
• WIFIA Loans
o 2 loans executed, total $1.2 billion - benef it SSIP
o Programmatic loan for $791 m illion and $369 million
loan scheduled for Commission review and approval
in April
o Loan repayment is not scheduled to begin until after
pr
oject completion
8 Transaction Description
Series 2023ABC Wastewater Revenue Bonds
• Bonds w ill fund Sewer System Improvement Project (SSIP) and Non- SSIP projects, including Renewal and Replacement
• Three Series of Bonds:
o Series A –
Up to $630 million
SSIP/Green Bonds : Funding and refunding of outstanding commercial paper o Series B –
Up to $418.7 million
Non-SSIP: Funding and refunding of outstanding commercial paper, and may include refunding of 2013AB Bonds, subject to market conditions (only portions of 2013B currently projected to provide sufficient savings per Debt Policy) o Series C –
Up to $178.6 million
SSIP/Green Bonds - refunding of 2018C put bonds. Rate will be fixed until the initial put date.
9 Series 2023C Structure
• Refunding $179,145,000 of 2018C Green “put” bonds
or
iginally sold in 2018
• Bonds to be sold as long-dated fixed rate bonds with “put” feature
o Match the existing 2018C maturities
(
amortizing 2043-2048)
o Bonds tendered, or “put” by bondholders at
pr
edetermined date – initial put period of 4 to 7 years
anticipated (determined prior to sale)
o SFPUC must refund or remarket bonds before end of
put
period
o Failure to refund or remarket is not a default, but
r
esults in higher rates
10 Plan of Finance
• 2023AB Bonds and 2023C Bonds sold separately with
s
eparately led underwriting syndicates
o Same Preliminary Official Statement
o Simultaneous closings
• Sold on negotiated basis w ith underwriters selected via a competitive RFP process from firms in Controller’s pool • Lead Underwriters:
o BofA Securities (Series A & B)
o Goldman Sachs (Series C)
• Co-M anagers: Citigroup, J.P. Morgan, Siebert Williams Shank, and TD Securities
11 Sources & Uses of Funds
(Series 2023ABC Wastewater Revenue Bonds)*
12 2023 Series A
(SSIP)
(Green Bonds)
2023 Series B
(Non
‐SSI
P)
2023 Series C
(SSIP)
(Green Bonds)
Total
SOURCES:
Par Amount $547,935,000 $286,670,000 $172,290,000 $1,006,895,000 Premium 82,855,046 38,863,766 6,250,681 127,969,493
Total Sources $630,790,046 $325,533,766 $178,540,681 $1,134,864,493 USES:
CP Takeout $386,816,167 $151,407,643 $ - $538,223,810 CP/Interim Financing Costs 12,688,135 4,966,392 - 17,654,526 Deposit to Capital Project
Fund
165,686,426 53,435,238 - 219,121,664
Escrow Fund Deposit - 90,771,267 178,164,783 268,936,051 Capitalized Interest 64,270,125 24,265,437 - 88,535,561 Cost of Issuance 629,617 326,757 177,886 1,134,262
Underwriters' Discount 699,576 361,032 198,010 1,258,619 Total Uses $630,790,046 $325,533,766 $178,540,681 $1,134,864,493 Totals may not add due to independent rounding.
*Preliminary, subject to change. Current estimates based on rates as of March 2, 2023. 13 • SB 450 enacted in October 2017 requires local agencies to disclose estimates of certain debt financing-related information at authorization:
o True interest cost:
2023 Series AB Wastewater Revenue Bonds: 3.354%
2023 Series C Wastewater Revenue Bonds: 3.772%
o Finance charge of the bonds:
2023 Series AB Wastewater Revenue Bonds: $2,013,086
2023 Series C Wastewater Revenue Bonds: $375,833
o Amount of proceeds received:
2023 Series AB Wastewater Revenue Bonds: $865,771,267 2023 Series C Wastewater Revenue Bonds: $178,164,784
o Total payment amount net of CAPI:
2023 Series AB Wastewater Revenue Bonds: $1,193,194,388 2023 Series C Wastewater Revenue Bonds: $333,432,020
"Good Faith Estimate"
• Based on $1,006,895,000 total par estimate for transaction size. T rue Interest Cost and total payment amount estimates assume future 2023 Series C remarketing rate of 4% after the initial mandatory tender date, and payments through and including the nominal maturity dates.
Preliminary and subject to change based on market conditions at the time the bonds are sold. Current estimates based on rates as of March 2, 2023.
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
_________________
Source: Refinitiv TM3 as of 2/28/2023 courtesy of BofA Securities, Inc. 5-Year Historical MMD Range
MMD Yield Curve
2/28/2023 MMD
2/28/2022 MMD
Market Overview
(Tax-Exempt Interest Rates)
14 Projected Aggregate Net Debt Service
15 $0
$50,000,000
$100,000,000
$150,000,000
$200,000,000
$250,000,000
$300,000,000
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
2046
2048
2050
2052
2054
2056
2058
2060
2062
2064
2066
Outstanding Bond NDS 2023B&C Refundings NDS Outstanding SRF Loans Planned SRF Loans WIFIA 1&2** WIFIA 3a&b** 2023A&B New Money NDS
*Preliminary, subject to change. Years are in fiscal year basis. 16 Green Bonds Program
• SSIP Programmatic Certification with Climate Bonds Initiative o The Climate Bonds Initiative (CBI) is an international, investor-focused non-profit organization, regarded by the capital markets as the highest standard for green bond certification
o SSIP Programmatic Certification received from CBI in 2016 o Third-party verification by Sustainalytics
• 2023A and 2023C CBI Certification Process
o Under SSIP Programmatic Certification, complete Climate Bonds Information Form (bond details, green bond framework, and other basic information)
17 • Preliminary Official Statement (POS)
Disclosure describing bond terms and condition of
the Wastewater Enterprise.
• Continuing Disclosure Certificate (Appendix in POS)
Outlines disclosure reporting requirements during term of bonds.
• 15th Supplemental Indenture
Agreement between SFPUC and bond trustee providing for the issuance of and security of the bonds.
• Bond Purchase Contracts
Agreements between SFPUC and bond underwriters, which
outline terms of each bond sale.
• Escrow Agreements
Agreement between SFPUC and the escrow agent who holds
refunding proceeds until refunded bonds are redeemed.
Form of Transaction Documents
18 • Commission Disclosure Training
Deputy City Attorney Mark Blake and SFPUC Disclosure
Counsel, Steve Spitz, Partner, Orrick Herrington & Sutcliffe LLP provided Commission refreshed Disclosure Training at its February 14, 2023 Meeting, titled “How Commissioners
Discharge their Legal Obligations Under Federal Securities Laws”
• Disclosure Standard:
Rule 10b-5 “unlawful for any person . . . to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not
misleading . . . .”
Commission Legal Obligations
Recommended Commission Action
• Authorize issuance of up to $630,005,000 2023A Bonds, $418,
700,000 2023B Bonds, and $178,585,000 2023C
Bonds
• Approve form of related bond sale documents
• Approve and authorize the General Manager to deem the d
raft POS final
• Authorize General Manager to sell Bonds in one or more s
eries on a negotiated basis and to enter into Bond
Purchase Contracts with Underwriters
19 Anticipated Financing Schedule
March 28th Commission Approval of Wastewater Bonds
Post Preliminary Official Statement
April 5th Bonds Pricing
April 19th Bonds Closing
March
S M T W T F S
1 2 3 4
5 6 7 8 9 10 11
12 13 14 15 16 17 18
19 20 21 22 23 24 25
26 27 28 29 30 31
April
S M T W T F S
1 2 3 4 5 6 7 8
9 10 11 12 13 14 15
16 17 18 19 20 21 22
23 24 25 26 27 28 29
30 20
21 Questions
AGENDA ITEM
Public Utilities Commission
City and County of San Francisco
APPROVAL:
COMMISSION
SECRETARY Donna Hood
DEPARTMENT Financial Services AGENDA NO. 7
MEETING DATE March 28, 2023
A
uthorize Wastewater Revenue Bonds Sale: Regular Calendar Project Manager: Nikolai J. Sklaroff, Capital Finance Director Authorize the Issuance of up to $ 865 million 2023 Series A (SSIP) Green Bonds and 2023 Series B (Non-SSIP) Bonds and also authorize the issuance of the 2023 Series C Wastewater Revenue Green Bonds to refund approximately $179 million of outstanding 2018 Series C Green Bonds, which are subject to mandatory put in October 2023 Summary of
Proposed
Commission
Action:
Authorize the Issuance of up to $865 million of 2023 Series AB Bonds for new money and to refund com mercial paper, potentially provide funds sufficient to refund approximately $185 million of outstanding 2013 Series A and Series B Bonds, subject to minimum savings thresholds set by Commission Debt Policy and prevailing market conditions at time of sale , and the issuance of the 2023 Series C Bonds to refund approximately $179 million of outstanding 2018 Series C Wastewater Revenue Bonds ( collectively, the “20 23 Wastewater Bonds”); delegate to the General Manager authorization to appoint underwriters and enter into one or more bond purchase contracts with underwriters selected from the City’s pool of pre -qualified underwriters subject to a competitive procurement process and in accordance wi th the City’s policies and procedures with respect thereto, subject to the limits on Underwriters’ compensation set forth in the resolution. The Commission resolution will approve bond sales as follows: (1) the 2023 Series A and Series B Wastewater Revenue Bonds, including Series A (SSIP) (Green Bonds) to fund Sewer System Improvement Program (SSIP) improvements and Series B (Non -SSIP) to fund non -SSIP improvements , fund capitalized interest to mitigate short- term budget impacts and may also include current refunding of up to $184,240,000 of the outstanding 2013A and B Bonds for debt service savings, and (2) the 2023 Series C Wastewater Revenue Bonds (Series C (SSIP) (Green Bonds)) to refund outstanding 2018 Series C Bonds subject to a mandatory put, and approve the form of, and authorize the execution and delivery of, related documents, and a uthorize the General Manager to sell the 2023 Wastewater Bonds in one or more series of bonds on a negotiated basis, as the General Manager determines is in the best financial interest of the San Francisco Public Utilities Commission.
Execute Agreement: Authorize the Issuance of 2023 ABC Wastewater Revenue Bonds Commission Meeting Date: March 28, 2023
Background: 2023 Wastewater Bonds: The 2023 Wastewater Bonds will be issued pursuant to Proposition E, approved by San Francisco voters on November 5, 2002, codified as San Francisco Charter as Section 8B.124, and by various ordinances and resolutions approved by the Board and the Commission. Proceeds of the 2023 Wastewater Bonds will be used to finance costs of Wastewater Enterprise capital projects as follows: the Series A Bonds will finance the cost of projects of the Sewer System Improvement Program ( SSIP), the Series B Bonds will finance Wastewater Enterprise capital program project costs that are non-SSIP and to fund capitalized interest. In addition, subject to market conditions, the 2023 Series B Wastewater Bonds may be used to refund on a current basis up to $184,240,000 of the outstanding 2013 Series A and Series B Bonds . The Series C Bonds will refund the 2018 Series C Bonds, which are subject to a mandatory put on October 1, 2023. Proceeds of the 2023 Wastewater Bonds will also be used to pay
additional Wastewater Enterprise capital program project costs through June 2023.
The 2023 Wastewater Bonds transaction was included as part of the FY 2022- 23 Capital Financing Plan presented to the Commission on September 27, 2022. The issuance of the 2023 Wastewater Bonds is being done in compliance with the “Debt Management Policies & Procedures,” most recently updated and approved by the Commission on November 26, 2019.
“Green Bond” Designation: In conjunction with the issuance of the 2016 Series A Wastewater Revenue Bonds, issued on May 10, 2016, staff worked with its independent consultant to have all projects in the SSIP certified for “Green Bond” designation pursuant to the Climate Bonds Initiative’s “Climate Bonds Standard.” With this programmatic certification, any bonds issued to fund the SSIP can be designated as “Green Bonds.” On January 19, 2023, the Climate Bonds Standar d Board approved the Pre-issuance Certification of the 2023 Series A and Series C Bonds. Consequently, given the proceeds of the proposed 2023 Series A and Series C Bonds have or will fund SSIP Projects, the 2023 Series A and Series C Bonds will be designated and sold as “Green Bonds” certified by the Climate Bonds Initiative and verified by Sustainalytics, which has verified the SFPUC’s Wastewater Green Bonds to date.
Plan of Finance: SFPUC staff is recommending the SFPUC conduct two separate bond sales, each with different structures and slightly different underwriting syndicates. The 2023 Series AB Bon d principal will be amortize d over approximately 17 years. This structure will use shorter fixed rate bonds than is typical for SFPUC Wastewater Enterprise bond sales. The reason for this structure is that the SFPUC’s Capital Finance Team has taken advantage of the WIFIA Program’s lower fixed interest costs to structure amortization of low-cost WIFIA loans over longer maturities. As a result, the SFPUC can still maintain level debt service by structuring our fixed rate 2023 Series Revenue Bonds with short maturities and our low cost WIFIA loans with long maturi ties which have lower rates. This strategy is designed to maximize the yield advantage on the WIFIA loans and mitigate the impact of higher and rising interest rates on the total borrowing. The 2023 Series C Bonds will be issued to refund the 2018 Series C Bonds which were sold with long maturities subject to a soft put. The 2018 Series C soft put structure provides that the 2018 Series C Bonds are subject to a higher rate, unless remarketed or refunded prior to October 1, 2023. The 2023 Series C Bonds are also expected to be sold with long nominal maturities (also amortizing from 2043 to 2048), similar to the structure used for the 2018 Series C Bonds that they will refund. With this soft put structure, the 2023 Series C Bonds will carry a Execute Agreement: Authorize the Issuance of 2023 ABC Wastewater Revenue Bonds Commission Meeting Date: March 28, 2023
fixed rate of interest during the initial term rate period from issuance to the Initial Mandatory Tender Date. To optimize the pricing of the bonds, the term of the put will be determined in conjunction with the marketing of the bonds and is expected to be for a period of four to seven years. At the end of the initial term rate period, the 2023 Series C Bonds will be subject to mandatory tender for purchase at which time the SFPUC will rema rket or refund the bonds. In the event the SFPUC is unable to issue the 2018 Series C Bonds October 1, 2023, the 2018 Series C Bonds would not be in default but would be subject to a higher interest rate until refinanced.
The 2023 Series AB Bonds are sized to fund prior expenditures for both SSIP and non-SSIP capital costs which were originally financed by Commercial Paper , as well as fund spending for additional SSIP and non-SSIP capital projects through June 2023. By refinancing accumulated Commercial Paper, the refunding allow s the Wastewater Enterprise to enter into additional contracts in reliance on the availability of commercial paper to fund encumbrances.
The Wastewater Enterprise is facing significant future rate pressure to fund its large capital program. The structuring outlined above is intended to mitigate those pressures. Unlike the funding of the Water Enterprise’s Water Sys tem Improvement Program (WSIP), for which the capital program costs were spread over the much larger retail and wholesale water rate base, the costs of Wastewater’s capital investments will need to be spread over a smaller sewer service area rate base.
To mitigate such r ate pressure, the SFPUC utilizes a broad range of funding instruments and structuring options for the Wastewater Enterprise. In addition to structuring strategies such as those described above, staff also incorporate grants, subsidized loans, low-cost State (SRF) and federal (WIFIA) loans, a Commercial Paper Interim Funding Program, and a combination of long and shorter term revenue bonds in the SFPUC’s portfolio of financing tools. The SFPUC can also manage the impact of changes in prevailing interest rates through the amortization of the debt, which changes the average life of each borrowing.
Structure of the Bonds:
1) 2023 Series AB Bonds – The SFPUC expects to issue up to $865 million to fund wastewater enterprise improvements ( including through the refinancing of commercial paper previously issued for such projects) as well as capitalized interest. While not currently expected due to market conditions, t he Series A B Bonds may also provide funds sufficient to refund up to $185 million of outstanding 2013AB Bonds (the “2023 Series AB Bonds”) for debt service savings, depending on prevailing interest rates at the time of sale. The 2023 Series AB Bonds would be structured as tax- exempt fixed rate bonds with a final maturity not-to-exceed 30 years from the original issue date (though the actual final maturity is expected to be shorter, with bonds amortized over 17 years ), and include capitalized interest through October 2025. The interest rates will be determined on the transaction date and will remain fixed for the term of the bonds.
2) 2023 Series C Bonds – The SFPUC expects to issue approximately $179 million of the 2023 Series C Bonds to refund the outstanding 2018 Series Execute Agreement: Authorize the Issuance of 2023 ABC Wastewater Revenue Bonds Commission Meeting Date: March 28, 2023
C Bonds, which were structured with a put date five years after its issuance in 2018. While the put date on the 2018 Series C Bonds is not until October 2023, the SFPUC is refunding the bonds now to take advantage of the efficiencies of doing the transaction together with the issuance of the 2023 Series AB Bonds and eliminate the need to prepare a separate disclosure document later this year. The 2023 Series C Bonds would be structured as tax-exempt soft put bonds with the same nominal final maturity as the 2018 Series C Bonds that they will refund with principal payments beginning in 2043 with final maturity in 2048. However, the 2023 Series C Bonds will have a provision requiring that purchasers of the bonds tender or “put” the bonds back to the SFPUC on a date established at the time of issuance (the “put date”). This date is expected to be in the range of 4 to 7 years and will be set at the time of pricing. If the rate is not lower than the current rate, we would expect to escrow funds for up to 90 days before redeeming the prior bonds.
The 2023 Series C Bonds are expected to be subject to an optional redemption up to six months prior to the put date, which provides the SFPUC with an approximately 9- month window to exercise an early redemption. If the SFPUC is unable to refund the bonds prior to the established put date, the bonds will carry a prescribed higher rate “term out rate” until they can be refunded, but this will not be classified as an event of default.
Recent actions by the Federal Reserve have resulted in higher current municipal bond interest rates. In consultation with its municipal adv isors, staff has determined that structuring the 2023 Series C Bonds as a soft put bond with a lower short-term rate based on the put, would allow the SFPUC to mitigate current higher interest rates . T he SFPUC will have the opportunity to refinance the 2023 Series C Bonds at the put date. This strategy provides time for potential future Federal Reserve easing of interest rates after inflationary pressures abate, at which time, the SFPUC can determine if it is in its best interest to similarly refinance the 2023 Series C Bonds with new bonds issued with a shorter-term put maturity or refund the 2023 Series C Bonds with long-term debt. This structure would also provide the SFPUC the choice of starting the refinancing process 6 - months before the put date to either refund or remarket the p ut bonds in conjunction with a future planned wastewater bond sale.
Benefits and Risks of Put Bonds: As mentioned, the 2023 Series C Bonds will bear interest at a fixed rate through the put period (e.g., four to seven years). After the put period, the 2023 Series C Bonds will bear interest based on the term of each new put period and market conditions at the time of remarketing. Thus, the 2023 Series C Bonds are essentially a form of adjustable -rate debt, with interest rates varying over the life of the bonds but fixed during the initial and subsequent put periods. In today’s market, it is estimated that the difference in debt service between the 2023 Series C Bonds, assuming a five -year put period vs. 25-year fixed bonds to the longer-term nominal maturity, is up to $1.2 million annually, or $4.5 million of savings in current dollars (“net present value” ) over an assumed four-year put period. Under the plan of finance, 2023 Series C will mature in 2048 with principal payments beg inning in 2043. Subject to market conditions at the Execute Agreement: Authorize the Issuance of 2023 ABC Wastewater Revenue Bonds Commission Meeting Date: March 28, 2023
time of future remarketings or refundings, the bonds may be repaid sooner than 2048.
Since at the time of original issuance, the SFPUC will not know the interest rates beyond the put period, long term interest costs on this portion of the debt will not be known until the bonds are either refunded or remarketed for their remaining term. The interest rates required to remarket the bonds at future remarketing dates could exceed the rates the SFPUC would have been required to pay if it had issued the 2023 Series C Bonds as “conventional” long-term fixed rate bonds, such as the 2023 Series AB Bonds. However, the SFPUC expects to utilize relatively short - term put periods (i.e., 4 to 7 years) when it remarkets the bonds in the future, so the bonds will be priced at interest rates that reflect this shorter-term period. Given that, historically, shor t-term rates have been lower than long - term rates, the
SFPUC may realize lower interest costs over the life of the financing by issuing this type of adjustable-rate debt.
A benefit of the fixed-rate put bond feature is that the interest rate during the initial put period is fixed and cannot fluctuate, providing certainty for planning and budgeting in the near-term.
Schedule for 2023 Wastewater Bonds: It is anticipated that the 20 23 Series A, 2023 Series B and 2023 Series C Bonds will be priced together in early April. They will be marketed pursuant to the same Preliminary Official Statement. All the Bonds will close together on the same day in mid to late April. All dates are preliminary and subject to change based on market conditions.
Analysis of Financing Alternatives: As part of the Wastewater Enterprise’s 10- Year Financial Plan, the SFPUC analyzes financing options for the capital program, taking into consideration capital project funding nee ds and timing, available financing alternatives, and market conditions and impacts on the ratepayers. For each financing, SFPUC Finance staff examines the most cost - effective financing structure within the context of the overall capital plan.
SFPUC Finance staff has reviewed the Wastewater Enterprise’s outstanding debt portfolio and capital financing needs and recommends primary funding through long-term fixed rate revenue bonds. Based on this review, staff has determined that these transactions reduce costs and meet near -
term construction contract award
and payment requirements. However, the Commission utilizes certain strategic short-term financing products such as its Commercial Paper program and select put bonds to mitigate costs and to create eco nomies of scale. SFPUC staff continues to evaluate other strategies relative to future debt with the goal of mitigating the impact of planned capital expenditures.
SB 450 Legislation Compliance: In 2017, California Senate Bill 450 (SB 450) was enacted. SB 450 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 b onds: This re presents the sum of all fees and charges paid to third parties.
Execute Agreement: Authorize the Issuance of 2023 ABC Wastewater Revenue Bonds Commission Meeting Date: March 28, 2023
3. Amount of proceeds received: This represents proceeds of the bonds net of the fees and charges paid to third parties and any reserves or capitalized interest funded by the bonds.
4. Total payment amount: This represents t he sum of all debt service payments on the bonds calculated to the final maturity of the bonds.
SB 450 requires that the good f aith estimates be obtained from either the issuer’s municipal advisor, underwriter or third-party lender. Staff has consulted with its co-municipal advisor, Montague DeRos e & Associates LLC, and obtained estimates with regard to the respective Bonds.
The Commission was last presented with this type of required information as part of its approval of the 2022 Series B Wastewater Revenue Refunding Bonds that sold in July 2022. The Commission will continue to be presented with this information for all future bond authorization requests as required under SB 450.
The following represents a good faith reasonable estimate of certain costs for each bond sale for purposes of compliance with SB 450, based upon information available as of March 2, 2023. Actual results will be determined on the pricing date of the bonds, and will likely vary.
1. True Interest Cost:
2023 Series AB Wastewater Revenue Bonds: 3.354%.
2023 Series C Wastewater Revenue Bonds: 3.772%
2. Finance Charge of the Bonds (reflects costs of issuance and underwriter’s discount):
2023 Series AB Wastewater Revenue Bonds: $2,013,086.01
2023 Series C Wastewater Revenue Bonds: $375,832.74
3. Amount of Proceeds Received by the Public Body for Sale of the Bonds (net of reserves or capitalized interest (“CAPI”) deposits and the finance charge of the bonds):
2023 Series AB Wastewater Revenue Bonds: $865,771,267
2023 Series C Wastewater Revenue Bonds: $178,164,784.05
4. Total Payment Amount (i.e., Total Net Debt Service net of CAPI)
2023 Series AB Wastewater Revenue Bonds: $1,193,194,387.50 2023 Series C Wastewater Revenue Bonds: $333,432,020.00
Method of Sale: In consultation with the SFPUC’s Municipal Advisors on this transaction (Montague DeRose & Associates and Backstrom McCarley & Berry), SFPUC staff has recommended a negotiated sale for the 2023 Wastewater Bonds.
In a negotiated sale, the SFPUC hires underwriters for the bonds through a competitive process from among the firms that have been prequalified in the City’s underwriting pool. The underwriters are therefore able to work with the SFPUC on structuring the transaction and preparing documents, including the disclosure document. In addition, they assist with the process of preparing Execute Agreement: Authorize the Issuance of 2023 ABC Wastewater Revenue Bonds Commission Meeting Date: March 28, 2023
materials for rating agencies and investors, and premarketing and marketing of the bonds. Staff has recommended this method of sale because:
1) the past year has been a time of unprecedented market volatility, due to steep Federal Reserve interest rate increases, global events and the enduring impacts of the pandemic and a negotiated sale process provides more market information and timing flexibility which can improve the results of a bond sale;
2) the proposed 2023 Wastewater Bond transaction includes refunding transactions, which are sensitive to market conditions and/or structure considerations;
3) negotiated sales provide greater “real time” structuring flexibility than competitive sales;
4) negotiated sales allow for more effective marketing to green bond investors in support of SFPUC’s goal of remaining a leader in sustainable finance; and
5) negotiated sales have allowed the SFPUC to select diverse underwriting teams which include smaller, minority and/or women-owned firms as part of the underwriting team.
A Request for Proposals was sent to all firms in the Controller’s Office of Public Finance Underwriter Pool. A total of 28 proposals were received by December 7, 2023 and reviewed by the SFPUC’s Co-Municipal Advisors and staff, including 14 responses to serve as senior manager. After a formal evaluation and scoring process, BofA Securities is being recommended as Senior Manager for the 2023 Series AB Bonds sale, and Goldman Sachs is being recommended as Senior Manager for the 2023 Series C Bonds sale.
BofA’s and Goldman Sachs’s proposals were selected based on their respective experience, underwriting capabilities, technical expertise, financing ideas and competitive fees. Additionally, Citigroup, J.P. Morgan, Siebert Williams Shank, and TD Securities were selected as Co-Managers for the 2023 Series ABC Bonds sale.
Bond Documents: The Commission is being asked to approve the form and authorize the execution of documents relating to the Bonds, as described below.
1) Official Statements (Preliminary/Final) – This document is the primary investor disclosure document that describes the terms of bonds, source of repayment, risk factors, financial and operating results and projections and background information of the Wa stewater Enterprise and the SFPUC. The document will be provided to rating agencies and prospective investors. The prelim
inary official statement contains all material information about the Wastewater Enterprise and is intended to be substantially final (except for certain pricing information and updates that may occur prior to sale), and through this resolution the General Manager is permitted to make such changes as are necessary to make such document contain complete and accurate information. At its February 14, 2022 regular meeting, the Commission once again received training on the Commission’s disclosure responsibilities with regard to the Preliminary and Final Official Statements. a) Continuing Disclosure Certificate – Agreement between the Trustee and the SFPUC setting forth (in this case, for the Wastewater Enterprise) the Execute Agreement: Authorize the Issuance of 2023 ABC Wastewater Revenue Bonds Commission Meeting Date: March 28, 2023
SFPUC’s commitment to providing annual financia l and operating data disclosure, and the ongoing disclosure of certain enumerated material events as set forth by the Securities and Exchange Commission’s (SEC) Rule 15c2-12. In order for underwriters to underwrite the bonds, municipal bond issuers such as the SFPUC are required to have executed a continuing disclosure certificate (CDC) to comply with their regulatory duties . The Continuing Disclosure Certificate is contained as an appendix within the Official Statement.
2) Indenture (as amended by the Fifteen th Supplemental Indenture ) - The Indenture is an agreement between the SFPUC and the Trustee which sets forth the contractual terms of the Bonds, including the 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. Additional indentures have also been executed in conjunction with other parity borrowing, such as Federal WIFIA loans. 3) Bond Purchase Contract s – The agreement s 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. 4) Escrow Agreements – Related to each refunding, it is the agreement with the escrow agent (typically the Trustee) to hold the escrow securities that are purchased with proc eeds of the 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 Finance staff worked collaboratively with outside municipal advisors, the Office of the City Attorney, and outside co- bond and disclosure counsel to develop all aspects of the documents associated with the sale of the 20 23 Wastewater Bonds, including all attachments. The professionals working with the SFPUC on this financing are as follows:
• Issuer Counsel: Office of the San Francisco City Attorney’s Office of the City and County of San Francisco
• Disclosure Counsel: Orrick, Herrington & Sutcliffe LLP • Co-Bond Counsel: Jones Hall , A Professional Law Corporation, and Alexis S.M. Chiu, Esq.
• Co-Municipal Advisors: Montague DeRose & Associates and Backstrom McCarley Berry & Co.
• Trustee: U.S. Bank Trust Company National Association • Independent Pricing Verification Agent: PFM California Advisors LLC • Escrow Verification Agent: to be selected closer to transaction pricing
Because this transaction will be sold on a negotiated basis, per the SFPUC’s debt policies, an independent pricing verification agent —a municipal advisor not
otherwise involved in the transaction—will be engaged to provide an independent pricing report and comparative sales details to reassure that the sale provided fair pricing for the rate payers.
Disclosure Considerations: As discussed during the Commissioner’s disclosure Execute Agreement: Authorize the Issuance of 2023 ABC Wastewater Revenue Bonds Commission Meeting Date: March 28, 2023
training held at the February 14th regular meeting, under federal securities laws the SFPUC must disclose the financial condition of the Wa stewater Enterprise to prospective investors in the Preliminary Official Statement and the Official Statement for the Bonds, and such disclosure must be complete and accurate with no material misstatements or material omissions.
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 Wa stewater Enterprise, Infrastructure and SSIP program managers, the City Attorney’s Office and SFPUC’s financing team. In addition, the SFPUC was assisted in the preparation of the document by Orrick, Herrington & Sutcliffe LLP, disclosure counsel. Orrick has served as the Disclosure Counsel to Wastewater Bonds since 2010.
Prior to distribution to investors, the Preliminary Official Statement will be updated to reflect the most current information regarding the Wastewater 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 and the 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 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 in aggregate up to $865 million principal amount of the 2023 Wastewater Bonds to fund improvements (including refinancing previously issued commercial paper) and capitalized interest, and additional amounts to refund approximately $185 million 2013 Series AB Bonds, if sufficient interest savings are available, and to refinance the approximately $179 million 2018 Series C put bonds.
Q. Why are bonds being issued?
A. The 2023 Wastewater Bonds are being issued to fund a portion of the Wastewater Enterprise’s capital improvement program, including portions of the SSIP. The bonds will also fund capitalized interest. A dditional amounts to refund up to $185 million of 2013 Series AB Bonds, if sufficient interest savings are available, and to refinance the approximately $179 million of 2018 Series C put bonds.
Q. What is the bond structure?
A. Both the 2023 Series AB Bonds and the 2023 Series C Bonds (sold to refund 2018 Series C Bonds) will be issued as senior lie n fixed rate tax- exempt bonds, with a final maturity of 30 years or less. However, the 2023 Series C Bonds will have a provision requiring that purchasers of the bonds Execute Agreement: Authorize the Issuance of 2023 ABC Wastewater Revenue Bonds Commission Meeting Date: March 28, 2023
to tender, or “put”, the bonds back to the SFPUC at a specified put date. It is expected that the initial put date for the 2023 Series C Bonds will be in 4 to 7 years and these bonds will be priced at an interest rate that reflects the short put date. The 2023 Series AB Bonds and the 2023 Series C Bonds will not fund a debt service reserve fund.
Q. What risk is associated with the structure of the 2023 Series C Bonds? A. The adjustable -rate debt potentially exposes the SFPUC to future interest rate risk, especially in a rising interest rate environment. However, since adjustable-rate debt is priced with shorter terms at interest rates that are historically lower than lo nger term 30 -year rates, a well -managed adjustable-rate debt program can provide flexibility and lower overall costs to fund the Wastewater Enterprise capital program , while also mitigating risks. The SPFUC will have the choice to continue remarketing the bonds as put bonds in the future or fixing the rate via the issuance of long-term debt for the remaining life of the bonds.
Q. How will the Bonds be sold?
A. The SFPUC has engaged an underwriting syndicate led by BofA Securities and Goldman Sachs, together with four co-managers, to market and price the bonds based on investor demand and market conditions at the time of sale. The SPFUC’s Municipal Advisors will assist SFPUC in negotiating the final interest rates with the Underwriters.
Q. How will debt service on the Bonds be paid?
A. The 2023 Wastewater Bonds will be repaid from “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. Principal and i nterest on the 2023 Series C
Bonds will also be repaid from net revenues of the Wastewater Enterprise.
However, on each future put date, 2023 Series C Bond principal amounts will be refunded or remarketed with proceeds of future remarketing up to the final nominal maturity of the 2023 Series C Bonds. On the nominal maturity dates, the then out standing 2023 Series C Bonds will be repaid from net revenues of the Wastewater Enterprise.
Q. If the 2023 Wastewater Bonds for new improvements are issued in an amount up to $865 million, how much debt will be payable from the revenues of the Wastewater Enterprise?
A. Including the 2023 Wastewater Bonds, and approximately $400 million in Parity State SRF Loans, the Wastewater Enterprise will have approximately $3.25 billion in long- term debt outstanding. Further, SFPUC has executed $1.2 billion in WIFIA loans as of February 23rd, 2023 and has not yet drawn on these loans. In addition to this long- term debt, the SFPUC’s 2009 Golden Gate Certificates of Participation payment obligation is also payable from the revenues of the Wastewater Enterprise as well as costs related to commercial paper , revolving notes and direct bank agreements. In FY 2027, after the capitalized interest period is over, average annual debt service will be approximately $77.9 million for the 2023 Wastewater Bonds, and total debt service will be $206 million for that same year.
Execute Agreement: Authorize the Issuance of 2023 ABC Wastewater Revenue Bonds Commission Meeting Date: March 28, 2023
Q. What impact will the issuance of the 2023 Wastewater Bonds have on Wastewater Enterprise rates?
A. D ebt service and debt service coverage requirements have been included in the current 10- Year Financial Plan, which projects overall annual sewer rate increases of 8.43% for the period FY 2023- 24 through FY 2032-33 (CAGR) The 2023 Wastewater Bonds are being sold to meet the funding needs of the W astewater Enterprise Capital Plan. Future projected debt is based on an assumed rate of 5% amortized over 30 years; it is expected that the structuring of the current transaction may produce savings compared to the assumed rates. 2023 Series C are refinancing the 2018 Series C to mitigate future increase in rates for the adjustable -rate debt. Furthermore, if market conditions are favorable, the refunding of 2013 Bonds could potentially reduce debt service as well.
Q. Will issuance of the Bonds have a negative impact on the Wastewater Enterprise’s credit ratings?
A. The SFPUC will apply for ratings for the 2023 Wastewater Bonds and for confirmation of the existing ratings of outstanding Wa stewater Revenue Bonds. Staff does not anticipate any negative impact from the issuance of the 2023 Wastewater Bonds, assuming the SFPUC sets rates consistent with financial plan projections in the future . Many factors determine future bond ratings, many of which are beyond managements control, but other factors remain in the Commission and management’s control, including rate increases and debt service coverage levels.
If there is any information Commissioners believe they need is necessary to understand 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 SFPUC is aware, Commissioners are encouraged to contact SFPUC finance staff or the City Attorney’s Office.
Result of
Inaction:
A delay or denial in approving this agenda item will potentially adversely impact the SFPUC’s ability to proceed with the timely implementation of the Wastewater Enterprise’s Capital Program.
Environmental
Review:
This bond sale and bond refinancing is subject to Proposition E (of 2002) and related ordinances and resolutions adopted by the Board of Supervisors (Board).
Section 8B.124 of the City Charter grants authority to the Board to approve the issuance of indebtedness, including revenue bonds, by ordinance upon two- thirds vote of its members and under certain conditions. One of the conditions to the Board's authorization of such indebtedness is certification by the San Francisco Planning Department that facilities under the jurisdiction of the Public Utilities Commission funded with such bonds will comply with applicable requirements of the California Environmental Quality Act.
The Environmental Review Officer issued Proposition E CEQA Certificates (“CEQA Certificates”) required under Charter S ection 8B.124 for the proposed sale of wastewater revenue bonds, including notes, commercial paper, and other forms of indebtedness, on June 26, 2018 related to Ordinance No. 89 -15 and part of file number 150362 on file with the Clerk of the Board (related to Ordinance Execute Agreement: Authorize the Issuance of 2023 ABC Wastewater Revenue Bonds Commission Meeting Date: March 28, 2023
No. 111-16 and part of file number 160471 on file with the Clerk of the Board), on November 30, 2020 related to Ordinance No. 173- 20 and part of file number 200837 on file with the Clerk of the Board , and on August 2, 2022, related to Ordinance No. 110-22 and part of file number 220500 on file with the Clerk of the Board.
The projects to be funded by bond proceeds are listed in Exhibit A of the CEQA Certificates. Some projects listed have already undergone CEQA review and have been approved by this Commission, while others are in the planning and design phases or are still under environmental review. The Certificate s cite the CEQA compliance for projects that have been certified (Environmental Impact Report [EIR]), approved (Mitigated Negative Declaration [MND]), or determined to be exempt, as well as projects that do not constitute a project under CEQA.
This proposed action does not constitute approval of projects that have not yet completed CEQA review and have not been approved by this Commission. For all projects listed in Exhibit A of the CEQA
Certificates that have not yet been
approved, environmental review w ill be completed and considered by this Commission prior to the approval of expenditure of funds for construction.
The CEQA Certificates can be found here.
Recommendation: SFPUC staff recommends that the Commission adopt the attached resolution.
Attachments: 1) Form of Preliminary Official Statement (POS) (including Form of Continuing Disclosure Certificate as Appendix D)
2) Form of Fifteenth Supplemental Indenture
3) Form of Bond Purchase Contracts
a) Series A and Series B
b) Series C
4) 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”), codified as Article VIIIB of the Charter of the City and County of San Francisco (the “City”), which, among other things, authorized the Public Utilities Commission (the “Commission”) of the 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, The Commission adopted the Indenture dated as of January 1, 2003 (as amended and supplemented, the “Indenture”), between the Commission and U.S. Bank Trust Company, National Association (as successor in interest to U.S. Bank National Association), as trustee thereunder (the “Trustee”); and
WHEREAS, On June 24, 2014, the Board passed by two-thirds vote Ordinance No. 107- 14, approving the issuance and sale of wastewater revenue bonds by the Commission pursuant to Article VIIIB of the Charter of the City (the “Charter”), in an aggregate principal amount not to exceed $819,035,941, to finance capital projects benefiting the Enterprise (as defined in the Indenture, and hereinafter, the “Wastewater Enterprise”); and WHEREAS, On June 9, 2015, the Board passed by two-thirds vote Ordinance No. 0089- 15, which amended and supplemented Ordinance No. 107-14 to provide authority for the Commission to execute and deliver one or more State of California Water Resources Control Board Installment Sale Agreements in connection with State Revolving Fund Loans, pursuant to Article VIIIB of the Charter, to finance capital projects benefiting the Wastewater Enterprise; and
WHEREAS, On June 14, 2016, the Board passed by two-thirds vote Ordinance No. 111- 16, approving the issuance and sale of wastewater revenue bonds and authorizing the Commission to execute and deliver one or more State of California Water Resources Control Board Installment Sale Agreements in connection with State Revolving Fund Loans, pursuant to Article VIIIB of the Charter, in an aggregate principal amount not to exceed $1,112,601,280, to finance capital projects benefiting the Wastewater Enterprise; and WHEREAS, On June 12, 2018, the Board passed by two-thirds vote Ordinance No. 144- 18, approving the issuance and sale of wastewater revenue bonds, commercial paper, revolving credit notes, or bond anticipation notes, authorizing the Commission to execute and deliver one or more State of California Water Resources Control Board Installment Sale Agreements in connection with State Revolving Fund Loans, and authorizing the Commission to execute and deliver loan agreements with the United States Environmental Protection Agency under the Water Infrastructure Finance and Innovation Act, all pursuant to Article VIIIB of the Charter, in an aggregate principal amount not to exceed $987,414,494, to finance capital projects benefiting the Wastewater Enterprise; and
WHEREAS, On September 29, 2020, the Board passed by two-thirds vote Ordinance No. 173-20, approving the issuance and sale of wastewater revenue bonds, commercial paper, revolving credit notes, or bond anticipation notes, authorizing the Commission to execute and deliver one or more State of California Water Resources Control Board Installment Sale Agreements in connection with State Revolving Fund Loans, and authorizing the Commission to execute and deliver loan agreements with the United States Environmental Protection Agency under the Water Infrastructure Finance and Innovation Act, all 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 authorizing 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; and WHEREAS, On June 14, 2022, the Board passed by two-thirds vote Ordinance No. 110- 22, approving the issuance and sale of wastewater revenue bonds, commercial paper, revolving credit notes, or bond anticipation notes, authorizing the Commission to execute and deliver one or more State of California Water Resources Control Board Installment Sale Agreements in connection with State Revolving Fund Loans, and authorizing the Commission to execute and deliver loan agreements with the United States Environmental Protection Agency under the Water Infrastructure Finance and Innovation Act, all pursuant to Article VIIIB of the Charter, in an aggregate principal amount not to exceed $704,198,901, to finance capital projects benefiting the Wastewater Enterprise, and further authorizing 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; and
WHEREAS, Pursuant to Section 9.109 of the 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 the Indenture designated the “Public Utilities Commission of the City and County of San Francisco Wastewater Revenue Bonds, 2013 Series A (Refunding)” (the “2013A 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 2013A 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” (the “2013B Bonds,” and together with the 2013A 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 2013B 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, 2018 Series C (Green Bonds)” (the “2018C Bonds” and, together with the 2013AB Bonds, the “Prior Bonds”), in the original principal amount of $179,145,000, as more specifically described in that certain Eighth Supplemental Indenture, dated as of August 1, 2018, by and between the Commission and the Trustee, relating to the 2018C Bonds; and WHEREAS, Under the authority granted under Article VIIIB and 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 the Commission thereunder, it is proposed that the Commission issue (i) one or more series of wastewater revenue bonds, in an aggregate principal amount not to exceed $630,005,000 (the “2023A Bonds”), for the purpose of financing or refinancing (through the retirement of commercial paper notes) various capital projects benefiting the Wastewater Enterprise (including reimbursing the Commission for certain capital costs previously paid from other moneys), financing capitalized interest and paying costs of issuance related thereto, (ii) one or more series of wastewater revenue bonds, in an aggregate principal amount not to exceed $418,700,000 (the “2023B Bonds”), for the purpose of financing or refinancing (through the retirement of commercial paper notes) various capital projects benefiting the Wastewater Enterprise (including reimbursing the Commission for certain capital costs previously paid from other moneys), current refunding all or a portion of the outstanding 2013AB Bonds, financing capitalized interest and paying costs of issuance related thereto, and (iii) one or more series of wastewater revenue refunding bonds, in an aggregate principal amount not to exceed $178,585,000 (the “2023C Bonds,” and together with the 2023A Bonds and the 2023B Bonds, the “2023 Bonds”), for the purpose of current refunding all or a portion of the outstanding 2018C Bonds and paying costs of issuance related thereto, pursuant to the Indenture and the Supplemental Indenture (as defined herein); and WHEREAS, The refunding of all or a portion of the Commission’s outstanding 2013AB Bonds and 2018C Bonds is proposed to be accomplished by depositing proceeds of the 2023B Bonds and 2023C 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, It is proposed that such 2023 Bonds be issued as obligations the interest on which is exempt from federal income tax pursuant to the Supplemental Indenture; and WHEREAS, It is proposed that one or more Preliminary Official Statements (as defined herein) and one or more Official Statements (as defined herein) will be used in connection with the offering and sale of the 2023 Bonds, from time to time; and WHEREAS, It is proposed that the 2023 Bonds be sold, on one or more dates, in a negotiated sale pursuant to one or more bond purchase contracts (defined herein as, the “Bond Purchase Contract”); and
WHEREAS, It is proposed that one or more continuing disclosure certificates with respect to the 2023 Bonds (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 l5c2-12 (“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 Supplemental Indenture, the Bond Purchase Contracts, 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 2023 Bonds and to authorize the execution and delivery, as applicable, of the Supplemental Indenture, the Bond Purchase Contracts, 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 the 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 parties 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 voters of the City approved Proposition P in November 2002, pursuant to which this Resolution and the 2023 Bonds are subject to the provisions of Section 5A.30 et seq. (“Public Utilities Revenue Bond Oversight Committee”) of Article V of Chapter 5 of the San Francisco Administrative Code (the “Proposition P Requirements”), including the requirement that, to the extent permitted by law, one-twentieth of one percent (0.05%) of the gross proceeds from each issuance or sale of public utility revenue bonds shall be deposited in a fund established by the Office of the Controller of the City (the “Controller’s Office”) and appropriated by the Board at the direction of the Public Utilities Revenue Bond Oversight Committee to cover the costs of said committee; and
WHEREAS, Section 1.150-2(f) of the United States Income Tax Regulations (the “Treasury Regulations”) provides generally that proceeds of tax-exempt debt may be used to reimburse an expenditure made prior to the issuance of such debt if such expenditures are “preliminary expenditures” of the type described in Section 1.150-2(f) of the Treasury Regulations; and
WHEREAS, The Commission intends to reimburse from a portion of the proceeds of the 2023AB Bonds certain preliminary expenditures of the type described in Section l. l 50-2(f) of the Treasury Regulations (the “Preliminary Expenditures”); and
WHEREAS, Section 8B.124 of Article VIIIB of the Charter (“Section 8B.124”) allows for the issuance of revenue bonds and other forms of indebtedness, subject to the provision of certain certifications of an independent engineer retained by the Commission and certain certifications by the San Francisco Planning Department, which certifications make the findings and determinations set forth in Section 8B.124; and
WHEREAS, The Environmental Review Officer issued Proposition E CEQA Certificates (the “CEQA Certificates”) required under Charter Section 8B.124 for the proposed sale of wastewater revenue bonds, including notes, commercial paper, and other forms of indebtedness, on June 26, 2018, related to Ordinance No. 89-15 and part of file number 150362 on file with the Clerk of the Board (related to Ordinance No. 111-16 and part of file number 160471 on file with the Clerk of the Board), on November 30, 2020, related to Ordinance No. 173-20 and part of file number 200837 on file with the Clerk of the Board, and on August 2, 2022, related to Ordinance No. 110-22 and part of file number 220500 on file with the Clerk of the Board; and WHEREAS, The projects listed in Exhibit A of the CEQA Certificates are either: (a) not considered to be projects under CEQA, (b) are projects under CEQA and a CEQA determination has already been issued, or (c) are projects under CEQA that will undergo CEQA review prior to approval; and
WHEREAS, The Commission has reviewed and considered project-specific Final Environmental Impact Reports (“FEIRs”) and Mitigated Negative Declarations (“MNDs”) and adopted CEQA Findings and Mitigation Monitoring and Reporting Programs (“MMRPs”) for the projects listed in Exhibit A of the CEQA Certificates, which are on file with the Secretary of the Commission, and finds that the FEIRs and MNDs are adequate for its use as the decision making body for the actions taken herein, and hereby reaffirms the previously adopted CEQA Findings, including the Statements of Overriding Considerations and the MMRPs and incorporates the same herein as part of this Resolution by this reference thereto; and WHEREAS, Some projects listed in Exhibit A of the CEQA Certificates have not yet been approved, and this Resolution does not constitute project approval or approval of expenditure of 2023 Bond funds for project construction, and projects that have not yet been approved will be subject to the Commission’s review and consideration of completed environmental documentation prior to approval of the expenditure of funds for construction; and WHEREAS, Pursuant to the provisions of Chapter 31 of the San Francisco Administrative Code, any additional projects which are not listed in Exhibit A of the CEQA Certificates will comply with applicable CEQA requirements prior to project approval or any expenditure of 2023 Bond funds to finance the acquisition or construction of such projects following project approval by the Commission; and
WHEREAS, Certificates intended to meet the requirements set forth in Section 8B.124 will have been presented for review by the Board (the “Certificates”), and the Certificates will be filed with the Clerk of the Board and the Secretary of the Commission prior to the issuance of the 2023 Bonds; 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 2023 Bonds. The issuance of the 2023 Bonds in such series or subseries, on such dates, in such amounts and at such times as the Commission may determine, in an aggregate principal amount not to exceed $630,005,000 for the 2023A Bonds, $418,700,000 for the 2023B Bonds, and $178,585,000 for the 2023C Bonds, is hereby authorized and approved by the Commission pursuant to Article VIIIB of the Charter, Ordinance No. 107-14, as amended and supplemented, Ordinance No. 111-16, Ordinance No. 144-18, Ordinance No. 173-20 and Ordinance No. 110-22 (collectively, the “Ordinances”), and subject to the limitations and conditions provided herein.
The 2023A Bonds may be issued for the purpose of (a) financing or refinancing (through the retirement of commercial paper notes) various capital projects benefiting the Wastewater Enterprise (including reimbursing the Commission for certain capital costs previously paid with the proceeds of wastewater commercial paper notes or other moneys), as may be determined by the General Manager of the Commission (the “General Manager”), (b) financing capitalized interest and (c) paying costs of issuance of the 2023 Bonds.
The 2023B Bonds may be issued for the purpose of (a) financing or refinancing (through the retirement of commercial paper notes) various capital projects benefiting the Wastewater Enterprise (including reimbursing the Commission for certain capital costs previously paid with the proceeds of wastewater commercial paper notes or other moneys), as may be determined by the General Manager, (b) current refunding all or a portion of the Commission’s outstanding 2013AB Bonds, provided that such 2023B Bonds (i) satisfy the applicable requirements of the Ordinances, 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), (c) financing capitalized interest and (d) paying costs of issuance of the 2023 Bonds.
The 2023C Bonds may be issued for the purpose of (a) current refunding all or a portion of the Commission’s outstanding 2018C Bonds, provided that such 2023C Bonds (i) satisfy the applicable requirements of the Ordinances, 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 2023 Bonds.
If determined to be beneficial to the Commission, by the General Manager, with the advice of the Commission’s municipal advisors (the “Municipal Advisors”), 2023 Bond proceeds may also be applied to costs associated with (i) the provision of credit enhancement of any 2023 Bonds (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 2023 Bonds, if any.
The 2023 Bonds shall be issued in accordance with the Ordinances, this Resolution, the Indenture (as supplemented as provided herein) and the Charter (as supplemented by California Government Code Sections 53580 et seq.), including but not limited to, the provision of certifications required by Section 8B.124 to the Secretary of the Commission and the Clerk of the Board. The General Manager is hereby authorized and directed to determine the aggregate principal amount of each series or subseries of the 2023 Bonds to be issued (subject to the maximum amount and further limitations and conditions set forth herein) and to determine the title and series or subseries designation of each series or subseries of the 2023 Bonds. The 2023
Bonds may be issued as tax exempt bonds or taxable bonds, or any combination thereof. The form of the 2023 Bonds, in substantially the form set forth in the Supplemental Indenture (as defined below) and presented to this meeting, is hereby approved. The General Manager (or their designee) is hereby authorized and directed to approve and to execute the 2023 Bonds by manual or facsimile signature, and the Secretary of the Commission (or their designee) 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 2023 Bonds, subject to the limitations set forth in Section 2 hereof.
Section 2. Sale of the 2023 Bonds. The sale of the 2023 Bonds, on one or more dates, is hereby authorized and approved by the Commission pursuant to the Charter (as supplemented by California Government Code Sections 53580 et seq.), the Ordinances and this Resolution, and subject to the limitations and conditions provided herein. The sale of the 2023 Bonds through negotiated sale(s) to the underwriters of the applicable series of the 2023 Bonds, with the advice of the Municipal Advisors, provided that (i) the sale of the 2023 Bonds through negotiated process(es) is likely to enhance the ability of the Commission to timely sell the 2023 Bonds or to achieve a lower overall cost to the Commission, or both, and (ii) the applicable requirements of the Commission’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 2023 Bonds shall not exceed 12% per annum, the final maturity of the 2023A Bonds and the 2023B Bonds shall not be later than 40 years after the issue date thereof and the final maturity of the 2023C 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 forms 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 revenue bonds being refunded with the 2023 Bonds, 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 revenue bonds being refunded with the 2023 Bonds, 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; Ra te Covenant.
Section 5.01(b) of the Indenture, which sets forth the disposition of Revenues (as defined in the Indenture) applicable to the 2023 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 2023 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 2023 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 Indenture. The proposed form of the Supplemental Indenture for the 2023 Bonds (the “Supplemental Indenture”) 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 the Supplemental Indenture 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 Indenture with the minutes of this meeting. Subject to the further limitations hereof, the principal amounts, dates, maturity dates, maximum interest rate or rates, series designations, interest payment dates, forms, registration privileges, place or places of payment, terms of redemption, insurance provisions and other terms of the 2023 Bonds shall be as provided in the Supplemental Indenture.
Section 6. Preliminary Official Statement and Official Statement. The Preliminary Official Statement for the 2023 Bonds (with any supplements thereto, the “Preliminary Official Statement”), in substantially the form submitted to the Commission, is hereby 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 the Preliminary Official Statement, with such changes, additions and supplements as they may deem necessary or appropriate in the interest of the Commission, in consultation with the City Attorney, is deemed final as of its date, within the meaning 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 2023 Bonds. In connection with the sale of all or a portion of the 2023 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 the 2023 Bonds (with any supplements thereto, the “Official Statement), in substantially the form of the Preliminary Official Statement, and to cause the delivery of such Official Statement to the purchasers or underwriters of the 2023 Bonds.
Section 7. Bond Purchase Contracts. T
he proposed forms of Bond Purchase Contracts,
submitted to this Commission, are 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 one or more negotiated sales with such Underwriter or Underwriters, the 2023 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 one or more Bond Purchase Contracts 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 each such Bond Purchase Contract; provided, however, that the total
compensation to the Underwriter(s) with respect to the 2023 Bonds shall not exceed 0.20% of the par value of the 2023 Bonds to be sold pursuant to the applicable Bond Purchase Contract. The 2023 Bonds sold in such negotiated sale shall be delivered to the Underwriters upon payment of the purchase price agreed upon in the applicable Bond Purchase Contract. The Secretary of the Commission is directed to file copies of said forms of Bond Purchase Contracts with the minutes of this meeting.
Section 8. Continuing Disclosure Certificates. The proposed form of the Continuing Disclosure Certificates, submitted to this Commission, is hereby approved. The General Manager (or their designee) is hereby authorized and directed to execute Continuing Disclosure Certificates substantially in the form 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 Secretary of the Commission is directed to file a copy of said form of Continuing Disclosure Certificates with the minutes of this meeting.
Section 9. Proposition P.
Pursuant to Proposition P approved by the voters of the City in November 2002, this Resolution and the 2023 Bonds are subject to, and incorporate by reference, the Proposition P Requirements. Pursuant to the Proposition P Requirements, to the extent permitted by law, one-twentieth of one percent (0.05%) of the gross proceeds from the issuance or sale of public utility revenue bonds shall be deposited in a fund established by the Controller’s Office and appropriated by the Board at the direction of the Public Utilities Revenue Bond Oversight Committee established by Proposition P Requirements to cover the costs of said committee.
Section 10. Allocation.
The Commission will make a reimbursement allocation, which is a written allocation by the Commission that evidences the Commission’s use of proceeds of the 2023 Bonds to reimburse Preliminary Expenditures.
Section 11. General Authority. The General Manager, the Deputy General Manager and Chief Operating Officer, the 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 execute 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 Official Statement and the Preliminary Official Statement, to contract for municipal bond insurance for all or a portion of the 2023 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 2023 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 2023 Bonds as “green bonds” (if applicable), to designate any portion of the principal of the 2023 Bonds as Excluded Principal (as defined in the Indenture), 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 2023 Bonds, the financing or refinancing of the capital projects benefiting the Wastewater Enterprise, the retirement of commercial paper, the refunding of the outstanding Wastewater Enterprise revenue bonds with the proceeds of the 2023 Bonds, as applicable, and the other actions 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 12. 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 13. Ratification.
All actions heretofore taken by the officials, employees and agents of the Commission with respect to the authorization, sale and issuance of the 2023 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 March 28, 2023.
Secretary, Public Utilities Commission
OH&S DRAFT – Distributed 03/03/23
PRELIMINARY OFFICIAL STATEMENT DATED MARCH __, 2023
NEW ISSUE – Book-Entry Only Ratings:
S&P: “__”
Moody’s: “__”
See “RATINGS.”
In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, and Alexis S. M. Chiu, Esq., San Francisco, California, Co-Bond Counsel, subject, however to certain qualifications described herein, under existing law, the interest on the 2023ABC Bonds is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the fede ral individual alternative minimum tax. Interest on the 2023ABC Bonds may be subject to the corporate alternative minimum tax. In the further opinion of Co-Bond Counsel, such interest is exempt from California personal income taxes. See “TAX MATTERS.”
$___________*
Public Utilities Commission of the
City and County of San Francisco
Wastewater Revenue Bonds
$__________*
2023 Series A
(SSIP) (Green Bonds)
$__________*
2023 Series B
(Non-SSIP)
$__________*
2023 Series C
(Refunding – SSIP) (Green Bonds)
Dated: Date of Delivery Due: As shown on inside front cover This cover page contains certain information for quick reference only. It is not intended to be a summary of the security or terms of this issue. Investors are instructed to read the entire Official Statement, including the appendices hereto, to obtain information essential to making an informed investment decision.
General. This Official Statement provides information regarding the Public Utilities Commission of the City and County of San Francisco Wastewater Revenue Bonds, 2023 Series A (SSIP) (Green Bonds) (the “2023A Bonds”), the Public Utilities Commission of the City and County of San Francisco Wastewater Revenue Bonds, 2023 Series B (Non-SSIP) (the “2023B Bonds” and, together with the 2023A Bonds, the “2023AB Bonds”), and the Public Utilities Commission of the City and County of San Francisco Wastewater Revenue Bonds, 2023 Series C (Refunding – SSIP) (Green Bonds) (the “ 2023C Bonds” and, together with the 2023A B Bonds, the “2023ABC Bonds”). 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 2023ABC 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 2023ABC Bonds will be issued under a Fifteenth Supplemental Indenture, dated as of April 1, 2023 (the “Fifteenth Supplemental Indenture ”), by and between the SFPUC and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). The Fifteenth Supplemental Indenture supplements the Indenture, dated as of January 1, 2003 (the “Original Indenture,” and as amended and supplemented, including as supplemented by the Fifteenth Supplemental Indenture, the “Indenture”), by and between the SFPUC and the Trustee. 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 2023ABC Bonds and the hereinafter defined Parity Loans as the context requires, are referred to collectively in this Official Statement as the “Bonds.” Purpose. The 2023A Bonds are being issued to (i) refund approximately $___* million aggregate principal amount of Commercial Paper Notes issued to finance certain capital projects benefiting the Wastewater Enterprise from the SFPUC’s Sewer System Improvement Program (the “SSIP”), (ii) finance certain capital projects benefiting the Wastewater Enterprise from the SSIP, (iii) fund capitalized interest with respect to the 2023A Bonds through October 1, 2025*, and (iv) pay the costs of issuance of the 2023A Bonds. The 2023B Bonds are being issued to (i) refund all or a portion of certain outstanding wastewater revenue bonds of the SFPUC, (ii) refund approximately $___ * million aggregate principal amount of Commercial Paper Notes issued to finance certain capital projects benefiting the Wastewater Enterprise, (iii) finance certain capit al projects benefiting the Wastewater Enterprise, (iv ) fund capitalized interest with respect to a portion of the 2023B Bonds through October 1, 2025*, and (v) pay the costs of issuance of the 2023B Bonds. The 2023C Bonds are being issued to (i) refund all or a portion of certain outstanding wastewater revenue bonds of the SFPUC, and (ii) pay the costs of issuance of the 2023C Bonds. See “PLAN OF FINANCE,” “ESTIMATED SOURCES AND USES OF FUNDS” and “GREEN BONDS DESIGNATION AND CLIMATE CERTIFICATION.”
* 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.
Denominations and Interest. The 2023ABC 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 their date of delivery. Interest on the 2023ABC Bonds is payable semiannually on April 1 and October 1 of each year, commencing on October 1, 2023. See “THE 2023ABC BONDS.” Book-Entry Only. The 2023ABC Bonds will be issued as fully registered bonds, registered in the name of Cede & Co., as nominee of The Depository Trust Company (“DTC”), New York, New York, 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 2023ABC Bonds. The principal of, premium, if any, and interest on the 2023ABC Bonds are payable to DTC by the Trustee, and, so long as DTC is acting as securities depository for the 2023ABC 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 2023ABC BONDS.” Redemption. The 2023ABC Bonds are subject to redemption prior to maturity as described herein. See “THE 2023ABC 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 2023ABC 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 for the 2023ABC 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 City or of the SFPUC or any of its income or receipts, except Net Revenues. See “SECURITY FOR THE BONDS.” The 2023ABC Bonds are offered when, as and if issued by the SFPUC and received by the Underwriters, subject to the approval of validity by Jones Hall, A Professional Law Corporation, San Francisco, California, and Alexis S. M. Chiu, Esq., San Francisco, 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, San Francisco, California , Co-Municipal Advisors to the SFPUC, assisted in the structuring of this financing. Certain matters will be passed upon for the underwriters by Hawkins Delafield & Wood LLP, Los Angeles, California. It is expected that the 2023ABC Bonds in fully registered form will be available for delivery in book-entry form through the facilities of DTC on or about __________, 2023.
BofA Securities Goldman Sachs & Co. LLC Goldman Sachs & Co. LLC BofA Securities Citigroup J.P. Morgan
Siebert Williams Shank & Co., LLC TD Securities
Underwriters for the 2023A Bonds and the 2023B Bonds Underwriters for the 2023C Bonds
The date of this Official Statement is __________, 2023.
MATURITY SCHEDULES*
Wastewater Revenue Bonds
2023 Series A (SSIP) (Green Bonds)
$__________ Serial Bonds
Maturity
(October 1)
Principal
Amount Interest Rate Price† Yield†
CUSIP‡
Base Number
79771F
$__________ _____% Term Bonds due October 1, 20__ Price† _____ Yield† _____ CUSIP‡ 79771F___
Wastewater Revenue Bonds
2023 Series B (Non-SSIP)
$__________ Serial Bonds
Maturity
(October 1)
Principal
Amount Interest Rate Price† Yield†
CUSIP‡
Base Number
79771F
$__________ _____% Term Bonds due October 1, 20__ Price† _____ Yield† _____ CUSIP‡ 79771F___
* 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 data herein is provided by CUSIP Global Services, 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 CUSIP Global Services data base. Neither the SFPUC nor the Underwriters assume any responsibility for the accuracy of the CUSIP data.
Wastewater Revenue Bonds
2023 Series C (Refunding – SSIP) (Green Bonds)
$__________ Mandatory Put Bonds
Maturity
(October 1)
Principal
Amount
Initial
Mandatory
Tender Date
(October 1)
Initial Term
Rate Price*
CUSIP†
Base Number
79771F
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 in Figure 1- 1 shows the location of key facilities (as described below) and the urban watershed boundaries which encompass the major drainage areas of San Francisco.
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; 31 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 wh ether 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 North 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
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 2023ABC 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 2023ABC 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 Offi cial 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 inclusi on 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 and 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 2023ABC Bonds.
The issuance and sale of the 2023ABC Bonds 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.
This Official Statement is delivered for use in connection with the issuance, sale and delivery of the 2023ABC 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 MATERIA LLY FROM THE FORECASTS DESCRIBED HEREIN . IN THIS RESPECT, THE WORDS “ESTIMATE,” “PROJECT,” “ANTICIPATE,” “EXPECT,” “ INTEND,” “BELIEVE” AND SIMILAR EXPRESSIONS 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
SAN FRANCISCO PUBLIC UTILITIES COMMISSION
Newsha Ajami, President
Sophie Maxwell, Vice President
Tim Paulson, Commissioner
Anthony Rivera, Commissioner
Kate H. Stacy, Commissioner
PUBLIC UTILITIES COMMISSION OFFICIALS
Dennis J. Herrera, General Manager
Ronald P. Flynn, Deputy General Manager and Chief Operating Officer Nancy L. Hom, Assistant General Manager, Business Services and Chief Financial 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 Stephen Robinson, Assistant General Manager, Infrastructure Division Steven R. Ritchie, Assistant General Manager, Water Enterprise
CITY AND COUNTY OF SAN FRANCISCO
MAYOR
London Breed
BOARD OF SUPERVISORS
Aaron Peskin, Board President, District 3
Connie Chan, District 1 Dean Preston, District 5
Matt Dorsey, District 6 Hillary Ronen, District 9
Joel Engardio, District 4 Ahsha Safaí, District 11
Rafael Mandelman, District 8 Catherine Stefani, District 2 Myrna Melgar, District 7 Shaman Walton, District 10
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
Jones Hall, A Professional Law Corporation
San Francisco, California
Montague DeRose and Associates, LLC
Walnut Creek, California
Alexis S. M. Chiu, Esq.
San Francisco, 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
iv
INTRODUCTION .............................................................. 1 General ........................................................................... 1 Authority for Issuance .................................................... 1 Purpose .......................................................................... 2 The SFPUC and the Wastewater Enterprise ................... 2 Security for the 2023ABC Bonds ................................... 2 No Reserve Account for 2023ABC Bonds ..................... 3 Outstanding and Future Parity Bonds and Other
Indebtedness .............................................................. 3 Risk Factors ................................................................... 4 Continuing Disclosure .................................................... 4 Other Matters ................................................................. 4 THE 2023AB BONDS ........................................................ 4 General ........................................................................... 4 Securities Depository and Book-Entry System .............. 4 Redemption .................................................................... 5 Defeasance ..................................................................... 7 THE 2023C BONDS .......................................................... 7 General ........................................................................... 7 Securities Depository and Book-Entry System .............. 7 Redemption of 2023C Bonds During Initial Term
Rate Period ................................................................ 7 Mandatory Tender of 2023C Bonds ............................... 9 Defeasance ..................................................................... 9 PLAN OF FINANCE.......................................................... 9 General ........................................................................... 9 Refunded Bonds* ......................................................... 10 Escrow Funds ............................................................... 11 ESTIMATED SOURCES AND USES OF FUNDS ......... 12
GREEN BONDS DESIGNATION AND CLIMATE
CERTIFICATION ................................................. 13 United Nations Sustainable Development Goals .......... 14 Use of Proceeds ............................................................ 14 Management of Proceeds ............................................. 15 Green Bond Reporting ................................................. 15 SECURITY FOR THE BONDS ....................................... 16 Pledge of Net Revenues ............................................... 16 Flow of Funds .............................................................. 17 Rate Covenants ............................................................ 18 No Reserve Account for 2023ABC Bonds ................... 20 Additional Series of Bonds .......................................... 20 Additional Parity Loans ............................................... 22 Refunding Bonds ......................................................... 22 Subordinate Obligations; Obligations Not Payable
from Revenues ........................................................ 23 Investments .................................................................. 23 OBLIGATIONS PAYABLE FROM NET REVENUES .. 24
Authority for Issuance of Revenue Bonds and Other
Obligations Payable from Net Revenues ................. 24 Outstanding Parity Revenue Bonds .............................. 24 Additional Bonds ......................................................... 25 Parity Loans ................................................................. 25 Water Infrastructure Finance and Innovation Act
Loans ...................................................................... 27 Contingent Payment Obligations ................................. 29 Subordinate Debt and Interim Funding Program ......... 29 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 and Other Recent
Developments in the Local Economy ..................... 39 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 ................ 48 Wastewater Treatment ................................................. 50 System Capacity .......................................................... 52 Current System Demands ............................................ 53 Projected Future Demand ............................................ 53
WASTEWATER ENTERPRISE CAPITAL
PROGRAM ........................................................... 54 Capital and Financial Planning Process ....................... 54 Sewer System Improvement Program ......................... 54 Renewal and Replacement ........................................... 54 Treasure Island Capital Improvements ........................ 55 Wastewater Facilities and Infrastructure ..................... 55 Environmental Planning Considerations ...................... 56 Other Projects .............................................................. 57 SEWER SYSTEM IMPROVEMENT PROGRAM ......... 58
FINANCING PLAN FOR WASTEWATER
ENTERPRISE CAPITAL PROGRAM ................. 63
Long Term Financing of Capital Program ................... 63 Interim Funding Program Facilities ............................. 63 Sources and Uses of Funding the Capital Program ...... 64 FINANCIAL OPERATIONS ........................................... 65 General ........................................................................ 65 Wastewater Enterprise Rates and Charges .................. 66 Revenues ..................................................................... 71 Operating and Maintenance Expenses ......................... 73 Financial Management Policies ................................... 74 Investment of SFPUC Funds ....................................... 75 Risk Management and Insurance ................................. 76 HISTORICAL OPERATING RESULTS......................... 77 Summary of Historical Operating Results and Debt
Service Coverage .................................................... 77 PROJECTED OPERATING RESULTS .......................... 79 Assumptions Used in Projections ................................ 81 RISK FACTORS .............................................................. 82 General ........................................................................ 82 Limited Obligation ...................................................... 82 No Reserve Account .................................................... 82 Payment of the 2023C Bonds on the Initial
Mandatory Tender Date .......................................... 82 Access to Capital Markets ........................................... 83 Interim Funding Program Facilities ............................. 83 Risks Related to Net Revenues .................................... 84 Limitations on Rate-Setting ......................................... 84 TABLE OF CONTENTS (Continued)
Page Page
v
Initiative, Referendum and Charter Amendments
and Future Legislation ............................................ 84 Risks Related to Wastewater Enterprise Facilities
and Operation .......................................................... 84 Cybersecurity ............................................................... 86 Cost of SSIP Projects; Timely Completion of SSIP
Projects ................................................................... 87 Construction Related Risks .......................................... 88 Climate Change, Risk of Sea Level Rise and
Flooding Damage .................................................... 89 Pandemics; COVID-19 Pandemic ................................ 91 Green Bonds ................................................................ 92 Inverse Condemnation ................................................. 92 Economic, Political, Social and Environmental
Conditions ............................................................... 92 Bankruptcy ................................................................... 93 Limitations on Remedies.............................................. 94 Loss of Tax Exemption/Risk of Tax Audit of
Municipal Issuers .................................................... 94 Change in Tax Law ...................................................... 94 Failure to Maintain Credit Ratings ............................... 94 Secondary Market ........................................................ 94 Uncertainties of Projections, Forecasts and
Assumptions ............................................................ 95 Other Risks .................................................................. 95 REGULATORY MATTERS ............................................ 95 History and Background .............................................. 95 Federal and State Clean Water Act Permits ................. 95 Combined Sewer Overflow Control Policy ................. 96 Stormwater Regulations .............................................. 96 Regulatory Trends ....................................................... 97 Other Regulatory Agencies with Jurisdiction Over
the Wastewater Enterprise ...................................... 98 Other Laws Affecting the Wastewater Enterprise ....... 99
CONSTITUTIONAL, STATUTORY AND CHARTER
LIMITATIONS ..................................................... 99 State Law Limitations .................................................. 99 Initiative and Referendum ......................................... 101 Charter Limitations .................................................... 101 Future Charter Amendments...................................... 101 LITIGATION ................................................................. 102 TAX MATTERS ............................................................ 102 CERTAIN LEGAL MATTERS ..................................... 103 RATINGS ...................................................................... 104 UNDERWRITING ......................................................... 104 2023A Bonds and 2023B Bonds ................................ 104 2023C Bonds ............................................................. 105 FINANCIAL STATEMENTS ....................................... 106 CONTINUING DISCLOSURE ..................................... 106
VERIFICATION OF MATHEMATICAL
ACCURACY ...................................................... 107 CO-MUNICIPAL ADVISORS ...................................... 107 MISCELLANEOUS....................................................... 107 APPROVAL AND EXECUTION ................................. 108
APP
ENDIX A — SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE APPENDIX B — SFPUC WASTEWATER ENTERPRISE FINANCIAL STATEMENTS APPENDIX C — PROPOSED FORMS OF OPINIONS OF CO-BOND COUNSEL APPENDIX D — FORM OF CONTINUING DISCLOSURE CERTIFICATE
APPENDIX E — SECURITIES DEPOSITORY AND THE BOOK-ENTRY SYSTEM
1 OFFICIAL STATEMENT
$__________*
Public Utilities Commission of the
City and County of San Francisco
Wastewater Revenue Bonds
$__________*
2023 Series A
(SSIP) (Green Bonds)
$__________*
2023 Series B
(Non-SSIP)
$__________*
2023 Series C
(Refunding – SSIP)
(Green Bonds)
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 2023ABC 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 R evenue Bonds, 2023 Series A (SSIP) (Green Bond s) (the “ 2023A Bonds”), Wastewater Revenue Bonds, 2023 Series B (Non-SSIP) (the “2023B Bonds” and, together with the 2023A Bonds, the “2023AB Bonds”), and Wastewater Revenue Bonds, 2023 Series C (Refunding – SSIP) (Green Bonds) (the “2023C Bonds” and, together with the 2023AB Bonds, the “ 2023ABC Bonds”). All bonds, notes and other obligations of the SFPUC issued and outstanding at any given time under the hereinafter defined Indenture, including the 2023ABC Bonds and the hereinafter defined Parity Loans as the context requires, are referred to collectively in this Official Statement as the “Bonds.”
The SFPUC anticipates that it will sell and issue the 2023AB Bonds and the 2023C Bonds on the same date; however, the sale and issuance of the 2023AB Bonds is not contingent upon the sale and issuance of the 2023C Bonds, and the sale and issuance of the 2023C Bonds is not contingent upon the sale and issuance of the 2023AB Bonds. The size, timing and str ucture of the anticipated transactions remain subject to market conditions and the SFPUC reserves the right to change, modify or cancel its plans as it deems appropriate.
Authority for Issuance
The SFPUC is issuing the 2023ABC 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 2023ABC Bonds will be issued under a Fifteenth Supplemental Indenture, dated as of April 1, 2023 (the “Fifteenth Supplemental Indenture ”), by and between the SFPUC and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). The Fifteenth Supplemental Indenture supplements the Indenture, dated as of January 1, 2003, by and between the SFPUC and the Trustee , as successor trustee (the “Original Indenture”) (as amended and supplemented, including as supplemented by the Fifteenth Supplemental Indenture, the “Indenture”).
The 2023ABC Bond s 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 Ordinance No. 110-22, adopted by
* Preliminary, subject to change.
2 the Board of Supervisors on June 14, 2022, and under a resolution adopted by the SFPUC governing body (the “Commission”) on [March 28], 2023.
See “OBLIGATIONS PAYABLE FROM NET REVENUES – Authority for Issuance of Revenue Bonds and Other Obligations Payable from Net Revenues.”
Purpose
The 2023A Bonds are being issued to (i) refund approximately $___* million aggregate principal amount of Commercial Paper Notes issued to finance certain capital projects benefiting the Wastewater Enterprise from the SSIP, (ii) finance certain capital projects benefiting the Wastewater Enterprise from the SSIP, (iii) fund capitalized interest with respect to the 2023A Bonds through October 1, 2025*, and (iv) pay the costs of issuance of the 2023A Bonds.
The 2023B Bonds are being issued to (i) refund all or a portion of certain outs tanding wastewater revenue bonds of the SFPUC, (ii) refund approximately $___* million aggregate principal amount of Commercial Paper Notes issued to finance certain capital projects benefiting the Wastewater Enterprise, (iii) finance certain capital proje cts benefiting the Wastewater Enterprise, ( iv) fund capitalized interest with respect to a portion of the 2023B Bonds through October 1, 2025*, and (iv) pay the costs of issuance of the 2023B Bonds.
The 2023C Bonds are being issued to (i) refund all or a portion of certain outstanding wastewater revenue bonds of the SFPUC, and (ii) pay the costs of issuance of the 2023C Bonds.
See “PLAN OF FINANCE,” “ESTIMATED SOURCES AND USES OF FUNDS” and “GREEN BONDS DESIGNATION AND CLIMATE CERTIFICATION.”
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 enterprises are not available for, and do not secure, payment of the principal of, premium, if any, or interest on the Bonds, including the 2023ABC Bonds.
Security for the 2023ABC 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 2023ABC Bonds and the outstanding bonds described below, subject to the flow of funds contained in the Indenture. The 2023ABC 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 2023ABC 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.
3 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 t o 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 City or of the SFPUC or any of its income or receipts, except Net Revenues. See “SECURITY FOR THE BONDS.” No Reserve Account for 2023ABC Bonds
No Reserve Account will be established for the 2023ABC Bonds.
Outstanding and Future Parity Bonds and Other Indebtedness Parity Bonds. The SFPUC has previously issued 13 series of outstanding Bonds, which were outstanding in the aggregate principal amount of $ 2,040,470,000 as of March 1 , 2023. 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 2023ABC 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.
The SFPUC has also applied for three additional SRF Loans (as defined herein). 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 eligible costs 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 eligible costs of the Southeast Treatment Plant Improvements Project plus certain eligible expenses. The WIFIA Bond s 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, the SFPUC has made one draw on the BDFP WIFIA Loan and the principal amount of the BDFP Bond is $_____. The SFPUC anticipates making a draw on the STPI WIFIA Loan in the amount of up to approximately $_____ by June 2023. The SFPUC has also applied for an additional WIFIA loan to finance certain Wastewater Enterprise capital improvement projects. See “OBLIGATIONS PAYBLE FROM NET REVENUES – Water Infrastructure Finance and Innovation Act Loans” and “APPENDIX A – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE.”
4 Risk Factors
Investment in the 2023ABC Bonds is subject to certain risks that should be considered, in addition to other matters set forth in this Official Statement, in evaluating an investment in the 2023ABC Bonds. For a general overview of certain risk factors, see “RISK FACTORS.”
Continuing Disclosure
The SFPUC has covenanted for the benefit of the Owners and Beneficial Owners of the 2023ABC 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, 2024, with the report for Fiscal Year 2022-23, 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 2023ABC Bonds, the security and sources of payment for the 2023ABC 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 2023AB BONDS
General
The 2023AB Bonds will be dated as of their date of delivery and will accrue interest from the ir date at the rates per annum set forth on the inside cover page of this Official Statement. Interest on the 2023AB Bonds will be calculated based on a 360-day year composed of twelve 30-day months. Interest on the 2023AB Bonds is payable on April 1 and October 1 each year, commencing October 1, 2023. The 2023AB Bonds will mature on the dates and in the principal amounts set forth on the inside cover page of this Official Statement. The 2023AB 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 2023AB Bonds is the 15th day of the month immediately preceding an interest payment date, whether such day is a Business Day.
Securities Depository and Book-Entry System
The 2023AB 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 2023AB Bonds. So long as DTC, or its nominee, Cede & Co., is the Owner of the 2023AB Bonds, all payments on the 2023AB Bonds will be made directly to DTC. Disbursement of such payments to the DTC Participants wi ll be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners of the 2023AB Bonds will be the responsibility of the DTC Participants. See “APPENDIX E – SECURITIES DEPOSITORY AND THE BOOK-ENTRY SYSTEM.”
5 Redemption*
Redemption of 20 23A Bonds
Optional Redemption of 2023A Bonds. The 2023A 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 __________ 1, 20__, at a redemption price equal to 100% of the principal amount of the 2023A Bonds to be redeemed, plus accrued interest thereon to the date fixed for redemption, without premium. See “Selection of 2023AB Bonds for Redemption.”
Mandatory Sinking Fund Redemption of 2023A Bonds. The 2023A Bonds maturing on October 1, 20__ (the “2023A Term Bond s”), are further subject to redemption prior to their stated maturity , and payable from the 2023 Series A Sinking Fund Account, on each October 1 on and after October 1, 20__, by lot within any such maturity if less than all of the 2023A 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 (such schedule subject to adjustment as directed by the SFPUC in the event of optional redemption of any portion of such 2023A Term Bonds prior to maturity as described above):
Redemption Date
(October 1) Principal Amount
____________________
*Maturity.
Redemption of 2023B Bonds
Optional Redemption of 2023B Bonds . The 2023B 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 __________ 1, 20__, at a redemption price equal to 1 00% of the principal amount of the 2023B Bonds to be redeemed, plus accrued interest thereon to the date fixed for redemption, without premium. See “Selection of 2023AB Bonds for Redemption.”
Mandatory Sinking Fund Redemption of 2023B Bonds . The 2023B Bonds maturing on October 1, 20__ (the “2023B Term Bonds”), are further subject to redemption prior to their stated maturity, and payable from the 2023 Series B Sinking Fund Account, on each October 1 on and after October 1, 20__, by lot within any such maturity if less than all of the 2023 B 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 (s uch schedule subject to adjustment as directed by the SFPUC in the event of optional redemption of any portion of such 2023B Term Bonds prior to maturity as described above):
* Preliminary, subject to change.
6 Redemption Date
(October 1) Principal Amount
____________________
*Maturity.
General
Purchase In Lieu of Mandatory Sinking Fund Redemption. In lieu of mandatory sinking fund redemption of the 2023AB Bonds as described above, the SFPUC may satisfy, in whole or in part, the related minimum Sinking Fund Account payment amounts and redemption of 2023AB Term Bonds of the respective Series by depositing with the Trustee 2023AB Term Bond s of the respective Series for cancellation prior to the Trustee’s selection of the 2023AB Term Bonds of such Series for redemption, or may request the Trustee to purchase 2023AB 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 2023AB 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 2023AB Bonds required to be redeemed as described above on the next succeeding October 1.
Selection of 2023AB Bonds for Redemption. If 2023AB 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 2023AB Bonds of a particular maturity are to be redeemed, the 2023AB Bonds shall be redeemed by lot within any such maturity.
Whenever less than all of the 2023AB Bonds of any one tenor and maturity are called for redemption and those 2023AB Bonds are redeemable by lot, the Trustee will select the 2023AB Bonds of the tenor and maturity to be redeemed from the Outstanding 2023AB Bonds of that tenor and maturity, by lot or by any other manner the Trustee deems fair and equitable. For purposes of such selection, 2023AB Bonds will be deemed to be made up of $5,000 portions of principal, any of which may be redeemed separately.
Notice of Redemption for 2023AB 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 2023AB 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 2023AB 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 2023AB Bonds. The SFPUC may, at its option, prior to the date fixed for redemption in any notice of redemption of 2023AB 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 2023AB 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 2023AB 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 2023AB Bonds so called for redemption will cease to accrue, those 2023AB Bonds will cease to be entitled to any benefit or security under the Indenture, and the Owners of those 2023AB 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 2023AB Bonds, pay such 2023AB Bonds at the redemption price, together with accrued interest thereon. All 2023AB Bonds redeemed will be cancelled upon surrender and no 2023AB Bonds will be issued in place thereof.
7 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 2023AB Bonds will be fully discharged and satisfied and will no longer be deemed outstanding thereunder if certain conditions set forth i n the Indenture are satisfied . See “APPENDIX A – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE—DEFEASANCE.” THE 2023C BONDS
This section describes certain terms of the 2023C Bonds during the Initial Term Rate Period (as defined herein) only. For a complete description of the 2023C Bonds following the Initial Term Rate Period, see “APPENDIX A—SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE.”
General
The 2023C Bonds will be dated as of their date of delivery and will accrue interest from their date of delivery.
Interest on the 2023C Bonds will be calculated on the basis of a 360 -day year composed of twelve 30 -day months.
Interest on the 2023C Bonds will bear interest to October 1, 20__ (the “Initial Term Rate Period ”) at the rate set forth on the inside front cover for the 2023C Bonds (the “ Initial Term Rate ”). The 2023C Bonds are subject to mandatory tender for purchase during the Initial Term Rate Period on __________ , 20__ (the “Initial Mandatory Tender Date”) (see also “—Mandatory Tender of 2023C Bonds”). If insufficient funds are available for the purchase of all 2023C Bonds that are required to be tendered for remarketing on the Initial Mandatory Tender Date, then the 2023C Bonds will bear interest at ___% per annum for the first 79 days following and including the Initial Mandatory Tender Date (also referred to in the Indenture as a “Failed Tender Date”), and thereafter at __ _% per annum until such 2023C Bonds are redeemed or remarketed in accordance with the Indenture.
Interest on the 2023C Bonds i s payable on April 1 and October 1 of each year, beginning October 1, 2023.
The 2023C Bonds will mature on the dates and in the principal amounts set forth on the inside cover page of this Official Statement. The 2023C 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 2023C Bonds is the 15th day of the month immediately preceding an interest payment date, whether or not such day is a Business Day.
Securities Depository and Book-Entry System
The 2023C Bonds will be issued in fully registered form, registered in the name of Cede & Co., as nominee for DTC, New York, New York, as the Owner of the 2023C Bonds. So long as DTC, or its nominee, Cede & Co., is the Owner of the 2023C Bonds, all payments on the 2023C 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 2023C Bonds will be the responsibility of the DTC Participants. See “ APPENDIX E – SECURITIES DEPOSITORY AND THE BOOK-ENTRY SYSTEM.”
Redemption of 2023C Bonds During Initial Term Rate Period Optional Redemption During Initial Term Rate Period – 2023C Bonds. The 2023C Bonds are subject to redemption at the option of the SFPUC during the initial Term Rate Period in whole or in part on any date on or after __________, 20__ at a redemption price equal to the principal amount of the 2023C Bonds, or portions thereof, to be redeemed plus accrued but unpaid interest to the date fixed for redemption.
Mandatory Sinking Fund Redemption – 2023C Bonds. The 2023C Bonds maturing on October 1, 20__, and payable from the 2023C Bonds Sinking Fund Account, are further subject to redemption prior to their stated maturity, from the 2023C Bonds Sinking Fund Account, on any October 1 on or after October 1, 20__, by lot within
8 any such maturity if less than all of the 2023C Bonds of such maturity and tenor be redeemed, upon payment of the principal amount thereof and accrued interest thereon to the date fixed for redemption, without premium.
The Trustee, on or before September 30 of each year (commencing on or before September 30, ___ _), will deposit in the 2023C Bonds Sinking Fund Account from the Principal Fund moneys in an amount sufficient to call and redeem or to pay at maturity, as the case may be, the principal of 2023C Term Bonds in the following respective principal amounts on the next succeeding October 1 in each of the following years. 2023C Term Bonds maturing on October 1, 20__
Redemption Date
(October 1) Principal Amount
____________________
*Maturity.
Selection of 2023C Bonds for Redemption. Subject to DTC’s procedures relating to the selection of bonds for redemption (see “ APPENDIX E – SECURITIES DEPOSITORY AND THE BOOK -ENTRY SYSTEM ”), whenever less than all of the 2023C Bond of any one maturity and tenor of any Series are called for redempti on and such 2023C Bonds are redeemable by lot, the Trustee will select the 2023C Bonds of such maturity and tenor to be redeemed from the Outstanding 2023C Bonds of such maturity and tenor, by lot or by any other manner in which the Trustee deems fair and equitable. For purposes of such selection, 2023C Bonds will be deemed to be composed of $5,000 portions of principal and any such portion may be redeemed separately.
Notice of Redemption for 2023C 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 2023C Bond 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 2023C 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 2023C Bonds. The SFPUC may, at its option, prior to the date fixed for redemption in any notice of redemption 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 2023C 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 2023C 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 2023C Bonds so called for redemption will cease to accrue, said 2023C Bonds will cease to be entitled to any benefit or security under the Indenture, and the Owners of said 2023C Bonds will have no rights in respect thereof except to receive payment of the redemption price thereof.
The Trustee, upon surrender for payment of any of said 2023C Bonds, will pay such 2023C Bonds at the redemption price, together with accrued interest thereon. All 2023C Bonds redeemed will be cancelled upon surrender and no 2023C Bonds will be issued in place thereof.
9 Mandatory Tender of 2023C Bonds
The 2023C Bonds are subject to mandatory tender for purchase during the Initial Term Rate Period on the Initial Mandatory Tender Date at an amount equal to the principal amount of the 2023C Bonds to be purchased plus accrued interest to the date on which such 2023C Bonds are required to be tendered (the “Purchase Price”).
Pursuant to the Fifteenth Supplemental Indenture, the Trustee shall give notice by mail to the Owners of the 2023C Bonds not less than 30 days prior to the Initial Mandatory Tender Date that (i) such 2023C Bonds are subject to mandatory tender for purchase on the Initial Mandatory Tender Date at the Purchase Price and (ii) if an amount of money sufficient and available to pay the Purchase Price of all of the 2023C Bonds is on deposit with the Trustee on the Initial Mand atory Tender Date, all of such 2023C Bonds will be deemed to have been properly tendered for purchase and will cease to bear interest. Receipt of such notice by any Owner of such 2023C Bonds is not a condition precedent to the mandatory tender for purchase of the 2023C Bonds on the Initial Mandatory Tender Date, and failure to receive any such notice or any defect in such notice will not affect the validity of the proceedings for the mandatory tender for purchase of such 2023C Bonds.
No assurance can be given that the SFPUC will have sufficient funds on hand on the Initial Mandatory Tender Date for the 2023C Bonds to pay the Purchase Price of the 2023C Bonds on such date. Failure by the SFPUC to pay the Purchase Price of the 2023C Bonds on the Initial Mandat ory Tender Date would not constitute an Event of Default under the Indenture but would increase the amount of interest payable by the SFPUC on the 2023C Bonds. See “RISK FACTORS —Payment of the 2023C Bonds on the Initial Mandatory Tender Date.”
Defeasance
The obligations of the SFPUC and the pledge, lien, covenants and agreements of the SFPUC made or provided for in the Indenture will be fully discharged and satisfied as to any 2023C Bond and such 2023C Bond will no longer be deemed outstanding thereunder i f certain conditions set forth in the Indenture are satisfied. See “APPENDIX A
—SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE—DEFEASANCE.” PLAN OF FINANCE*
General
The 2023A Bonds are being issued to (i) refund approximately $___* million aggregate principal amount of Commercial Paper Notes issued to finance certain capital projects benefiting the Wastewater Enterprise from the SSIP, (ii) finance certain capital projects benefiting the Wastewater Enterprise from the SSIP, (iii) fund capitalized interest with respect to the 2023A Bonds through October 1, 2025 *, and (iv) pay the costs of issuance of the 2023A Bonds.
The Commercial Paper Notes to be refunded with the proceeds of the 2023A Bonds will be paid within 90 days of the issuance of the 2023A Bonds.
The 2023B Bonds are being issued 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 (collectively, the “2013AB Bonds”) (such refunded portions are referred to herein as the “Refunded 2013A Bonds” and “ Refunded 2013B Bonds ,” respectively, and together the “ Refunded 2013AB Bonds ”), (ii) refund approximately $___* million aggregate principal amount of Commercial Paper Notes issued to finance certain capital projects benefiting the Wastewater Enterprise, (iii) finance certain capital projects benefiting the Wastewater Enterprise, (iv) fund capitalized interest with respect to a portion of the 2023B Bonds through October 1, 2025*, and (iv) pay the costs of issuance of the 2023B Bonds. The Commercial Paper Notes to be refunded with the proceeds of the 2023B Bonds will be paid within 90 days of the issuance of the 2023B Bonds.
The 2023C Bonds are being issued 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, 2018 Series C (Green Bonds) (the
* Preliminary, subject to change.
10 “2018C Bonds”) (such refunded portion is referred to herein as the “Refunded 2018C Bonds” and together with the Refunded 2013AB Bonds, the “Refunded Bonds”), and (ii) pay the costs of issuance of the 2023C Bonds.
See “ESTIMATED SOURCES AND USES OF FUNDS,” “GREEN BONDS DESIGNATION AND CLIMATE CERTIFICATION,” “WASTEWATER ENTERPRISE CAPITAL PROGRAM” and “SEWER SYSTEM IMPROVEMENT PROGRAM.”
Refunded Bonds*
The following tables detail the Bonds which may be refunded with proceeds of the 2023B Bonds and the 2023C Bonds, as described under “ – General.” The Refunded Bonds will only be determined by the SFPUC at the time that the SFPUC and the Underwriters for the 2023B Bonds and the Underwriters for the 2023C Bonds execute bond purchase contracts for the 2023B Bonds and the 2023C Bonds, respectively. Until such time, the series, maturity dates and principal amounts of the Refunded Bonds remain subject to change by the SFPUC in its sole discretion.
Public Utilities Commission of the City and County of San Francisco Wastewater Revenue Bonds, 2013 Series A
Maturity
Outstanding
Principal
Amount
Interest
Rate
CUSIP
(Base No.
79768H)
Principal
Amount to be
Refunded
Redemption
Date
October 1, 2023 $ 575,000 5.00% BD9 $ 575,000 April 21, 2023 Total: $ 575,000 $ 575,000
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
Redemption
Date
October 1, 2035 $16,695,000 4.00% CD8 $16,695,000 April 21, 2023 October 1, 2036 17,375,000 4.00% CE6 17,375,000 April 21, 2023 October 1, 2039 56,500,000 4.00% CF3 56,500,000 April 21, 2023 October 1, 2042 93,095,000 4.00% CG1 93,095,000 April 21, 2023 Total: $183,665,000 $183,665,000
Public Utilities Commission of the City and County of San Francisco Wastewater Revenue Bonds, 2018 C Bonds
Maturity
Outstanding
Principal
Amount
Initial
Term
Rate
CUSIP
(Base No.
79768H)
Principal
Amount to be
Refunded
Initial Mandatory
Tender Date Redemption Date
October 1, 2048 $179,145,000 2.125% DZ8 $179,145,000 October 1, 2023 July 18, 2023 Total: $179,145,000 $179,145,000
11 Escrow Funds
The Refunded 2013A Bonds were issued pursuant to, and will be refunded in accordance with, the terms of the Original Indenture , as supplemented by the Second Supplemental Indenture, dated as of January 1, 2013 (the “Second Supplemental Indenture”), by and between the SFPUC and the Trustee. The Refunded 2013B Bonds were issued pursuant to, and will be refunded in accordance with, the terms of the Original Indenture, as supplemented by the Third Supplemental Indenture, dated as of February 1, 2013 (the “ Third Supplemental Indenture ”), by and between the SFPUC and the Trustee. A portion of the proceeds of the 2023B Bonds (the “2013AB Escrow Proceeds”) will be delivered to U.S. Bank Trust Company, National Association, as escrow agent (the “2013AB Escrow Agent”), under that certain Escrow Agreement, dated as of April 1, 2023 (the “2013AB Escrow Agreement”), by and between the SFPUC and the 2013AB Escrow Agent. The 2013AB Escrow Agent will deposit the 2013AB Escrow Proceeds in accordance with the 2013AB Escrow Agreement in an irrevocable escrow fund (the “2013AB Escrow Fund”) for the benefit of the owners of the Refunded 2013A Bonds and Refunded 2013B Bonds , to be held in cash and used to redeem the Refunded 2013A Bonds and the Refunded 2013B Bonds on April 21 , 2023 * (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 2023B Bonds.
The Refunded 2018C Bonds were issued pursuant to, and will be refunded in accordance with, the terms of the Original Indenture , as supplemented by t he Eighth Supplemental Indenture, dated as of August 1, 2018 (the “Eighth Supplemental Indenture”), by and between the SFPUC and the Trustee. A portion of the proceeds of the 2023C Bonds (the “2018C Escrow Proceeds”) will be delivered to U.S. Bank Trust Company, National Association, as escrow agent (the “2018C Escrow Agent”), under that certain Escrow Agreement, dated as of April 1, 2023 (the “2018C Escrow Agreement”), by and between the SFPUC and the 2018C Escrow Agent. The 2018C Escrow Agent will deposit the Escrow Proceeds in accordance with the 2018C Escrow Agreement in an irrevocable escrow fund (the “2018C Escrow Fund ”) for the benefit of the owners of the Refunded 2018C Bonds to be invested in the Initial Government Securities (as defined in the 2018C Escrow Agreement and referred to herein as the “ 2018C Initial Government Securities ”), with any remaining amounts (if any) held in cash . The 2018C Initial Government Securities, together with earnings thereon, plus the amounts held in cash (if any), will be used to redeem the Refunded 2018C Bonds on July 18, 2023
* (the “Refunded 2018C Bonds Redemption Date”), at the redemption price of 100% of the principal amount of the Refunded 2018C Bonds, together with interest accrued thereon to the Refunded 2018C Bonds Redemption Date. As a result of the deposit and application of funds as provided in the 2018C Escrow Agreement, the Refunded 2018C Bonds will be defeased pursuant to the Original Indenture and the Eighth Supplemental Indenture as of the date of issuance of the 2023C Bonds.
Sufficiency of the deposits in the irrevocable 2018C Escrow Fund for the purposes described in the previous paragraphs will be verified by __________. See “VERIFICATION OF MATHEMATICAL ACCURACY.”
* Preliminary, subject to change.
12 ESTIMATED SOURCES AND USES OF FUNDS
The proceeds of the 2023ABC Bonds are expected to be applied as follows:
2023A Bonds 2023B Bonds 2023C Bonds
Total
2023ABC
Bonds
Sources of Funds
Par Amount
Original Issue [Discount/Premium]
Total Sources
Uses of Funds
Refunding Commercial Paper Notes --
Deposit to Capital Project Fund --
Deposit to Escrow Funds(1) --
Capitalized Interest(2) --
Underwriters’ Discount
Costs of Issuance(3)
Total Uses
____________________
(1) Represents deposits to the applicable escrow fund established under the applicable escrow agreement. See “PLAN OF FINANCE” and “OBLIGATIONS PAYABLE FROM NET REVENUES – Outstanding Parity Revenue Bonds.” (2) Represents capitalized interest with respect to the 2023A Bonds and a portion of the 2023B Bonds through October 1, 2025*. (3) The costs of issuance include amounts for legal fees, Trustee and Escrow Agent fees, municipal advisor fees , Verification Agent fees, escrow bidding fees, rating agency fees, printing costs, and other costs relating to the issuance of the 2023ABC Bonds.
(Remainder of Page Intentionally Left Blank)
* Preliminary, subject to change.
13 GREEN BONDS DESIGNATION AND CLIMATE CERTIFICATION
The 2023A Bonds and the 2023C Bonds are being designated by the SFPUC as “Green Bonds.” The purpose of designating the 2023A Bond s and the 2023C Bonds as “Green Bonds” is to allow investors to invest directly in notes and bonds that finance the cost of environmentally beneficial projects (“ Green Projects”). For purposes of such determination, the SFPUC considers the projects included in the SSIP t o 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, in vestor-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 2023A Bond s and the 2023C Bonds have been certified upon verification from Sustainalytics (as defined and further described below) . All projects funded by the 2023A Bonds and the 2023C Bonds have been certified under the Climate Bonds Standard Water Sector Criteria. The certification of the 2023A Bonds and the 2023C 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 anticipated 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 2023A Bonds and the 2023C Bonds are aligned with the Climate Bonds Standard.
The certification of the 2023A Bonds and the 2023C 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 2023A Bonds, the 2023C 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 2023A Bonds and the 2023C Bonds by the CBI is addressed solely to the SFPUC and is not a recommendation to any person to purc hase, hold or sell the 2023A Bonds or the 2023C Bonds and such certification does not address the market price or suitability of the 2023A Bonds or the 2023C 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 Climate 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 2023A Bonds and the 2023C Bonds and may not be used for any other purpose without the CBI’s prior written consent.
The certification does not and is not in any way intended to address the likelihood of timely payment of interest when due on the 2023A Bonds, the 2023C 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 SFPUC has not undertaken to contest any such withdrawal or to provide notice thereof.
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 2023A Bonds or the 2023C Bonds vary from the anticipated expenditures reviewed by the CBI . The SFPUC
14 will undertake reasonable efforts to ensure that any adjustment of capital expenditures or other actions taken with respect to the 2023A Bonds and the 2023C 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 2023A Bonds and the 2023C 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 2023A Bonds and the 2023C Bonds are not conditioned on the completion of any particular project or the satisfaction of any condition relating to the status of the 2023A Bonds or the 2023C 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 2023A Bonds or the 2023C 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 2023A Bonds or the 2023C Bonds.
The designation of the 2023A Bonds or the 2023C Bonds as “Green Bonds” does not imply that such obligations are entitled to any particular advantageous treatment under the Code.
United Nations Sustainable Development Goals
Impacts from SSIP projects financed by the SFPUC’s Green Bonds are also aligned with several United Nations Sustainable Development Goals (“UN SDG”). By reference to the International Capital Market Association (“ICMA”) “Green and Social Bonds: A High -Level Mapping to the Sustainable Development Goals” (June 2020), the projects refinanced by the 2023A Bonds and the 2023C Bonds primarily aim to address goals, 3 (Good Health and Well-being), 6 (Clean Water and Sanitation), 9 (Industry, Innovation and Infrastructure), 11 (Sustainable Cities and Communities), 13 (Climate Action), and 14 (Life Below Water).
As promulgated by the ICMA and most recently updated in June 2021, the “Green Bond Principles” have four core components (Use of Proceeds, Process for Project Evaluation and Selection, Management of Proceeds, and Reporting), each of which are further described below.
Use of Proceeds
A portion of the proceeds of the 2023A Bonds will (i) finance certain capital projects benefiting the Wastewater Enterprise from the SSIP and (ii) refund a portion of the Commercial Paper Notes, and a portion of the proceeds of the 2023C Bonds will refund the Refunded 2018C Bonds. Proceeds of such 2023A B onds will be, and proceeds of such Commercial Paper Notes and Refunded 2018C Bonds have all been , expended on projects the SFPUC considers to be “Green Projects.” All such projects related to SSIP, which achieves the following goals:
• Provide a compliant, reliable, resilient and flexible system responsive to catastrophic events; • Integrate grey and green infrastructure to manage stormwater and minimize flooding; • Provide benefits to impacted communities;
• Modify the system to adapt to climate change;
• Achieve economic and environmental sustainability; and • Maintain ratepayer affordability.
15 These SSIP projects include, but are not limited to, the following:
Wastewater Treatment Projects:
• Replacing existing, aged, and failing solids handling facilities with new state -of-the art Biosolids Digester Facilities
• Improving the level of screening and grit removal in existing facilities • Replacing and integrating a facility-wide distributed control system • Condition assessment and rehabilitation of building structures • Replacing mechanical and electrical equipment
• Seismic retrofitting
Sewer Collection System Improvement Projects:
• Enhancing conveyance in the Channel and Islais Creek watershed to provide reliability and redundancy, and increase capacity to manage storm events
• Rehabilitating and replacing interceptors, tunnels, pump stations, force mains and Transport/Storage (T/S) boxes
• Rehabilitating Combined Sewer Discharge (CSD) structures and preventing backflow of bay water through CSDs due to sea level rise
Stormwater Management/Flood Control Improvement Projects:
• Green infrastructure (bioretention planters for stormwater runoff, permeable paving) • Flood resilience (analysis of flooding risks, stormwater detention and conveyance concepts, fl ood barriers)
• Hydraulic and drainage sewer improvements in flood prone neighborhoods • Advanced rainfall and operational decision systems (automated real time forecasts with increased accuracy)
Additional information on the SSIP may be found under “SEWER SYS TEM IMPROVEMENT PROGRAM.”
Management of Proceeds
The proceeds of the Commercial Paper Notes to be refunded with the proceeds of the 2023A Bonds and the proceeds of the Refunded 2018C Bonds to be refunded with the proceeds of the 2023C 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 publishes annually a project spending and ma nagement of proceeds report (the “ Green Bond Report”) for all outstanding green bonds issued by the SFPUC. The Green Bond Report will include projects financed and refinanced by proceeds of the 2023A Bonds and the 2023C Bonds and will be made 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 2023A Bonds or the 2023C Bonds.
16 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 2023ABC Bond s, 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.
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 2023ABC 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 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 CITY OR OF THE SFPUC OR ANY OF ITS INCOME OR RECEIPTS, 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 o f 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;
17 (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 disposed 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); (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
18 (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 Reserve . 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 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 obligat ions 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 each Fiscal Year, rates, 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 Wastewater 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, treatment 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
19 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 p aragraph under this “ - Debt Service Coverage” subsection at the commencement of the succeeding Fiscal Year. “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 a verage 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 ha ve 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 suc h 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.
“Excluded Principal” means each payment of principal of Bonds with a remaining term, on the date of calculation, of not greater than 60 months that the SFPUC intends to pay from the proceeds of Bonds or Parity Loans, other bonds, notes or other obligations of the SFPUC or moneys other than Net Revenues.
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
20 Additional Bonds under the Indenture. See “ – Additional Series of Bond s – Indenture Requirements” and “– Refunding Bonds,” 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, includi ng 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 level of subsidy payments or changes in the sequestration rate, if any, in the future. In Fiscal Years 2020-21 and 2021-22, the SFPUC received approximately $3.5 million and $3.5 million, respectively, in Refundable Credits for the Wastewater Enterprise.
No Reserve Account for 2023ABC 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 Fifteenth Supplemental Indenture does not require the establishment of a Reserve Account for the 2023A Bonds, the 2023B Bonds or the 2023C Bonds. The Reserve Account established for the Public Utilities Commission of the City and County of San Francisco Wastewater Revenue Bonds, 2010 Series B Bonds (the “2010B Bonds”) do not secure the 2023ABC Bond s. No Reserve Account has been established for the Public Utilities Commission of the City and County of San Francisco Wastewater Revenue Bonds, 2013 Series A and 2013 Series B (collectively, the “2013AB Bonds”), the Public Utilities Commission of the City and County of San Francisco Wastewater Revenue Bonds, 2016 Series A and 2016 Series B (collectively, the “2016AB Bonds”), the Public Utilities Commission of the City and County of San Francisco Wastewater Revenue Bonds, 2018 Series A, 2018 Series B and 2018 Series C (collectively, the “2018ABC Bonds”), the Public Utilities Commission of the City and County of San Francisco Wastewater Revenue Notes, 2021 Series A and 2021 Series B (collectively, the “2021AB Notes”), the Public Utilities Commission of the City and County of San Francisco Wastewater Revenue Bonds, 2021 Series A and 2021 Series B (collectively, the “2021AB Bonds”) or the Public Utilities Commission of the City and County of San Francisco Wastewater Revenue Bonds, 2022 Series B (the “2022B 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 2023ABC Bonds, upon satisfaction of the conditions set forth therein.
The SFPUC expects to issue Additional Bonds , which may include 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 c apital 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;
21 (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 fin ance 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:
(a) Certification by an independent engineer retained by the SFPUC that:
(1) the projects to be financed by the additional bonds, including the prioritization, cost estimates and scheduling, meet utility standards; and
(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 repair and replacement costs.
(b) 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 documents, 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 PROVISIO NS OF THE INDENTURE – THE INDENTURE – DEFINITIONS; EQUAL SECURITY: CERTIFICATES AND OPINIONS” and “– ISSUANCE OF ADDITIONAL SERIES OF BONDS.”
22 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 form (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 include 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).
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 has applied for three additional SRF Loans and 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).
23 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.”
(Remainder of Page Intentionally Left Blank)
24 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 revenues. The 2023ABC 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 [March 28], 2023. See “SECURITY FOR THE BOND S – 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 2023ABC Bonds and the Parity Loans.
Series of Bonds Purpose
Original Principal
Amount
Principal Amount
Outstanding as of
March 1, 2023
2010 Series B Bonds(1) Finance and refinance SSIP and
other capital program costs
$192,515,000 $185,235,000
2013 Series A Bonds(2) Refund 2003 Clean Water Bonds
and refund SRF Loans
193,400,000 575,000
2013 Series B Bonds(2) Finance and refinance SSIP and
other capital program costs
331,585,000 183,665,000
2016 Series A Bonds Finance and refinance SSIP and
other capital program costs
240,580,000 240,580,000
2016 Series B Bonds Finance and refinance capital
program costs
67,820,000 67,820,000
2018 Series A Bonds Finance and refinance SSIP and
other capital program costs
229,050,000 221,335,000
2018 Series B Bonds Finance capital program costs
185,950,000 179,690,000
2018 Series C Bonds(3) 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 2022 Series B Bonds Refinance SSIP and other capital
program costs
137,080,000 137,080,000
Total: $2,402,470,000 $2,040,470,000
____________________
(1) Issued as Build America Bonds.
(2) All or a portion of such amount is expected to be refunded by the 2023B Bonds. (3) All or a portion of such amount is expected to be refunded by the 2023C Bonds.
25 The 2021A Notes mature on October 1, 2025, and the 2021B 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 20 21A Notes from Net Revenues of the Wastewater Enterprise and to pay principal of the 2021A Notes from the proceeds of one or more draws under the BDFP WIFIA Loan Agreement or from the proceeds of additional notes, revenue bonds or other revenue secured obl igations (referred to herein as the “Take -Out Obligations”) to be issued by the SFPUC on or prior to the maturity of the 2021A Notes. 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 STPI WIFIA Loan Agreement or from the proceeds of Take-Out Obligations to be issued by the SFPUC on or prior to the maturity of the 2021B Notes. 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 respective maturity date s. See “OBLIGATIONS PAYABLE FROM NET REVENUES – Water Infrastructure Finance and Innovation Act Loans” and “RISK FACTORS – Access to Capital Markets.” In accordance with the Indenture, the principal amount of the 2021A Notes and the 2021B Notes was designated by the SFPUC as Excluded Principal. See “SECURITY FOR THE BONDS – Rate Covenants,” “– Additional Series of Bonds – Indenture Requirements,” and “APPENDIX A – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE.” The 2018C Bonds are subject to mandatory tender for purchase on October 1, 2023. All or a portion of the 2018C Bonds are expected to be refunded by the 2023C Bonds on or around _____, 2023. However, if the 2018C Bonds are not refunded by the 2023C Bonds and if the SFPUC is unable to remarket or refund the 2018C Bonds on or prior to the October 1, 2023, purchase date, no assurance can be given that the SFPUC will have sufficient funds on hand to pay the purchase price of the 2018C Bonds. Failure to pay the purchase price of the 2018C Bonds would not constitute an Event of Default under the Indenture, but the 2018C Bonds would bear interest at a higher rate.
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 FOR WASTEWATER ENTERPRISE CAPITAL PROGRAM.”
Parity Loans
The SFPUC has entered into seven Parity Loans with the State, has applied for three additional SRF Loans 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 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 . 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, t he 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 and received as of January 1, 2023, the interest rate, the estimated/actual project completion date and the estimated loan repayment commencement date.
26 State Revolving Fund Loans
Project
SRF Loan
Commitment
Amount
Disbursement
Amount
Requested as
of January 1,
2023 (1)
Disbursement
Amount
Received as of
January 1,
2023
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 $ 6,261,946 1.6% October 8, 2020 July 31, 2021 Southeast Treatment Plant
Primary/Secondary Clarifier
Upgrade Project 34,445,778 30,494,680 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 39,777,650 1.8 July 18, 2019 July 18, 2020 North Point Facility Outfall
Rehabilitation Project 20,199,435 17,713,411 17,713,411 1.8 July 19, 2018 February 28, 2019 Southeast Water Pollution
Control Plant Biosolids
Digester Facilities Project 132,000,000 132,000,000 132,000,000 1.4 May 1, 2026 May 1, 2027 OSP Digester Gas Utilization
Upgrade Project 54,387,969 33,349,280 33,349,280 1.4 March 31, 2024 March 31, 2025 Southeast Plant New
Headworks (Grit) Replacement 112,036,181
64,678,136 64,678,136 1.1 March 1, 2024 March 1, 2025
Total: $400,511,103 $324,275,103 $324,275,103
____________________
(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 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; repayment schedules have been established and repayments have commenced for these projects. 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.
In December 2021, the SFPUC applied for two additional S RF Loans to finance the Wawona Area Stormwater Improvement Project (the “Wawona Project”), estimated to cost approximately $45 million, and the New Treasure Island Wastewater Treatment Project (the “ Treasure Island Project ”), estimated to cost approximately $202.2 million. On October 3, 2022, the State Water Resources Control Board (the “State Water Board”) approved proposed changes to the Clean Water State Revolving Fund Intended Use Plan for State Fiscal Year 2022 -23, which includes a list of projects that the Division of Financial Assistance anticipates funding (the “2022-23 Fundable List”).
The 2022-23 Fundable List includes, among others, full funding for the Wawona Project ($40 million loan and $5 million grant), and partial funding in the amount of $65 million for the Treasure Island Project ($50 million loan and $15 million grant). Inclusion on the 2022-23 Fundable List does not, however, constitute a financing commitment, a guarantee that sufficient funds from the anticipated sources of funds will be available, or a determination of eligibility.
Any such funding would take the form of a loan from the State Water Board to the SFPUC, constituting a Parity Loan.
The SFPUC is working with the State Water Board to obtain approval of the SRF applications for these projects and negotiate loan terms. If approved by the State Water Board, the SFPUC anticipates that SRF Loans for the Wawona Project and the Treasure Island Project will close in Fiscal Year 2024-25.
The SFPUC has also applied for a WIFIA loan to potentially provide partial funding to the Wawona Project and the Treasure Island Project. For more information, see “– Water Infrastructure Finance and Innovation Act Loans – Master Agreement and First Draw WIFIA Loan” below.
27 In December 2022, the SFPUC applied for an additional SRF Loan to finance the Folsom Stormwater Improvement Project (the “Folsom Project”), estimated to cost approximately $282 million. The SFPUC anticipates that the State Water Board will release the list of new projects selected for State fiscal year 2023 -24 (the “2023-24 Fundable List”) in spring 2023. Inclusion on the 2023 -24 Fundable List would not, however, constitute a financing commitment, a guarantee that sufficient funds from the anticipated sources of funds will be available, or a determination of eligibility. Any such funding would take the form of a loan from the State Water Board to the SFPUC, constituting a Parity Loan.
The SFPUC has covenanted in the Fifteenth Supplemental Indenture not to enter into state loans payable on a basis senior to the Bonds.
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 EPA, acting by and through 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 eligible costs of the 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 the 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 the Trustee. As of the date of this Official Statement, the SFPUC has made one draw on the BDFP WIFIA Loan and the principal amount of the BDFP Bond is $_____.
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 to which the WIFIA Lender agreed to make a loan to the SFPUC in an amount not to exceed $513,861,981 to finance eligible costs of the 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 do es 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 the Trustee. As of the date of this Official Statement, the SFPUC has not yet drawn on the STPI WIFIA Loan Agreement and no principal amount of the STPI Bond is currently outstanding; however, the SFPUC anticipates making a draw on the STPI WIFIA Loan in an amount up to approximately $_____ by June 2023.
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 outstan ding 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.
28 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 as set forth in the respective WIFIA Loan Agreements (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.
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 rate (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 Disbursements 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 to 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 project or to achieve substantial completion of the applicable 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 th e SFPUC under any of the principal contracts relating to the applicable project and the SFPUC fails to cure such default or replace the contract; (iii) the occurrence of a Bankruptcy Related Event (as defined in the WIFIA Loan Agreements) with respect to the counterparty to any of the principal contracts relating to the applicable project, unless such contract is replaced; (iv) abandonment of the applicable project by the SFPUC; (v) failure of the SFPUC to operate the applicable project 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 Agreements; (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, (v iii) acceleration of parity debt or a default under documents relating to the SFPUC ’s parity debt ; (ix) one or more judgments for the payme nt of money that in the aggregate exceed $50 million or would cause a Material Adverse Effect (as defined under the WIFIA Loan Agreements) are rendered against the SFPUC , and such judgment(s) are unpaid for a period of 30 consecutive days or for which an a ction 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 projects 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 eve nt 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).
29 Master Agreement and First Draw WIFIA Loan. In addition to the BDFP WIFIA Loan and the STPI WIFIA Loan, the SFPUC has applied for another WIFIA loan from the EPA to finance certain Wastewater Enterprise capital improvement projects in the amount of approximately $791.3 million. The SFPUC expects to enter into a master loan agreement (the “WIFIA Master Agreement”) with the EPA in April 2023. Subject to the terms of the WIFIA Master Agreement, the SFPUC intends to enter into a series of loans, with the first loan anticipated to be executed (the “First Draw WIFIA Loan Agreement”) in April 2023 for approximately $369.3 million (the “First Draw WIFIA Loan”) to partially finance six capital improvement projects (including, among others, a portion of the Wawona Project and the Treasure Island Project for which the SFPUC has applied for SRF Loans as described under “ – Parity Loans.”).
The SFPUC does not expect that the First Draw WIFIA Loan will constitute a “Parity Loan” under the Indenture.
Instead, the SFPUC expects to issue a parity Bond under the Indenture to evidence its repayment obligation pursuant to the First Draw WIFIA Loan to the EPA. The SFPUC expects that the terms and provisions of the WIFIA Master Agreement and the First Draw WIFIA Loan Agreement will be comparable to the terms and provisions of the Revised BDFP WIFIA Loan Agreement and the STPI WIFIA Loan Agreement, as described above.
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,” and “– Additional Parity Loans.” 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 five bank credit facilities, as set forth below:
Credit Facility Bank Amount Stated Expiration Date
Letter of Credit Sumitomo Mitsui Banking Corporation,
acting through its New York Branch
$150 million March 7, 2024
Letter of Credit Bank of America, N.A. $150 million _____ Revolving Credit and
Term Loan Agreement
TD Bank, N.A. $75 million July 6, 2027
Revolving Credit and
Term Loan Agreement
State Street Bank and Trust Company $200 million October 13, 2023 Letter of Credit Sumitomo Mitsui Banking Corporation,
acting through its New York Branch
$100 million May 31, 2027
The remaining $75 million of the Interim Funding Program is in the form of a bank revolving credit agreement with U.S. Bank National Association (the “U.S. Bank Credit Facility”), with a stated expiration date of July 18, 2024. 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”).
30 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 February 1, 2023, the SFPUC had approximately $552.9 million principal amount of Commercial Paper Notes outstanding and no outstanding principal balance on any of the Revolving Notes. Approximately $___* million principal amount of the Commercial Paper Notes will be refunded with proceeds of the 2023A Bonds, and approximately $___* million principal amount of the Commercial Paper Notes will be refunded with proceeds of the 2023B Bonds.
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 a pproximately $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 deliv ered 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 (net of Refundable Credits received) . The final maturity date on the 2009 Golden Gate COPs is November 1, 2041. As of February 1, 2023, the principal amount outstanding of the 2009 Golden Gate COPs was $129.6 million. 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 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 seven 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 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 determi nes that revenue bond proceeds have been or are being spent on purposes not authorized by the authorizing bond resolution or otherwise 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.
* Preliminary, subject to change.
31 Debt Service Requirements
Set forth in the following table are debt service requirements for the Outstanding Bonds and the 2023ABC Bonds assuming no early redemptions.
(Remainder of Page Intentionally Left Blank)
32 DEBT SERVICE REQUIREMENTS ON
OUTSTANDING BONDS AND 2023ABC BONDS
Fiscal Year
(ending
June 30)
Outstanding
Bonds(1)(2)
Parity
Loans(3)
2023A Bonds
Interest
2023A Bonds
Principal
2023B Bonds
Interest
2023B Bonds
Principal
2023C Bonds
Interest(4)
2023C Bonds
Principal
Total Bond
Debt Service(4)
Total Debt
Service
including Parity
Loans(5)
2023 $98,204,327 $4,004,851
2024 93,904,252 4,004,851
2025 112,927,202 4,004,851
2026 114,822,088 4,004,851
2027 112,979,418 4,004,851
2028 112,179,758 4,004,851
2029 112,017,198 4,004,851
2030 111,840,528 4,004,851
2031 111,663,518 4,004,851
2032 111,467,177 4,004,851
2033 111,259,958 4,004,851
2034 111,057,496 4,004,851
2035 110,838,302 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(5) $2,969,567,743 $108,350,315
_______
(1) Includes the 2010B Bonds, the 2013AB Bonds, the 2016AB Bonds, the 2018ABC Bonds, the 2021AB Bonds, interest only on the 2021AB Notes, and the 2022B Bonds. Assumes the 2018C 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” and “– Subordinate Debt and Interim Funding Program.” (2) Calculation of interest due on Outstanding Bonds shown without an offset for Refundable Credits. (3) Includes SRF Loans for Lake Merced Green Infrastructure Project, Southeast Treatment Plant Primary/Secondary Clarifier Upgrade Project, Southeast Treatment Plant 521/522 and Disinfection Upgrade Project and North P oint Facility Outfall Rehabilitation Project for which payment schedules have been established. See “OBLIGATIONS PAYABLE FROM NET REVENUES – Parity Loans.” Does not include debt service relating to Parity Loans for which a payment schedule has not been established.
(4) Assumes 2023C Bonds bear interest at a rate of __% per annum after the Initial Term Rate Period. (5) Totals may not add due to independent rounding.
33 THE CITY AND COUNTY OF SAN FRANCISCO
THE FOLLOWING INFORMATION IS PROVIDE D 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 2023ABC 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 2023ABC BONDS. THE 2023ABC 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 Ocean to the west, the Bay and the San Francisco-Oakland Bay Bridge to the east, t he 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 sectors 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 materially adversely affected the City’s population, finances and operations. 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 have been improving, the situation is still developing and the resulting impact on the City’s local economy, population, finances and operations remains unknown. For information regarding the impact of COVID- 19 on the SFPUC, see “THE PUBLIC UTILITIES COMMISSION – COVID-19 Pandemic and Other Recent Developments in the Local Economy.” 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. In 2021 (most recent data available), the San Francisco Travel Association, a nonprofit membership organization, reported 14.8 million visitors to the City, up 25% from 2020, but down 44% from a record high of 26.2 million visitors in 2019. Total spending by visitors in 2021 increased to $3.1 billion from $2.8 billion in 2020, but was down 70% from $10.3 billion in 2019, including spending on meetings and conventions.
The City is also a leading c enter 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 Californi a – San Francisco (a medical school and health science campus), UC College of the Law, San Francisco (formerly UC Hastings College of the Law), the University of the Pacific’s School of Dentistry, Golden Gate University, City College of San Francisco (a pu blic community college), the San Francisco Art Institute, the San Francisco Conservatory of Music, and the Academy of Art University.
34 San Francisco International Airport (“ 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 Rail way (“ Muni”), operated by the San Francisco Municipal Transportation Agency (“SFMTA”), provides bus and streetcar service within the City (although telecommuting resulting from emergency stay-at-home orders caused ridership into and within the City to decline significantly). 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 Nove mber 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 original budget for fiscal years 2021-22 and 2022-23 totals $13.2 billion and $12.8 billion, respectively. The General Fund portion of the original budget was $6.4 billion in fiscal year 2021-22 and $6.3 billion in fiscal year 2022-23, with the 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 Controller, at the start of fiscal year 2021 -22, total net assessed valuation of taxable property in the City was approximatel y $312 billion, which represented an increase of 4.1% 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 generation 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, servi ces and facilities (the “Power Enterprise”). CleanPowerSF (“CleanPowerSF”), managed by the Power Enterprise, is a Community Choice Aggregation program.
The revenues of the Water Enterprise, the Power Enterprise and CleanPowerSF 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 Organization, Purposes and Powers
Wastewater Enterprise . The Wastewater Enterprise’s collection and treat ment 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 flows 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, 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, 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 faci lities, 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 contra ctual 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 purchase 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 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 iss ues. 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 util ity 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 offi cial 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
Newsha Ajami, President 1 February 4, 2021 August 1, 2024 Sophie Maxwell, Vice President 2 April 29, 2019 August 1, 2025 Tim Paulson 3 April 29, 2019 August 1, 2024
Anthony Rivera 5 October 11, 2022 August 1, 2024
Kate H. Stacy 4 October 18, 2022 August 1, 2026
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.
Ronald P. Flynn. Ronald Flynn is the Deputy General Manager and Chief Operating Officer of the SFPUC.
Appointed to this role in 2022, Mr. Flynn works with the General Manager on all policy and strategic initiatives, oversees the SFPUC’s daily operations, including business services (finance, accounting, audits, customer services, information technology), external affairs (communications, legislative, community benefits, equity), and human resources. Prior to this position, Mr. Flynn served for almost 16 years in the San Francisco City Attorney’s Office under Dennis Herrera. For the last seven years he was the Chief Deputy City Attorney, where he oversaw the City’s litigation teams, as well as worked closely with departments and agenci es, including the SFPUC, on procurement, financial, and litigation matters. He worked on Hetch Hetchy litigation, PG&E’s bankruptcy, and other SFPUC - related issues. Mr. Flynn previously served as Team Leader of the Construction and Public Contracting Team in the City Attorney’s Office, working on many SFPUC projects, including the Water System Improvement Program.
Mr. Flynn earned a B.Sc. from California Polytechnic State University, San Luis Obispo, an Ed.M from Harvard University, and a J.D. from University of California, Berkeley School of Law.
Nancy L. Hom. Nancy L. Hom is the Chief Financial Officer and Assistant General Manager for Business Services, providing direction and oversight for the Financial Services, Audit, Grants & Loans, Information Technology Services, Customer Services, and Strategy Innovation and Change bureaus. She has led several important bureaus of Business Services, including serving as the Assurance and Internal Control Director for 10 years; and more recently as the SFPUC’s Co -Deputy Chief Financial Officer. Ms. Hom has nearly 20 ye ars of experience leading financial and governance teams in public agencies and has extensive knowledge of the City’s financial and accounting
37 guidelines and systems, capital improvement projects and regulatory affairs. Prior to joining the SFPUC, she ser ved as the Chief Financial Officer for the Department of Child Support Services and as a leader in the Office of the Controller’s Budget and Analysis division. Ms. Hom earned her bachelor’s degree in Business Administration from San Francisco State University, concentrating in Finance, Internal Audit, and Project Management. She also maintains two professional certifications from the Institute of Internal Auditors as a Certified Internal Auditor and Certified Risk Management Assurance professional.
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 SFP UC’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 Regulatory 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.
Stephen Robinson . Stephen Robinson is the Assistant General Manager for Infrastructure, where he is responsible for capital programs and project implementation for SFPUC facilities, including the Water System Improvement Program, the Sewer System Improvement Program, and the Hetchy Capital Improvement Program.
Previously, he was the Director of the Wastewater Enterprise Capital Program for SFPUC’s Infrastructure Division.
He is a Professional Civil Engineer and a UK Chartered Civil Engineer with over two decades of planning, design, construction, and management experience in the water/wastewater sector. Prior to joining SFPUC , Mr. Robinson worked with MWH/Stantec as a consultant and served in the British Army as a Royal Engineer Captain. Mr. Robinson has a master’s degree in Civil Engineering and Management from the Queens University of Belfast, Northern Ireland.
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 natural 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 URS consultants (2000- 2004). He has a B.S. and M.S. in Civil Engineering from Stanford University.
38 Ongoing Investigation
In January 2020, the City’s former Director of Public Works, Mohammad Nuru, was criminally charged with public corruption, including honest services wire fraud and lying to Federal Bureau of Investigation (“ FBI”) agents.
In February 2020, then- City Attorney Dennis Herrera and Controller Ben Rosenfield announced the initiation of a joint investigation stemming from the federal criminal charges against Mr. Nuru. The City Attorney’s Office focused on holding public officials and City vendors accountable. The Controller undertook a public integrity review of contracts, purchase orders, and grants to the City.
Mr. Nuru resigned from employment with the City in January 2021. In January 2022, Mr. Nuru pled guilty to taking bribes from contractors, developers, and entities he regulated, including bribes from Walter Wong, a San Francisco construction company executive and permit expe diting consultant, who ran or controlled multiple entities doing business with the City. In August 2022, the district court judge sentenced Mr. Nuru to 84 months in prison.
Mr. Wong was criminally charged in June 2020 with conspiring with City officials a nd laundering money.
As part of the criminal investigation into Mr. Nuru and Mr. Wong, the SFPUC received a federal, criminal, grand jury subpoena in June 2020 for the production of documents, communications, contracts and records, including the complete personnel file of the SFPUC’s former General Manager, Harlan L. Kelly, Jr.
In November 2020, Mr. Kelly was charged in a criminal complaint with one count of honest services wire fraud. The complaint alleged that Mr. Kelly also engaged in a long- running bribery scheme and corrupt partnership with Mr. Wong. The complaint further alleged 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.
According to the criminal complaint against Mr. Kelly, Mr. Wong bribed Mr. Kelly with thousands of dollars in airfare, meals, jewelry, and travel expenses, as well as by making improvements to Mr. Kelly’s home.
Mr. Wong pled guilty in July 2020 and continues to cooperate with the ongoing federal criminal investigation.
Mr. Wong has not been sentenced.
Mr. Wong settled civilly with the City in May 2021. As part of his civil settlement, he and his companies agreed to pay the City more than $300,000 in ethics fines and more than $1 million in restitution. The total restitution amount to the City includes $73,000 that he received through the SFPUC when Mr. Kelly was General Manager.
Mr. Kelly resigned from employment with the City, effective November 30, 2020. Michael Carlin, former- Deputy General Manager of the SFPUC, then served as the Acting General Manager of the SFPUC through October 31, 2021. Mr. Herrera began serving as General Manager of the SFPUC on November 1, 2021.
Since Mr. Nuru’s arrest in January 2020, the Controller’s Office, in consultation with the City Attorney, has issued 11 public integrity reviews, all of which can be found on the Controller’s website. Ten of the 11 reports focus primarily on City departments other than the SFPUC. The Controller’s Office’s December 9, 2021, Public Integrity Audit looked specifically at SFPUC’s Social Impact Partnership Program and made seven recommendations to strengthen internal controls and oversight. The SFPUC concurred with all seven of those recommendations, and as of December 2022, five of the seven recommendations had been implemented and two were in progress.
In October 2021, a criminal grand jury returned an indictment against Mr. Kelly and Victor Makras, a San Francisco real estate broker and property developer. Mr. Makras formerly served on a number of City boards and commissions, including the Port Commission, Police Commission, Public Utilities Commission, and Retirement Board. In addition to the original charges agai nst Mr. Kelly of conspiracy with Mr. Wong, the indictment added charges of bank fraud and bank fraud conspiracy related to a $1.3 million loan Mr. Kelly obtained from Quicken Loans.
Mr. Makras’ case was severed from Mr. Kelly’s, and in August 2022, a jury convicted Mr. Makras of bank fraud for his role in making false statements to the bank in support of the loan to Mr. Kelly. In December 2022, Mr.
Makras was sentenced to three years of probation and fined $15,200.
39 Mr. Kelly’s trial is set to begin on June 26, 2023. The FBI investigation is ongoing, and the City can give no assurance when the FBI will complete its investigation.
COVID-19 Pandemic and Other Recent Developments in the Local Economy General. The COVID -19 pandemic and certain developments in the local San Francisco economy have impacted the Wastewater Enterprise’s financial condition and operations in recent years. Such developments include, but are not limited to, a general decline in San Francisco’s daytime population (which includes people who work but do not live within San Francisco) and nighttime (resident) population due to, among other factors, business closures, worker migration out of San Francisco as a result of permissive remote work policies, a general decline in tourism, unemployment concentrated recently in the tech -heavy information and professional and business services sectors, and supply chain and labor market disruption, each of which resulted in reduced water usage or increased costs and can be attributable in some part to the COVID-19 pandemic. Water usage has also been impacted by the recent drought and actions taken in response thereto. The following sections briefly describe such developments and the combined impacts of such developments on the Wastewater Enterprise’s financial condition.
Decline in Water Usage. Billed sewer discharge volumes are based on metered water usage, so lower than anticipated water usage results in lower than anticipated revenues. In Fiscal Year 2018 -19, retail water usage was approximately 59.6 mgd. In Fiscal Year 2021-22, retail water usage was approximately 52.7 mgd, or 12% lower than Fiscal Year 2018-19 levels. Although water usage has been on a generally upward trend since May 2020, it has not reached pre-pandemic levels. The impact on the water usage of particular Wastewater Enterprise customers has varied considerably. Water usage by residential customers was only modestly affected, for example, while monthly usage by commercial users were as much as 35% below pre-pandemic levels.
Population Decline. According to the U.S. Census Bureau, in calendar year 20 19, prior to the onset of the COVID-19 pandemic, the daytime population in San Francisco was 1,150,041 people and the nighttime (resident) population was 881,549 people. In calendar year 2021 (most recent data available from the U.S. Census Bureau), the daytime population decreased by 18.2% to 940,211 people and the nighttime population (resident) population decreased by 7.5% to 815,201 people. See also “Table 5 – City and County of San Francisco Population – Calendar Years 2017 to 2021.” While comparable data is not yet available from the U.S. Census Bureau for calendar year 2022, reports from the California Department of Finance, Demographic Research Unit, show a 0.5% decline in the resident population between July 2021 and July 2022.
Recent Drought. In October 2021, Governor Newsom expanded his drought state of emergency proclamation to include, among other counties, San Francisco. The SFPUC declared a water shortage emergency, called for a 10% voluntary water reduction across its service territory in November 2021, and increased the call for conservation to 11% in May 2022. The percentage reduction is shared between retail and wholesale water customers. Retail water customers are currently requested to voluntarily conserve water by 5% as compared to Fiscal Year 2019 -20 consumption levels. The call for conservation triggered the imposition of a drought surcharge of 5% on the volumetric portion of retail water and wastewater rates, which went into effect in April 2022. The drought surcharge is expected to end when the SFPUC rescinds the water shortage emergency declaration. For financial planning purposes, the SFPUC forecasts that the drought surcharge will remain in place through at least Fiscal Year 2023 -24. However, in light of recent rainfall and improved reservoir levels, the SFPUC plans to evaluate the final snowpack and State orders in April 2023 before taking any actions to end the water shortage emergency declaration. Notably, usage is expected to increase when the call for conservation ends, offsetting the revenue loss from the elimination of the drought surcharge.
Collections and Delinquencies . In 2020, in anticipation that an increased number of its customers would face financial challenges in paying their utility bills due to COVID -19, the SFPUC developed emergency response measures to provide relief to customers, including suspending water shutoffs due to late payments for nonresidential customers and certain residential customers, postponing liens and collections, waiving late fees and providing re ntal payment deferments for tenants of its facilities. In addition, the SFPUC established a temporary emergency customer assistance program for customers whose income has been impacted by COVID-19 or the City’s stay-at-home orders.
The temporary program, which ended March 31, 2022, provided eligible residential and small business customers a 35% and 20% wastewater bill credit, respectively . Approximately $ 2.6 million and $1.8 million in COVID -19 emergency discounts were provided to Wastewater Enterprise cus tomers for Fiscal Years 2020- 21 and 2021- 22,
40 respectively. These discounts were funded from various sources, including a one -time grant of approximately $4.4 million from the State in Fiscal Year 2021-22 to fund both the standard and emergency customer assistance program during the pandemic. In February 2022, the SFPUC updated the permanent Customer Assistance Program (“CAP”), originally launched in 2004, to provide eligible residential customers a 25% discount off wastewater charges. See “FINANCIAL OPERATIONS – Wastewater Enterprise Rates and Charges – Residential Users” for a description of CAP and other residential customer assistance programs offered by the SFPUC.
The number of delinquent accounts, particularly among residential accounts, has grown significantly since March 2020. From March 2020 to April 2022, the number of wastewater accounts with delinquent bills more than 90 days past due increased from 1,712 to 7,110 for single -family residential customers and almost tripled from 624 to 1,714 for commercial customers. As of December 2022, Wastewater Enterprise customers with delinquent amounts for more than 90 days totaled approximately $8.7 million, including approximately $1. 5 million in outstanding tax liens and balances forwarded to the City’s Bureau of Delinquent Revenue.
Operations and Maintenance Costs. COVID-19 has had a modestly negative impact on the operation and maintenance costs of the Wastewater Enterprise. The direct impacts of COVID-19 on the operations and maintenance costs of the Wastewater Enterprise in Fiscal Years 2020 -21 and 2021-22 were approximately $1.7 million and $ 0.3 million, respectively, for additional salary and fringe benefit expenses, personal protective equipment and other expenses. The SFPUC anticipates that such operation and maintenance costs relating to COVID -19 will be lower in Fiscal Year 2022-23.
Impact on Net Revenues. The Net Revenues of the Wastewater Enterprise have been influenced by a variety of factors, only some of which have been attributable to COVID-19 and conservation related to the recent drought.
The overall Net Revenues of the Wastewater Enterprise have declined since March 2020. Net Revenues in Fiscal Years 2019-20, 2020-21 and 2021-22 were $166.1 million, $108.4 million and $155.5 million, respectively. While sewer service revenues were impacted by decreases in sanitary flows (approximately 6% below budget in Fiscal Year 2020-21 and 5% below budget in Fiscal Year 2021-22), such decreases were mostly offset by previously adopted rate increases. The 5% drought surcharge on the volumetric portion of retail water and wastewater rates, which was only in effect for two months in Fiscal Year 2021 -22, had a minimal impact on sewer service revenues. Other factors affecting Net Revenues include a decrease in interest earnings and higher expenses for capital projects in Fiscal Years 2020-21 and 2021-22. See “HISTORICAL OPERATING RESULTS.” 2024 Rate Study. These recent developments have been factored into the SFPUC’s current 2024 Rate Study (as defined and further described herein), which will set forth recommended wastewater rates for the three-year period of Fiscal Year 2023 -24 through Fiscal Year 2025- 26. See “FINANCIAL OPERATIONS – Wastewater Enterprise Rates and Charges – 2024 Water and Wastewater Cost of Service Study.” Risk Factors. 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 or subsequent pandemics and their consequences in the future. See also “RISK FACTORS – Pandemics; COVID-19 Pandemic.” Employee Relations
San Francisco. The City’s budget for fiscal years 2022-23 and 2023-24 included approximately 39,813 and 40,028 full-time and part-time budgeted and funded City positions, respectively. City workers are represented by 36 different labor unions. The largest unions in the City include the International Federation of Professional 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 reso lve 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
41 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 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 fi scal year 2021 -22, as projected in the March 2021 update to the five-year financial plan, exceeds $200 million. The scheduled July 1, 2021 wage increase was implemented as the March 2021 update to the five-year financial plan did not project a $200 million deficit.
In May 2022, the City negotiated two-year agreements (for fiscal years 2022-23 and 2023-24) with 27 labor unions, including IFPTE, Laborers Internationals, Local 261, which represents Wastewater Enterprise employees. For fiscal year 2022-23, the parties agreed to a wage increase of 5.25% on July 1, 2022. For fiscal year 2023-24, the parties agreed to wage increases of 2.5% on July 1, 2023, and 2.25% on January 6, 2024, with a provision to delay the fiscal year 2023-24 adjustment by six months if the City’s deficit for fiscal year 2023-24, as projected in the March 202 3 update to the five-year financial plan, exceeds $300 million.
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 36 labor unions representing City workers more broadly, 13 presently represent SFPUC employees.
Over the next five years, approximately 41.6% 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 sustainability 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, 2024.
42 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 38 2 Carpenters, Local 22 20 4
Hod Carriers, Local 36 2 2
International Brotherhood of Electrical Workers, Local 6 99 14 Laborers, Local 261 138 36
Municipal Executives Association 158 10
Operating Engineers, Local 3 19 1
Plumbers, Local 38 192 31
International Federation of Professional and Technical Engineers, Local 21 866 115 Service Employees International Union, Local 790 313 30 San Francisco City Workers United 14 6
Stationary Engineers, Local 39 217 135
Teamsters, Local 853 32 8
Transport Workers Union Local 250-A, Automotive Service Workers 4 1 Unrepresented Employees(2) 1
Total 2,113 395
____________________
(1) Represents budgeted numbers as of January 2023. 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.
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 (the “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 “Retirement Board”). The Plan 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. T he 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 ov er a period not to exceed 20 years. The Retirement Board sets the funding policy subject to the Charter requirements.
43 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 a consulting actuarial firm approximately every five years. Economic assumptions are reviewed each year by the Retirement Board after receiving an economic experience 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. At the November 10, 2021, Retirement Board meeting, the Retirement Board lowered the assumed long-term investment earnings assumption from 7.40% to 7.20% , effective for the July 1, 2021, actuarial valuation. At the November 17, 2022, Retirement Board meeting, the Retirement Board voted to maintain the actuarial assumptions at their current levels.
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 fi ve actuarial valuations, as well as contributions for the fiscal years 2017-18 through 2021-22.
TABLE 2
CITY AND COUNTY OF SAN FRANCISCO
EMPLOYEES’ RETIREMENT SYSTEM
FISCAL YEARS 2017-18 THROUGH 2021-22
(IN THOUSANDS)
As of
July
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)
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 2022 33,591,565 32,798,524 32,275,474 97.6 96.1 1,191,934 24.41 _______________
(1) Employer contribution rates are shown before required employer/employee cost-sharing provisions. Employer contribution rates for fiscal years 2022-23 and 2023-24 are 21.35% and 18.24%, respectively.
Source: SFERS’ audited year-end financial statements and required supplemental information. SFERS’ annual Actuarial Valuation Report dated July 1st.
Note: Information above reflects entire Retirement System, which covers substantially all City employees, including SFPUC employees, and certain other employees.
The City’s net pension assets were approximately $2.4 billion for Fiscal Year 2021-22. The amount allocable to the Wastewater Enterprise, as of June 30, 2022, was approximately $48.8 million.
The SFPUC is required to contribute at an actuarially determined rate and allocates the applicable portions of such contribution to the separate enterprises, including the Wastewater Enterprise. For Fiscal Years 201 7-18 through 2021-22, the SFPUC’s employe e contribution rates varied from 7.5% to 13 .0% as a percentage of gross covered salary. For Fiscal Years 2017-18 through 2021-22, the Wastewater Enterprise has paid 100% of its required contributions. The contributions by the Wastewater Enterprise required for Fiscal Years 2017-18 through 2021-22 are summarized in the following table:
44 TABLE 3
WASTEWATER ENTERPRISE RETIREMENT SYSTEM CONTRIBUTION
FISCAL YEARS 2017-18 THROUGH 2021-22
(IN THOUSANDS)
Fiscal Year
Employer
Contribution
Rates
Wastewater
Enterprise
Contribution
2017-18 23.5% $12,523
2018-19 23.3 12,816
2019-20 25.2 14,352
2020-21 26.9 16,083
2021-22 24.4 14,543
_______________
Source: SFERS Actuarial Valuation reports as of July 1, 2019, July 1, 2020, July 1, 2021 and July 1, 2022, and SFPUC audited financial statements.
Plan Financial Reports and Funded Status. The Retirement System issues a publicly available financial report that in cludes 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 throug h 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 2019-20 through 2021-22, for the amount contributed to the plan, and changes in the City’s net OPEB obligation:
TABLE 4
ANNUAL OPEB OBLIGATION
FOR FISCAL YEARS 2019-20 TO 2021-22
(IN THOUSANDS)
2019-20 2020-21 2021-22
City’s reported net OPEB liabilities $3,915,815 $3,823,336 $3,691,122 Wastewater Enterprise’s proportionate share of City’s
contribution 3,506 3,263 3,365
Wastewater Enterprise’s proportionate share of City’s OPEB liability 58,183 50,711 49,123
_______________
Source: SFPUC
45 The City’s OPEB net position liability was approximately $3.7 billion for Fiscal Year 2021-22. The amount allocable to the Wastewater Enterprise, as of June 30, 2022, was approximately $49.1 million.
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. P roposition 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 eligible to participate in the retirement health care system after five years of service, howev er, 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 es ta
blished a health care trust fund to pay for future costs related to retiree health care.
Employees 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. P roposition 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 whe
n 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 minimum 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 multi pliers 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 r etire 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 ret irees; 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.
46 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 C OLAs 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 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 members 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 century . 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.
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”).
The combined sewage and stormwater system handles an average of approximately 40 billion gallons per year of combined wastewater and stormwater. Approximately 34 billion gallons per year receives 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 , the wastewater and stormwater are collected and conveyed in separate pipe systems. In new multi -phase revitalization projects such as Mission Bay, Treasure Island and the Hunter’s Point Naval Shipyard, there are green infrastructure or low- impact design e lements 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 sewage is conveyed via the remaining system to the affiliated treat ment plant.
The operations of the Wastewater Enterprise are highly regulated. For more information, see “REGULATORY MATTERS.”
Service Area
General. The service area of the Wastewater Enterprise 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 Custom ers”). 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
47 CAPITAL PROGRAM – Treasure Island Capital Improvements” 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 940,211 in 2021. The United States Census Bureau estimates of the total daytime and nighttime populations of the City from calendar years 201 7 to 2021 (most recent data available) are reflected in the table below.
TABLE 5
CITY AND COUNTY OF SAN FRANCISCO POPULATION
CALENDAR YEARS 2017 TO 2021
2017 2018 2019 2020 2021
Daytime(1) 1,125,330 1,132,295 1,150,041 1,109,742 940,211 Nighttime 884,363 883,305 881,549 874,784 815,201
____________________
(1) Includes the estimated number of people who work, but do not live, within San Francisco.
Source: United States Census Bureau, American Community Survey 1-Year Survey for calendar years 2017, 2018, 2019 and 2020; 5-year Survey for calendar year 2020.
Recent Economic Developments. Between calendar years 2020 and 2021, the resident population decreased by approximately 6.8% and the daytime population decreased by approxi mately 15.3%. This general decline in population is due to, among other factors, widespread business closures, worker migration out of San Francisco as a result of permissive remote work policies, a general decline in tourism, and unemployment concentrated recently in the tech-heavy information and professional and business services sectors, all of which can be attributable in some part to the COVID-19 pandemic. See “COVID-19 Pandemic and Other Recent Developments in the Local Economy.” Customer Base
As of June 30, 202 2, the SFPUC has 175,171 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. As shown in Table 6 below, the total number of customer accounts has increased by a total of 6.8% since Fiscal Year 2017-18.
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.
48 TABLE 6
SUMMARY OF ACTIVE SEWER ACCOUNTS BY USER TYPE
FISCAL YEARS 2017-18 TO 2021-22
User Type 2017-18 2018-19 2019-20 2020-21 2021-22
Multi-Family Residential(1) 36,326 36,387 36,467 36,528 36,595 Single-Family Residential 111,385 111,681 111,869 111,398 111,786 Subtotal Residential 147,711 148,068 148,336 147,926 148,381
Commercial(1) 15,494 24,802 24,721 24,941 25,278
Municipal Customers 763 772 1,150 1,182 1,208
Unmetered Properties 0 306 302 300 297
Suburban (watershed keepers)(2) 8 8 7 7 7
Total 163,979 173,956 174,516 174,356 175,171
____________________
(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 beginning in Fiscal Year 2018-19 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 residentia l, and non -residential customers. See “FINANCIAL OPERATIONS – Wastewater Enterprise Rates and Charges.” Combined Sewage and Stormwater 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, combined flows of sewage and stormwater can exceed the collection and treatment system hydraulic capacity, resulting in combined sewer discharges. The SFPUC’s permits explicitly authorize combined sewer discharges from the system’s 36 combined sewer discharge outfalls when a storm exceeds the system’s capacity. To reduce the number and volume of combined sewer discharges during wet-weather events, the system relies on 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 str uctures 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 seven 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 outfalls.
Sewer Lines. The Wastewater Enterprise’s collection and transport system 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 summarizes these assets by age. The SFPUC’s capital program includes replacing specific sewer sections that have been prioritized for replacement using an asset management ap proach that considers the current condition of the section in question and applicable risks of failure. Sewers are inspected through closed- circuit television and the likelihood of failure is calculated on a condition scoring algorithm taking into account the severity and quantity of defects identified in each inspection. Since 2011, the SFPUC has replaced an average of 11.9 miles of small diameter gravity sewers per year.
49 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 benef icial 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, or approximately 1.5 to 3 days of dry weather storage depending on the specific storage box sections and related upstream service area.
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 by the EPA and 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, the 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.
Pump Stations. The Wastewater Enterprise has 31 pump stations, which include 11 major all-weather pump stations, seven major wet-weather pump stations and 13 minor pump stations.
Outfalls and Nearshore Discharge Structures. The Wastewater Enterprise 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. The SFPUC Stormwater Program is designed to maximize stormwater management before flows enter the combined system, 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 infrastructure for managing stormwater runoff.
50 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 Facility ”), which treats a portion of wet- weather flows collected from the north Bayside Watersheds; and • 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 T reatment 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 two -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”) 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 disinfection . Sludge treatment consists of gravity -belt thickening, anaerobic digestion, chemical conditioning and dewatering . The Southeast Tr eatment 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, additional 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 replacemen t facilities are needed to ensure reliability requirements are met, including seismic upgrades . At the start of SSIP, the p rogram management consultant conducted a full condition assessment 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
51 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 Opera tion – 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 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 . Constructed 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 1993 and complies with all dry- and wet-weather discharge requirements. Up to 195 mgd of plant effluent and decanted wet weather flow from the westside transport storage boxes 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 Bayside Watershed are not interconnected.
If an unplanned shutdown of critical treatment facilities were to occur, the transpo rt/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. Biosolids are highly treated, anaerobically digested wastewater solids that are rich in plant nutrients and utilized as fertilizer. During dry -weather months, biosolids are transported to various ranches in Solano County and used as a fertilizer where they enhance pasture productivity and sequester carbon. Throughout the year, a portion of the SFPUC’s biosolids are transported to Sacramento County for use as a fertilizer, a portion of the biosolids are transported to Lystek, a facility which processes biosolids into a liquid fertilizer, and a portion are transported to a compost facility in Merced where they are processed into biosolids compost.
The Wastewater Enterprise coordinates the transportation, use, testing, and reporting for biosolids in accordance with applicable regulations. The SFPUC plans to implement technology at the Southeast Treatment Plant which will produce “Class A” biosolids as part of a major capital upgrade of the plant. The Biosolids Digester Facilities
52 Project will replace aging infrastructure, produce a high quality biosolids product, ensure system reliability and reduce negative impacts to the neighborhood with respect to aesthetics and odors.
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 wastewater treatment service is provided at a wastewater treatment plant currently owned by TIDA. The wastewater system serving Treasure Island and Yerba Buena Island currently relies on pumping to convey sewage to a treatment plant 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 separate 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 p roject, will eventually be transferred to the SFPUC and integrated into the Wastewater Enterprise’s overall system assets .
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 would be responsible for the future repair and replacement of all facilities transferred to it, including collection and treatment facili ties. In 2022 , the SFPUC issued a design -build contract for construction of the New Treasure Island Wastewater Treatment Plant, which is scheduled to be in service in 2025. The old treatment facility will be decommissioned and demolished as part of the area’s redevelopment plans.
See “OBLIGATIONS PAYABLE FROM NET REVENUES – Parity Loans,” “ – Projected Future Demand,” “WASTEWATER ENTERPRISE CAPITAL PROGRAM – Treasure Island Capital Improvements ” and “FINANCING PLAN FOR WASTEWATER ENTERPRISE CAPITAL PROGRAM.” System Capacity
When the three 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 secon dary 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 85.4 250.0
Oceanside Treatment Plant 43.0 65.0
North Point Facility -- 150.0
Total 128.4 465.0
____________________
Source: SFPUC, Wastewater Enterprise.
The three treatment plants primarily discharge through deep- water outfalls and secondary treated effluent with disinfection can be discharged through a shallow water outfall to Islais Creek channel during peak wet-weather events. The combined sewer system is designed to handle wet-weather events and its permits explicitly authorize
53 combined sewer discharges from the system ’s 36 combined sewer discharge outfalls when a storm exceeds the capacity of the system. See “– Combined Sewage and Stormwater System.” Heavy storms at the end of 2022 and beginning of 2023 resulted in combined flows of sewage and stormwater that exceeded the Wastewater Enterprise’s maximum capacity and caused flooding in some areas of San Fr ancisco.
Such storms did not have a significant impact on the operation of the Wastewater System, but did cause some damage, including damage to motor and sludge pumps at the Southeast Treatment Plant, pumps and equipment at the North Shore Pump Station, and compressors, bubbler and variable frequency drives at the Westside Pump Station, and created sinkholes at various locations throughout San Francisco. The final costs of repair are not known presently, but the SFPUC anticipates being able to pay such costs from reserves and available Wastewater Revenues.
Current System Demands
Wastewater Enterprise facilities collected, treated and discharged an average of approximately 60.7 mgd of sanitary wastewater during dry-weather periods between calendar years 2018 to 2022.
TABLE 9
AVERAGE DRY WEATHER TREATMENT
CALENDAR YEARS 2018 TO 2022
(MILLION GALLONS PER DAY)
Plant 2018 2019 2020 2021 2022
Southeast Treatment Plant 51.4 52.6 48.3 48.1 42.7
Oceanside Treatment Plant 12.9 12.4 11.6 12.6 10.9
Total 64.3 65.0 59.9 60.7 53.6
____________________
Source: SFPUC, Wastewater Enterprise.
Projected Future Demand
The 2024 Financial Plan (as defined herein) projected that in -City sanitary wastewater discharge will rise through Fiscal Year 2025-26 as usage recovers from its all-time low experienced during Fiscal Year 2021-22 caused by the combined effects of the pandemic and drought. See “THE PUBLIC UTILITIES COMMISSION – COVID-19 Pandemic and Other Recent Developments in the Local Economy. ” After that point, usage is projected to decrease slightly over time despite assumed population growth of approximately 0.6% annually. 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, as well as the impact of price elasticity on demands caused by large rate increases. 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 additiona l 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 “
– Wastewater Treatment – 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 requi re expanded collection or treatment capacity.
The SFPUC is currently engaged in a water and wastewater cost of service study that is expected to be completed in May 2023. The 2024 Rate Study will include an updated projected future demand forecast to inform future rate change proposals and other planning activities. See “FINANCIAL OPERATIONS – Wastewater Enterprise Rates and Charges – 2024 Water and Wastewater Cost of Service Study.”
54 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 generally reviewed at least annually 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 2023-24 to 2032-33, adopted by the SFPUC Commission on February 14, 2023 (the “2024 Capital Plan”), totals approximately $4.879 billion, which includes approximately $985.5 million budgeted for Fiscal Year 20 23-24. See “FINANCING PLAN FOR WASTEWATER ENTERPRISE CAPITAL PROGRAM.” The 2024 Capital Plan includes projects in four categories, each of which is further described below: (i) the SSIP; (ii) Renewal and Replacement; (iii) Treasure Island Capital Improvements; and (iv) Wastewater Facilities and Infrastructure.
The 2024 Capital Plan reflects the SFPUC’s concerted efforts to reduce the overall size of the 10-year capital plan as compared to the previous 10-year capital plan, which totaled approximately $6.127 billion, given, among other considerations, projected substantial rate increases for the Fiscal Year 2023 -24 to Fiscal Year 2028 -29 period.
Strategies for reducing the capital plan size included , among others, deferring certain projects outside the 10- year planning horizon, reducing budgets for certain renewal and replacement projects, consideration towards using unspent prior appropriations when possible prior to requesting new funds and focusing on deliverability to ensure projects could be initiated, implemented and received on schedule and within budget.
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 se ries of major capital improvement projects designed 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, which are described under “SEWER SYSTEM IMPROVEMENT PROGRAM.” 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 pro mote 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 $2.91 4 billion of the 2024 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 $1.635 billion of the 2024 Capital Plan.
The Renewal and Replacement Collection System category includes the following projects: condition assessment projects to clean, video inspect and perform condition assessment of sewer facilities; sewer improvement
55 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; and hydraulic improvement projects to upgrade sewers with hydraulic deficiencies.
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, 31 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 – Sewer Lines.” Treasure Island Capital Improvements
The Wastewater Enterprise currently provides wastewater treatment service on Treasure Island and Yerba Buena Island by agreement with TIDA and the SFPUC is planning to expand its service area to include Treasure Island and Yerba Buena Island. See “THE WASTEWATER ENTERPRIS E – Wastewater Treatment – Contract Services.” In connection with such expansion, the SFPUC is planning to construct a new wastewater treatment plant that will provide reliable service for Treasure Island and Yerba Buena Island residents and meet the recycled water demands of future redevelopment on Treasure Island and Yerba Buena Island. The new wastewater treatment plant, which will be constructed immediately adjacent and to the south of the existing facility, is expected to have the capacity to treat an estimated 1.3 mgd average dry -weather flow and a peak wet- weather flow of 3.9 mgd. The preliminary treatment would remove rags, large objects, and grit. The secondary treatment process would use a membrane bioreactor to remove biochemical oxygen demand and suspended solids. The membrane bioreactor is a combination of suspended growth biological treatment system (activated sludge) in combination with membrane filtration equipment which is used to perform solid -liquid separation. Secondary-treated effluent will be disinfected via series of UV trains. The disinfected secondary -treated effluent would pass through constructed wetlands, and then be discharged into the adjacent stormwater outfall pipe for discharge to San Francisco Bay. Solids generated in the treatment processes would be thickened and transported to the SFPUC’s Oceanside Treatment Plant for digestion. The resulting biosolids would be transported to an off-site landfill or suitable location for land application. In addition, the new wastewater treatment plant will be designed to achieve the disinfected tertiary treatment. Approximately 0.43 to
0.98 mgd of recycled water is expected be diverted from the treatment plant for landscape irrigation, urban farming, and toilet flushing. The remainder of the disinfected effluent from the treatment plant would be directed to the wetlands.
The SFPUC has awarded a design -build contract to build the new wastewater treatment plant. The SFPUC has also applied for an SRF Loan for a portion of the Treasure Island Project in the amount of $45 million, and a WIFIA loan for a portion of the Treasure Island Project in the amount of $ 222.2 million. See “OBLIGATIONS PAYABLE FROM NET REVENUES – Parity Loans.” Treasure Island capital improvement projects make up approximately $152.6 million of the 2024 Capital Plan.
Wastewater Facilities and Infrastructure
The Wastewater Facilities and Infrastructure category includes six pro jects. The following four projects, make up approximately $177.6 million of the 2024 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 large storm event, resulting in significant environmental and public health impacts. This project will implement a comprehensive shoreline management and protection plan in partnership with relevant stakeholders and regulatory agencies to provide a long-
56 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.
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 Oc eanside 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.
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 Rea ch 2 (Onshore Force Main) and Reach 3 (Offshore Outfall) and to evaluate if it can provide reliable service until the outfall is replaced.
Customer Service System Project. The Customer Service System Project involves migrating to (i) a modern, flexible cloud-based contact center solution, (ii) a new digital self -service and customer engagement platform, and (iii) a new cloud- based customer information system. These change s across the SFPUC’s customer service and information technology infrastructure will enable it to optimize business processes and increase operational effectiveness.
The following two projects are ongoing projects for which funds have been appropriated, but are not part of the current 2024 Capital Plan.
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 Enterprise. 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.
Islais Creek Crossing Project. The Islais Creek Crossing Project involves replacing the buried portions of the Southeast Outfall effluent pipeline that crosses Islais Creek, rehabilitating sections of the existing on -shore pipelines, booster pump station pump m anifold, isolation valves, and associated mechanical and electrical improvements. 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 was at risk of failure. As an interim measure, a new 48-inch high density polyethylene pipeline was added in 2020 to replace the pipeline that had notable corrosion. Due to escalating cost estimates beyond the baseline budget, the project was placed on hold to be re-evaluated and considered for a different alignment to avoid the creek crossing and a new outfall. This project will now include funds to perform specialized condition assessment of the existing pipeline assets crossing the creek and to document deficiencies.
Separate funds from the Renewal and Replacement category of the capital plan will be used to address deficiencies and extend the service life of the pipelines.
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 (“NEPA”).
Under CEQA, a project that may have a significant effect on the en vironment and is to be carried out or approved by a public agency must comply with a comprehensive environmental review process, including the 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
57 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 Environmental Review Officer will issue a “Planning Certificate” required under Proposition E approved by the voters of San Francisco at the N ovember 5, 2002 General Election . The Planning Certificate will identify the status of environmental review for each capital 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. The Planning Certificate for the projects to be financed or refinanced by the 2023ABC Bonds was issued in August 2022.
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 could be delay ed, 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.
Other Projects
The SFPUC has solicited interest for a Public-Private-Partnership (“P3”) for a biogas utilization project using biogas from the Southeast Treatment Plant (the “ Biogas Utilization Project”). The Biogas Utilization Project may include, but is not limited to, financ ing, designing, constructing, permitting, operating, and maintaining biogas utilization facilities on the Southeast Treatment Plant site, including accepting biogas from Southeast Treatment Plant digesters, treating and upgrading the biogas to natural gas quality, compressing and injecting the biogas into an existing PG&E pipeline, and selling the biogas and marketing the energy credits (such as renewable identification numbers (RINs) or Low Carbon Fuel Standard credits) resulting from the project.
The Biogas Utilization Project will provide 100% beneficial use of the biogas generated by the new Biosolids Digester Facilities Project. The Biogas Utilization Project must be operational and ready to accept the biogas from the new digesters to avoid excessive flaring. The SFPUC anticipates that the Biogas Utilization Project will be ready for operation in alignment with the start-up and commissioning of the Biosolids Digester Facilities Project; however the SFPUC can provide no assurance with respect to the ult imate completion date for the entire project. For additional information regarding the Biosolids Digester Facilities Project, see “THE WASTEWATER ENTERPRISE – Wastewater Treatment – Biosolids Management” and “SEWER SYSTEM IMPROVEMENT PROGRAM - Biosolids Digester Facilities Project.”
The Biogas Utilization Project Cost is expected to have a construction cost of approximately $50 million and is expected to be privately financed. As a P3 project, the Biogas Utilization Project is not part of the Wastewater Enterprise’s capital program and is therefore not included in the 2024 Capital Plan.
58 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, considered construction sequencing impacts and maintained existing operations and permit compliance. The highest priority and best -defined projects, which focused on ensuring regulatory compliance, enhancing process reliability and redundancy, implementing pilot green infrastructure projects, 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, following the Commission’s approval of the 2020 Re-Baseline (as defined and further described here in), the SFPUC has transitioned from implementing the original three -phase 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 (the “Other SSIP Projects”) based on priority, schedule, and affordability as part of its rolling 10-year capital plan.
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 SSIP’s scope, schedule and budget.
In August 2012, the Commissio n 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 $6.933 billion, which included approximately $2.7 billion for 70 Phase 1 Projects.
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”) and endorsed updated levels of service. The total SSIP budget increased to $6.976 billion; the budget for Phase 1 Projects increased to $2.910 billion, due primarily to the addition of flood resilience projects.
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 original Other SSIP Projects totaling $0.43 0 billion were initiated. The total SSIP budget was increased by $0.499 billion.
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. Final program completion for Phase 1 Projects was anticipated to be August 2027, and final program completion for Other SSIP Projects was anticipated to be December 2029.
59 Following the Commission’s approval of the 2020 Re-Baseline, the SFPUC transitioned from implementing the original three-phase approach to implementing and initiating projects based on priority and schedule as part of its rolling 10-year capital plan through the SFPUC’s budget process.
In February 2022, in place of approving a new SSIP baseline, the Commission adopted the 10-year capital plan for Fiscal Years 2022-23 to 2031-32 (the “2023 Capital Plan”), which included an updated total program budget for SSIP. Pursuant to the approved 2023 Capital Plan, the budget for Phase 1 Projects increased to $4.402 billion, due primarily to a $0.692 billion increase for the Biosolids Digester Facilities Project, and the budget for Other SSIP Projects increased to $1.570 billion, due prim arily to the addition of nine new Other SSIP Projects . See also “ – Biosolids Digester Facilities Project” below.
In February 2023, the Commission adopted the 2024 Capital Plan, which included a further updated total program budget for SSIP. Pursuant to t he approved 2024 Capital Plan, the budget for Phase 1 Projects increased to $4.405 billion and the budget for Other SSIP Projects increased to $3.969 billion, due primarily to the addition of 59 new Other SSIP Projects that were originally identified for later phases of the SSIP.
Moving forward, the total program budget for SSIP is expected to be revised every two years as part of the SFPUC’s biennial budget process.
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 cons iders environmental benefits, sustainability and community benefits in addressing long-term wastewater needs.
Program Goals
The program goals for the SSIP, which have not changed since the Commission endorsed them in August 2012, include the following: (1) provide a compliant, reliable, resilient 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.
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 Resilience.
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 function and develop for the next generation. In alignment with the SFPUC’s commitment as a leading environmental steward in resource recovery, design efforts for the Southeast Treatment Plant campus will embrace opportunities to create regenerative energy, such as “Class A” biosolids compost and biogas utilization, maximize use of renewable resources, implement green building concepts, maximize energy savings and address issues of climate change.
Treatment Facilities . SSIP 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 help maintain regulatory compliance by ensuring continued and reliable asset performance.
60 A majority of the SSIP Phase 1 improvements will occur at the Southeast Treatment Plant to upgrade the building and systems that were planned, de signed 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, biogas utilization and odor control. See also “ – Biosolids Digester Facilities Project” below. As several other SSIP projects are being constructed at the Southeast Treatment Plant during the same timeframe, a sitewide logistical, site access, and schedule coordination between the projects are being conducted to address potential congestion and conflicts. These other SSIP projects focused on liquid treatment and basic infrastructure, including construction of a new all -weather 250 mgd headworks facility, improvements to clarifiers, 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 “WAST EWATER 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 reliability of the sewer system and/or increase the operational flexibility to collect and convey wastewater and stormwater and will address aging infrastructure, including large diameter sewers, conveyance pump stations and force mains, transport/storage boxes and combined sewer discharge structures. By bringing the collection system assets up to a state of good repair, these projects will also address current and future regulatory compliance by helping to fulfill the required combined sewer overflows minimum controls, such as maximize use of the collection system for storage and maximize flows to the treatment plant. In addition, projects are prioritized to address the reliability of critical force mains that serve as an artery to convey combined sewage to the treatment plants. 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 Resilience . This subprogram includes proposed projects focused on stormwater management and flood resilience, including addressing flood resilience in low lying areas subject to flood risk based on the SFPUC’s design storm through grey and green infrastructure. The SFPUC’ s design storm is considered a storm with a three-hour duration that delivers 1.3 inches of rain and statistically occurs once every five years (also referred to as the Level of Service 5-year 3-hour design storm). Projects include the Wawona Project, the Lower Alemany Project, and the Folsom Project, each of which are further described below. Since no sewer system, including San Francisco’s, can be designed to manage all stormwater in all storms, floodwater grants are managed through these projects, where residents can get reimbursed for making property improvements that minimize flood risk and help protect their properties against flooding during heavy rainstorms.
Specific improvements for the collection system have been prioritized through a strategy of balancing the needs of the collection system for system reliability and stormwater management. Project prioritization and phasing was guided by the Commission -endorsed levels of service, the timing of critical needs and opportunities for capital investments.
Wawona Area Stormwater Improvement Project. T
his project includes the installation of a new sewer pipe under Vicente Street, from Wawona Street to 34th Avenue. Replacement of aging water transmission and distribution mains on Wawona Street, 15th Avenue and on Vicente Street west of 19th Avenue has been coordinated and is being constructed jointly under the same construction contract. The project is designed to bring the intersection of 15th Avenue and Wawona Street to meet the SFPUC’s design storm to reduce the risk of flooding in such area. This project is currently under construction.
Lower Alemany Area Stormwater Improvements Project . T h e Lower Alemany Area Stormwater
Improvements Project (the “Lower Alemany Project”) includes construction of a 10-foot diameter underground pipe
61 from Stoneybrook Avenue to Industrial Street designed to carry stormwater away from the lower Alemany area and to reduce the risk of flooding during the SFPUC’s design storm. This project is currently in the planning stage.
Folsom Stormwater Improvement Project . This project includes the construction of approximately 3,500 linear foot, 12 -foot internal diameter tunnel from the vicinity of Alameda/Treat Streets to the vicinity of 7th/Berry Streets, and the construction of n early 12,500 linear feet of sewer pipes to divert wastewater flows, including large volumes of stormwater during heavy rains, towards the new tunnel infrastructure. This project is currently in the design stage.
Program Budget and Funding Sources
The
original 2012 SSIP budget was approximately $6.933 billion (the “Original Approved SSIP Budget”).
As described above, the SFPUC has revised the original SSIP three- phase implementation approach to initiating projects as part of its 10- year capital plan based on priority and schedule. As shown in the following table, the Commission has most recently ap proved a total SSIP program budget of approximately $8.374 billion for a total of 70 Phase 1 Projects and 102 Other SSIP Projects (the “2024 Approved SSIP Budget”), with approximately $2.914 billion planned for Fiscal Year 2023-24 through 2032-33, approximately $999.4 million of which is for the Biosolids Digester Facilities Project. Additional SSIP projects may be approved in the future.
TABLE 10
SUMMARY OF APPROVED SSIP TOTAL PROGRAM BUDGETS
(IN THOUSANDS)
Subprograms Approved Program Budget
Proposed Plan for Fiscal Year
2023-24 through 2032-33
Program Management $ 430,719 $ 162,497
Treatment Facilities 4,932,764 1,741,990
Sewer/Collection System 1,759,566 279,572
Stormwater Management/Flood Control 1,250,545 729,712
Total $8,373,593 $2,913,770
The variance between the Original Approved SSIP Budget and the 2024 Approved SSIP Budget is $1.441 billion, or a 20.8% increase, and due mainly to the Biosolids Digester Facilities Project, which is further described below under “ – Biosolids Digester Facilities Project.” The SFPUC can provide no assurance that the total cost of SSIP will not be higher than currently estimated.
Pursuant to the 2024 Capital Plan, SSIP is expected to be financed with long-term debt financing, including Additional Bonds and Parity Loans such as additional SRF Loans or WIFIA Bonds, Wastewater Enterprise revenues (pay-as-you-go) and capacity fees. To the extent that SSIP costs ultimately exceed $8.374 billion, the SFPUC would require additional funds to complete the program, which could have a material adverse effect on the SFPUC’s finances.
Potential sources include, but are not limited to, additional long-term debt financing such as Additional Bonds, Parity Loans and/or WIFIA loans.
For a discussion of the long -term financing of, and sources of uses of funding, the entire Wastewater Enterprise’s capital program, including the SSIP, see “FINANCING PLAN FOR WASTEWATER ENTERPRISE CAPITAL PROGRAM – Long Term Financing of Capital Program” and “ – Sources and Uses of Funding the Capital Program.”
Program Schedule
Pursuant to the 2024 Capital Plan approved by the Commission in February 2023, the anticipated final program completion for Phase 1 Projects is currently April 2036. However, the SFPUC can provide no assurance that the ultimate completion date for the Phase 1 Projects will not be later than currently estimated. As of December 2022, approximately __% of Phase 1 Projects had been completed.
62 Based on the 2024 Capital Plan, the anticipated final program completion for Other SSIP Projects that have already been initiated is currently March 2041. However, the final program completion for Other SSIP Projects is expected to change as additional Other SSIP Projects are initiated based on priority and schedule as part of the SFPUC’s rolling 10-year capital plan.
Biosolids Digester Facilities Project
The largest component of SSIP is the Biosolids Digester Facilities Project, which will replace and relocate the SFPUC’s outdated existing solids treatment facilities at the Southeast Treatment Plant, with more reliable, efficient, and modern technologies and facilities. The new facilities will produce a higher quality biosolids, capture and treat odors more effectively, and maximize biogas utilization and r esource recovery. As of September 2022, bid and award of most of the major biosolids facilities has been completed. Construction of five digester vessels is underway with the completion of the concrete mat foundation and on-going installation of the digester skirt walls; and construction of the solids pretreatment building is ongoing. Completion of the project is scheduled for 2029. The original budget for the Biosolids Digester Facilities Project, approved by the Commission in August 2012, was $1.681 billion; however, the budget for the project significantly increased to $2.373 billion. While the scope and schedule of the project remains the same, the budget has increased due in part to, among other things, complex site and construction conditions, volatile commodity costs, supply chain issues related to the COVID-19 pandemic, limited pool of potential and qualified bidders on contracts and other lack of available resources. The SFPUC can provide no assurance that the total cost of the Biosolids Digester Facilities Project will not be higher than, or that the ultimate completion date of the project will not be later than, currently estimated. See also “ – Potential Changes to SSIP Projects” below and “RISK FACTORS – Cost of SSIP Projects; Timely Completion of SSIP Projects” and “– Construction Related Risks.” 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 M anager, 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.
In an effort to mitigate the significant increase in project costs, the SFPUC has conducted additional efforts to reconfirm objectives and re -scoped projects as necessary, and reprioritized and delayed bidding of certain construction contracts to later years within the 2024 Capital Plan.
Potential Changes to SSIP Projects
Potential changes to the scope, schedule and budget of the projects and various unexpected events could affect the delivery of components of the SSIP. Such factors include, without limitation, the following:
• market conditions and the bidding environment for construction costs and materials due to external factors including, but not limited to, the COVID-19 pandemic and global conflicts; • market conditions for financing the SSIP;
• changes in the legal and regulatory requirements affecting the Wastewater Enterprise and the SSIP (see “REGULATORY MATTERS”);
• the disc overy 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 older facilities and accurate as-built records are not always available;
• the discovery of unforeseen site conditions associated with utility conflicts;
63 • unexpected failure of aging infrastructure or major equipment that wa rrant expedited repair or replacement;
• 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 and scope additions;
• 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 also “RISK FACTORS – Cost of SSIP Projects; Timely Completion of SSIP Projects ” and “ – Construction Related Risks.”
FINANCING PLAN FOR WASTEWATER ENTERPRISE CAPITAL PROGRAM Long Term Financing of Capital Program
Pursuant to the Wastewater Enterprise’s 10-year financial plan for Fiscal Years 20 23-24 to 2032-33 (the “2024 Financial Plan”), which is based on the 2024 Capital Plan, and which was adopted by the SFPUC Commission on February 14, 2023, it is projected that long-term debt financing will fund approximately $3.536 billion of the 2024 Capital Plan. Revenue (pay- as-you-go) funding is projected to provide approximately $1.285 billion of funds and capacity fees is projected to provide approximately $ 57.6 million of the remaining portion of the 2024 Capital Plan.
Long-term debt financing is expected to be comprised primarily of Additional Bonds, Parity Loans and the WIFIA Loans. See “PLAN OF FINANCE,” “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. The SFPUC may issue Commercial Paper Notes or make draws on the U.S. Bank Credit Facility. See “OBLIGATIONS PAYABLE FROM NET REVENUES – Subordinate Debt and Interim Funding Program.” Interim funding program obligation s 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 February 1, 2023, the SFPUC had approximately $552.9 million principal amount of Commercial Paper Notes outstanding and no Revolving Notes outs tanding. Approximately $___ * million of principal amount of the
Commercial Paper Notes will be refunded with proceeds of the 2023A Bonds within 90 days of the issuance of the 2023A Bonds, and approximately $___* million of principal amount of the Commercial Paper Notes will be refunded with proceeds of the 2023B Bonds within 90 days of the issuance of the 2023B Bonds. The SFPUC anticipates issuing additional Commercial Paper Notes and making draws directly on the U.S. Bank Credit Facility to provide inte rim financing for Wastewater Enterprise capital projects. See “OBLIGATIONS PAYABLE FROM NET REVENUES – Subordinate Debt and Interim Funding Program.”
* Preliminary, subject to change.
64 Sources and Uses of Funding the Capital Program
The table below sets forth the projected sources and use s of funds for the Wastewater Enterprise’s capital program, including the SSIP . Non -SSIP capital program categories include Renewal and Replacement projects, Treasure Island Capital Improvement projects and Wastewater Facilities and Infrastructure 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 2024 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. There was no rate increase in Fiscal Year 2022-23.
The 2024 Rate Study is ongoing and expected to be completed in May 2023 to inform future rate proposals. Although the 2024 Rate Study is not yet final, the SFPUC projects that retail sewer rates will increase annually by an average of approximately 9.0% to 10.0% from Fiscal Year 2023 -24 to Fiscal Year 2028- 29. Any future rate increases are subject to future Commission approval (and subject to the Board of Supervisors’ ability to reject rate increases). See “FINANCIAL OPERATIONS – Wastewater Enterprise Rates and Charges – 2024 Water and Wastewater Cost of Service Study.”
TABLE 11
WASTEWATER ENTERPRISE CAPITAL PROGRAM
FINANCING PLAN FOR FISCAL YEARS 2023-24 TO 2027-28
(IN THOUSANDS)(1)
2023-24 2024-25 2025-26 2026-27 2027-28
USES OF FUNDS
SSIP $778,535 $676,018 $590,233 $323,875 $151,669
Renewal and Replacement 95,309 148,720 172,124 170,727 174,026 Treasure Island Capital Improvements 111,660 39,001 1,896 0 0 Wastewater Facilities & Infrastructure 0 30,777 54,165 26,501 27,898 Total Uses $985,504 $894,516 $818,418 $521,103 $353,593
SOURCES OF FUNDS
Revenue Bonds/Parity Loans/WIFIA
Loans(2)
$890,195 $766,164 $687,612 $387,795 $217,733
Wastewater Revenues 88,980 122,657 125,111 127,613 130,165 Capacity Charge Revenues 6,329 5,695 5,695 5,695 5,695 Total Sources $985,504 $894,516 $818,418 $521,103 $353,593 ____________________
(1) Amounts set forth are projections. Actual results may differ materially from these projections. See “FORWARD-LOOKING STATEMENTS” above.
(2) Reflects anticipated long-term debt financing needs, which may come from the issuance of Additional Bonds, Parity Loans and/or WIFIA loans; specific amounts for each funding source are not currently available.
Source: SFPUC, Financial Services.
65 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 Annual Comprehensive Financial Report of the City and shown as enterprise funds . The City’s Annual Comprehensive 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.
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 responsibili ties including, but not limited to, (i) reporting upon level of effectiveness 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. and, as its subcontractor, Yano Accountancy Corporation , 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 SFPUC has implemented two recommendations from the report to coordinate with RBOC to determine the most effective method to comprehensively report project expenditures by funding source and uses of r evenue bond proceeds, as well as to comply with its policies regarding quality assurance audits. The next audit report of the SFPUC’s revenue bond program is expected in March 2023.
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
66 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.
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 subject to an y 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 requirements related t o 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 wi th 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 further 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 mand ated by applicable State or federal 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, a nd to take the results of each study into account when establishing rates, fees and charges, in accordance with State and federal laws; and
67 (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 rates 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 receiving 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 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, volume, 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 their 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 of 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 their designee; the Controller or their designee; the Director of the Mayor’s Office of Public Finance or their 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.
68 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 and adopted, among other things a systemwide 10% water use reduction target from Fiscal Year 2019-20 baselines (consisting of a 5% retail customer water use reduction and 13.7% wholesale water use reduction, for a co llective systemwide water -use reduction of 10%), and confirmed an effective date of April 1, 2022, for a mandatory temporary drought surcharge not-to-exceed a 5% increase of current volumetric water and wastewater rates for retail water and wastewater cust omers. In May 2022, the Commission increased the systemwide water use reduction target from Fiscal Year 2019- 20 baselines to 11% (consisting of a 5% retail customer water use reduction and 16% wholesale water use reduction, for a collective systemwide water-use reduction of 11%). 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.
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 portion of fixed costs associated with customer service and billing, which are the same for all customers . See “– Residential Users and “– Non-Residential Users.”
There was no rate increase in Fiscal Year 2022-23. A rate study is ongoing and expected to be completed in May 2023 to inform future rate proposals. See “– 2024 Water and Wastewater Cost of Service Study.” 2024 Water and Wastewater Cost of Service Study . The SFPUC is currently engaged in a water and wastewater cost of service study (the “2024 Rate Study”) that will set forth recommended water and wastewater rates appropriate to meet the SFPUC’s funding needs and achieve pricing objectives for the three-year period of Fiscal Year 2023-24 through Fiscal Year 2025-26. The 2024 Rate Study is expected to be completed in May 2023. Although the 2024 Rate Study is not yet final, the SFPUC projects that retail sewer rates will increase annually by an average of approximately 9.0% to 10.0% from Fiscal Year 2023-24 to Fiscal Year 2028-29.
The SFPUC is taking several measures to mitigate the risk of over -projecting volumes, which could potentially lead to revenue shortfalls. First, projections in the 2024 Rate Study are based on actual water usage for Fiscal Year 2022-23, which reflects decreased water usage due to the COVID -19 pandemic, conservation related to the recent drought, and observed population declines in San Francisco. Second, the projections in the 2024 Rate Study assume that the City never fully recovers from the decline in water usage caused by the pandemic and the resulting shift to remote work and declining daytime population. See “THE PUBLIC UTILITIES COMMISSION – COVID- 19 Pandemic and Other Recent Developments in the Local Economy.” Finally, instead of approving rate s for four years, as was done following the two prior rate studies, the SFPUC is considering approving a three year rate schedule to allow for a realignment of rates to observed sales volumes on a more frequent basis should further declines materialize.
Bifurcation of Wastewater Service Charges. The SFPUC’s wastewater system is a combined sanitary sewer and stormwater system. Within this combined system, stormwater comprises approximately 11% of the annual flows treated by the Wastewater Enterprise. The SFPUC’s existing rate structure reflects that of a traditional wastewater - only utility, assessing customers only based on their sanitary sewage contributions to the system. As part of the 2024 Rate Study, the SFPUC is considering revising sewer service charges to include both a sanitary sewer component and a stormwater runoff component. This approach will allow the SFPUC to recover costs related to collecting and treating stormwater runoff based on property characteristics that result in greater stormwater runoff, while sanitary sewer costs will continue to be based on customer sewer discharges. To support the implementation of the stormwater runoff charge, the SFPUC will also be initiating a stormwater credit program to offer bill discounts to customers that manage stormwater on their property through the use of green infrastructure. This change will bring the Wastewater
69 Enterprise’s rates more into line with the costs of providing service to its customers while simultaneously providing incentives for customers to manage stormwater on their properties 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 m ultiplying 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 uni ts 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.
TABLE 12
ADOPTED SINGLE-FAMILY AND MULTI-FAMILY RESIDENTIAL SEWER RATES FOR FISCAL YEARS 2018-19 TO 2022-23
Fiscal Year
Monthly
Service
Charge(1)
All Discharge
Units(1)
Projected
Average
Monthly Bill
(Single-Family)
Projected Average
Monthly Bill Per
Dwelling Unit
(Multi-Family) (2)
2018-19(3) $0.98 $13.06 $61.84 $52.02
2019-20(3) $2.19 $13.88 $65.76 $55.67
2020-21(3) $3.60 $14.89 $75.45 $63.24
2021-22(3) $5.21 $15.97 $75.48 $71.75
2022-23(1)(4) $5.21 $15.97 $75.48 $71.75
________________
(1) Temporary Drought Surcharge for volumetric rates in effect as of April 1, 2022 is projected to remain in effect through Fiscal Year 2024-25 and is expected to be bill neutral for customers that meet established conservation targets; the surcharge has been incorporated into the projected average monthly bill amount. (2) Amount for multi-family residential customers is assumed to be 1,250 cubic feet of water per month for 3 dwelling units. (3) Rates approved on April 10, 2018.
(4) There was no rate increase in Fiscal Year 2022-23. Fiscal Year 2022-23 rates remained the same as Fiscal Year 2021-22 rates.
Source: SFPUC, Financial Services.
The SFPUC’s Customer Assistance Program (“ CAP”) offers a 25% discount off wastewater charges for individually metered single-family residential customers with incomes below 200% of the Federal Poverty Level. As of December 31, 2022, approximately 6,200 residential customers received CAP discounts. In addition, the SFPUC’s Low-Income Non-Profit Housing Program offers a 15% discount off wastewater charges for residential customers in properties owned and operated by certain nonprofits and the SFPUC’s Community Housing Program offers a 50% discount off wastewater charges for certain single room occupancy hotels providing transitional housing to the homeless and general assistance recipients.
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.
70 TABLE 13
HISTORICAL AND ADOPTED NON-RESIDENTIAL DISCHARGE RATES
(PER DISCHARGE UNIT)
Fiscal Year
Volume charge
(per 100 cubic
feet)
Suspended solids
(per pound)
Oil/Grease
(per pound)
Chemical Oxygen
Demand
(per pound)
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
2022-23(2) 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. (2) No rate increase in Fiscal Year 2022-23.
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.
TABLE 14
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
2022-23(2) $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. (2) No rate increase in Fiscal Year 2022-23.
Source: SFPUC, Financial Services.
As part of the 2024 Rate Study, the SFPUC is considering revising wastewater service charges to include both a sanitary sewer component and a stormwater runoff component, which would allow the SFPUC to recover costs related to collecting and treating stormwater runoff based on property characteristics that result in greater stormwater runoff. If approved by the Commission, the monthly sewer service attributable to stormwater runoff will no longer be applicable. See “– 2024 Water and Wastewater Cost of Service Study.” 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).
71 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 2017-18 to 2021-22.
TABLE 15
ANNUAL BILLED DISCHARGE BY CATEGORY
FOR FISCAL YEARS 2017-18 TO 2021-22
Fiscal Year
Volume
(Hundred Cubic
Feet)
Suspended Solids
(Thousand
Pounds)
Oil and Grease
(Thousand
Pounds)
Chemical Oxygen
Demand
(Thousand
Pounds)
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
2021-22 20,958,241 36,523 11,127 89,541
____________________
Source: SFPUC, Financial Services.
TABLE 16
ANNUAL SEWER BILLINGS BY USER TYPE
FOR FISCAL YEARS 2017-18 TO 2021-22
(IN THOUSANDS)
User Type 2017-18 2018-19 2019-20
2020-21 2021-22
Multi-Family Residential $126,789 $133,454 $146,630 $153,697 $161,553 Single-Family Residential 76,534 79,971 89,688 95,297 96,687 Subtotal Residential $203,323 $213,425 $236,318 $248,994 $258,240
Commercial $89,802 $90,781 $86,237 $60,490 $78,207
Municipal Customers 7,163 7,517 7,400 6,114 8,829
Suburban 4 3 3 3 2
Total $300,292 $311,726 $329,958 $315,601(1) $345,278(2) ____________________
(1) Overall decrease in Fiscal Year 2020-21 billings primarily due to decrease in commercial sanitary flow related to the effects of the COVID-19 pandemic.
(2) Increase in Fiscal Year 2021-22 billings primarily due to planned rate increase implemented on July 1, 2021; also includes two months of mandatory temporary drought surcharge of 5% effective as of April 1, 2022.
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, from approximately $631,000 in March 2020 to approximately $8.7 million in July 2022. Such increase is primarily driven by a moratorium on water shutoffs, liens and other collections processes which allowed customers to accrue large arrearages without any financial penalties. As of September 2022, the SFPUC has discretion to restart
72 severance and liens processes to multifamily residential accounts carrying balances greater than $25,000 which are 90 days or more past due. See “THE PUBLIC UTILITIES COMMISSION – COVID-19 Pandemic and Other Recent Developments in the Local Economy – Collections and Delinquencies.” Current accounts receivables are shown in the following table . These amounts exclude receivables from municipal customers.
TABLE 17
ACCOUNTS RECEIVABLES AGING REPORT
AS OF JUNE 30, 2022
Period Amount Percent of Total
Percent of Total
Fiscal Year 2021-22
Revenues(1)
Current $18,009,467 61.11% 5.23%
31 – 60 Days 2,404,177 8.16 0.70
61 – 90 Days 2,968,604 10.07 0.86
Over 90 Days(2) 6,088,739 20.66 1.77
Total $29,470,987 100.00%
Credit Balances (1,303,276)
Total Aged Receivables $28,167,711
Less Allowance For Doubtful Accounts (4,839,863)
Accounts Receivable, Net of Allowance $23,327,848
____________________
(1) Revenues consists of sewer service charges only.
(2) Includes approximately $1. 1 million in outstanding tax liens and balances forwarded to the City Treasurer’s Bureau of Delinquent Revenue for collection.
Source: SFPUC, Financial Services.
Once an account is delinquent, a series of notices are sent to the customer and if payment is still not made, action to shutoff 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 . The following table shows a five -year history of write -offs for uncollectible accounts, excluding municipal customers:
73 TABLE 18
WRITE-OFFS FOR UNCOLLECTIBLE ACCOUNTS
FISCAL YEARS 2017-18 TO 2021-22
Fiscal Year Amount
2017-18 $132,589
2018-19 2,232
2019-20 1,631
2020-21 1,801
2021-22(1) 0
____________________
Source: SFPUC, Financial Services.
(1) No amount for write-offs for uncollectible accounts in Fiscal Year 2021-22 due in part to the suspension in collection activities from the COVID-19 emergency.
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 Cla ssification code, which accounts for wastewater strength. For a single residential customer with a 5/8” water meter, the wastewater capacity charge fee for Fiscal Year 2021-22 is $6,280. The capacity charge is adjusted 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 1.5% of revenues from Fiscal Year 2019-2020 through 2021-
22. Operating and Maintenance Expenses
“Operating and Maintenance Expenses ” cover the general operational expenses of the Wastewater Enterprise. These expenses include labor and employment benefits, contractual services, materials and supplies, depreciation, general and administrative, serv ices 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.
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 undertaken by each enterprise and information available.
For Fiscal Years 2020-21 and 2021-22, the SFPUC allocated $29.5 million and $32.2 million respectively, in administrative costs to the Wastewater Enterprise. For Fiscal Year 2022-23, the SFPUC has budgeted $37.6 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 2020-21 and 2021- 22, t hese service deliveries generated approximately $5.1 million and $5.9 million in revenues, respectively. Over the past five Fiscal Years, including Fiscal Year 202 1-22, revenues from service deliveries have averaged approximately 1.6% of
74 Wastewater Enterprise revenues. For Fiscal Year 2022-23, the SFPUC has budgeted $8.0 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 2020-21 and 2021-22, these charges totaled approximately $38.3 million and $39.6 million, respectively. For Fiscal Year 2022-23, the SFPUC has budgeted $35.7 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 Subordinate Obligations Payable from Net Revenues.”
Financial Management Policies
The SFPUC makes no representation that the following policies and targets 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 or that targets will be met.
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.
(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 contingencies, the SFPUC will aim to adopt budgets, rates and financial plans that generate revenues such that debt service coverage calculated on an Indenture basis (including certain available fund balances) will be at least 1.35 times and debt service coverage calculated on a current basis (Net Revenues divided by debt service on Bonds and SRF Loans) will be at least 1.10 times.
75 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 improvements. 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 10- year financial pla nning 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.
Affordability Target. The SFPUC targets keeping the average combined monthly bill to retail customers for water and wastewater servic es below 2.5% of San Francisco median household income. The SFPUC projects continuing to be able to meet this target throughout its current planning horizon.
The SFPUC makes no representation that its policies and targets 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 or that targets will be met.
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, 2023, to be 528 days (most recent data available).
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, 2023. The Wastewater Enterprise’s pooled deposits and investments accounted for approximately $180.3 million, or approximately 1.25 %, 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.
76 TABLE 19
CITY POOLED INVESTMENT FUND
(AS OF JANUARY 31, 2023)
Investments
Book Value
(millions)
U.S. Treasuries $ 4,079.4
Federal Agencies 5,705.5
Public Time Deposits 40.0
Negotiable CDs 2,020.0
Commercial Paper 535.3
Money Market Funds 1,383.7
Supranationals 711.0
Total $14,474.9
____________________
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, set tles, 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
77 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 case 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 cont ained 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 En terprise for Fiscal Years 2020-21 and 2021-22, 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 “APPENDIX B – SFPUC
WASTEWATER ENTERPRISE FINANCIAL STATEMENTS.”
78 TABLE 20
HISTORICAL REVENUE, OPERATING & MAINTENANCE EXPENSE
AND DEBT SERVICE COVERAGE FOR FISCAL YEARS ENDED JUNE 30 (IN THOUSANDS)(1)
2018 2019 2020 2021 2022
OPERATING & INVESTMENT REVENUE
Sewer Service Charges(2) $303,037 $317,761 $331,721 $316,766 $354,526 Other Revenues(3) 6,273 6,443 6,511 5,719 7,037
Investing Activities(4) 2,317 20,701 12,137 (1,187) (7,087) Capacity Charges(5) 5,786 6,877 5,896 3,710 6,280
Total Revenues $317,413 $351,782 $356,265 $325,008 $360,756
OPERATING & MAINTENANCE EXPENSE
Salary and Fringe Benefits(6) $91,977 $80,693 $91,013 $90,449 $63,456 Contractual Services 16,061 19,040 19,357 18,861 19,115 Materials and Supplies(7) 9,446 9,853 8,991 9,091 11,844 Depreciation(8) 55,591 60,033 62,967 72,018 77,573
Services of Other Departments 36,374 36,629 37,309 38,313 39,645 General and Administrative (9) 3,958 6,470 4,969 3,854 6,353 Other(10) 25,499 47,095 37,653 58,151 37,024
Total Operating Expenses $238,906 $259,813 $262,259 $290,737 $255,010
OPERATING AND INVESTMENT INCOME $78,507 $91,969 $94,006 $34,271 $105,746
COVERAGE CALCULATION(11)
Operating and Investment Income $78,507 $91,969 $94,006 $34,271 $105,746 + Adjustment to Investing Activities(12) (489) (8,047) 2,950 4,356 8,422 + Depreciation & Non-Cash Expenses 60,072 68,568 68,603 78,368 77,806 + Changes in Working Capital(13) 18,336 (2,125) 523 (8,596) (36,470) = “Net Revenues” 156,426 150,365 166,082 108,399 155,504 + Other Available Funds(14) 153,596 103,281 215,722 197,778 155,331 Funds Available for Bond Debt Service $310,022 $253,646 $381,804 $306,177 $310,835 Bond and Loan Debt Service(17) $47,003 $60,347 $62,797 $82,066 $86,619 DEBT SERVICE COVERAGE (15)
Indenture Basis (14)(17)(19) 6.60x 4.20x 6.08x 3.73x 3.59x Current Basis (18)(19) 3.33x 2.49x 2.64x 1.32x 1.80x
____________________
(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) Increase in Fiscal Year 2021-22 mainly due to rate increase effective July 1, 2018 in addition to a decrease in allowance for uncollectible accounts. Also includes two months of mandatory temporary drought surcharge of 5% effective as of April 1, 2022. (3) Includes approximately $476,000 in non-operating revenues in Fiscal Year 2021- 22 only. Does not include non-operating revenues for prior Fiscal Years.
(4) Decrease in Fiscal Year 2021 -22 is mainly due to unrealized loss in City Treasury pooled investments attributed to the decline in market value of investments and rising interest rates.
(5) Increase in Fiscal Year 2021-22 due to 58.9% increase in average permit price and a 5.4% increase in permits issued attributed to new developments on Treasure Island and the City’s re-opening and eliminating local restrictions on business operations. (6) Decrease in Fiscal Year 2021-22 mainly related to GASB 68 pension adjustment offset by a 4% increase in cost of living adjustment (COLA).
(7) Increase in Fiscal Year 2021-22 mainly due to increase in water sewage treatment supplies expenses for Bayside Operations. (8) Increase in Fiscal Year 2021-22 is primarily due to more capitalized assets put in service.
79 (9) Increase in Fiscal Year 2021-22 mainly due to increase in judgement claims and expenses. (10) Decrease in Fiscal Year 2021-22 mainly due to decrease in capital project related expenses. (11) The Indenture defines “Net Revenues” on a cash basis. (12) Represents adjustments to show investing activities on a cash basis. (13) Represents adjustments to bring net income to a cash basis . Decrease in Fiscal Year 2021 -22 mainly related to GASB 68 pension adjustment.
(14) 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.
(15) Coverage does not include debt service on subordinate obligations, including the Wastewater Enterprise’s share of lease payme nts associated with the 2009 Golden Gate COPs and debt service on Commercial Paper Notes. (16) 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 Annual Comprehensive Financial Reports.
(17) 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.”
(18) Calculated as Net Revenues divided by debt service on Bonds and Parity Loans. (19) 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.
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.
(Remainder of Page Intentionally Left Blank)
80 TABLE 21
PROJECTED REVENUE, OPERATING AND MAINTENANCE EXPENSE
AND DEBT SERVICE COVERAGE FOR FISCAL YEAR ENDING JUNE 30 (IN THOUSANDS)(1)
2023 2024 2025 2026 2027
REVENUE
Sewer Service(2) $373,476 $415,381 $438,540 $485,739 $529,429 Capacity Charges 1,901 5,371 5,544 5,695 5,695
Interest Income(3) 3,840 1,654 2,368 2,237 2,208
Other Miscellaneous Income 1,913 1,953 1,998 2,042 2,096 Total Revenues $381,130 $424,359 $448,450 $495,713 $539,428
OPERATION AND
MAINTENANCE COSTS OF THE
WASTEWATER ENTERPRISE(4) $199,277 $204,700 $210,932 $217,367 $224,012 less FUND BALANCE BUDGETED
AND APPROPRIATED $(25,073) -- -- -- --
NET REVENUES(5) $206,926 $219,659 $237,518 $278,346 $315,416
plus OTHER AVAILABLE
FUNDS(6) $132,697 $155,700 $194,064 $183,333 $180,958
FUNDS AVAILABLE FOR DEBT
SERVICE $339,623 $375,359 $431,582 $461,678 $496,375
DEBT SERVICE(7) $98,738 $94,553 $119,845 $149,843 $207,716
DEBT SERVICE COVERAGE(8)
Indenture Basis(9) 3.44x 3.97x 3.60x 3.08x 2.39x Current Basis(10) 2.10x 2.32x 1.98x 1.86x 1.52x ____________________
(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. (2) Reflects annual rate increases of 0% for Fiscal Year 2022-23, 9% for Fiscal Year 2023-24 and 9% for Fiscal Year 2024-25, 9% for Fiscal Year 2025-26, and 10% for Fiscal Year 2026-27. See “– Assumptions Used in Projections.” (3) Assumes a 1.2% 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 – Rat e Covenants – Debt Service Coverage.” Does not reflect issuance of the 2023 ABC Bonds and the refundings effected thereby. 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, 5% interest rate, and 30 months of capitalized interest. The actual size and timing of issuances will depend on market conditions and other factors as determined by the SFPUC. "Debt Service" is net of Federal interest subsidy payments. In accordance with the Indenture, principal of the 2021AB Notes has been designated as Excluded Principal and 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, ” 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.”
81 (10) Calculated as Net Revenues divided by debt service on Bonds and Parity Loans.
Source: SFPUC, Financial Services.
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 auditors.
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. New rates are expected to be approved by the Commission in spring 2023 for three years beginning Fiscal Year 2023-24. Projected revenues assume rate increases of 9% in Fiscal Years 2023-24 through 2025-26 and 10% in Fiscal Year 2026-27. See “FINANCIAL OPERATIONS – Wastewater Enterprise Rates and Charges – 2024 Water and Wastewater Cost o f Service Study.” The 5% drought surcharge on volumetric rates, effective April 1, 2022, is projected to continue through Fiscal Year 2023-24; however, the SFPUC plans to evaluate the final snowpack and State orders in April 2023 before taking any actions to end the water shortage emergency declaration. For more information, see “ THE PUBLIC UTILITIES COMMISSION – COVID-19 Pandemic and Other Recent Developments in the Local Economy – Recent Drought.” Projected Operation and Maintenance Costs of the Wastewater Enterprise . Operation and Maintenance Costs of the Wastewater Enterprise are projected to grow 2.72% for Fiscal Year 2023-24, grow 3.04% for Fiscal Year 2024-25, grow 3.05% for Fiscal 2025 -26, and grow 3.06% for Fiscal Year 2026- 27. The increases in Fiscal Year 2023-24 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 2010B Bonds (net of expected Build America Bonds interest subsidy payments relating to 2010B Bonds), the 2016AB Bonds, the 2018A Bonds, the 2018B Bonds, the estimated debt service on the 2021AB Notes, the 2021AB Bonds (net of capitalized interest), the 2022B Bonds, Additional Bonds, seven Parity Loans, and the two WIFIA Bonds. Does not include actual debt service for the 2023ABC Bonds.
Following the issuance of the 2023ABC Bonds, the SFPUC anticipates that it will issue Additional Bonds in Fiscal Years 2023 -24, 2025- 26, and 2026 -27 to fund approximately $2.2 billion of SSIP and other Wastewater Enterprise capital program projects. The projected debt service for the 2023ABC Bonds assumes borrowing rates of
5.0%, 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 2023ABC Bonds assumes borrowing rate of 5.0%, 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.
82 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 2023ABC 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 2023ABC 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 2023ABC Bonds are advised to consider the following factors, among others, and to review this entire Official Statement to obtain information esse ntial to the making of an informed investment 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 2023ABC Bonds or adversely affect the ability of the SFPUC to make timely payments of principal of or interest on the 2023ABC 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.
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 future 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, maint ain 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 2023ABC Bonds. The Reserve Accounts established with respect to other Series of Bonds do not secure the 2023ABC Bonds.
Payment of the 2023C Bonds on the Initial Mandatory Tender Date No assurance can be given that the SFPUC will have sufficient funds on hand on the Initial Mandatory Tender Date for the 2023C Bonds to pay the Purchase Price of the 2023C Bonds on such date. In the event the SFPUC does
83 not have sufficient funds on hand to pay the Purchase Price of the 2023C Bonds on the Initial Mandatory Tender Date, the SFP UC’s ability to pay the Purchase Price will depend on the SFPUC’s ability to issue and sell refunding obligations to refund the 2023C Bonds on or prior to such date or to remarket the 2023C Bonds. Failure by the SFPUC to pay the Purchase Price of the 2023C Bonds on the Initial Mandatory Tender Date would not constitute an Event of Default under the Indenture but would increase the amount of interest payable by the SFPUC on the 2023C 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 matur ity dates 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 BDFP 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 – EVENTS OF DEFAULT AND REMEDIES OF BONDOWNERS.”
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 facilities; (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.”
84 Risks Related to Net Revenues
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 certai n “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.”
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 electorate 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, 20 06. 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 r eliability of the SFPUC to provide 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 principal 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. See “THE WASTEWATER ENTERPRISE – Combined
85 Sewage and Stormwater System.” Aging sewers, if left unaddressed, c ould potentially result in increasing system failures, sinkholes in the street, reduced system reliability, regulatory violations and possibly risks to public health and safety and the environment.
The SFPUC uses a risk -based approach to improve sewers and has rehabilitated and/or replaced approximately 11.9 miles per year of aging sewer lines since 2011. The capital program is intended to help increase system reliability through equipment and facility improvement including, among other things, increasing sewer inspections and condition assessments in order t o more effectively prioritize areas of pipeline improvements. 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.
Limited Redundancy. Many critical Wastewater Enterprise facilities must remain constantly operational to collect and treat sewage and stormwater flows and meet relevant regulatory requirements . See “REGULATORY MATTERS.” Certain of these Wastewater Enterprise facilities and sy stems 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 S outheast 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’s capital program is addressing certain redundancy issues, including power supply redundancy for the three t reatment plants, and rehabilitation and addition of redundant pumps as necessary at major pump stations.
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 an d 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 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 operat ing expenses of the Wastewater Enterprise.
Older facilities may have an increased risk of failure in the event of an earthquake . The capital program includes recently completed, 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.” Natural and Man-Made Disasters; Flooding. Natural disasters such as flooding, landslides and fires, and man-made disasters or accidents such as 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 ability of the Wastewater Enterprise to provide services and/or collect Revenues. See “ – Unanticipated Decreases in Water Sales Volumes” and “– Potential Impacts of Climatic Change and Sea Level Rise.”
86 For example, with respect to flooding in particular, major rainstorms in San Francisco that exceed the capacity of the combined storm drainage/sewer system can result in flooding and cause property damage, especially in some low-lying areas with structures built on or near land that was originally creeks or bays. In the last 10 years, severe rainstorms caused flooding in certain low-lying areas and resulted in some property damage in 2017, 2021, the end of 2022 and the beginning of 2023. Although such rainstorms and flooding have not caused any significant damage to the Wastewater Enterprise’s facilities or resulted in any significant liability to the SFPUC, there can be no assurance that future rainstorms and flooding will not adversely impact the Wastewater Enterprise. For more information regarding recent storms and flooding, see “THE WASTEWATER ENTERPRISE – System Capacity.” 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 . C hanges in the scope and standards for public 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.”
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 SFPUC, including the Wastewater Enterprise , and/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
87 and/or damage from cybersecurity incidents or cyber-attacks, the City invests in multiple forms of cybersecurity and 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 c ritical 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 cybersecurity 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 regulato ry 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 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 industry standard cybersecurity solutions, and the SFPUC’s technologies are continuously tested as part of an internal vulnerability program. The SFPUC’s technical controls 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 Cybersecurity Program is periodically reviewed for effectiveness by independent consultants, most recently in June 2022. In addition, pursuant to the SFPUC’s policies, the City Services Auditor and independent cybersecurity auditors performed extensive penetration and vulnerability testing on the SFPUC’s business and control networks.
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 c yber-losses and requires its technology vendors to purchase technology errors and omissions insurance coverage.
Cost of SSIP Projects; Timely Completion of SSIP Projects 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 variety of reasons,
88 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.” 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 systems 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.
89 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.
See also “– Cost of SSIP Projects; Timely Completion of SSIP Projects ” and “SEWER SYSTEM IMPROVEMENT PROGRAM – Biosolids Digester Facilities Project” and “– Potential Changes to SSIP Projects.” 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 right-of-way 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.
Climate Change, Risk of Sea Level Rise and Flooding Damage Impact on City of San Francisco. Numerous scientific studies on global climate change show that, among other effects on the global ecosystem, sea levels will rise, and 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 San Francisco 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, and 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
90 Capital Planning, Adopted September 2014, Revised December 2015, and Updated January 2020 and finalized 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, including working with Lawrence Berkeley National Laboratory to understand the effect of climate change on future storms for the Bay Area. Among the findings is that storm-total precipitation for the largest types of storms is expected to produce up to 17% more rainfall by 2050 and up to 37% more rainfall by 2100. For the smaller storms, the change is expected to be even larger with increases of up to 57% more rain by 2050 and 67% more rainfall by 2100. The final written reports are expected by late spring 2023. The City is transitioning toward efforts that would cons olidate and coordinate sea level rise adaptation and overall resilience planning so that City departments can maximize efficiency and the co-benefits of investment dollars. The City has developed and continues to refine the governance structure of the Clim ate Resilience Program ( also known as ClimateSF) to improve how the City manages, finances and implements climate resilience projects and/or programs . For the City, climate resilience refers to a range of coordinated actions that eliminate greenhouse gas emissions and adapt its 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, i ncluding 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 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 th e 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 2023ABC 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
91 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 ( e.g., intensity, duration or frequency or certain combinations thereof) could substantially alter the sewer system’s stormwater and wastewater collection and storage functions. As described above under “– Impact on City of San Francisco,” the SFPUC, in partnership with SFO, the Port of San Francisco and the Office of Resilience and Recovery, is finalizing work with Lawrence Berkeley National Laboratory who has completed their innov ative modeling that is being used to analyze the effects of climate change on extreme precipitation in the San Francisco region. A final report is expected by summer 2023.
Projected levels for sea level rise and rising tides is expected to result in a bac kflow (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 started 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 bac kflow into the system. In addition, the SFPUC is working collaboratively with various other City agencies on immediate-, mid- and long-term solutions focused on city-wide perimeter protection from sea level rise and rising tides.
In 2016, the SFPUC completed a city -wide flood resilience analysis to characterize the impact of storms, develop a risk-based framework to identify and prioritize 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. These investments are designed to increase collection system conveyance capacity in low lying areas subject to flood risk in the SFPUC’s design storm. In 2017, in conjunction with other City departments and industry experts, the SFPUC developed a suite of programmatic strategies for flood resilience intended to reduce flood risk citywide from storms that exceed the capacity of the SFPUC’s stormwater collection system. However, the effect of climate change on future storms will be significant, leading to more powerful storms that exceed the capacity of most urban conveyance systems across the United States, including the SFPUC’s system. The results of the extreme precipitation study will help City agencies understand and plan for these larger storms, which will require strategies and solutions that extend beyond the SFPUC’s system.
The SFPUC has developed a 100-Year Storm Flood Risk Map (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 “10 0- year storm” means a storm with a 1% chance of occurring in a given year. The SFPUC used computer modeling that simulated flooding occurring Citywide under a 100 -year storm to identify such parcels. The purpose of the Flood Map is to inform existing and future property owners about flood risk on their properties and promote resilience. The Flood Map is based on past hydrology patterns and does not reflect recent developments, such as the study on extreme precipitation in the San Francisco region described above, or future projected hydrology patterns.
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 significantly impacted the City and resulted in prolonged stay-at-home orders that impacted each of the SFPUC’s enterprises, including the Wastewater
92 Enterprise. In addition to certain direct impacts on the operations and finances of the Wastewater Enterprise, COVID- 19 has had significant and varied impacts on general economic a ctivity 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, a s well as delays in delivery of projects and equipment. The Wastewater 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 COVI D-19’s disruption of supply chains. Additionally, such disruptions may result in schedule delays for the Wastewater Enterprise’s capital projects or increased costs for such projects.
Green Bonds
The 2023A Bonds and the 2023C 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 2023A Bonds and the 20 23C Bonds as “Green Bonds” is to allow owners of such 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 2023A Bonds or the 2023C Bonds to fulfill the environmental and sustainability criteria of particular investors.
The 2023A Bonds and the 2023C 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 2023A Bonds or the 2023C 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 2023A Bonds or the 2023C 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.
Economic, Political, Social and Environmental Conditions Changes in economic , political, social, or environmental conditions on a local, S tate, 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. See also “PROJECTED OPERATING RESULTS.”
93 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.
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.
94 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 su bject 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 cas es 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 2023ABC Bonds, that the 2023ABC Bonds 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 2023ABC Bond s will be similarly qualified . See “APPENDIX C – PROPOSED FORM 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.
Loss of Tax Exemption/Risk of Tax Audit of Municipal Issuers As discussed under “TAX MATTERS,” interest on the 2023ABC Bonds could fail to be excluded from the gross income of the owners thereof for purposes of federal income taxation retroactive to the date of the issuance of the 2023ABC Bonds as a result of future acts or omissions of the SFPUC in violation of its covenants to comply with requirements of the Internal Revenue Code of 1986, as amended. Should such an event of taxability occur, the 2023ABC Bonds are not subject to redemption or any increase in interest rate and will remain outstanding until maturity.
The IRS has initiated an expanded program for the auditing of tax -exempt securities issues, including both random and targeted audits. It is possible that the 2023ABC Bonds could be selected for audit by the IR S. It is also possible that the market value of the 2023ABC Bonds might be affected as a result of such an audit of the 2023ABC Bonds (or by an audit of similar securities).
Change in Tax Law
As discussed under “TAX MATTERS,” current and future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the 2023ABC Bonds to be subject, directly or indirectly, in whole or in part, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent beneficial owners from realizing the full current benefit of the tax status of such interest.
Failure to Maintain Credit Ratings
Certain rating agencies have as signed ratings to the 2023ABC 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 of the 2023ABC Bonds. The SFPUC undertakes no obligation to maintain its current credit ratings on the 2023ABC 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 2023ABC Bonds or, if a secondary market exists, that the 2023ABC Bonds can be sold for any particular price. Occasionally, because of general market
95 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 substantially 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 resul ts 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 2023ABC Bonds. There may be other risks inherent in ownership of the 2023ABC 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 2023ABC 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 replac ed 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 EPA and the Regional Water Quality Control Board issue 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
96 regarding generic water quality standards compliance and control plan provisions. The appeal is currently pending before the United States Court of Appeals, Ninth Circuit. 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 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 floodi ng in low-lying areas. Under the settlement the SFPUC is required to construct three flood resilience capital projects already included in the Wastewater Enterprise capital improvement plan, at a cost of approximately $ 632 million, and to implement specified storm response activities. The EPA’s National Enforcement Investigations Center conducted an inspection of the SFPUC’s facilities in early 2022 and issued an inspection report in June 2022. The SFPUC responded to the report within the required timeframe. 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
To address the unique characteristics of combined sewer systems, the EPA adopted the Combined Sewer Overflow Control Policy (the “CSO Control Policy”) in 1994. The CSO Control Policy established a consistent national approach for controlling discharges from combined sewer overflows 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 Control Policy created a two-phased process for combined sewer systems. During the first phase, the permittee is required to implement nine minimum technology-based controls that can be used to address problems with combined sewer overflows without extensive engineering studies or significant construction costs, prior to the implementation of long -term control measures (the “ Nine Minimum Controls ”), as specified in the CSO Control Policy. In addition, the permittee 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 a multi-billion dollar long-term control plan consistent with the CSO Control Policy requirements. This plan resulted in, among other improvements, substantial increases in treatment and storage capacity, including construction transport storage boxes. The SFPUC continues to maintain and operate the combined sewer system consistent with its long-term control plan and the CSO Control Policy’s Nine Minimum Controls.
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.
97 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 such as perfluoroalkyl substances (“PFAS”)) 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 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 esta blished 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.
98 The EPA has listed Yosemite Creek (or Slough) as a “Superfund” site under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ( “CERCLA”). The site (which lies adjacent to Hunters Point and the former U.S. Navy Shipyard) is approximately 1600 feet long and 400 feet wide, and depending on tide, is either a mudflat or shallow submerged waterway. Studies have been conducted since the 1990s to better understand the nature of the sediments and contamination at the site, and to develop a remediation plan for the removal of such material. The primary contaminants of concern are PCBs and lead. In 2013, the EPA estimated the cost for site remediation at $15.5 million on a present value basis, but the SFPUC can give no assurance whether such amount is or will be the final clean -up cost estimate as such amount is subject to the completion of additional studies and the EPA’s adoption of a final remediation plan. In 2016, the EPA determined that additional studies were required to develop the cleanup plan, and those studies were expected to be completed in late 2023. The EPA named the City a potentially responsible party under CERCLA for the cleanup because of the role the City’s combined sewer system may have played in transporting contaminants to the creek. The City, along with other potentially responsible parties, is participating in a voluntary nonbinding mediation to allocate financial responsibility for the cleanup. The SFPUC cannot reasonably predict whether or to what extent it may be financially responsible for remediation of the contamination, or whether such cleanup obligations will have any adverse impact on the financial condition of the Wastewater Enterprise or 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 $8.1 million in pollution remediation liability as of June 30, 2021, and June 30, 2022, respectively.
Contaminants of Emerging Concern . Contaminants of emerging concern include alkyl phenols, flame retardants, hormones, personal care products, pharmaceuticals, steroids, PFAS and perfluorooctane sulfonate (“PFOS”), microplastics and pesticides, which typically enter municipal wastewater thr ough 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 indicate that its resilience to the effects of nutrient enrichment may be declining. In 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 in future permits to prevent further increases in nutrient loads from municipal wastewater treatment plants. In summer 2022, San Francisco Bay experienced a very large algal bloom that resulted in significant fish die -offs. Monitoring of this bloom indicated that, while nitrogen di scharges from municipal wastewater treatment plants did not cause the bloom, they contributed to the size and duration. In response to this bloom, the San Francisco Bay Regional Water Quality Control Board has stated its intent to require reductions in nitrogen loads from municipal wastewater treatment plants, including the Southeast Treatment Plant. The details of these requirements are 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 working with the Regional Water Quality Control Board on these future regulations.
Other Regulatory Agencies with Jurisdiction Over the Wastewater Enterprise Other regulatory agencies with approval or oversight responsibilities over the s iting, 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 Fisheries Service, the United States Fish and Wildlife Service, the California Department of Fish and Wildlife, and the U.S. Army Corps of Engineers.
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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 Quality 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 local 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 referendum, 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 cons tructed, or a change in ownership has occurred after the 1975 assessment.” The full cash value may 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 declinin g property value caused by damage, destruction, or other factors.
The tax rate limitation referred 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.
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.
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Proposition 218. Proposition 218, a State ballot initiative known as the “Right to Vote on Taxes 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 applicability 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 f ee 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 connec tion 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 pres entations 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 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 a bsent other authority could result in retroactive reduction in any existing taxes, assessments, fees 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 char ges. 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, … provide 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 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
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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 implementi ng 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, 2 010 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 purp oses, 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 X IIID.” 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.
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 is sue debt or to enact rate increases, affect the financial condition or operation of the Wastewater Enterprise or implement other changes affecting the financial condition or operations of the SFPUC and the Wastewater Enterprise. See “RISK FACTORS – Initiative, Referendum and Charter Amendments and Future
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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 rat es and charges, or in any way questioning or affecting:
(i) the proceedings under which the 2023ABC Bonds are to be issued; (ii) the validity of any provision of the 2023ABC 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 2023ABC Bonds as they become due.
TAX MATTERS
Federal Tax Status . In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, and Alexis S. M. Chiu, Esq., San Francisco, Co-Bond Counsel, subject, however to the qualifications set forth below, under existing law, the interest on the 2023ABC Bonds is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal individual alternative minimum tax. Interest on the 2023ABC Bonds may be subject to the corporate alternative minimum tax.
The opinions set forth in the preceding paragraph are subject to the condition that the SFPUC comply with all requirements of the Internal Revenue Code of 1986, as amended (the “Tax Code”) that must be satisfied subsequent to the issuance of the 2023ABC Bonds in order that the interest thereon be, and continue to be, excludable from gross income for federal income tax purposes. The SFPUC has made certain representations and covenants in order to comply with each such requirement. Inaccuracy of those representations, or failure to comply with certain of those covenants, may cause the inclusion of such interest in gross income for federal income tax purposes, which may be retroactive to the date of issuance of the 2023ABC Bonds.
Tax Treatment of Original Issue Discount and Premium. If the initial offering price to the public at which a 2023ABC Bond is sold is less than the amount payable at maturity thereof, then such difference constitutes “original issue discount” for purposes of federal in come taxes and State of California personal income taxes. If the initial offering price to the public at which a 2023ABC Bond is sold is greater than the amount payable at maturity thereof, then such difference constitutes “bond premium” for purposes of federal income taxes and State of California personal income taxes.
Under the Tax Code, original issue discount is treated as interest excluded from federal gross income and exempt from State of California personal income taxes to the extent properly allocable to each owner thereof subject to the limitations described in the subsection captioned “Federal Tax Status” above . The original issue discount accrues over the term to maturity of the 2023ABC Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straight -line interpolations between compounding dates). The amount of original issue discount accruing during each period is added to the adjusted basis of such 2023ABC Bonds to determine taxable gain upon disposition (including sale, redemption, or payment on maturity) of such 2023ABC Bond. The Tax Code contains certain provisions relating to the accrual of original issue discount in the case of purchasers of the
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2023ABC Bonds who purchase the 2023ABC Bonds after the initial offering of a substantial amount of such maturity.
Owners of such 2023ABC Bonds should consult their own tax advisors with respect to the tax consequences of ownership of 2023ABC Bonds with original issue discount, including the treatment of purchasers who do not purchase in the original offering to the public at the first price at which a substantial amount of such 2023ABC Bonds is sold to the public.
Under the Tax Code, bond premium is amortized on an annual basis over the term of t he 2023ABC Bond (said term being the shorter of the 2023ABC Bond's maturity date or its call date). The amount of bond premium amortized each year reduces the adjusted basis of the owner of the 2023ABC Bond for purposes of determining taxable gain or loss upon disposition. The amount of bond premium on a 2023ABC Bond is amortized each year over the term to maturity of the 2023ABC Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straight -line interpo lations between compounding dates). Amortized bond premium is not deductible for federal income tax purposes. Owners of premium 2023ABC Bonds, including purchasers who do not purchase in the original offering, should consult their own tax advisors with r espect to State of California personal income tax and federal income tax consequences of owning such 2023ABC Bonds.
California Tax Status. In the further opinion of Co-Bond Counsel, interest on the 2023ABC Bonds is exempt from California personal income taxes.
Other Tax Considerations. Current and future legislative proposals, if enacted into law, clarification of the Tax Code or court decisions may cause interest on the 2023ABC Bonds to be subject, directly or indirectly, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent beneficial owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such legislative proposals, clarification of the Tax Code or court decisions may also affect the market price for, or marketability of, the 2023ABC Bonds. It cannot be predicted whether or in what form any such proposal might be enacted or whether, if enacted, such legislation would apply to 2023ABC Bonds issued prior to enactment.
The opinions expressed by Co- Bond Counsel are based upon existing legislation and regulations as interpreted by relevant judicial and regulatory authorities as of the date of such opinion, and Co -Bond Counsel have expressed no opinion with respect to any proposed legislation or as to the tax treatment of interest on the 2023ABC Bonds, or as to the consequences of owning or receiving interest on the 2023ABC Bonds, as of any future date.
Prospective purchasers of the 2023ABC Bonds should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation, as to which Co-Bond Counsel express no opinion.
Owners of the 2023ABC Bonds should also be aware that the ownership or disposition of, or the accrual or receipt of interest on, the 2023ABC Bonds may have federal or state tax consequences other than as described above.
Other than as expressly described above, Co- Bond Counsel express no opinion regarding other federal or state tax consequences arising with respect to the 2023ABC Bonds, the ownership, sale or disposition of the 2023ABC Bonds, or the amount, accrual or receipt of interest on the 2023ABC Bonds.
CERTAIN LEGAL MATTERS
Certain legal matters incident to the authorization, sale and delivery of the 2023ABC Bonds are subject to the approval of Jones Hall, A Professional Law Corporation, San Francisco, California, and Alexis S. M. Chiu, Esq., San Francisco, 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 Hawkins Delafield & Wood LLP , Los Angeles, California. Co-Bond Counsel and Disclosure Counsel will receive compensation that is contingent upon the sale and delivery of the 2023ABC Bonds.
The form of approving opinion of Co-Bond Counsel is set forth in Appendix C, and will be available at the time of delivery of the 2023ABC 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
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SFPUC officials and staff in conferences and meetings 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 2023ABC 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 2023ABC Bonds, or other person or party other than the SFPUC, will be entitled to rely on such letters or on the fact that Orrick, Herrington & Sutcliffe LLP has acted as Disclosure Counsel to the SFPUC.
RATINGS
Moody’s Investors Service (“ Moody’s”) has assigned a long-term municipal bond rating of “ ___” to the 2023ABC 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 2023ABC 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 infor mation 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 ass urance 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 2023ABC Bond s. The SFPUC undertakes no responsibility to maintain its current ratings on the 2023ABC Bonds or to oppose any such downward revision, suspension or withdrawal.
UNDERWRITING
2023A Bonds and 2023B Bonds
The 2023A Bonds and the 2023B Bonds are being purchased by BofA Securities, Inc., on behalf of itself and Goldman Sachs & Co. LLC, Citigroup Global Markets Inc., J.P. Morgan Securities LLC, Siebert Williams Sh ank & Co., LLC, and TD Securities (collectively, the “2023AB Underwriters”).
The 2023AB Underwriters have agreed to purchase from the SFPUC the 2023A Bonds at a purchase price of $__________ (consisting of $__________ aggregate principal amount of the 2023A Bonds, [less][plus] an original issue [discount][premium] of $__________, less an underwriters’ discount of $__________), and the 2023B Bonds at a purchase price of $__________ (consisting of $__________ aggregate principal amount of the 2023B Bonds, [less][plus] an original issue [discount][premium] of $__________, less an underwriters’ discount of $__________).
Under the bond purchase contract to be entered into in connection with the purchase of the 2023A Bonds and the 2023B Bonds, the 2023AB Underwriters will be obligated to purchase all of the 2023A Bonds and all of the 2023 B 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 2023AB Underwriters have certified the reoffering prices or yields set forth on the inside cover pages of this Official Statement. The SFPUC takes no responsibility for the accuracy of these prices or yields. The 2023AB Underwriters may offer and sell the 2023A Bonds and the 2023B 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 2023AB Underwriters.
The 2023AB Underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. Certain of the 2023AB Underwriters and their respective affiliates have provided,
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and may in the future provide, a variety of these services to the SFPUC and to persons and entities with relationships with the SFPUC, for which they received or will receive customary fees and expenses.
In the ordinary course of their various business activities, the 2023AB Underwriters and their respective affiliates, officers, directors and employees may purchase, sell or hold a broad array of investments and actively trade securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for their own account and for the accounts of their customers, and such investment and trading activities may involve or relate to assets, securities and/or instruments of the issuer (directly, as collateral securing other obligations or otherwise) and/or persons and entities with relationships with the issuer. The 2023AB Underwriters and their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments.
BofA Securities, Inc., one of the 2023AB Underwriters, has entered into a distribution agreement with its affiliate Merrill Lynch, Pierce, Fenner & Smith Incorporated (“ MLPF&S”). As part of this arrangement, BofA Securities, Inc. may distribute securities to MLPF&S, which may in turn distribute such securities to investors through the financial advisor network of MLPF&S. As part of this arrangement, BofA Securities, Inc. may compensate MLPF&S as a dealer for their selling efforts with respect to the 2023A Bonds and 2023B Bonds.
Citigroup Global Markets Inc., one of the 2023AB Und erwriters, 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 distri bute municipal securities to retail investors at the original issue price through 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 2023AB Underwriters, has entered into negotiated dealer agreements 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 d ealer agreement, each of CS&Co. and LPL may purchase 2023A Bonds and 2023B Bonds from JPMS at the original issue price less a negotiated portion of the selling concession applicable to any 2023A Bonds and 2023B Bonds that such firm sells.
TD Securities (USA) LLC, one of the 2023AB Underwriters, has entered into a negotiated dealer agreement (the “TD Dealer Agreement”) with TD Ameritrade for the retail distribution of certain securities offerings, including the 2023A Bonds and 2023B Bonds at the original issue price. Pursuant to the TD Dealer Agreement, TD Ameritrade may purchase 2023A Bonds and 2023B Bonds from TD Securities (USA) LLC at the original issue prices less a negotiated portion of the selling concession applicable to any of the 2023A Bonds and 2023B Bonds TD Ameritrade sells.
2023C Bonds
The 2023C Bonds are being purchased by Goldman Sachs & Co. LLC, on behalf of itself and BofA Securities, Inc. (collectively, the “2023C Underwriters”).
The 2023C Underwriters have agreed to purchase from the SFPUC the 2023C Bonds at a purchase price of $__________ (consisting of $__________ aggregate principal amount of the 2023C Bonds, [less][plus] an original issue [discount][premium] of $__________, less an underwriters’ discount of $__________). Under the bond purchase contract to be entered into in connection with the purchase of the 2023C Bonds, the 2023C Underwriters will be obligated to purchase all of the 2023C 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 2023C Underwriters have certified the reoffering prices or yields set forth on the inside cover pages of this Official Statement. The SFPUC takes no responsibility for the accuracy of these prices or yields. The 2 023C Underwriters may offer and sell the 2023C 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 2023C Underwriters.
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The 2023C Underwri ters and their respective affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. Certain of the 2023C Underwriters and their respective affiliates have provided, and may in the future provide, a variety of these services to the SFPUC and to persons and entities with relationships with the SFPUC, for which they received or will receive customary fees and expenses.
In the ordinary course of their various business activities, the 2023C Underwriters and their respective affiliates, officers, directors and employees may purchase, sell or hold a broad array of investments and actively trade securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for their own account and for the accounts of their customers, and such investment and trading activities may involve or relate to assets, securities and/or instruments of the issuer (directly, as collateral securing other obligations or otherwise) and/or persons and entities with relationships with the issuer. The 2023C Underwriters and their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments.
BofA Securities, Inc., one of the 2023C Underwriters, has entered into a distribution agreement with it s affiliate Merrill Lynch, Pierce, Fenner & Smith Incorporated (“ MLPF&S”). As part of this arrangement, BofA Securities, Inc. may distribute securities to MLPF&S, which may in turn distribute such securities to investors through the financial advisor network of MLPF&S. As part of this arrangement, BofA Securities, Inc. may compensate MLPF&S as a dealer for their selling efforts with respect to the 2023C Bonds.
FINANCIAL STATEMENTS
Attached as Appendix B are the audited financial statements of the Wastewater Enterprise (the “ Financial Statements”) for Fiscal Years 2020-21 and 2021-22, prepared by the SFPUC and audited by KPMG LLP, independent certified public accountants, San Francisco, California (the “A uditor”). 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 a udit 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 2023ABC Bond s, under a continuing disclosure certificate dated as of the date of delivery, 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, 20 24, with the report for Fiscal Year 2022-23 , 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.
On July 25, 2017, the SFPUC and U.S. Bank National Association (“ U.S. Bank”) entered into revolving credit agreements (the “Revolving Credit Agreements”) providing for the extension of credit to the SFPUC in the amount of $100,000,000 for the Water Enterprise and $75,000,000 for the Wastewater Enterprise. The SFPUC has
107
not drawn on either Revolving Credit Facility and has no outstanding obligations thereunder. On January 7, 2022, the SFPUC and U.S. Bank entered into amendments to the Revolving Credit Agreements extending the respective commitment expiration dates to July 18, 2024. The SFPUC filed Listed Event notices with respect to such extensions on February 3, 2022.
VERIFICATION OF MATHEMATICAL ACCURACY
Upon delivery of the 2023C Bonds, __________ 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 2018C Escrow Fund to redeem the Refunded 2018C Bonds in full, and (b) the “yield” on the investments deposited in the 2018C Escrow Fund for the Series 2018C Bonds and on the 2023C Bonds considered by the Co- Bond Counsel in connection with the opinion rendered by such firm that the 2023C Bonds are not “arbitrage bonds” within the mean ing of Section 148 of the Internal Revenue Code of 1986, as amended.
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 2023ABC 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 2023ABC 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 2023ABC Bonds.
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 2023ABC Bonds is contingent upon the sale and delivery of the 2023ABC Bonds.
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. Investors must read the entire Official Statement, including the appendices, to obtain information essential to making an informed investment decision.
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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
APPENDIX A
SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE
B-1
APPENDIX B
SFPUC WASTEWATER ENTERPRISE FINANCIAL STATEMENTS
C-1
APPENDIX C
PROPOSED FORM OF OPINION OF CO-BOND COUNSEL
Upon issuance of the 2023ABC Bonds, Jones Hall, A Professional Law Corporation, and Alexis S. M. Chiu, Esq., Co-Bond Counsel, propose to render their final approving opinions in substantially the following form:
D-1
APPENDIX D
FORM OF CONTINUING DISCLOSURE CERTIFICATE
$__________
Public Utilities Commission of the
City and County of San Francisco
Wastewater Revenue Bonds
$__________
2023 Series A
(SSIP) (Green Bonds)
$__________
2023 Series B
(Non-SSIP)
$__________
2023 Series C
(Refunding – SSIP)
(Green Bonds)
[Closing Date]
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, 2023 Series A (SSIP) (Green Bonds) (the “2023A Bonds”), Wastewater Revenue Bonds, 2023 Series B (Non-SSIP) (the “2023B Bonds”), and Wastewater Revenue Bonds, 2023 Series C (Refunding – SSIP) (Green Bonds) (the “2023C Bonds” and, together with the 2023A Bonds and the 2023B Bonds, the “2023ABC Bonds”). The 2023ABC Bonds are being issued pursuant to a Fifteenth Supplemental Indenture, dated as of April 1, 2023 (the “Fifteenth Supplemental Indenture”), by and between the SFPUC and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). The Fifteenth Supplemental Indenture supplements the Indenture, dated as of January 1, 2003, by and between the SFPUC and the Trustee (as amended and supplemented, including as supplemented by the Fifteenth Supplemental Indenture, the “Indenture”). The SFPUC covenants and agrees as follows:
SECTION 1. Pu
rpose 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 2023ABC 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. Def
initions. 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, Se
ctions 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 2023ABC Bonds (including persons holding 2023ABC Bonds through nominees, depositories or other intermediaries) including, but not limited to, the power to vote or consent with respect to any 2023ABC Bonds or to dispose of ownership of any 2023ABC Bonds; or (b) is treated as the owner of any 2023ABC 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 source of payment for, a n 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.
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“Holder” shall mean either the registered owners of the 2023ABC Bonds, or, if the 2023ABC 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 __________, 2023, prepared in connection with the sale and offering of the 2023ABC Bonds. “Participating Underwriters” shall mean any of the original underwriters or purchasers of the 2023ABC Bonds required to comply with the Rule in connection with the offering of the 2023ABC 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. Pr
ovision 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 2022-23 (which is due not later than March 31, 2024), 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 later 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 statement s 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. Con
tent of Annual Reports. The SFPUC’s Annual Report shall contain or incorporate by reference the following information:
(a) Audited f inancial 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;” (c) An update for the prior Fiscal Year of the table in the Official Statement entitled “TABLE 12, ADOPTED SINGLE-FAMILY AND MULTI-FAMILY RESIDENTIAL SEWER RATES”;
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(d) An update for the prior Fiscal Year of the table in the Official Statement entitled “TABLE 13, HISTORICAL AND ADOPTED NON-RESIDENTIAL DISCHARGE RATES”; (e) 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 (f) An update for the prior Fiscal Year of the table in the Official Statement entitled “TABLE 20, 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. Rep orting of Significant Events.
(a) The SFPUC sh all give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to the 2023ABC 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 2023ABC Bonds, or other material events affecting the tax status of the 2023ABC Bonds;
7. Modifications to rights of Holders, if material;
8. Optional, unscheduled or contingent 2023ABC Bond calls, if material, and tender offers;
9. Defeasances;
10. Release, substitution, or sale of property securing repayment of the 2023ABC Bonds, if material;
11. Rating changes;
12. Bankruptcy, insolvency, receivership or similar event of the SFPUC;
13. The consummation of a merger, consolidation, or acquisition involving the SFPUC 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 addi tional trustee or the change of name of a trustee, if material;
D-4
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 Bankr uptcy 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 exis ting 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) Whenever the SFPUC obtains knowledge of the occurrence of a Listed Event in S
ection 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 2023ABC Bonds under the Indenture.
(c) 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 federal 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. Te
rmination 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 2023ABC Bonds. If such termination occurs prior to the final maturity of the 2023ABC Bonds, the SFPUC shall give notice of such termination in the same manner as for a Listed Event under Section 5(b).
SECTION 7. Dis
semination Agent . The SFPUC may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certi ficate, 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.
SECTION 8. Ame
ndment; 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) If the amendment or waiver relate
s 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 2023ABC 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, have complied with the requirements of the Rule at the time of the original issuance of the 2023ABC Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and
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(c) The amendment or waiver either (i) is approved by the owners of a majority in aggregate principal amount of the 2023ABC 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 statement s: (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 quantitative 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. Ad
ditional 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. Defa
ult. 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 2023ABC 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. Benef
iciaries. 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 2023ABC Bonds, and shall create no rights in any other person or entity.
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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
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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, 2023 Series A (SSIP) (Green Bonds), Wastewater Revenue Bonds, 2023 Series B (Non-SSIP),
Wastewater Revenue Bonds, 2023 Series C (Refunding – SSIP) (Green Bonds) Date of Issuance: __________, 2023
NOTICE IS HEREBY GIVEN that the SFPUC 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 __________, 2023. The SFPUC anticipates 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
E-1
APPENDIX E
SECURITIES DEPOSITORY AND THE BOOK-ENTRY SYSTEM
The information in this Appendix E has been obtained from DTC for use in securities offering documents, and the SFPUC takes no responsibility for the accuracy or completeness thereof. The SFPUC cannot and does not give any assurances that DTC, DTC Participants or Indirect Participants will distribute to the beneficial owners either (a) payments of interest, principal or premium, if any, with respect to the 2023ABC Bond s or (b) certificates representing ownership interest in or other confirmation of ownership interest in the 2023ABC Bonds, or that they will so do on a timely basis or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Official Statement. The current “Rules” applicable to DTC are on file with the Securities and Exchange Commission and the current “Procedures” of DTC to be followed in dealing with DTC Participants are on file with DTC.
As used in this Appendix E, “Securities” means the 2023ABC Bond s, “Issuer” means the SFPUC, and “Agent” means the Trustee.
1. The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the securities (the “Securities”). The Securities will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC.
One fully-registered Security certificate will be issued for each issue of the Securities, each in the aggregate principal amount of such issue, and will be deposited with DTC. If, however, the aggregate principal amount of any issue exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount, and an additional certificate will be issued with respect to any remaining principal amount of such issue.
2. DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post -trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book -entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non- U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. The information contained on this Internet site is not incorporated herein by reference.
3. Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DT C’s records. The ownership interest of each actual purchaser of each Security (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records.
Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction.
Transfers of ownership interests in the Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Securities, except in the event that use of the book- entry system for the Securities is discontinued.
E-2
4. To facilitate subsequent transfers, all Securities deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Securities with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Securities are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.
5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Securities may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and req uest that copies of notices be provided directly to them.
6. Redemption notices shall be sent to DTC. If less than all of the Securities within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.
7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Securities unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy).
8. Redemption proceeds, distributions, and dividend payments on the Securities will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from Issuer or Agent, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, Agent, or Issuer, subj ect to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of Issuer or Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
9. DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to Issuer or Agent. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered.
10. Issuer may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered to DTC.
The information in this section concerning DTC and DTC’s book -entry system has been obtained from sources that SFPUC believes to be reliable, but the SFPUC takes no responsibility for the accuracy thereof.
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29303-20 Jones Hall Draft 1/19/2023
2/01/2023
2/09/2023
3/03/2023
FIFTEENTH SUPPLEMENTAL INDENTURE
by and between
PUBLIC UTILITIES COMMISSION OF THE CITY AND COUNTY OF SAN FRANCISCO
and
U.S. BANK TRUST COMPANY, NATIONAL ASSOCIATION, as Trustee
Dated as of April 1, 2023
AUTHORIZING THE ISSUANCE OF
$___________ AGGREGATE PRINCIPAL AMOUNT OF
PUBLIC UTILITIES COMMISSION OF THE CITY AND COUNTY OF SAN FRANCISCO
WASTEWATER REVENUE BONDS,
2023 SERIES A
(SSIP) (GREEN BONDS)
$___________ AGGREGATE PRINCIPAL AMOUNT OF
PUBLIC UTILITIES COMMISSION OF THE CITY AND COUNTY OF SAN FRANCISCO
WASTEWATER REVENUE BONDS,
2023 SERIES B
(NON-SSIP)
$___________ AGGREGATE PRINCIPAL AMOUNT OF
PUBLIC UTILITIES COMMISSION OF THE CITY AND COUNTY OF SAN FRANCISCO
WASTEWATER REVENUE BONDS,
2023 SERIES C
(REFUNDING) (GREEN BONDS)
(Supplemental to the Indenture dated as of January 1, 2003, as amended and supplemented)
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TABLE OF CONTENTS
ARTICLE LXVI
DEFINITIONS
SECTION 66.01. Definitions .................................................................................................................. 8
ARTICLE LXVII
PROVISIONS RELATING TO BONDS
SECTION 67.01. Authorization and Terms of Bonds. ......................................................................... 12 SECTION 67.02. Forms of Bonds ........................................................................................................ 15 SECTION 67.03. Use of Depository. ................................................................................................... 17 SECTION 67.04. Issuance of 2023 Bonds ........................................................................................... 18 SECTION 67.05. Application of Proceeds of 2023 Series A Bonds .................................................... 18 SECTION 67.06. Application of Proceeds of 2023 Series B Bonds .................................................... 18 SECTION 67.07. Application of Proceeds of 2023 Series C Bonds .................................................... 19 SECTION 67.08. Establishment and Application of the 2023 Series A Costs of Issuance Fund ......... 19 SECTION 67.09. Establishment and Application of the 2023 Series B Costs of Issuance Fund ......... 20 SECTION 67.10. Establishment and Application of the 2023 Series C Costs of Issuance Fund ......... 21 SECTION 67.11. Establishment and Application of the 2023 Series A Rebate Fund ......................... 22 SECTION 67.12. Establishment and Application of the 2023 Series B Rebate Fund .......................... 23 SECTION 67.13. Establishment and Application of the 2023 Series C Rebate Fund .......................... 24 SECTION 67.14. Establishment and Application of the 2023 Series A Capital Project Account and the 2023 Series A Reimbursement Account ............................................................ 25 SECTION 67.15. Establishment and Application of the 2023 Series B Capital Project Account and the 2023 Series B Reimbursement Account ................................................................... 26 SECTION 67.16. Establishment and Application of the 2023 Series A Capitalized Interest Account 26 SECTION 67.17. Establishment and Application of the 2023 Series B Capitalized Interest Account 27 SECTION 67.18. Terms of Redemption – 2023 Series A Bonds ......................................................... 27 SECTION 67.19. 2023 Series A Bonds Sinking Fund Account ........................................................... 28 SECTION 67.20. Terms of Redemption - 2023 Series B Bonds .......................................................... 29 SECTION 67.21. 2023 Series B Bonds Sinking Fund Account ........................................................... 30 SECTION 67.22. Terms of Redemption - 2023 Series C Bonds .......................................................... 31 SECTION 67.23. 2023 Series C Bonds Sinking Fund Account ........................................................... 32 SECTION 67.24. Tax Covenants .......................................................................................................... 33 SECTION 67.25. Continuing Disclosure .............................................................................................. 34 SECTION 67.26. No S enior State Loans .............................................................................................. 34
ARTICLE LXVIII
MISCELLANEOUS
SECTION 68.01. Terms of 2023 Bonds Subject to the Indenture ........................................................ 34 SECTION 68.02. Effective Date of Fifteenth Supplemental Indenture ............................................... 34 SECTION 68.03. Execution in Counterparts ........................................................................................ 34
ARTICLE LXIX
ADDITIONAL CITY REQUIREMENTS
SECTION 69.01. Local Business Enterprise Utilization; Liquidated Damages ................................... 34 SECTION 69.02. Nondiscrimination; Penalties ................................................................................... 35 SECTION 69.03. MacBride Principles-Northern Ireland ..................................................................... 36 SECTION 69.04. Tropical Hardwood and Virgin Redwood Ban ........................................................ 36 SECTION 69.05. Drug-Free Workplace Policy ................................................................................... 36 SECTION 69.06. Compliance with Americans with Disabilities Act .................................................. 37 SECTION 69.07. Sunshine Ordinance ................................................................................................. 37 SECTION 69.08. Limitations on Contributions ................................................................................... 37 SECTION 69.09. Requiring Minimum Compensation for Covered Employees. ................................. 37 SECTION 69.10. Requiring Health Benefits for Covered Employees ................................................. 38 SECTION 69.11. Prohibition on Political Activity with City Funds .................................................... 40 SECTION 69.12. Conflict of Interest ................................................................................................... 40 -ii-
SECTION 69.13. Earned Income Credit (EIC) Forms ......................................................................... 40 SECTION 69.14. Preservative-treated Wood Containing Arsenic ....................................................... 41 SECTION 69.15. Nondisclosure of Private Information ...................................................................... 41 SECTION 69.16. Proprietary or Confidential Information of City ...................................................... 41 SECTION 69.17. Compliance with Laws ............................................................................................. 41 SECTION 69.18. Works for Hire ......................................................................................................... 42 SECTION 69.19. Resource Conservation ............................................................................................. 42 SECTION 69.20. Public Access to Meetings and Records .................................................................. 42 SECTION 69.21. Guaranteed Maximum Costs .................................................................................... 42 SECTION 69.22. Submitting False Claims; Monetary Penalties ......................................................... 42 SECTION 69.23. Agreement Made in California; Venue ................................................................... 43 SECTION 69.24. Ownership of Results ............................................................................................... 43 SECTION 69.25. Audit and Inspection of Records .............................................................................. 43 SECTION 69.26. Subcontracting.......................................................................................................... 43 SECTION 69.27. Assignment ............................................................................................................... 43 SECTION 69.28. Non-Waiver of Rights .............................................................................................. 43 SECTION 69.30. Food Service Waste Reduction Requirements ..................................................... 44 SECTION 69.31. Graffiti Removal ...................................................................................................... 44
EXHIBIT I FORM OF BOND
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FIFTEENTH SUPPLEMENTAL INDENTURE
(Supplemental to the Indenture dated as of January 1, 2003, as amended and supplemented) Authorizing the Issuance of
$___________ AGGREGATE PRINCIPAL AMOUNT OF
PUBLIC UTILITIES COMMISSION OF THE CITY AND COUNTY OF SAN FRANCISCO
WASTEWATER REVENUE BONDS,
2023 SERIES A
(SSIP) (GREEN BONDS)
$___________ AGGREGATE PRINCIPAL AMOUNT OF
PUBLIC UTILITIES COMMISSION OF THE CITY AND COUNTY OF SAN FRANCISCO
WASTEWATER REVENUE BONDS,
2023 SERIES B
(NON-SSIP)
$___________ AGGREGATE PRINCIPAL AMOUNT OF
PUBLIC UTILITIES COMMISSION OF THE CITY AND COUNTY OF SAN FRANCISCO
WASTEWATER REVENUE BONDS,
2023 SERIES C
(REFUNDING) (GREEN BONDS)
This Fifteenth Supplemental Indenture, dated as of April 1, 2023 (this “Fifteenth Supplemental Indenture”), by and between 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”), and U.S. BANK TRUST COMPANY, NATIONAL ASSOCIATION, a national banking association duly organized and existing under and by virtue of the laws of the United States of America, as trustee (the “Trustee”);
WITNESSETH:
WHEREAS, this Fifteenth Supplemental Indenture is supplemental to the Indenture dated as of January 1, 2003 (the “Original Indenture”), between the Commission and the Trustee (also known as U.S. Bank, N.A.), as amended by a First Amendment to Indenture dated as of May 1, 2010 (the “First Amendment”), and as supplemented by a First Supplemental Indenture, dated as of May 1, 2010 (the “First Supplemental Indenture”), as supplemented by a Second Supplemental Indenture, dated as of January 1, 2013 (the “Second Supplemental Indenture”), as supplemented by a Third Supplemental Indenture, dated as of February 1, 2013 (the “Third Supplemental Indenture”), as supplemented by a Fourth Supplemental Indenture, dated as of May 1, 2016 (the “Fourth Supplemental Indenture”), as amended by a Fifth Supplemental Indenture, dated as of September 14, 2017 (the “Fifth Supplemental Indenture”), as amended by a Sixth Supplemental Indenture, dated July 1, 2018 (the “Sixth Supplemental Indenture”), as further supplemented by the Seventh Supplemental Indenture, dated as of August 1, 2018 (the “Seventh Supplemental Indenture”), as further supplemented by the Eighth Supplemental Indenture, dated as of August 1, 2018 (the “Eighth Supplemental Indenture”), as further supplemented by the Ninth Supplemental Indenture, dated as of July 27, 2018 (the “Ninth Supplemental Indenture”), as further supplemented by the Tenth Supplemental Indenture, dated as of June 12, 2020 (the “Tenth Supplemental Indenture”), as further supplemented by the Eleventh Supplemental Indenture, dated as of June 12, 2020 (the “Eleventh Supplemental Indenture”), as further -2-
supplemented by the Twelfth Supplemental Indenture dated as of November 1, 2021 (the “Twelfth Supplemental Indenture”), as further supplemented by the Thirteenth Supplemental Indenture dated as of November 1, 2021 (the “Thirteenth Supplemental Indenture”), and as further supplemented by the Fourteenth Supplemental Indenture dated as of July 1, 2022 (the “Fourteenth Supplemental Indenture” and, together with the Original Indenture, the First Amendment, the First Supplemental Indenture, the Second Supplemental Indenture, the Third Supplemental Indenture, the Fourth Supplemental Indenture, the Fifth Supplemental Indenture, the Sixth Supplemental Indenture, the Seventh Supplemental Indenture, the Eighth Supplemental Indenture, the Ninth Supplemental Indenture, the Tenth Supplemental Indenture, the Eleventh Supplemental Indenture, the Twelfth Supplemental Indenture, the Thirteenth Supplemental Indenture, and this Fifteenth Supplemental Indenture, the “Indenture”); and
WHEREAS, in January, 2003, the Commission issued the first series of Bonds under the Indenture designated the “Public Utilities Commission of the City and County of San Francisco Clean Water Revenue Bonds, 2003 Refunding Series A” (the “2003 Refunding Series A Bonds”), in the original principal amount of $396,270,000, for the purpose of (i) refunding certain sewer revenue bonds previously issued by the City to finance and refinance the acquisition of improvements to the Enterprise (as defined in the Indenture), which had previously been owned and operated by the City, (ii) funding a reserve account for the 2003 Refunding Series A Bonds and (iii) paying costs of issuance, all as set forth in the Indenture; and
WHEREAS, pursuant to Section 8B.124 of the City Charter, the Commission has the authority to issue additional revenue bonds 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 certain conditions, including, among others, the adoption of an ordinance by a two-thirds vote of the Board of Supervisors of the City, under such terms and conditions as the Commission may authorize; and
WHEREAS, on April 27, 2010, the Board of Supervisors passed by a two-thirds vote its Ordinance No. 93-10, signed by the Mayor of the City on May 3, 2010, approving the issuance and sale of wastewater revenue bonds pursuant to Article VIIIB of the City Charter to finance various capital projects benefiting the Enterprise, as well as paying the costs of issuance and other incidental costs relating thereto, in an aggregate principal amount not to exceed $297,756,235; and