Authorize the Issuance of Water Revenue Bonds, 2023 Series C — CleanPowerSF Sfpuc Commission, June 27, 2023 (part 1 of 3)

AGENDA ITEM
Public Utilities Commission
City and County of San Francisco
DEPARTMENT Financial Services AGENDA NO. 9
MEETING DATE June 27, 2023
Wat
er Revenue Refunding Bond Authorization: Regular Calendar Project Manager: Nikolai J. Sklaroff
Authorize the Issuance of up to $ 1.662 Billion of 2023 Water Revenue Refunding Bonds 2023 Series C (Water System Improvement Bonds (WSIP)) (Green Bonds) and 2023 Series D (Refunding) (Local Water) to Achieve Debt Service Savings Summary of
Proposed
Commission
Action:

Authorize the Issuance of Water Revenue Bonds, 2023 Series C (Refunding) (Water System Improvement Program (WSIP) ) (Green Bonds) and 2023 Sub- Series D Bonds (Refunding) (Local Water) (collectively, the 2023 Water Refunding Bonds) to current or advance refund up to $1.728 billion of all or a portion of the outstanding 2015 Series A , 2016 Series A, 2017 Series D , 2019 Series A, 2019 Series C, 2020 Series E, and 2020 Series G Bonds, subject to prevailing market conditions at time of sale. The Commission resolution will approve the refunding bond sale as follows: the Water Revenue Bonds , 2023 Sub-Series C Bonds ( Refunding) (WSIP) (Green Bonds) to current or advance refund certain outstanding 2015 Series A, 2016 Series A, 2017 Series D , 2019 Series A, and 2020 Series E Bonds for debt service savings; and the Water Revenue Bonds, 2023 Sub-Series Series D Bonds (Refunding) (Local Water) to refund certain outstanding 2019 Series C and 2020 Series G for debt service savings if such bonds are tendered by investors ; and approve the form of, and authorize the execution and delivery of, related documents ; and authorize the General Manager to negotiate the sale of the 2023 Water Refunding Bonds , as the General Manager determines is in the best financia l interest of the San Francisco Public Utilities Commission, subject to the terms of the Commission resolution.

Background: 2023 Water Refunding Bonds: The 2023 Water Refunding Bonds will be issued pursuant to San Francisco City Charter Section 9.109 which authorizes the issuance of refunding bonds that are expected to result in debt service savings calculated on a present value basis a nd by various resolutions and ordinances approved by the Commission and the Board of Supervisors. Based on the current market environment, proceeds of the 2023 Water Refunding Bonds will refund (pursuant to a tender offer process)
all or a portion of the
outstanding bonds which have funded o r refunded prior series of bonds for Water System Improvement Program ( WSIP) projects and Local Water Projects.

The 2023 Water Refunding Bonds are to be authorized in an aggregate not-to- exceed par amount of $ 1.662 billion . Collectively, the 2023 Water Refunding Bonds would generate debt service savings benefi ting all Water Enterprise ratepayers. Given current market interest rates, staff expects to issue about $500 million 2023 Water Refunding Bonds generating estimated present value debt service savings would be in excess of $40 million or Execute Agreement: Authorize the Issuance of up to $1.662 Billion of 2023 Series C and Series D Water Refunding Bonds
Commission Meeting Date: June 27, 2023

approximately 9% of the amount of Refunded Bonds, assuming 30% of eligible bonds are tendered. However the actual size of the transaction will be dependent on investors ’ willingness to participate which may depend on a variety of factors individual to each investor and dependent on interest rates and interest rate expectations and other market conditions at the time the bonds are sold.

The 2023 Water Refunding Bonds are being is sued in compliance with the SFPUC’s “Debt Man agement Policies & Procedures”, including meeting the minimum 3% present value savings threshold (and exceeding it with a projected goal of at least 5% ). Th e SFPUC’s most recently updated policies were approved by the Commission on November 26, 2019.

Bonds to Be Sold With “Climate Bond” Designation: On May 2, 2023, the Climate Bonds Standard Board approved the Pre -Issuance Certification of the proposed 2023 Sub- Series C Water Revenue Bonds (WSIP Refunding) as “Climate Bond Certified”. SFPUC staff has previously received verification from an independent verifier approved by the Climate Bonds Initiative confirming that bonds issued to fund WSIP (whether they are new money or refunding bonds) qualify for Climate Bond designation. The 2023 Sub- Series C Bonds, which provides funding for WSIP , will be designated as “ Climate Bonds”. “Climate Bond” designation is a type of green bond certification that requires projects funded by these bonds to
be aligned with the International
Capital Market Association Green Bond Principles and meet the Climate Bonds Standard W ater Criteria, which includes meeting certain Mitigation and Adaptation & Resilience Criteria. All Climate Bond Standards criteria are aligned with achieving the goals of the Paris Agreement . The SFPUC has previously issued the 2016 Series C Water Revenue Bonds, 2017 S ub-Series A Water Revenue Bonds, 2017 Sub- Series D Bonds, 2017 Sub- Series G Bonds , 2019 Sub- Series A Bonds , 2020 Sub- Series A Bonds, and 2020 Sub- Series E each of which were sold to fund the WSIP, as “Climate Bonds”. The issuance of Green Bonds allows the SFPUC to demonstrate to interested stakeholders and investors that it is a sensitive environmental steward . In addition, Green Bonds are in specific demand by certain types of investors who seek to h old bonds with positive environmental impact s
in their portfolios. By offering Green
Bonds, the SFPUC believes it can potentially broaden its bond investor base, which in turn may increase demand for its bonds.

Plan of Finance:

The 2023 Water Refunding Bonds will be issued to refund outstanding WSIP bonds and Local Water bonds through a tender offer process and a small advance refunding for structuring purposes to achieve positive savings in each year. Historically, the SFPUC has primarily refinanced outstanding bonds by executing either tax-exempt current or taxable advanced refundings. In such financings, generally proceeds of the refunding bonds and other available funds are deposited in irrevocable escrow accounts and held in trust for the bonds to be paid and redeemed when the bonds are callable. The principal and investment income of the funds held in escrow are applied to pay the principal of and the interest on the applicable refunded bonds.

The SFPUC has taken advantage of prior opportunities to advance refund Execute Agreement: Authorize the Issuance of up to $1.662 Billion of 2023 Series C and Series D Water Refunding Bonds
Commission Meeting Date: June 27, 2023

outstanding Water Revenue bonds on both a tax -exempt and taxable basis and has issued over $1.7 bill ion in advance refunding bonds from FY2018 to FY2021 for debt service savings . Since late 2017, tax- exempt proceeds can no longer be used to refund tax-exempt bonds more than 90 prior to their call date (known as an “Advance Refunding”) under IRS regulations and the increase in taxable interest rates since early 2022 has generally made taxable advance refundings uneconomic. The increase in taxable rates that began in 2022 led to the postponement of the 2022 Water Revenue Refunding transaction approved by the Commission in April 2022.

In order to capture savings in the current interest rate environment, this 2023 Water Revenue Refunding Bond transaction would utilize a tender process . In such a transa ction the SFPUC , with the assistance of its Dealer Manager, solicits voluntary tenders from investors that allow t he SFPUC to buy back bonds from existing holders at a fixed price or spread to US Treasuries pursuant to an I nvitation to T ender. Long term bonds issued prior to the increase in interest rates over the past year have lost market value (as buyers can now buy bonds offering much higher interest rates). Certain buyers may wish to sell their bonds to the SFPUC for liquidity for a price that is slightly better than the price available in the secondary market. In this process the SFPUC, its D ealer Manager and municipal advisors offer a purchase price to investors directly and the investors are free to accept or reject the offer . SFPUC generates savings by issuing fixed rat e, tax-exempt, current refunding bonds to fund the purchase of tendered bonds. The size and scope of the potential repurchase is subject to interest rate market conditions and the willingness of investors to sell their bonds to SFPUC at the time of pricing . The Good Faith Estimates assume a refunding in which approximately 30% of bonds invited bonds will be purchased by the SFPUC ; given the uncertainty of how many bonds will be tendered the not-to-exceed amount for refunding bonds would allow the SFPUC to refund all the bonds eligible for tender. In addition to the bonds issued to fund the tender, the SFPUC will also expect to issue a small portion of structuring advance refunding bonds to achieve positive debt savings in each year.

Structure of the Bonds:
2023 Water Refunding Bonds – The SFPUC expects to issue up to approximately $500 million of 2023 Water Refunding Bonds (but may issue up to $1.662 billion of the 2023 Water Refunding Bonds in the highly unlikely event all bonds for which the SFPUC solicits tender offers are offered and repurchased by the SFPUC) to refinance the Refunded Bonds.

Transaction Schedule: Depending on prevailing market conditions, Finance staff proposes that the 2023 Water Refunding Bonds be sold on a negotiated basis, with pricing in late June and closing by the end of July. The refunding is being sold and taking advantage of economies of scale with the separately approved 2023AB new money Water Revenue Bonds, but e ach will have a separate offering document to facilitate clear disclosure , while issuing both series as part of a common plan of finance.

SB 450 Legislation Compliance: Pursuant to Senate Bill 450 (SB 450) enacted in 2017, California law requires the gover ning body of a local public body to Execute Agreement: Authorize the Issuance of up to $1.662 Billion of 2023 Series C and Series D Water Refunding Bonds
Commission Meeting Date: June 27, 2023

obtain and disclose, prior to authorization of a new bond issue, good faith estimates of the following financing-related information:

• True Interest Cost (TIC) of the bonds.
• Finance charge of the bonds: Representing the sum of all fees and charges paid to third parties.
• Amount of proceeds received: Representing proceeds of the bonds net of fees and charges paid to third parties and any reserves or capitalized interest funded by the bonds.
• Total payment amount: The sum of all debt service payments on the bonds calculated to the final maturity of the bonds.

SB 450 requires that the good faith estimates be obtained from either the issuer’s municipal advisor, underwriter or third -party lender. The Commission has been presented with this information in past staff reports requesting approval of bonds issued or loans executed since the enactment of SB 450.

The following represents a good faith reasonable estimate of certain costs of the 2023 Water Refunding Bonds for purposes of compliance with SB 450 and based upon information as of June 2, 2023 . Staff has consulted with its municipal advisor, Montague DeRose & Associates, and obtained estimates reflecting the expected closing date with regard to the 2023 Water Refunding Bonds. The Good Faith Estimates assume a refunding in which approximately 30% of invited bonds will be tendered to the SFPUC or refunded by escrow .

Actual results may vary based on prevailing market conditions when the bonds are priced:

1. True Interest Cost (TIC): 3.46%

2. Finance Charge of the Bonds: $3,330,320 (reflects both costs of issuance and underwriter’s discount).

3. Amount of Proceeds Received by the Public Body for Sale of the Bonds: $477,448,938

4. Total Payment Amount: Total Net Debt Service of $678,672,012 (represents total estimated debt service, net of capitalized interest, if any).

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 Water Refunding Bonds. In a negotiated sale, the SFPUC hires underwriters for the bonds through a competitive R equest For Proposals (RFP) process from among the firms that have been prequalified in the City Controller ’s underwriting pool.

The underwriters are therefore able to work with the SFPUC to structure the transaction and prepa re doc uments, including the disclosure document. In addition, they assist with the process of preparing materials for rating agencies and investors, and premarketing and marketing of the bonds. Staff has Execute Agreement: Authorize the Issuance of up to $1.662 Billion of 2023 Series C and Series D Water Refunding Bonds
Commission Meeting Date: June 27, 2023

recommended this method of sale because:

(1) the past year has been a time of elevated market volatility, due to steep Federal Reserve interest rate increases, the ensuing bank crisis, the debt limit standoff in Congress, and global events. A negotiated sale process provides the SFPUC with more assistance during the preparation of the bond transaction, more market information throughout the transaction, the ability to premarket the bonds, and timing flexibility which can improve the results of a bond sale;
(2) the proposed 2023 Water Refunding Bond transaction is a r efunding transaction, which is sensitive to interest rate market conditions and/or structure considerations;
(3) the proposed 2023 Water Refunding Bond transaction is based on repurchasing bonds from investors pursuant to an Invitation to Tender, which create s structuring complexities which can only be accommodated with a negotiated sale;
(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 firms and firms that have suppor ted SFPUC’s transactions with credit support, 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, 2022 (including 14 responses to serve as senior manager) and reviewed by the SFPUC’s Co- Municipal Advisors and staff. After a formal evaluation and scoring process, Jefferies LLC was selected to serve as Senior Underwriter for the 2023 Water R efunding Bonds and Wells Fargo Securities was selected as Co -Senior Manager. Jefferies’s proposal w as selected based on the firm ’s experience, underwriting capabilities, technical expertise, financing ideas and competitive fees. Additionally, Rameriez & Co., Inc., RBC Capital Markets, UBS, and US Bancorp were selected as C o-
Managers for the 2023
Water Refunding Bonds sale. Jefferies was also selected to serve in the capacity of Dealer Manager to oversee activities related to tender process.

Bond Documents : The Commission is being asked to approve the form and authorize the execution of documents relating to the 2023 Water Refunding Bonds, as described below.

(1) Official Statement (Preliminary/Final) – This document is the primary potential investor disclosure document that describes the terms of the bonds, source of repayment, risk factors, financial and operating results and projections , and the most current background information of the Water Enterprise and the SFPUC. The document will be provided to rating agencies and prospective investors. The preliminary official statement contains all material information about the Water Enterprise and is intended to be substantially final (except for certain pricing information and update s that may occur prior to sale), and through the authorizing resolution, the General Manager is Execute Agreement: Authorize the Issuance of up to $1.662 Billion of 2023 Series C and Series D Water Refunding Bonds
Commission Meeting Date: June 27, 2023

permitted to make such changes as are necessary to make such document complete and accurate.
(a) Continuing Disclosure Certificate – Agreement between the Trustee and the SFPUC setting forth the SFPUC’s commitment to providing annual financial and operating data disclosure for the Water Enterprise, and the ongoing disclosure of certain enumerated material events as set forth by the Securities and Exchange Commission’s (SEC) Rule 15c2-12. To facilitate the sale, the SFPUC is required to execute a continuin g disclosure certificate (CDC) as a regulatory prerequisite to enable the underwriters to underwrite the bonds. The CDC is contained as an appendix within the Official Statement.
(2) Indenture (as amended by the Forty- Fifth and Forty- Sixth Supplemental Indentures) – The Indenture is an agreement between the SFPUC and the Trustee which sets forth the contractual terms for the bonds, including pledge of revenues, flow of funds, covenants, defaults and remedy provisions,
and provisions to issue additional
debt. Th e Supplemental Indentures set forth the terms of each individual series of bonds, including maturities, interest rates and terms of early redemption.
(3) Bond Purchase Contract – T he agreement between the SFPUC and the Underwriters setting forth conditions upon which the bonds will be offered and underwritten by the Underwriters, and the obligations of both parties ,
including provisions allowing the Underwriters to
not underwrite the bonds in the event of certain circumstances. (4) Escrow Agreement – Related to a refunding, it is the agreement with the escrow agent (typically the Trustee) to hold the escrow securities that are purchased with proceeds 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.
(5) Dealer Manager Agreement for Invitation to Tender —Between the SFPUC and D ealer Manager setting forth the required provisions to manage activities related to the terms of the Invitation to Tender. (6) Invitation to Tender – The SFPUC’s formal invitation to the holders of certain specific outstanding Water Revenue Bonds to offer to sell all or a portion of their holdings to the SFPUC at prices acceptable to the SFPUC, subject to certain conditions including the issuance of the 2023 Water Refunding Bonds.

Legal and Advisory Team: SFPUC Finance staff has worked collaboratively with outside municipal advisors, as well as the City Attorney’s Office and outside bond, and disclosure counsel, to develop all aspects of the documents associated with the sale of the 2023 Water Refunding Bonds , including all attachments. The parties working with the SFPUC on this financing are as follows:

Execute Agreement: Authorize the Issuance of up to $1.662 Billion of 2023 Series C and Series D Water Refunding Bonds
Commission Meeting Date: June 27, 2023

(1) General Counsel: City Attorney’s Office of the City and County of San Francisco
(2) Disclosure Counsel: Orrick, Herrington & Sutcliffe LLP (3) Bond Counsel: Norton Rose Fulbright U.S. LLP;
(4) Co-Municipal Advisors: Montague DeRose & Associates , LLC; Backstrom McCarley Berry & Co., LLC
(5) Senior Managing Undewriter: Jefferies, LLC
(6) Co-Senior Managing Underwriter: Wells Fargo Securities (7) Co-Managers: Ramirez & Co., Inc., RBC Capital Markets, UBS, and US Bancorp
(8) Trustee: U.S. Bank National Association
(9) Independent Pricing Verification Agent: PFM Financial Advisors, LLC
(10) Escrow Bidding Agent: BLX
(11) Vertification Agent: TBD

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 part of the Commissioner’s disclosure training, Commissioner’s learned that under federal securities laws the SFPUC must disclose the financial condition of the Water Enterprise to prospective investors as included in the Preliminary Official Statement and the final Official Statement for the bonds, and such disclosure must be complete and accurate with no material misstatements or material omissions.

The preparation of the Preliminary Official Statement reflects a rigorous and iterative drafting and review process including subject matter experts and senior management within the Water Enterprise, Infrastructure and WSIP program managers, the City Attor ney’s Office and the SFPUC’s financing team. In addition, the SFPUC has been assisted in the preparation of the document by Orrick, Herrington & Sutcliffe LLP, serving as the SFPUC’s disclosure counsel.

Prior to distribution to investors, the Preliminary Official Statement will be updated to reflect the most current information of the Water Enterprise. The final Official Statement will be distributed after the bonds are priced but prior to closing of the bonds and will include relevant pricing-related information.

Counsel has advised that prior to approval of the form of Preliminary Official Statement, Commissioners should review the attached documents and be satisfied that:
(1) They understand the key terms of the bond transaction, including commitments undertaken by the SFPUC.
(2) The process followed in the preparation of the Preliminary Official Statement and final Official Statement is adequate. (3) SFPUC officers or the City Attorney’s Office are aware of all matters important to the financial condition of the SFPUC and the Water Enterprise of which Commissioners have personal Execute Agreement: Authorize the Issuance of up to $1.662 Billion of 2023 Series C and Series D Water Refunding Bonds
Commission Meeting Date: June 27, 2023

knowledge.

A summary level bond disclosure “Questions and Answers” is set forth below:

Q. What is the size of the bond issue?
A. The SFPUC expects to issue an Invitation to T ender up to $1.728 billion of certain outstanding water revenue bonds for purchase by the SFPUC by issuing 2023 Water Refunding Bonds in an amount not-to- exceed $1.662 billion . Since the tender process is a voluntary process, there is no certainty as to investor participation. However, based on recent comparable transactions i t is expected that a pproximately 30% of these bonds will be ultimately refunded by the 2023 Water Refunding Bonds. A small amount of additional bonds may be advance refunded for savings to ensure savings accrue in each year.

Q. Why are bonds being issued?
A. The 2023 Water Refunding Bonds are being issued to provide funds to repurchase bonds from investors and to advance refund certain other bonds to provide debt service savings to the SFPUC’s ratepayers.

Q. What is the bond structure?
A. The 2023 Water Refunding Bonds will consist of up to two series of senior lien, fixed rate tax -exempt bonds having maturities consistent with the maturities of the bonds being refunded. The 2023 W ater Refunding Bonds will not fund a debt service reserve fund or any capitalized interest.

Q. How will the bonds be sold?
A. The 2023 Water Refunding Bonds will be sold through a negotiated sale. T he underwriters have been selected through a competitive Request for Proposals issued to the City Controller’s prequalified underwriting pool and the pricing terms (i.e. interest rates) of the bonds are set after negotiating with the u nderwriters based on investor demand and market conditions, with advice from the SFPUC’s two transaction municipal advisors. The ‘fairness’ of the pricing terms will be evaluated by the SFPUC municipal advisors and staff will take their recommendation under advisement before accepting the pricing of the underwriter.

Q. How will debt service on the bonds be paid?
A. The 2023 Water Refunding Bonds will be repaid from the “net revenues” of the Water Enterprise, in accordance with the Water 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 Water Enterprise.

Q. What impact will the issuance of the bonds have on Water Enterprise rates?
A. Conservative assumptions for this debt service and debt service coverage requirements have been included in the current Water Enterprise 10-Year Financial Plan and therefore this debt is not expected Execute Agreement: Authorize the Issuance of up to $1.662 Billion of 2023 Series C and Series D Water Refunding Bonds
Commission Meeting Date: June 27, 2023

to further increase rates. Projected annual retail rate increases of projected to av erage approximately 3.9% for the 10 year period of FY 2023-24 through FY 2032-33. However, the projected savings related to the 2023 Water Refunding Bonds have not yet been included in the 10- Year Financial Plan.

Q. Will issuance of the bonds have a negative impact on the SFPUC credit ratings?
A. The SFPUC has applied for ratings for the 2023 Water Refunding Bonds and expects to have the results of the ra ting review in time for this Commission meeting . Staff does not anticipate any negative rating action from the issuance of the 2023 Water Refunding Bonds.

Q. Has staff and management had the opportunity to review the preliminary official statement?
A. The preparation of the preliminary official statement is an intensive, iterative process. The preliminary official statement has been thoroughly reviewed by relevant staff of the Water Enterprise, and management has been briefed on key representations contained in the document. The information in the preliminary official statement has also been reviewed by the City Attorney’s office, and the SFPUC’s Municipal Advisor and outside disclosure counsel. In addition, the underwriters, together with their counsel, has had an opportunity to review the preliminary official statement and such other information as they have deemed necessary to perform their required due diligence.

If there is any information Commissioners believe they need to understand of the transaction as presented for approval, or to evaluate the adequacy of disclosure, or if Commissioners have important information concerning the Water Enterprise of which they are not sure the SFPUC is aware, Commissioners are encouraged to contact SFPUC finance staff or the City Attorney’s Office.

Environmental
Review:

This item includes bond refunding for projects that have undergone any applicable California Environmental Quality Act (CEQA) review and have proceeded to construction. The Commission made CEQA findings at the time that it approved those projects.

Approval of this item doesn’t change the scope of those projects, and the projects remain within the scope of the prior environmental review.

This item also includes bond refunding for future projects that have not yet completed CEQA review. For those future projects, no work will occur after the planning and design phases until CEQA review is complete and the Commission approves those projects.

Attachments: (1) Form of Preliminary Official Statement (POS); including Form of Execute Agreement: Authorize the Issuance of up to $1.662 Billion of 2023 Series C and Series D Water Refunding Bonds
Commission Meeting Date: June 27, 2023

Continuing Disclosure Certificate (POS Appendix)
(2) Forms of Forty-Fifth and Forty-Sixth Supplemental Indentures; (3) Form of Bond Purchase Contract;
(4) Form of Escrow Agreement;
(5) Dealer Manager Agreement for Invitation to Tender
(6) Form of Invitation to Offer Bonds for Purchase

PUBLIC UTILITIES COMMISSION
City and County of San Francisco

RESOLUTION NO. __________
WHEREAS, At a duly called and held election on November 5, 2002, a majority of voters voting on the measure approved Proposition E (Proposition E of 2002) which, among other things, amended the Charter of the City and County of San Francisco (City) to authorize the Public Utilities Commission (Commission) of the City to 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 of the City (Board), for the purpose of reconstructing, replacing, expanding, repairing or improving water facilities under the jurisdiction of the Commission, subject to satisfaction of certain conditions; and WHEREAS, The authority to issue revenue bonds pursuant to Proposition E of 2002 is expressly notwithstanding, and in addition to, the authority granted to the Board under Section 9.107 of the City Charter (Charter), which provides for the issuance of revenue bonds of the City upon the assent of a majority of the voters upon any proposition for the issuance of revenue bonds; and
WHEREAS, At the duly called and held revenue bond election on November 5, 2002, a majority of voters voting on the measure further approved, under the authority of Charter Section 9.107, Proposition A (Proposition A of 2002) which, among other things, authorized the Commission to issue its revenue bonds and/or other forms of revenue financing in a principal amount not to exceed $1,628,000,000 (such authorized amount being subject to reduction to the extent projects designed and intended in substantial part to improve the reliability of the City’s regional water system are issued by the San Francisco Bay Area Regional Water System Financing Authority) for the purpose of financing the costs of acquisition and construction of improvements to the City’s water system, capitalized interest and all costs and expenses incidental to such improvements, including but not limited to engineering, inspection, auditing, legal and fiscal agent fees and costs of issuance; and
WHEREAS, Pursuant to Proposition E of 2002 and various ordinances and resolutions adopted by the Board and this Commission thereunder, there has been authorized $4,758,517,508 aggregate principal amount of water revenue bonds or other forms of indebtedness, including notes, commercial paper and other short -term indebtedness (not counting refunding bonds), of which authorization $4,113,451,982 aggregate principal amount has been utilized as of May 1, 2023; and
WHEREAS, Pursuant to Proposition A of 2002 and various ordinances and resolutions adopted by the Board and this Commission thereunder, there has been authorized $1,628,000,000 aggregate principal amount of water revenue bonds or other forms of indebtedness, including notes, commercial paper and other short -term indebtedness (not counting refunding bonds), of which authorization $1,499,230,000 aggregate principal amount has been utilized as of May 1, 2023; and
WHEREAS, Charter Section 9.109 authorizes the Board 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, Pursuant to Charter Section 9.109 and an Ordinance No. 174 -20 (Refunding Ordinance), the Commission is authorized to issue refunding water revenue bonds without limitation as to principal amount, so long as such refunding bonds comply with Section 9.109 of the Charter and, among other conditions, the refunding results in at least 3% net present value debt service savings; and
WHEREAS, It is proposed that the Commission issue, subject to the other limitations as provided in the Refunding Ordinance and the Indenture, one or more series of taxable or tax- exempt water revenue refunding bonds (2023 Refunding Bonds) for the principal purpose of refunding for debt service savings outstanding water revenue bonds in an aggregate principal amount not to exceed $1,662,385,000 pursuant to the terms of the Amended and Restated Indenture, dated as of August 1, 2002 (as supplemented and amended, the Indenture), by and between the Commission and the U.S. Bank Trust Company, National Association, as successor trustee (Trustee), and one or more supplemental indentures (Supplemental Indentures), between the Commission and the Trustee, as herein provided; and WHEREAS, The refunding of the Commission’s outstanding water revenue bonds or portions thereof (Refunded Bonds) as proposed will be accomplished by (i) depositing proceeds of the 2023 Refunding Bonds and certain other amounts in one or mor e 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 (collectively, 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 applicable Refunded Bonds as provided therein and/or (ii) by applying the proceeds of the 2023 Refunding Bonds to the payment of the purchase price (and accrued and unpaid interest) of the Refunded Bonds tendered for purchase pursuant to an invitation to tender (Tender Invitation) and cancelling such purchased Refunded Bonds pursuant to the Indenture; and WHEREAS, The Indenture permits amounts in such irrevocable escrow funds to be invested in Federal Securities (as defined in the Indenture) or general obligation bonds of the State of California; and
WHEREAS, It is proposed that the 2023 Refunding Bonds be sold in one or more series or subseries by negotiated sale pursuant to one or more Bond Purchase Contracts (each, a Bond Purchase Contract); and
WHEREAS, The General Manager has deemed negotiated sales in the best interest of the Commission for a successful offering, given significant bond market volatility and the complex financing structure and the need for pre-marketing and timing flexibility afforded by a negotiated sale (as compared to a competitive sale) is an important determinant to the success of the offering; and
WHEREAS, It is proposed that one or more preliminary official statements for the 2023 Refunding Bonds (each a Preliminary Official Statement) and one or more final official statements for the 2023 Refunding Bonds (each an Official Statement) be used in connection with the offering and sale of the 2023 Refunding Bonds from time to time; and WHEREAS, It is proposed that one or more continuing disclosure certificates (each a Continuing Disclosure Certificate) be executed and delivered with respect to the 2023 Refunding Bonds in order to assist the underwriters thereof in complying with Securities and Exchange Commission Rule 15c2-12 (“Rule 15c2-12”); and

WHEREAS, It is proposed that a Dealer Manager be appointed to perform services in accordance with the terms of the Tender Invitation under a Dealer Manager Agreement (Dealer Manager Agreement), between the Commission and the Dealer Manager thereunder; and WHEREAS, The Commission has been presented with and has examined proposed forms of Supplemental Indent ures for each sub -series of 2023 Refunding Bonds, and forms of Bond Purchase Contracts, Escrow Agreement, Preliminary Official Statement, Continuing Disclosure Certificate, Tender Invitation and Dealer Manager Agreement; and WHEREAS, Subject to the requirements of Section 9.109 of the Charter and other requirements set forth in applicable Board resolutions and ordinances (including the Refunding Ordinance) and the requirements of the Indenture, the Commission is duly authorized and empowered, pursuant to each and every requirement of law, to authorize the foregoing transactions and issue the 2023 Refunding Bonds and to authorize the execution and delivery (as applicable) of one or more Bond Purchase Contracts, one or more Preliminary Official Statements, one or more final Official Statements, one or more Escrow Agreements, one or more Continuing Disclosure Certificates and related documents, each as appropriate for the issuance of the 2023 Refunding Bonds, for the purposes, in the manner and upon the terms provided herein; and
WHEREAS, In compliance with California Government Code Section 5852.1, the Commission has obtained from Montague DeRose and Associates, LLC, one of the municipal advisors to the Commission with respect to the 2023 Refunding Bonds, good f aith estimates of the following information: (a) the true interest cost of the 2023 Refunding Bonds, (b) the sum of all fees and charges paid to third parties with respect to the 2023 Refunding Bonds, (c) the amount of proceeds of the 2023 Refunding 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 2023 Refunding Bonds, and (d) the sum total of all debt service payments on the 2023 Refunding Bonds calculated to the final maturity of the 2023 Refunding Bonds plus the fees and charges paid to third parties not paid with the proceeds of the 2023 Refunding Bonds, and such estimates are disclosed and set forth in the staff report provided to the Commission i n connection with this resolution; and
WHEREAS, This item includes bond refunding for projects that have undergone any applicable California Environmental Quality Act (CEQA) review and have proceeded to construction, and the Commission made CEQA findings a t the time that it approved those projects; and

WHEREAS, Approval of this item doesn’t change the scope of those projects, and the projects remain within the scope of the prior environmental review; and

WHEREAS, This item also includes bond refunding for future projects that have not yet completed CEQA review, and for those future projects, no work will occur after the planning and design phases until CEQA review is complete and the Commission approves those projects; and 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 Refunding Bonds. The issuance of the 2023 Refunding Bonds, as currently anticipated in two subseries (2023 Sub- Series C Bonds (Refunding) (WSIP) and 2023 Sub- Series D Bonds (Refunding) (Local Water)), one or more of which subseries may be issued as green bonds, or in such other or additional series or subseries as may be determined by the General Manager (all references in this resolution to the General

Manager of the Commission to include any authorized designee thereof pursuant to Section 12 hereof) and on one or more dates, in an aggregate principal amount not exceeding $1,662,385,000 is hereby authorized and approved by the Commission, subject to the limitations and conditions provided herein.

The issuance of the 2023 Refunding Bonds is authorized and approved subject to the limitations and conditions of Section 9.109 of the Charter and the Refunding Ordinance and the requirements of the Indenture, including without limitation Section 3.04, Section 3.05 and 3.06 of the Indenture and the applicable requirements of the Commission’s policies and procedures for refunding bonds. The Refunded Bonds shall be selected by the General Manager, in consultation with Montague DeRose and Associates, LLC and Backstrom McCarley Berry & Co., LLC, the municipal advisors to the Commission with respect to the 2023 Refunding Bonds (together, the Municipal Advisors), upon a determination that the refunding meets the requirements described in the preceding sentence and would be financially advantageous to the Commission and its operations. The proceeds of the 2023 Refunding Bonds shall be applied (a) to retire (through defeasance or purchase, as described herein) the Refunded Bonds and (b) to pay the costs of issuance of the 2023 Refunding Bonds.

The General Manager is hereby authorized and directed to determine the aggregate principal amount of 2023 Refunding Bonds to be issued from time to t ime (subject to the maximum amounts and further limitations and conditions set forth herein) and to determine the various titles and series designations of the 2023 Refunding Bonds. The 2023 Refunding Bonds may be issued as obligations the interest on which is or is not subject to federal income tax. The forms of the 2023 Refunding Bonds, in substantially the forms set forth in the forms of the Supplemental Indentures presented to this meeting, are hereby approved. The General Manager of the Commission is h ereby authorized and directed to approve and to execute the 2023 Refunding Bonds by manual or facsimile signature, and the Secretary of the Commission is hereby authorized and directed to attest, by manual or facsimile signature, with such changes, additions, amendments or modifications thereto which they may approve with the advice of the City Attorney, such approval to be conclusively evidenced by the issuance of the 2023 Refunding Bonds, subject to the limitations set forth in Section 5 hereof.

Section 2. Escrow Agreement. The proposed form of Escrow Agreement submitted to this Commission, and the terms and conditions thereof, is hereby approved. In order to implement any refunding authorized herein, the General Manager is hereby authorized to enter into one or more Escrow Agreements with the trustee of the Refunded Bonds, substantially in the form 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 C ity Attorney, each such approval to be evidenced conclusively by the delivery to the trustee of such Escrow Agreement. The Secretary of the Commission is directed to file a copy of said form of Escrow Agreement with the minutes of this meeting.

Section 3. Disposition of Revenues; Rate Covenant. Section 5.01(b) of the Indenture which sets forth the disposition of Revenues (as defined in the Indenture) applicable to the Commission’s Water Enterprise Bonds is hereby confirmed by the Commission and the Commission further confirms, pledges and covenants with the holders of the 2023 Refunding Bonds that the Revenues shall be appropriated and expended in the order of priority set forth in Section 5.01(b) 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, prescribe and collect rates, fees and charges sufficient to enable the Commission to comply with the terms, conditions and covenants of the Indenture.

Section 4. Supplemental Indentures. The proposed forms of Supplemental Indentures for each sub -series of 2023 Refunding Bonds submitted to this Commission, and the terms and conditions thereof, are hereby approved. The General Manager of the Commission is hereby authorized and directed to execute and deliver and the Secretary of the Commission or the Secretary’s designee is authorized to attest to one or more Supplemental Indentures in such form or forms, 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 Indentures. The Secretary of the Commission is directed to file a copy of each form of Supplemental Indenture with the minutes of this meeting. Subject to the further limitations hereof, the principal amount, date, maturity date or dates, maximum interest rate or rates, series designation, interest payment dates, forms, registration privileges, place or places of payment, terms of redemption, insurance provisions and other terms of the 2023 Refunding Bonds shall be as provided in the Indenture.

Section 5. Preliminary Official Statement and Official Statement. One or more Preliminary Official Statements, in substantially the forms submitted to the Commission, is hereby approved, and the General Manager is hereby authorized to certify from time to time, for and on behalf of the Commission, that such Preliminary Official Statement, with such changes, additions and supplements 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). Such Preliminary Official Statement is hereby authorized to be used from time to time in connection with the marketing of the 2023 Refunding Bonds. In connection with the sale of all or a portion of the 2023 Refunding Bonds, the General Manager is hereby authorized and directed, for and on behalf of the Commission, to execute one or more final Official Statements for such 2023 Refunding Bonds in substantially the form of such Preliminary Official Statement, and to cause the delivery of such Official Statement to the underwriters or successful bidders for the 2023 Refunding Bonds for distribution to purchasers of such 2023 Refunding Bonds. Notwithstanding the foregoing authorization, Commission staff is hereby directed to return to the Commission for authorization of any Preliminary Official Statement or Official Statement to be used in connection with any sale of 2023 Refunding Bonds that is to occur more than ninety (90) days following the date hereof.

Section 6. Negotiated Sale; Bond Purchase Contracts . The sale of the 2023 Refunding Bonds, in one or more series or subseries and on one or more dates, is hereby authorized and approved by the Commission, subject to the limitations and conditions provided herein. Subject to the other limitations provided herein, the interest rate or rates on the 2023 Refunding Bonds shall not exceed twelve percent (12%) and the final maturity of any 2023 Refunding Bonds shall not exceed 40 years from their date of issuance. The General Manager is hereby 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 prequalified underwriters in accordance with the City’s policies and procedures with respect thereto, subject to the limits on underwriter 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 such 2023 Refunding Bonds at one or more negotiated sales in such principal amount as the General Manager may determine, subject to the further limitations and conditions hereof; provided, such sale shall provide a true interest cost to the Commission of not to exceed twelve percent (12%) per annum, and the price to be paid to the Commission for such series or subseries of 2023 Refunding Bonds (or aggregate thereof) shall not be less than ninety- five percent (95%) of the par value thereof. 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 forms presented at 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, 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 Underwriters shall not exceed 0.2 percent (0.2%) of the par value of the 2023 Refunding Bonds to be sold pursuant to any such Bond Purchase Contract. 2023 Refunding Bonds sold in a negotiated sale shall be delivered to the Underwriters upon payment of the purchase price agreed upon in the applicable Bond Purchase Contract, together with accrued interest, if any. The Secretary of the Commission is directed to file a copy of said forms of Bond Purchase Contracts with the minutes of this meeting.

Section 7. Continuing Disclosure Certificate . The proposed form of Continuing Disclosure Certificate for the 2023 Refunding Bonds, submitted to this Commission, is hereby approved. The General Manager is hereby authorized and directed to execute one or more Continuing Disclosure Certificates for the 2023 Refunding Bonds from time to time, substantially in the form submitted to this Commission, with such additions, changes and corrections thereto as the General Manager shall approve with the advice of the City Attorney, such approval to be conclusively evidenced by the execution and delivery of such Continuing Disclosure Certificate. The Secretary of the Commission is directed to file a copy of said form of Continuing Disclosure Certificate with the minutes of this meeting.

Section 8. Approval of Tender Offer, Tender Invitation and Dealer Manager Agreement. The proposed form of Tender Invitation and the proposed form of Dealer Manager Agreement i n connection with the Refunded Bonds, submitted to this Commission, are each hereby approved. The General Manager is hereby authorized and directed to execute one or more Tender Invitations in connection with Refunded Bonds from time to time, substantially in the form submitted to this Commission, with such additions, changes and corrections thereto as the General Manager shall approve with the advice of the City Attorney, such approval to be conclusively evidenced by posting thereof. The Secretary of the C ommission is directed to file a copy of said form of Tender Invitation with the minutes of this meeting. The proceeds of 2023 Refunding Bonds are authorized to be applied or caused to be applied to the purchase and cancellation of all or a portion of Refunded Bonds through the tender offer contemplated by the Tender Invitation. The General Manager is hereby authorized to select and appoint one or more Dealer Managers (each, a Dealer Manager and, collectively, the Dealer Managers) from the Commission’s or th e City’s pool of prequalified underwriters in accordance with the City’s policies and procedures with respect thereto, subject to the limits on compensation set forth below. The General Manager is hereby authorized to enter into one or more Dealer Manager Agreements with one or more of the Dealer Managers, individually or collectively as the General Manager deems appropriate, substantially in the form submitted to the Commission, with such changes and additions as the General Manager may approve upon consul tation with the City Attorney, such approval to be evidenced conclusively by the execution and delivery of each such Dealer Manager Agreement; provided, however, that the total compensation to the Dealer Managers shall not exceed 0.25 percent (0.25%) of the par value of the Refunded Bonds purchased pursuant to the related Tender Invitation. The Commission hereby authorizes the distribution of the Tender Invitation by the Dealer Manager in connection with the potential tender for purchase of all or a portion of the Refunded Bonds. The Secretary of the Commission is directed to file a copy of said form of Dealer Manager Agreement with the minutes of this meeting.

Section 9. General Authority. The General Manager, the Deputy General Manager and Chief Operating Officer, the Chief Financial Officer and Assistant General Manager, Business Services, and each 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 registrat ion, custody agreements, filing agent agreements, information agent agreements, listing agreements and certificates concerning the contents of any Official Statement and any Preliminary Official Statement, to contract for municipal bond insurance for all or a portion of the 2023 Refunding 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 for th e 2023 Refunding Bonds if determined by the General Manager, with the advice of the Municipal Advisors, to be beneficial to the Commission, to do any and all things and take any and all actions which may be necessary or advisable, in their discretion, to accomplish the intent and purposes of this resolution including the issuance and sale of the 2023 Refunding Bonds, the refunding of Refunded Bonds, the tender under the Tender Invitation and the other actions which the Commission has approved in this resolution. The General Manager is authorized to delegate any of the responsibilities or duties set forth in this resolution to the Deputy General Manager and Chief Operating Officer, to the Chief Financial Officer and Assistant General Manager, Business Services, or to any Deputy Chief Financial Officer of the Commission, each of which is an authorized designee for purposes of this Resolution. The other officers of the Commission are hereby authorized to delegate any of the actions on their behalf set forth herein to another officer or employee of the Commission.

Section 10.Good-Faith Estimates. 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 11.Ratification. All actions heretofore taken by the officers, employees and agents of the Commission with respect to the authorization, sale and issuance of the 2023 Refunding Bonds and the authorizations under this Resolution prior to the date hereof and in accordance with the provisions hereof are hereby approved, confirmed and ratified.

Section 12.Effective Date . 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 June 27, 2023.

Secretary, Public Utilities Commission
OH&S DRAFT – Distributed 06/02/2023
PRELIMINARY OFFICIAL STATEMENT DATED JUNE __, 2023

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.

In the opinion of Norton Rose Fulbright US LLP, Los Angeles, California, Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, and assuming compliance with certain covenants in the documents pertaining to the 2023CD Bonds and requirements of the Internal Revenue Code of 1986, as described herein, interest on the 2023CD Bonds is not included in the gross income of the owners thereof for federal income tax purposes. In the further opinion of Bond Counsel, interest on the 2023CD Bonds is not treated as an item of tax preference for purposes of the federal alternative minimum tax on individuals. Bond Counsel is also of the opinion that, under existing law, interest on the 2023CD Bonds is exempt from personal income taxes of the State of California. See “TAX MATTERS.”

$__________*

PUBLIC UTILITIES COMMISSION OF

THE CITY AND COUNTY OF SAN FRANCISCO
San Francisco Water Revenue Bonds, 2023 Series CD
$__________*
2023 Sub-Series C Bonds (Refunding)
(WSIP) (Green Bonds)

$__________*
2023 Sub-Series D Bonds (Refunding)
(Local Water)
Dated: Date of Delivery Due: November 1, as shown on inside cover page General. This cover page contains certain information for quick reference only. It is not intended to be a summary of the security or terms of the water revenue bonds captioned above. Potential investors are instructed to read the entire Official Statement, includ ing the appendices hereto, to obtain information essential to making an informed investment decision.

Authority for Issuance . The Public Utilities Commission of the City and County of San Francisco (the “ SFPUC”) is issuing its San Francisco Water Revenue B onds, 2023CD Bonds, in two sub-Series: (i) the 2023 Sub-Series C Bonds (Refunding) (WSIP) (Green Bonds) (the “2023C Bonds”) and (ii) the 2023 Sub-Series D Bonds (Refunding) (Local Water) (the “2023D Bonds” and, together with the 2023C Bonds, the “2023CD Bonds”), pursuant to authority granted by the Charter of the City and County of San Francisco (the “City”).

The 2023C Bonds will be issued under a Forty -Fifth Supplemental Indenture , dated as of June 1, 2023 (the “ Forty-Fifth Supplemental Indenture”), by and between the SFPUC and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). The 2023D Bonds will be issued under a Forty-Sixth Supplemental Indenture, dated as of June 1, 2023 (the “Forty-Sixth Supplemental Indenture”), by and between the SFPUC and the Trustee. The Forty-Fifth Supplemental Indenture and Forty-Sixth Supplemental Indenture supplement the Amended and Restated Indenture, dated as of August 1, 2002 (as amended and supplemented to date, the “Indenture”), by and between the SFPUC and the Trustee. See “SECURITY FOR THE BONDS.”
Plan of Refunding. The 2023CD Bonds are being issued to (i) pay the purchase price of certain outstanding water revenue bonds of the SFPUC tendered for cash, (ii) advance refund certain outstanding water revenue bonds of the SFPUC and (iii) pay the costs of issuance of the 2023CD Bonds. See “PLAN OF REFUNDING” and “ESTIMATED SOURCES AND USES OF FUNDS.” Denominations and Interest. The 2023CD Bonds will be available in denominations of $5,000 or any integral multiple thereof and will mature in the years and amounts and accrue interest from their date of delivery at the rates set forth on the inside cover page of this Official Statement. Interest on the 2023CD Bonds is payable semiannually on May 1 and November 1 of each year, commencing November 1, 2023. See “THE 2023CD BONDS.”
Book-Entry Only. The 2023CD 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 2023CD Bonds. The principal of, premium, if any, and interest on the 2023CD Bonds are payable to DTC by the Trustee, and, so long as DTC is acting as securities depository for the 2023CD 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 2023CD BONDS.” Redemption. The 2023CD Bonds are subject to redemption prior to maturity as described herein. See “THE 2023CD BONDS – Redemption.” Security. Under the Indenture, the SFPUC has irrevocably pledged the Revenues of its Water Enterprise and all Refundable Credits (in the case of Bonds (defined herein) issued as Build America Bonds) received by the SFPUC to the punctual payment of principal of, premium, if any, and interest on the 2023CD Bonds and all outstanding parity revenue bonds, notes or other evidences of indebtedness authorized under the Indenture, subject to the allocation of funds provided in the Indenture. The 2023CD Bonds are payable on parity with certain Outstanding Bonds previously issued by the SFPUC under the Indenture and all outstanding parity revenue bonds, notes or other evidences of indebtedness authorized under the Indenture. No Bond Reserve Account will be established for the 2023CD 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 2023CD Bonds except from Revenues. The SFPUC has no taxing power. The General Fund of the City is not liable for the payment of the principal of, prem ium, if any, or interest on the 2023CD Bonds, and neither the credit nor the taxing power of the City is pledged to the payment of the principal

* Preliminary, subject to change.

NEW ISSUE – Book-Entry Only Ratings:

Moody’s: “__”
S&P: “ AA-”
(See “RATINGS.”)
of, premium, if any, or interest on the 2023CD Bonds. The 2023CD 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 Revenues. The 2023CD Bonds are not secured by the revenues of the SFPUC’s Wastewater Enterprise of Power Enterprise or the revenues of CleanPower SF.

See “SECURITY FOR THE BONDS.”

MATURITY SCHEDULES
(See inside cover page)
The 2023CD Bonds are offered when, as and if issued by the SFPUC and received by the Underwriters, subject to the approval of validity by Norton Rose Fulbright US LLP, San Francisco, California , Bond Counsel to the SFPUC, and to certain other conditions. Certain matters w ill 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, San Francisco, California. It is expected that the 2023CD Bonds in fully registered form will be available for delivery in book-entry form through the facilities of DTC, on or about _____________, 2023.

Jefferies Wells Fargo Securities
Ramirez & Co., Inc. RBC Capital Markets UBS US Bancorp

The date of this Official Statement is ___, 2023.

MATURITY SCHEDULES*

2023 Sub-Series C Bonds
(Refunding) (WSIP) (Green Bonds)
$___________ Serial Bonds
Maturity
(N
ovember 1)
Principal
Amount Interest Rate Price†
CUSIP‡
Base Number
79771F

$_________ _____% Term Bonds due November 1, ____ Price† ______ CUSIP‡ _______

2023 Sub-Series D Bonds
(Refunding) (Local Water)
$___________ Serial Bonds
Maturity
(November 1)
Principal
Amount Interest Rate Price†
CUSIP‡
Base Number
79771F

$_________ _____% Term Bonds due November 1, ____ Price† ______ CUSIP‡ _______

* Preliminary, subject to change.
† Reoffering prices 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.

Map of Hetch Hetchy Regional Water System

Figure 1-1 (Not to Scale) – The above map depicts the Hetch Hetchy Regional Water System, which delivers water approximately 160 miles from the Hetch Hetchy Reservoir to San Francisco. The Water Enterprise consists of over 1,235 miles of pipeline, 11 reservoirs, six groundwater wells, eight storage tanks, 24 pump stations, eight hydropneumatic stations and 17 chlorination stations located within the San Francisco city limit and further comprises over 389 miles of pipeline, over 74 miles of tunnels, 11 reservoirs, 13 groundwater wells, five pump stations, and three water treatment plants located outside of San Francisco . For further description of the SFPUC’s Water System, see “THE WATER ENTERPRISE.” The 2023CD 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 a ny of its income or receipts, except Revenues. See “SECURITY FOR THE BONDS.”

Map of Service Area and Locations of Wholesale Customers

1. Alameda County Water District

2. City of Brisbane

3. City of Burlingame
4a. CWS – Bear Gulch
4b. CWS – Mid-Peninsula
4c. CWS – South San Francisco

5. Coastside County Water District

6. City of Daly City

7. City of East Palo Alto

8. Estero Municipal Improvement District

9. Guadalupe Valley MID

10. City of Hayward

11. Town of Hillsborough

12. City of Menlo Park

13. Mid-Peninsula Water District

14. City of Millbrae

15. City of Milpitas

16. City of Mountain View

17. North Coast County Water District

18. City of Palo Alto

19. Purissima Hills Water District

20. City of Redwood City

21. City of San Bruno

22. San José Municipal Water System

23. City of Santa Clara

24. Stanford University

25. City of Sunnyvale

26. Westborough Water District

Figure 1-2 (Not to Scale) – The above map depicts the Water Enterprise service area (not including the Groveland Community Service District) and the locations of the Wholesale Customers (as defined herein). The Water Enterprise serves water to approximately 2.7 million people in the San Francisco Bay Area region delivering approximately 185 million gallons per day of water . For further description of the Wholesale Customers, see “THE WATER ENTERPRISE – Wholesale Deliveries.”
The 2023CD Bonds are not secured by a legal or equitable pledge of, or charge, lien or encumbrance upon, any of the property of any of the Wholesale Customers or any of their respective revenue, income or receipts. The 2023CD Bonds are secured solely by the Revenues of the Water Enterprise as described herein. See “SECURITY FOR THE BONDS.”

-i-

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 2023CD 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 2023CD Bonds. Any statement made in t his Official Statement involving any forecast or matter of estimates or opinion, whether or not expressly so stated, is intended solely as such and not as a representation of fact.

The information set forth herein other than that provided by the SFPUC, although obtained from sources which are believed to be reliable, is not guaranteed as to accuracy or completeness. The information and expressions of opinion herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the SFPUC or the City since the date hereof.

The Underwriters have provided the following sentence for inclusion in this Official Statement: The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but t he Underwriters do not guarantee the accuracy or completeness of such information.

The City maintains a website at http://www.sfgov.org and the SFPUC maintains a website at https://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 2023CD Bonds.

The issuance and sale of the 2023CD 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.

IN CONNECTION WITH THE OFFERING OF THE 2023CD BONDS, THE UNDERWRITER S MAY

OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE 2023CD BONDS AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

CONSEQUENTLY, THE MARKET PRICE PAID BY AN INVESTOR DURING THE STABILIZATION PERIOD MAY BE HIGHER THAN THE PREVAILING MARKET PRICE.

This Official Statement is delivered for use in connection with the issuance, sale and delivery of the 2023CD Bonds and may not be reproduced or used, in whole or in part, for any other purpose.

FORWARD-LOOKING STATEMENTS

CERTAIN STATEMENTS CONTAINED IN THIS OFFICIAL STATEMENT REFLECT NOT HISTORICAL FACTS BUT FORECASTS AND “FORWARD-LOOKING STATEMENTS.” ALL FORWARD-LOOKING STATEMENTS ARE PREDICTIONS AND ARE SUBJECT TO KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES. NO

ASSURANCE CAN BE GIVEN THAT THE FUTURE RESULTS DISCUSSED HEREIN WILL BE ACHIEVED, AND ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE FORECASTS DESCRIBED HEREIN. IN THIS RESPECT, THE WORDS “ESTIMATE,” “PROJECT,” “ANTICIPATE,” “EXPECT,” “INTEND,” “BELIEVE” AND SIMILAR 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.

TABLE OF CONTENTS

-ii-

INTRODUCTION .....................................................2 General ...............................................................2 Authority for Issuance ........................................2 Plan of Refunding ...............................................2 The SFPUC and the Water Enterprise ................3
SFPUC Water Supply .........................................3 Security for the Bonds ........................................3 Outstanding and Future Parity Bonds
and Other Indebtedness ...................................4 Risk Factors ........................................................5 Continuing Disclosure ........................................5 Other Matters ......................................................5 THE 2023CD BONDS ..............................................5 General ...............................................................5 Securities Depository and Book-Entry
Only System ....................................................5 Redemption ........................................................6 Defeasance..........................................................8 PLAN OF REFUNDING ...........................................9 General ...............................................................9 Refunded Bonds* ................................................9 Escrow Fund ..................................................... 13

ESTIMATED SOURCES AND USES OF
FUNDS ............................................................. 14

GREEN BONDS DESIGNATION AND
CLIMATE CERTIFICATION ......................... 15
Designation as Green Bonds............................. 15 The Climate Bonds Initiative and
Climate Bonds............................................... 15 United Nations Sustainable
Development Goals ....................................... 16 Use of Proceeds ................................................ 16 Process for Project Evaluation and
Selection ....................................................... 17 Management of Proceeds ................................. 17 Green Bond Reporting ...................................... 17 SECURITY FOR THE BONDS .............................. 18 Pledge of Revenues .......................................... 18 Flow of Funds ................................................... 19 Rate Covenants ................................................. 21 No Bond Reserve Account for the
2023CD Bonds .............................................. 23 Additional Series of Bonds ............................... 23 Refunding Bonds .............................................. 24 Other Parity Obligations; Subordinate
Obligations; Obligations Not Payable
from Revenues .............................................. 24 Investments ....................................................... 25

PROPOSED AMENDMENTS TO THE
INDENTURE ................................................... 25

OBLIGATIONS PAYABLE FROM
REVENUES ..................................................... 25 Authority for Issuance of Revenue
Bonds and Other Obligations Payable
from Revenues .............................................. 25

Outstanding Parity Revenue Bonds .................. 27
Parity State Loans; No Federal Loans .............. 28
Contingent Payment Obligations ...................... 28 Subordinate Debt and Interim Funding
Program ......................................................... 29 Other Subordinate Obligations Payable
from Revenues .............................................. 29 Revenue Bond Oversight Committee ............... 30
Debt Service Requirements .............................. 30

THE CITY AND COUNTY OF SAN
FRANCISCO.................................................... 32 THE PUBLIC UTILITIES COMMISSION ............ 34
General ............................................................. 34 Organization, Purposes and Powers ................. 34
Commission Members ...................................... 35 Management ..................................................... 36 Ongoing Investigations ..................................... 37 Employee Relations .......................................... 38 Employee Benefit Plans ................................... 40 THE WATER ENTERPRISE .................................. 44 General ............................................................. 44 Water Rights and Related Proceedings............. 45
Current Water Supply Sources ......................... 45 Water Supply Storage ....................................... 46 Water Supply Reliability and Drought
Planning ........................................................ 47 Wholesale Deliveries ........................................ 48 Retail Deliveries ............................................... 56 Historical Water Sales and Top
Customers ..................................................... 56 Recent Factors Impacting Retail Water
Sales .............................................................. 59 Recent Drought Actions ................................... 59 Curtailment Actions by the State Water
Resources Control Board .............................. 61 Projected Demand ............................................ 62 WATER FACILITIES ............................................. 65 General ............................................................. 65 Water Conveyance and Distribution ................. 66
Water Treatment ............................................... 67 Water Storage ................................................... 68 Physical Condition of Certain Facilities ........... 70 Recent Storms ................................................... 71 Seismic Hazards ............................................... 71 Wildfire Considerations .................................... 73 Safety and Security ........................................... 73

CAPITAL IMPROVEMENT PROGRAM

AND OTHER WATER SUPPLY
INITIATIVES .................................................. 74 Capital and Financial Planning Process ............ 74
Regional Water Program .................................. 74

TABLE OF CONTENTS
(continued)

-iii-

Local Water Program ....................................... 75 Hetch Hetchy Water ......................................... 75 Water System Improvement Program .............. 76
Water Supply Initiatives ................................... 77 Environmental Considerations ......................... 81 Climate Action Plan ......................................... 82

FINANCING OF CAPITAL
IMPROVEMENTS .......................................... 82 Long Term Financing of Capital
Program ......................................................... 82 Interim Funding Program Facilities .................. 82 Sources of Funding the Capital
Improvement Program .................................. 83 FINANCIAL OPERATIONS .................................. 84 General ............................................................. 84 Wholesale Water Sales Revenue ...................... 85 Retail Water Sales Revenue ............................. 87 Capacity Charges .............................................. 93 Operating and Maintenance Expenses .............. 93
Financial Management Policies ........................ 94 Investment of SFPUC Funds ............................ 96 Risk Management and Insurance ...................... 96 HISTORICAL OPERATING RESULTS ................ 98
PROJECTED OPERATING RESULTS ............... 100
RISK FACTORS ................................................... 103 General ........................................................... 103 Limited Obligation ......................................... 103 No Bond Reserve Account ............................. 104 Risks Related to Water Enterprise
Facilities and Operations ............................. 104 Cybersecurity .................................................. 106 Construction Related Risks ............................ 107 Limitations on Rate-Setting ............................ 107 Initiative, Referendum, Charter
Amendments and Future Legislation .......... 107
Increased Operating and Maintenance
Expenses ..................................................... 108 Interim Funding Program Facilities ................ 108 Pandemics; COVID-19 Pandemic .................. 108
Climate Change .............................................. 109 Green Bonds ................................................... 113 Inverse Condemnation .................................... 113 Economic, Political, Social and
Environmental Conditions .......................... 113 Bankruptcy or Financial Failure of
Wholesale Customers.................................. 113 Bankruptcy of the City ................................... 114 Limitations on Remedies ................................ 115 Loss of Tax Exemption/Risk of Tax
Audit of Municipal Issuers .......................... 115 Change in Tax Law ........................................ 115 Failure to Maintain Credit Ratings ................. 115 Secondary Market ........................................... 116 Uncertainties of Projections, Forecasts
and Assumptions ......................................... 116 Other Risks ..................................................... 116 REGULATORY MATTERS................................. 116 General ........................................................... 116 Drinking Water Requirements ........................ 117 Public Water System Discharges .................... 121 Bay-Delta Water Quality Standards ............... 121
FERC Proceeding to Increase Flows in
the Lower Tuolumne River ......................... 122
Dam Licensing and Safety Issues ................... 123 Hazardous Material Management ................... 126
Endangered Species ........................................ 126 Required Instream Flow
Schedules from Regional Water
System Dams .............................................. 126

CONSTITUTIONAL, STATUTORY AND
CHARTER LIMITATIONS ........................... 127
State Law Limitations..................................... 127 Initiative and Referendum .............................. 129 Charter Limitations ......................................... 129 Future Charter Amendments .......................... 130 LITIGATION ........................................................ 130 TAX MATTERS ................................................... 130 CERTAIN LEGAL MATTERS ............................ 132
RATINGS .............................................................. 133 UNDERWRITING ................................................ 133 FINANCIAL STATEMENTS ............................... 134 CONTINUING DISCLOSURE ............................. 135 CO-MUNICIPAL ADVISORS ............................. 135

VERIFICATION OF MATHEMATICAL
ACCURACY .................................................. 135 MISCELLANEOUS .............................................. 135 APPROVAL AND DELIVERY ............................ 137

APPENDIX A SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE

APPENDIX B SUMMARY OF CERTAIN PROVISIONS OF THE WATER SUPPLY AGREEMENT

APPENDIX C SF PUC WATER ENTERPRISE FINANCIAL STATEMENTS

APPENDIX D PROPOSED FORM OF OPINION OF BOND COUNSEL

APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE

APPENDIX F SECURITIES DEPOSITORY AND THE BOOK-ENTRY SYSTEM

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, Chief Financial Officer and Assistant General Manager, Business Services Steven R. Ritchie, Assistant General Manager, Water 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 Joel Prather, Acting Assistant General Manager, Wastewater 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 Shamann 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
Bond Counsel
Norton Rose Fulbright US LLP
San Francisco, California
Co-Municipal Advisors
Montague DeRose and Associates, LLC
Walnut Creek, California
Disclosure Counsel
Orrick, Herrington & Sutcliffe LLP
San Francisco, California
Backstrom McCarley Berry & Co., LLC
San Francisco, California

Trustee Verification Agent
U.S. Bank Trust Company, National Association
San Francisco, California
__________
__________

2 OFFICIAL STATEMENT
$__________*

PUBLIC UTILITIES COMMISSION OF

THE CITY AND COUNTY OF SAN FRANCISCO
San Francisco Water Revenue Bonds, 2023 Series CD
$__________*
2023 Sub-Series C Bonds (Refunding)
(WSIP) (Green Bonds)
$__________*
2023 Sub-Series D Bonds (Refunding)
(Local Water)

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 2023CD 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 (i) San Francisco Water Revenue Bonds, 2023 Series CD , 2023 Sub-Series C Bonds (Refunding) (WSIP) (Green Bonds) (the “2023C Bonds”), and (ii) San Francisco Water Revenue Bonds, 2023 Series CD, 2023 Sub-Series D Bonds (Refunding) (Local Water) (the “2023D Bonds” and, together with the 2023C Bonds, the “2023CD Bonds”).

Authority for Issuance
The 2023CD Bonds will be issued by the SFPUC pursuant to authority granted by Section 9.109 of the Charter (the “Charter”) of the City and County of San Francisco (the “ City”) and an ordinance that was passed by the Board of Supervisors of the City (the “Board of Supervisors”) on September 29, 2020 (the “ Refunding Ordinance”), effective as of October 1, 202 0. In addition, t he 2023CD Bonds will be issued under a resolution adopted by the SFPUC governing body (the “Commission”) on June __, 2023.

The 2023C Bonds and the 2023D Bonds will be issued under a Forty -Fifth Supplemental Indenture (the “Forty-Fifth Supplemental Indenture”) and a Forty-Sixth Supplemental Indenture (the “Forty-Sixth Supplemental Indenture”), respectively, each dated as of June 1, 2023, and by and between the SFPUC and U.S. Bank Trust Company, National Association, as trustee (the “ Trustee”). The Forty-Fifth Supplemental Indenture and the Forty- Sixth Supplemental Indenture each supplement the Amended and Restated Indenture, dated as of August 1, 2002 (as amended and supplemented to date, the “Indenture”), by and between the SFPUC and the Trustee.

See also “OBLIGATIONS PAYABLE FROM REVENUES – Authority for Issuance of Revenue Bonds and Other Obligations Payable from Revenues.”
Plan of Refunding
The 2023CD Bonds are being issued to (i) pay the purchase price of certain outstanding water revenue bonds of the SFPUC tendered for cash, (ii) advance refund certain outstanding water revenue bonds of the SFPUC and (iii)

* Preliminary, subject to change.

3 pay the costs of issuance of the 2023CD Bonds. See “PLAN OF REFUNDING” and “ESTIMATED SOURCES AND USES OF FUNDS.”
The SFPUC and the Water 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 SFPUC owns and operates a municipal water supply, storage and distribution system (the “ Water Enterprise”) that provides drinking water to (i) retail customers in San Francisco and certain retail customers outside of San Francisco (collectively, the “Retail Customers”), (ii) 26 wholesale customer entities in San Mateo, Alam eda and Santa Clara counties that are members of the Bay Area Water Supply and Conservation Agency (“ BAWSCA”) pursuant to the hereinafter defined Water Supply Agreement and individual contractual agreements (collectively, the “Wholesale Customers”), and (iii) one additional wholesale customer, Cordilleras Mutual Water Company in San Mateo County (which is not a BAWSCA member or a party to the Water Supply Agreement), pursuant to an individual contractual agreement. The Water Enterprise consists of water treatment and transmission facilities located outside of San Francisco (the “ Regional Water System ”) and water treatment and distribution facilities located inside San Francisco (the “In-City Distribution System”). See “WATER FACILITIES.” Water rates fo r Retail Customers are set by the SFPUC, subject to rejection by resolution of the Board of Supervisors. Water rates for Wholesale Customers are set pursuant to the Water Supply Agreement between the City and the Wholesale Customers, which became effective in 2009 and was most recently amended and restated in 2021 (the “ Water Supply Agreement ” or “WSA ”). See “FINANCIAL OPERATIONS” and “APPENDIX B – SUMMARY OF CERTAIN PROVISIONS OF THE WATER SUPPLY AGREEMENT.” The SFPUC also provides wastewater services to customers in San Francisco and to several wholesale customers outside of San Francisco (the “ Wastewater Enterprise”) , and power, mainly hydroelectric, for City government operations and to other users (the “Power Enterprise”), and manages a Community Choice Aggregation program (“CleanPowerSF”). The revenues of these other enterprises are not available for, and do not secure, payment of the principal of, premium, if any, or interest on the Bonds (as defined herein), including the 2023CD Bonds.

SFPUC Water Supply
The SFPUC’s primary water supply source is the Upper Tuolumne River watershed in the Sierra Nevada Mountains. The amount of water available to the SFPUC is subject to prevailing hydrological conditions and may be limited during times of drought. The SFPUC has taken a variety of steps to enhance water supply reliability. See “THE WATER ENTERPRISE.”
Security for the Bonds
Under the Indenture, the SFPUC has irrevocably pledged the Revenues of its Water Enterprise and all Refundable Credits (in the case of Bonds issued as Build America Bonds) received by the SFPUC to the punctual payment of principal of, premium, if any, and interest on the 2023CD Bonds and all outstanding parity revenue bonds, notes or other evidences of indebtedness authorized by the Indenture (collectively, the “ Bonds”), s ubject to the allocation of funds provided in the Indenture. The 2023CD Bonds are payable on parity with certain Outstanding Bonds previously issued by the SFPUC under the Indenture.

The SFPUC is not obligated to pay the principal of, premium, if any, or interest on the 2023CD Bonds except from Revenues of the Water 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 2023CD 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 2023CD Bonds. The 2023CD 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,

4 except Revenues of the Water Enterprise. The Series 2023CD Bonds are not secured by the revenues of the Wastewater Enterprise or the Power Enterprise or the revenues of CleanPowerSF.

No Bond Reserve Account wil l be established for the 2023CD Bonds. Bond Reserve Accounts have been established with respect to certain other series of Bonds, but such Bond Reserve Accounts do not secure the 2023CD Bonds.

See “SECURITY FOR THE BONDS.”
Outstanding and Future Parity Bonds and Other Indebtedness The SFPUC has previously issued Bonds, and in the future expects to issue additional Bonds, pursuant to the Indenture and secured by Revenues of the Water Enterprise on parity with the 2023CD Bonds. See “OBLIGATIONS PAYABLE FROM REVENUES.”
The Indenture provides that additional series of Bonds secured by Revenues on parity with the Outstanding Bonds and the 2023CD Bonds (each an “Additional Series of Bonds”) may be issued if certain conditions are met.

See “SECURITY FOR THE BONDS – Additional Series of Bonds.” The SFPUC may issue additional Bonds from time to time to fund additional capital projects (see “FINANCING OF CAPITAL IMPROVEMENTS”) and may also issue refunding Bonds (see “SECURITY FOR THE BONDS – Refunding Bonds”).

The SFPUC anticipates that it will issue in July 2023 its San Francisco Water Revenue Bonds, 2023 Series AB, 2023 Sub -Series A Bonds (Regional Water & Local Water), and 2023 Sub -Series B Bonds (Hetch Hetchy Water) (collectively, the “2023AB Bonds”), in an aggregate principal amount of approximately $_____* million to refund Commercial Paper Notes issued to finance and refinance a portion of the design, acquisition and construction of various capital p rojects of benefit to the SFPUC’s Water Enterprise, and finance and refinance a portion of the design, acquisition and construction of various capital projects of benefit to the SFPUC’s Water Enterprise. The 2023AB Bonds are not being offered pursuant to this Official Statement. The size, timing and structure of the anticipated transaction remains subject to market conditions and the SFPUC reserves the right to change, modify or cancel its plans as it deems appropriate.

Amendments Effected by Forty-Third Supplemental Indenture The Forty -Third Supplemental Indenture will amend and supplement certain provisions of the Indenture, including provisions relating to the calculation of “Maximum Annual Debt Service,” “Annual Debt Service,” “Average Annual Debt Service,” the incurrence of “ Parity Loans,” the conditions under which Additional Series of Bonds may be issued, the filing of annual audited financial information with the Trustee and the rate covenants . The provisions of the Forty-Third Supplemental Indenture will become effective when the written consents of the Owners of a majority in aggregate amount of the Bond Obligation of the Bonds then Outstanding and of each Credit Provider, if any, have been filed with the Trustee and certain other requirements under the Indenture have been satisfied. By their purchase of 2023CD Bonds, the purchasers of 2023CD Bonds irrevocably agree to, accept and consent to the provisions of such amendments. Upon the issuance of the 2023CD Bonds, approximately __% of the aggregate amount of the Bond Obligation of the Bonds then Outstanding will have been obtained. See “PROPOSED AMENDMENTS TO INDENTURE” and “APPENDIX A – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE – FORTY-THIRD SUPPLEMENTAL IN DENTURE – PROPOSED AMENDMENTS TO INDENTURE” for a more detailed explanation of the amendments effected by the Forty- Third Supplemental Indenture.

* Preliminary, subject to change.

5 Risk Factors
Investment in the 2023CD Bonds is subject to material risks. For a general overview of certain risk factors which should be considered, in addition to other matters set forth in this Official Statement, in evaluating an investment in the 2023CD Bonds, see “RISK FACTORS.”
Continuing Disclosure
The SFPUC has covenanted for the benefit of the Owners and Beneficial Owners of the 2023CD Bonds to provide certain financial information and operating data not later than nine months following the end of its Fiscal Year (presently June 30), beginning on March 31, 2024, with the report for Fiscal Year 20 22-23, and to provide notices of the occurrence of certain enumerated events. These covenants have been made in order 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 E – FORM OF CONTINUING DISCLOSURE CERTIFICATE.” Other Matters
Brief descriptions of the 2023CD Bonds, the security and sources of payment for the 2023CD Bonds, the SFPUC, the Water Enterprise, the SFPUC’s capital improvement program 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, 13
th Floor
San Francisco, CA 94102
Attention: Chief Financial Officer and Assistant General Manager, Business Services (415) 554-3155
THE 2023CD BONDS
General
The 2023CD Bonds will be dated as of their date of delivery and will accrue interest from their date of delivery at the rates per annum s et forth on the inside cover page of this Official Statement. Interest on the 2023CD Bonds will be calculated on the basis of a 360- day year consisting of twelve 30-day months. Interest on the 2023CD Bonds is payable on May 1 and November 1 of each year, beginning November 1, 2023.

The 2023CD Bonds will mature on the dates and in the principal amounts set forth on the inside cover page of this Official Statement. The 2023CD 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 2023CD Bonds is the 15th day of the calendar month immediately preceding an interest payment date, whether or not such day is a Business Day.

Securities Depository and Book-Entry Only System
The 2023CD Bonds will be registered in the name of Cede & Co., as nominee for The Depository Trust Company (“DTC”), New York, New York, as the Owner of the 2023CD Bonds. So long as DTC, or its nominee, Cede & Co., is the Owner of the 2023CD Bonds, all payments on the 2023CD 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 2023CD Bonds will be the responsibility of the DTC Participants. See “APPENDIX F – SECURITIES DEPOSITORY AND THE BOOK-ENTRY SYSTEM.”

6 Redemption*
Optional Redemption of 2023C Bonds. The 2023C Bonds maturing on or after November 1, 20__ are subject to redemption prior to their stated maturity, at the option of the SFPUC, from any source of available funds, as a whole or in part, on any date on or after November 1, 20__, from such maturities or portions of maturities as are determined by the SFPUC and (except as otherwise provided under the procedures of Securities Depository for the 2023C Bonds) by lot within any one maturity, at a redemption price equal to 100% of the principal amount of the 2023C Bonds to be redeemed, plus accrued interest thereon to the date fixed for redemption, without premium Mandatory Sinking Fund Redemption of 2023C Bonds. The 2023C Bonds maturing on November 1, ____ (the “2023C Term Bonds (____)”), are further subject to redemption prior to their stated maturity, and payable from the 2023C Sinking Fund Account, on each November 1 on and after November 1, ____, (except as otherwise provided under the procedures of Securities Depository for the 2023C Bonds) by lot within any such maturity if less than all of the 2023C 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.

The 2023C Term Bonds (____) are subject to mandatory redemption on November 1 in each of the years and in the respective principal amounts as follows (such schedule subject to adjustment as directed by the SFPUC in the event of optional redemption of any portion of such 2023C Term Bonds (____) prior to maturity as described above):

Redemption Date
(November 1) Principal Amount

†
__________
† Maturity

The 2023C Bonds maturing on November 1, ____ (the “2023C Term Bonds (____)”), are further subject to redemption prior to their stated maturity, and payable from the 2023C Sinking Fund Account, on each November 1 on and after November 1, ____, (except as otherwise provided under the procedures of Securities Depository for the 2023C Bonds) by lot within any such maturity if less than all of the 2023C 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.

Redemption Date
(November 1) Principal Amount

†
__________
† Maturity

* Preliminary, subject to change.

7 Optional Redemption of 2023D Bonds. The 2023D Bonds maturing on or after November 1, 20__ are subject to redemption prior to their stated maturity, at the option of the SFPUC, from any source of available funds, as a whole or in part, on any date on or after November 1, 20__, from such maturities or portions of maturities as are determined by the SFPUC and (except as otherwise provided under the procedures of Securities Depository for the 2023D Bonds) by lot within any one maturity, at a redemption price equal to 100% of the principal amount of the 2023D Bonds to be redeemed, plus accrued interest thereon to the date fixed for redemption, without premium Mandatory Sinking Fund Redemption of 2023D Bonds. The 2023D Bonds maturing on November 1, ____ (the “2023D Term Bonds (____)”), are further subject to redemption prior to their stated maturity, and payable from the 2023D Sinking Fund Account, on each November 1 on and after November 1, ____, (except as otherwise provided under the procedures of Securities Depository for the 2023D Bonds) by lot within any such maturity if less than all of the 2023D 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.

The 2023D Term Bonds (____) are subject to mandatory redemption on November 1 in each of the years and in the respective principal amounts as follows (such schedule subject to adjustment as directed by the SFPUC in the event of optional redemption of any portion of such 2023D Term Bonds (____) prior to maturity as described above):

Redemption Date
(November 1) Principal Amount

†
__________
† Maturity

The 2023D Bonds maturing on November 1, ____ (the “2023D Term Bonds (____)”), are further subject to redemption prior to their stated maturity, and payable from the 2023D Sinking Fund Account, on each November 1 on and after November 1, ____, (except as otherwise provided under the procedures of Securities Depository for the 2023D Bonds) by lot within any such maturity if less than all of the 2023D 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.

Redemption Date
(November 1) Principal Amount

†
__________
† Maturity

Purchase In Lieu of Mandatory Sinking Fund Redemption . In lieu of mandatory sinking fund redemption of the 2023CD Bonds as described above, the SFPUC may satisfy, in whole or in part, the related minimum Sinking Fund Account payment amounts and redemption of 2023CD Term Bonds of the respective Sub-Series by depositing with the Trustee 2023CD Term Bonds of the respective Sub-Series for cancellation prior to the Trustee’s selection of the 2023CD Term Bonds of such Sub-Series for redemption, or may request the Trustee to purchase 2023CD Term Bonds of the respective Sub-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 2023CD Bonds so deposited or purchased in any twelve -month period ending on

8 September 15 in any year will be credited towards and will reduce the par amount of such 2023CD Bonds required to be redeemed as described above on the next succeeding November 1.

Selection of 2023CD Bonds for Redemption. Subject to DTC’s procedures relating to the selection of bonds for redemption described above, whenever less than all of the 2023CD Bonds, of any one tenor and maturity are called for redemption and those 2023CD Bonds are redeemable by lot, the Trustee will select the 2023CD Bonds of the tenor and maturity to be redeemed from the Outstanding 2023CD Bonds of that tenor and maturity, by lot or by any other manner the Trustee deems fair and equitable. For purposes of such selection, 2023CD Bonds will be deemed to be made up of $5,000 portions of principal, any of which may be redeemed separately.

Notice of Redemption. 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 DTC’s book-entry system is used). The actual receipt by the owner of any 2023CD 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 2023CD Bond or the cessation of the accrual of interest on the date fixed for such redemption.

See “APPENDIX F – SECURITIES DEPOSITORY AND THE BOOK-ENTRY SYSTEM.” Rescission of Notice of Redemption . The SFPUC may, at its option, prior to the date fixed for redemption in any notice of optional 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. 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 2023CD Bonds called for redemption will, on the redemption date designated in such notice, become due and payable at the redemption pric e specified in such notice; and from and after the date so designated interest on such 2023CD Bonds called for redemption will cease to accrue, and such 2023CD Bonds will cease to be entitled to any benefit or security under the Indenture, and the Owners of said 2023CD 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 2023CD Bonds will pay such 2023CD Bonds at the applicable redemption price, togethe r with accrued interest thereon. All 2023CD Bonds redeemed will be cancelled upon surrender and no 2023CD Bonds will be issued in place thereof.

Defeasance
The obligations of the SFPUC and the pledge, lien, covenants and agreements of the SFPUC made or provided for in the Indenture will be fully discharged and satisfied as to any 2023CD Bond will no longer be deemed outstanding thereunder if certain conditions set forth in the Indenture are satisfied. See “APPENDIX A – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE – DEFEASANCE.”

9 PLAN OF REFUNDING*
General
On June __, 2023, the SFPUC, with the assistance of Jefferies LLC (the “Dealer Manager”), released an Invitation to Tender Bonds for Purchase (the “ Invitation”) inviting beneficial owners of certain maturities (the “Target Bonds”) of the SFPUC’s outstanding San Francisco Water Revenue Bonds, 2015 Series A (Refunding) (the “2015A Bonds”), San Francisco Water Revenue Bonds, 2016 Series AB, 2016 Sub-Series A Bonds (Refunding) (the “2016A Bonds”), San Francisco Water Revenue Bonds, 2017 Series DEFG, 2017 Sub- Series D Bonds (Refunding) (Green Bonds) (the “2017D Bonds ”), San Francisco Water Revenue Bonds, 2019 Series ABC, 2019 Sub -Series A Bonds (Refunding – Federally Taxable) (WSIP) (Green Bonds) (the “2019A Bonds”), San Francisco Water Revenue Bonds, San Francisco Water Revenue Bonds, 2019 Series ABC, 2019 Sub- Series C Bonds (Refunding – Federally Taxable) (Local Water Main) (the “2019C Bonds ”), San Francisco Water Revenue Bonds, 2020 Series EFGH, 2 020 Sub-Series E Bonds (Refunding – Federally Taxable) (WSIP) (Green Bonds) (the “2020E Bonds”), and San Francisco Water Revenue Bonds, 2020 Series EFGH, 2020 Sub-Series G Bonds (Refunding – Federally Taxable) (Local Water) (the “2020G Bonds”), to tender such Bonds for purchase pursuant to the terms of the Invitation. The preliminary list of Target Bonds is set forth under “ – Refunded Bonds” below. Beneficial owners of the Target Bonds must review the Invitation for further information regarding the SFPUC’s offer. The Invitation provides that all tenders for purchase must be made on or before July __, 2023*. On July __, 2023*, the SFPUC will determine whether to accept any Target Bonds tendered for purchase pursuant to the Invitation. Target Bonds validly tendered and accepted for purchase (collectively, the “ Purchased Bonds”) will be purchased on __________, 2023, subject to the Invitation, and cancelled.

Concurrently with purchasing the Purchased Bonds, the SFPUC currently expects to defease additional Target Bonds that are 2019A Bonds, 2019C Bonds, 2020E Bonds or 2020G Bonds (collectively, the “ Advance Refunded Bonds”). Any defeasance of additional Target Bonds will be in the SFPUC’s sole discretion.

The proceeds of the 2023C Bonds will be applied to (i) refund by means of tender, purchase and cancellation or by means of defeasance all or a portion of the Target Bonds and (ii) pay the costs of issuance of the 2023C Bonds .

The proceeds of the 2023D Bonds will be applied to (i) refund by means of tender, purchase and cancellation or by means of defeasance all or a portion of the Target Bonds and (ii) pay the costs of issuance of the 2023D Bonds.

See also “ESTIMATED SOURCES AND USES OF FUNDS.”
Refunded Bonds*
The following tables detail the Target Bonds to be refunded with proceeds of the 2023CD Bonds (collectively, the “Refunded Bonds”). The Refunded Bonds will only be determined by the SFPUC at the time that the SFPUC and the Underwriters execute a bond purchase contract for the 2023CD Bonds and as set forth in the Invitation. 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.

* Preliminary, subject to change.

10 Public Utilities Commission of the City and County of San Francisco San Francisco Water Revenue Bonds
2015 Series A (Refunding)
Maturity
(November 1)
Outstanding
Principal
Amount Interest Rate
CUSIP* (Base
No.79765R)
Maximum Principal
Amount that may be
Accepted for Purchase if
Tendered†
2025 $ 30,990,000 5.000% D63 $ 30,990,000
2026 20,945,000 5.000 D71 20,945,000
2027 20,530,000 5.000 D89 20,530,000
2028 21,580,000 5.000 D97 21,580,000
2029 22,685,000 5.000 E21 22,685,000
2030 19,760,000 5.000 F95 19,760,000
2031 25,000,000 5.000 E47 25,000,000
2032 26,280,000 5.000 E54 26,280,000
2033 27,490,000 4.000 E62 27,490,000
2034 28,610,000 4.000 E70 28,610,000
2035 25,290,000 4.000 F87 25,290,000
2036 31,135,000 5.000 E96 31,135,000
Total: $300,295,000 $300,295,000

* 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. † The final Official Statement will identify the principal amount of Target Bonds validly tendered and accepted for purchase, i f any.

Public Utilities Commission of the City and County of San Francisco San Francisco Water Revenue Bonds, 2016 Series AB,
2016 Sub-Series A Bonds (Refunding)
Maturity
(N
ovember 1)
Outstanding
Principal
Amount Interest Rate
CUSIP* (Base
No.79765R)
Maximum Principal
Amount that may be
Accepted for Purchase if
Tendered†
2029 $ 51,135,000 5.00% H69 $ 51,135,000
2031 34,135,000 5.00 H85 34,135,000
2032 35,875,000 5.00 H93 35,875,000
2033 37,710,000 5.00 J26 37,710,000
2034 39,670,000 5.00 J34 39,670,000
2035 41,745,000 5.00 J42 41,745,000
Total: $240,270,000 $240,270,000

11 Public Utilities Commission of the City and County of San Francisco San Francisco Water Revenue Bonds, 2017 Series DEFG,
2017 Sub-Series D Bonds (Refunding) (Green Bonds)
Maturity
(November 1)
Outstanding
Principal
Amount Interest Rate
CUSIP* (Base
No.79765R)
Maximum Principal
Amount that may be
Accepted for Purchase if
Tendered†
2030 $ 18,100,000 5.00% 2K4 $ 18,100,000
2031 12,550,000 5.00 2M0 12,550,000
2032 46,855,000 5.00 2P3 46,855,000
2033 59,875,000 5.00 2Q1 59,875,000
2034 61,540,000 5.00 2R9 61,540,000
2035 11,105,000 5.00 2S7 11,105,000
Total: $210,025,000 $210,025,000

Public Utilities Commission of the City and County of San Francisco San Francisco Water Revenue Bonds, 2019 Series ABC,
2019 Sub-Series A Bonds (Refunding – Federally Taxable) (WSIP) (Green Bonds) Maturity
(
November 1)
Outstanding
Principal
Amount Interest Rate
CUSIP* (Base
No.79765R)
Maximum Principal
Amount that may be
Accepted for Purchase if
Tendered†
2023 $ 3,565,000 1.982% 4N6 $ 3,565,000
2024 3,640,000 2.082 4P1 3,640,000
2025 3,720,000 2.261 4Q9 3,720,000
2026 3,805,000 2.371 4R7 3,805,000
2027 3,900,000 2.483 4S5 3,900,000
2028 4,000,000 2.533 4T3 4,000,000
2029 4,105,000 2.593 4U0 4,105,000
2030 4,215,000 2.703 4V8 4,215,000
2031 31,095,000 2.803 4W6 31,095,000
2032 4,055,000 2.953 4X4 4,055,000
2033 4,180,000 3.053 4Y2 4,180,000
2034 4,310,000 3.153 4Z9 4,310,000
2039‡ 308,895,000 3.303 5A3 308,895,000
2043‡ 204,340,000 3.473 5B1 204,340,000
Total: $587,825,000 $587,825,000

12 Public Utilities Commission of the City and County of San Francisco San Francisco Water Revenue Bonds, 2019 Series ABC,
2019 Sub-Series C Bonds (Refunding – Federally Taxable) (Local Water Main) Maturity
(November 1)
Outstanding
Principal
Amount Interest Rate
CUSIP* (Base
No.79765R)
Maximum Principal
Amount that may be
Accepted for Purchase if
Tendered†
2034‡ $ 5,320,000 3.153 5E5 $ 5,320,000
2041‡ 12,455,000 3.523 5F2 12,455,000
Total: $17,775,000 $17,775,000

Public Utilities Commission of the City and County of San Francisco San Francisco Water Revenue Bonds, 2020 Series EFGH,
2020 Sub-Series E Bonds (Refunding – Federally Taxable) (WSIP) (Green Bonds) Maturity
(November 1)
Outstanding
Principal
Amount Interest Rate
CUSIP* (Base
No. 79771F)
Maximum Principal
Amount that may be
Accepted for Purchase if
Tendered†
2041‡ $293,605,000 2.825 AA5 $293,605,000
Total: $293,605,000 $293,605,000

13 Public Utilities Commission of the City and County of San Francisco San Francisco Water Revenue Bonds, 2020 Series EFGH,
2020 Sub-Series G Bonds (Refunding – Federally Taxable) (Local Water) Maturity
(November 1)
Outstanding
Principal
Amount Interest Rate
CUSIP* (Base
No. 79771F)
Maximum Principal
Amount that may be
Accepted for Purchase if
Tendered†
2023 $ 7,065,000 0.500% AW7 $ 7,065,000
2024 7,105,000 0.723 AX5 7,105,000
2025 8,385,000 0.843 AY3 8,385,000
2026 8,475,000 1.140 AZ0 8,475,000
2027 8,575,000 1.340 BA4 8,575,000
2028 8,700,000 1.618 BB2 8,700,000
2029 8,840,000 1.718 BC0 8,840,000
2030 9,005,000 1.788 BD8 9,005,000
2031 18,520,000 1.988 BE6 18,520,000
2032 10,180,000 2.188 BF3 10,180,000
2033 1,110,000 2.288 BG1 1,110,000
2034 1,140,000 2.388 BH9 1,140,000
2035 1,165,000 2.488 BJ5 1,165,000
2043‡ 10,705,000 3.095 BK2 10,705,000
Total: $108,970,000 $108,970,000

* 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. † The final Official Statement will identify the principal amount o f Target Bonds validly tendered and accepted for purchase, if any, and the principal amount of Target Bonds to be advance refunded, if any. ‡ Term Bond.

Escrow Fund
A portion of the proceeds of the 2023CD Bonds in an amount sufficient to refund and legally defease the Advance Refunded Bonds to be refunded will be deposited in an Escrow Fund established by the Trustee, acting as escrow agent (the “Escrow Agent ”), under an Escrow Agreement, dated as of July 1, 2023 (the “ Escrow Agreement”), by and betw een the SFPUC and the Escrow Agent. A portion of the funds deposited in the Escrow Fund will be invested in federal securities, the principal of and interest on which, when received, will be sufficient, together with other available amounts held in the Escrow Fund, to pay the principal of and interest on the Advance Refunded Bonds to be refunded on their respective payment or redemption dates. Pursuant to the Indenture and the irrevocable instructions in the Escrow Agreement, the Advance Refunded Bonds to be refunded will be paid on their respective payment dates or redeemed on their respective redemption dates at a redemption price equal to the principal amount of such Advance Refunded Bonds, plus accrued interest to the redemption date, without premium. As a result of the deposit and application of funds as provided in the Escrow Agreement, such Advance Refunded Bonds will be defeased pursuant to the Indenture as of the date of issuance of the 2023CD Bonds.

Sufficiency of the deposits in the Escrow Fund for the purposes described in the previous paragraph will be verified by __________, __________. See “VERIFICATION OF MATHEMATICAL ACCURACY.”

14 ESTIMATED SOURCES AND USES OF FUNDS
The proceeds of the 2023CD Bonds are expected to be applied as follows:
2023C Bonds 2023D Bonds
Total 2023CD
Bonds
Sources of Funds
Par Amount
[Plus/Less] Original Issue [Premium/Discount]
Total Sources

Uses of Funds
Deposit to Purchased Bonds Fund(1)
Deposit to Escrow Fund(2)
Costs of Issuance(3)
Total Uses
____________________
(1) Represents deposits to the 2023 Sub-Series CD Purchased Bonds Fund established under the Forty-Fifth Supplemental Indenture. See “PLAN OF REFUNDING.”
(2) Represents deposits to the Escrow Fund established under the Escrow Agreement. See “PLAN OF REFUNDING.” (3) The costs of issuance include underwriters’ discount and amounts for legal fees, Dealer Manager fees, Trustee and Escrow Agent fees, municipal advisor fees, Verification Agent fees, escrow bidding agent fees, rating agency fees, printing costs, and other costs relating to the issuance of the 2023CD Bonds.

15 GREEN BONDS DESIGNATION AND CLIMATE CERTIFICATION
Designation as Green Bonds
The SFPUC is committe d to providing retail drinking water services to San Francisco and wholesale water to three Bay Area counties in a manner that values environmental and community interests, and sustains the resources entrusted to its care. 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 2023CD Bonds.

The 2023C Bonds are being designated by the SFPUC as “Green Bonds” based on the climate adaptation and/or mitigation benefits of the projects refinanced by the 2023C Bonds.

The purpose of designating the 2023C Bonds as “ Green Bonds” is to allow investors to invest directly in bonds that finance the cost of environmentally beneficial projects (“ Green Projects ”). Fo r purposes of such determination, the SFPUC considers the projects included in the WSIP to be Green Projects. See “PLAN OF REFUNDING,” “ESTIMATED SOURCES AND USES OF FUNDS” and “CAPITAL IMPROVEMENT PROGRAM – Water System Improvement Program.”
The 2023D Bonds are not being designated as “Green Bonds.” 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 Climate Bonds Initiative as further described herein.

The Climate Bonds Initiative and Climate Bonds
The Climate Bonds Initiative (the “ CBI”) is an international, investor -focused non- profit organization working to focus the global bond market on climate change solutions through the development and promotion of an efficient green bond market. The CBI has established and manages the Climate Bonds Standard (the “Climate Bonds Standard”) under which the 2023C Bonds have been certified upon verification from Sustainalytics (as defined and further described below). All projects refinanced by the 2023C Bonds have been certified under the Climate Bonds Standard Water Sector Criteria. The certification of 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 WSIP (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 2023C Bonds are aligned with the Climate Bonds Standard.

The certification of 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 2023C Bonds or any WSIP project, including but not limited to thi s Official Statement, the transaction documents, the SFPUC or the management of the SFPUC.

The certification of the 2023C Bonds by the CBI is addressed solely to the SFPUC and is not a recommendation to any person to purchase, hold or sell the 2023C Bonds and such certification does not address the market price or suitability of 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 WSIP 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 WSIP project (including but not limited to the financial viability of any WSIP 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

16 evaluation of any WSIP project or the SFPUC. In addition, the CBI does not assume any obligation to conduct (and it has not conducted) any physical inspection of any WSIP project. The certification may only be used with the 2023C Bonds and may not be used for any other purpose without the CBI’s prior written cons ent.

The certification does not and is not in any way intended to address the likelihood of timely payment of interest when due on 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. The SFPUC will undertake reasonable efforts to ensure that any actions taken with respect to the 2023C Bonds will not result in revision or withdrawal of the CBI’s certification; however, there can be no guarantee future actions 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 proceeds of the bonds to be refunded by the 2023C Bonds were expended on WSIP projects and the SFPUC posts information about WSIP projects 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 a dditional Bonds which are not designated as “Green Bonds” or certified by the CBI.

The repayment obligations of the SFPUC with respect to 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 2023C Bonds as “Green 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 2023C Bonds is entitled to any additional security other than as provide d in the Indenture. The SFPUC has no continuing legal obligation to maintain the Climate Bond certification of the 2023C Bonds.

The designation of 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 WSIP 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 2023C Bonds primarily aim to address the following goals : 6 (Clean Water and Sanitation), 9 (Industry, Innovation and Infrastructure), 11 (Sustainable Cities and Communities), 13 (Climate Action), 14 (Life Below Water) and 15 (Life on Land).

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
Proceeds of the 2015A Bonds, the 2016A Bonds, the 2017D Bonds, the 2019A Bonds and the 2020E Bonds have all been expended on projects the SFPUC considers to be “Green Projects.” All such projects related to the WSIP, which achieves the following goals:

17 • Improve the water system to provide high -quality water that reliably meets all current and foreseeable local, State, and federal requirements.
• Reduce vulnerability of the water system to damage from earthquakes . • Increase system reliability to deliver water by providing the redundancy needed to accommodate outages.
• Provide improvements related to water supply/drought protection. • Enhance sustainability through improvements that optimize protection of the natural and human environment.

These WSIP projects include, but are not limited to, the following:
• Bioregional Habitat Reserve Program: Coordinate and consolidate approach to preserve, enhance, restore or create about 2,350 acres of various habitats. (UN SDG 14 and 15) • Calaveras Dam Replacement: Replace a seismically vulnerable old dam with a new dam, including a fish ladder that supports and restores native aquatic resources. (UN SDG 6, 9, 11, 13 and 14) • Harry Tracy Water Treatment Plant Long Term Improvements : Improve seismic and delivery reliability for the water treatment p lant for San Francisco Peninsula’s sole source of emergency water, impacting 2.7 million customers. (UN SDG 6, 9 and 11) • New Irvington Tunnel: Guarantee water service to 2.7 million customers in four Bay Area counties within 24 hours of a major weather or seismic event. (UN SDG 9 and 11) • Peninsula Pipeline Seismic Upgrade: Ensure seismic and supply reliability of pipelines on the San Francisco Peninsula, including preparedness for pipeline ruptures from landslides. (UN SDG 9 and 11)
• Regional Groundwater Sto rage and Recovery: Store 7.5 years of drinking water supply to use in drought years impacting 2.7 million customers. (UN SDG 6, 9, 11 and 13) • San Joaquin Pipeline System : Improve delivery reliability and provide operational flexibility during maintenance a ctivities or unplanned outages resulting from seismic or extreme weather, impacting 2.7 million customers. (UN SDG 9 and 11)
• Vegetation Restoration of WSIP Sites: Restore and re-vegetate habitat areas temporarily impacted by construction at Water System Improvement Program sites to pre -construction condition. (UN SDG 14 and 15)

For more information about the WSIP, s ee “CAPITAL IMPROVEMENT PROGRAM – Water System Improvement Program.”
Process for Project Evaluation and Selection
The SFPUC has evaluated capital projects in the Water Enterprise’s t en-year capital plan as authorized by Proposition A and pursuant to Proposition E to determine whether such projects satisfy the “Water Criteria” of the Climate Bonds Standard, and such projects have been certified. The certification of the 2023C Bonds reflects only the views of the third-party verifier report approved by the Climate Bonds Standard Board.

Management of Proceeds
The proceeds of the 2015A Bonds, the 2016A Bonds, the 2017D Bon ds, the 2019A Bonds and the 2020E 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 management of proceeds report (the “ Green Bond Report”) for all outstanding green bonds issued by the SFPUC. The Green Bond Report will include projects refinanced by proceeds of 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 2023CD Bonds.

18 SECURITY FOR THE BONDS
Pledge of Revenues
General. Under the Indenture, the SFPUC has irrevocably pledged the Revenues of the Water Enterprise and all Refundable Credits (with respect to Bonds issued as Build America Bonds) received by the SFPUC to the punctual payment of principal of, premium, if any, and interest on the Bonds, including the 2023CD Bonds and the Outstanding Bonds described below (see “OBLIGATIONS PAYABLE FROM REVENUES – Outstanding Parity Revenue Bonds”), and any Additional Series of Bonds. This pledge is subject to the allocation of funds provided in the Indenture, as described below. See “– Flow of Funds.”
Pursuant to Section 5451 of the California Government Code, the pledge of, lien on and security interest in 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 2023CD Bonds without any further action by the SFPUC; the Revenues and such other funds shall be immediately subject to such pledge; and such pledge shall constitute a lien and security interest which shall immediately attach to such Revenues and other funds and shall be effective, binding and enforceable against the SFPUC, its successors, 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.

Limited Obligation. THE SFPUC IS NOT OBLIGATED TO PAY THE PRINCIPAL OF, PREMIUM, IF ANY, OR INTEREST ON THE 2023CD BONDS EXCEPT FROM 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 2023CD 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 2023CD BONDS. THE 2023CD 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 REVENUES. THE 2023CD

BONDS ARE NOT SECURED BY THE REVENUES OF THE WASTEWATER ENTERPRISE OR THE POWER ENTERPRISE OR THE REVENEUS OF CLEANPOWERSF.

Water Enterprise. The Indenture defines “Enterprise” (referred to in this Official Statement as the “ Water Enterprise”) as the whole and each and every part of the municipal water supply, storage and distribution system of the SFPUC, located partially within and partially outside of San Francisco , including all of the presently existing municipal water system of the City and all additions, betterments and extensions to that water system. The Water Enterprise is defined to exclude any water supply, storage or distribution facilities under the jurisdiction of the Hetch Hetchy Water and Power Project (“Hetch Hetchy Water and Power”), which consists of upcountry water supply and power generating facilities, including the Power Enterprise, all of which are also under the jurisdiction of the SFPUC. See “THE PUBLIC UTILITIES COMMISSION – General” and “– Organization, Purposes and Powers.” Revenues. The Indenture defines “ Revenues” as all gross revenues of the Water Enterprise, including all charges received for and all other income and receipts derived by the SFPUC or the City from the operation of the Water Enterprise, or arising from the Water Enterprise, including water connection and installation charges, but excluding:
(1) any money received by or for the account of the City or the SFPUC from the levy or collection of taxes;
(2) moneys received from the State of California (the “ State”) and the United States of America and required to be deposited in restricted funds;
(3) refundable deposits made to establish credit;
(4) advances and contributions made to the SFPUC or the City to be applied to construction;

19 (5) moneys required to be paid to the St ate and the United States of America pursuant to agreements with the City or the SFPUC;
(6) moneys received from insurance proceeds or the sale of or upon the taking by or under the threat of eminent domain of all or any part of the Water Enterprise; (7) proceeds from Bonds issued by the SFPUC or proceeds from loans obtained by the SFPUC; (8) moneys or securities received by the City or the SFPUC as gifts or grants, the use of which is restricted by the donor or grantor;
(9) sewer service fees or charges; and
(10) any surcharge imposed by, or upon the direction of any joint powers agency or other governmental entity, other than the SFPUC, the City or any department or agency of the City, whether or not collected by the SFPUC, the City or any department or agency of the City, for the purpose of financing improvements to the facilities comprising the Water Enterprise.

The term “Revenues ” also includes (i) all interest, profits or other income 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 Water Enterprise and legally available to pay Debt Service on the Bonds, and (ii) any other moneys, proceeds and other amounts that the SFPUC determines should be “Revenues” under the Indenture.

Refundable Credits. 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 provisions of the Code that creates, in the determination of the SFPUC, a substantially similar direct-pay subsidy program, the amounts which are payable by the f ederal government under the applicable provisions of the Code, which the SFPUC has elected to receive under the applicable provisions of the Code. As described below under “ – Rate Covenants – Debt Service Coverage,” the SFPUC is permitted to include within the calculation of Revenues any Refundable Credits which are required or permitted to be made, taking into account federal sequestration legislation.

Flow of Funds
Deposits to Revenue Fund and Interest Fund. In accordance with the Charter, but subject to the budget and fiscal provisions of the Charter, the entire gross revenue of the Water Enterprise will be deposited into the Revenue Fund held by the Treasurer of the City (the “ Treasurer”). The Treasurer will hold the amounts in the Revenue Fund separate from all other City funds. The SFPUC will transfer to the Trustee for deposit into the Interest Fund all Refundable Credits received by the SFPUC.

Application of Revenue Fund. The Treasurer will pay over to the Trustee all moneys in the Revenue Fund, after paying operation and maintenance expenses and making required deposits into pensions or other funds established with respect to SFPUC employees (as required by the Indenture), to the extent necessary to make the following deposits:

Interest. First, on or before the fifth Business Day preceding each interest payment date, the Treasurer is required to pay to the Trustee for deposit in the Interest Fund an amount equal to the sum of the following:
(1) The amount of interest becoming due and payable on the Outstanding Bonds of such Series t
hat are Current Interest Bonds (except for Bonds constituting Variable Rate Indebtedness) on such interest payment date (less any amounts on deposit in such fund, including, but not limited to, Refundable Credits available to pay such interest, but excluding amounts on

20 deposit which are reserved as capitalized interest to pay interest during any subsequent period); and
(2) 110% of the estimated aggregate amount of interest due on such interest payment date on the Outstanding Bonds of such Series that are Variable Rate Indebtedness. However, the amount required to be deposited to the Interest Fund for any period may be reduced by the amount by which the deposit in the prior period for interest estimated to accrue on Outstanding Variable Rate Indebtedness exceeded the actual amount of interest accrued during that period. Also, the amount required to be deposited into the Interest Fund for any period will be increased by the amount by which the deposit in the prior period for interest estimated to accrue on Outstanding Variable Rate Indebtedness was less than the actual amount of interest accruing during that period. Finally, the amount required to be deposited into the Interest Fund for any period will be reduced by any Refundable Credits on deposit in the Interest Fund and available to pay interest for such period.

No deposit needs to be made into the Interest Fund if the amount contained in that fund is at least equal to the interest to become due and payable on the next interest payment date upon all Bonds that are Outstanding (but excluding any moneys on deposit in the Interest Fund from the proceeds of any Series of Bonds or other source and reserved as capitalized interest to pay interest on any interest payment dates following said next interest payment date). See “APPENDIX A – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE – REVENUES AND FUNDS – Establishment and Maintenance of Funds for Revenues; Use and Withdrawal of Revenues – Interest Fund, Refundable Credits.” Moneys in the Interest Fund will be used and withdrawn by the Trustee solely to pay the interest on the Bonds as it becomes due and payable (including accrued interest on any Bonds purchased or redeemed prior to maturity under the Indenture).

Principal. Second, on or before the fifth Business Day preceding each principal payment date, the Treasurer is required to pay to the Trustee for deposit in the Principal Fund an amount equal to the sum of the following:
(1) the aggregate amount of Bond Obligation of such Series (less any amounts on deposit in s
uch fund) becoming due and payable on such principal payment date, plus (2) the Minimum Sinking Fund Account Payments required to be made with respect to any Term Bonds of such Series on such principal payment date, plus (3) if any Letter of Credit Agreement has been entered into on parity with the Bonds, sufficient amounts to pay the obligations of the SFPUC under the Letter of Credit Agreement due on such principal payment date.

If the amounts on deposit in the Principal Fund are insufficient to make all deposits required to be made with respect to any principal payment date, such amounts will be applied on a Proportionate Basis and in such proportion as the Serial Bonds, the Minimum Sinking Fund Payments for Term Bonds, and the Letter of Credit Agreement obligations shall bear to each other. See “APPENDIX A – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE – REVENUES AND FUNDS – Establishment and Maintenance of Funds for Revenues; Use and Withdrawal of Revenues – Principal Fund; Sinking Fund Accounts.” Bond Reserve Fund . T
hird, in the event of any withdrawal from any Bond Reserve Account, t he Treasurer is required to pay to the Trustee for deposit in such Bond Reserve Account, on a pari passu basis with transfers to any other Bond Reserve Account, on or before the fifth Business Day preceding each interest payment date following such withdra wal, an amount sufficient to replenish any prior withdrawal from such Bond Reserve Account, either in two semi-annual installments for Bond Reserve Accounts established with respect to fixed rate Bonds only or in equal installments over a 12-month period for Bond Reserve Accounts established with respect to any Variable Rate Bonds, so that the balance in such Bond Reserve Account is

21 equal to the Required Reserve with respect to the applicable Series of Bonds (or such larger balance as may be required by any Supplemental Indenture) at the end of such 12-month period.

If a Bond Reserve Fund Policy satisfies all or a portion of the Required Reserve for any Series of Bonds and a drawing is made on the Bond Reserve Fund Policy, on or before the fifth Business Day prior to each interest payment date following such drawing, the Treasurer must pay, either in two semi -annual installments for Bond Reserve Accounts established with respect to fixed rate Bonds only or in equal installments over a 12 -month period for Bond Reserve Accounts established with respect to any Variable Rate Bonds, an amount sufficient to repay the aggregate amount of Policy Costs owing with respect to such drawing by the end of such 12 -month period to the Reserve Provider (as defined in the Indenture) or to the Trustee (who will remit the payment to the Reserve Provider). See “APPENDIX A – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE.”
Funds or a Bond Reserve Fund Policy on deposit in a Bond Reserve Account will be applied solely to the payment of the Series of Bonds to which such Bond Reserve Account relates and will not be available for payment for any other Series of Bonds. No Bond Reserve Account has been established with respect to the 2023CD Bonds.

Rate Covenants
Sufficiency of Revenues. The SFPUC has covenanted in the Indenture that it will, at all times while any of the Bonds remain Outstanding, establish, fix, prescribe and collect rates, fees and charges in connection with the water, services and facilities furnished by the Water Enterprise so as to yield Revenues at least sufficient, after making reasonable allowances for contingencies and errors in the estimates, to pay the following amounts:
(1) the interest on and principal of the Bonds as they become due and payable (but not including any interest moneys for the payment of which have been deposited in the Interest Fund from the proceeds of any Series of Bonds or from any other source);
(2) all other payments required for compliance with the terms of the Indenture and of any Supplemental Indenture providing for the issuance of Additional Series of Bonds pursuant to the Indenture; (3) all other payments to meet any other obligations of the SFPUC which are charges, liens or encumbrances upon, or payable from, the Revenues; and
(4) all current Operation and Maintenance Costs of the Enterprise (but not including such Operation and Maintenance Costs of the Enterprise as are scheduled to be paid by the SFPUC from moneys other than Revenues, such money to be clearly available for such purpose).

Debt Service Coverage. In addition to the requirements set forth in “ – Sufficiency of Revenues” above, the Indenture provides that the SFPUC will, at all times while any of the Bonds remain Outstanding, establish, fix, prescribe and collect rates, fees and charges in connection with the water, services and facilities furnished by the Water Enterprise so as to yield Net Revenues for the twelve months following the date of calculation, which (together with any fund balances of the SFPUC or the Water Enterprise legally available for payment of Debt Service and not budgeted to be expended during such twelve months but excluding the Bond Reserve Fund and Rebate Fund) are equal to at least 1.25 times Annual Debt Service for such twelve -month period, but from such Annual Debt Service excluding any funded interest.

For the purpose of calculating Maximum Annual Debt Service, Annual Debt Service, Debt Service, and Average Annual Debt Service, in determining the amount of interest coming due during any twelve -month period ending June 30 on any Series of Bonds that were issued as Build America Bonds, such amount will be reduced by an amount equal to the Refundable Credits the SFPUC is scheduled to receive during each such twelve -month period ending June 30, taking into account the federal sequestration legislation described below. To avoid double counting, Refundable Credits used as a credit against Debt Service are not included in the calculation of Revenues for any purpose under the Indenture. See “APPENDIX A – SUMMARY OF CERTAIN PROVISIONS OF THE

22 INDENTURE – DEFINITIONS – Maximum Annual Debt Service, Annual Debt Service, Debt Service and Average Annual Debt Service.”
Pursuant to federal sequestration legislation passed by Congress in 2011 and 2013, federal subsidy payments for direct pay bonds, including Build America Bonds, have been reduced (by formula) from the original funding subsidy level of 35% of interest costs on direct pay bonds, including Build America Bonds. The current sequestration reduction rate of the federal subsidy payment for Build America Bonds is 5.7%, which rate will remain in effect through September 30, 2030, unless changed by legislation; refundable credits sought by the SFPUC for its Build America Bonds will be reduced by this percentage. This reduc tion 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 Year 2021 -22, the SFPUC received approximately $21.6 million in Refundable Credits for the Water Enterprise.

Proposed Amendments to Indenture. The Forty-Third Supplemental Indenture includes amendments to the Indenture impacting the SFPUC’s rate covenant. See “PROPOSED AMENDMENTS TO THE INDENTURE” and “APPENDIX A – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE – FORTY-THIRD SUPPLEMENTAL INDENTURE – PROPOSED AMENDMENTS TO INDENTURE.” Net Revenues and Operation and Maintenance Costs. “Net Revenues” and “Operation and Maintenance Costs of the Enterprise” are defined as follows:

The term “Net Revenues” is defined in the Indenture as:
• all of the Rev enues (but not including interest on investment of funds required to be deposited in said funds or investment earnings required to be deposited in the Improvement Fund) less • all Operation and Maintenance Costs of the Enterprise (but not including such Oper ation and Maintenance Costs of the Enterprise as are scheduled to be paid by the SFPUC from moneys other than Revenues, such moneys to be clearly available for such purpose).

The Indenture defines the term “ Operation and Maintenance Costs of the Enterprise ” as the reasonable and necessary costs of operating and maintaining the Water Enterprise, calculated on sound 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 Water Enterprise in good repair and working order, and reasonable amounts for administration, overhead, insurance, taxes (if any), other similar costs, 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.
“Operation and Maintenance Costs of the Enterprise” exclude in all cases the following:
(1) depreciation and obsolescence charges or reserves therefor, (2) amortization of intangibles or other bookkeeping entries of a similar nature, (3) costs of capital additions, replacemen ts, betterments, extensions or improvements to the Water Enterprise, which under generally accepted accounting principles are chargeable to a capital account or to a reserve for depreciation, and
(4) charges for the payment of principal and interest on any general obligation bonds, revenue bonds or other indebtedness heretofore or hereafter issued for Water Enterprise purposes.

See “APPENDIX A – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE – DEFINITIONS.”

23 No Bond Reserve Account for the 2023CD Bonds
The Indenture establishes the Bond Reserve Fund and requires the establishment of a bond reserve account (each, a “Bond Reserve Account ”) within the Bond Reserve Fund for each Series of Bonds issued under the Indenture, if and to the extent required by a Supplemental Indenture pursuant to which that Series of Bonds is issued, and requires the deposit in each Bond Reserve Account of an amount equal to the Required Reserve for the related Series of Bonds. Each Bond Reserve Account is available only for the payment of debt service on the Series of Bonds for which such Bond Reserve Account was established.

Pursuant to the Forty -Fifth Supplemental Indenture and Forty-Sixth Supplemental Indenture, no Bond Reserve Account has been established for the 2023C Bonds or the 2023D Bonds, respectively. The Bond Reserve Accounts established with respect to other Series of Bonds do not secure, and will not be available for, the 2023CD Bonds.

Additional Series of Bonds
Additional Series of Bonds Test in the Indenture . The Indenture provides that Additional Series of Bonds secured by Revenues on parity with the Outstanding Bonds and the 2023CD Bonds may be issued if certain conditions are met, including the SFPUC’s delivery to the Trustee of the following documents (among others):
(1) A certificate of the SFPUC setting forth the following:
(a) Net Revenues for any period of twelve consecutive calendar months out of the eighteen calendar months next preceding the authentication and delivery of the Additional Series of Bonds, and
(b) the Debt Service for such 12 -month period, and demonstrating that for such 12- month period Net Revenues equaled at least 1.25 times the Debt Service. (2) If any portion of the proceeds of such Additional Series of Bonds is to be used to finance construction, a certificate of the Consulting Engineers setting forth:
(a) the estimated date of completion for the portion of the Project for which such Additional Series of Bonds is being issued and for any other uncompleted portion of the Project, and (b) an estimate of the cost of construction of such portion of the Project and of any other uncompleted portion of the Project.
(3) A written report of a Qualified Independent Consultant setting forth estimates for each of the next three Fiscal Years of:
(a) Revenues,
(b) Operation and Maintenance Costs of the Enterprise, and (c) Net Revenues,
if any portion of the proceeds of such Additional Series of Bonds is to be used to finance construction, the estimate will be made for the three Fiscal Years following the Fiscal Year in which the Consulting Engineers estimate such portion of the Project will be completed.
(4) A certificate of the SFPUC setting forth the following:
(a) the estimates of Net Revenues provided by the Qualified Independent Consultant pursuant to paragraph (3) above for each of such three Fiscal Years, and

24 (b) the Annual Debt Service for such three Fiscal Years (including estimated Annual Debt Service for future Additional Series of Bonds, if any), that will be required to complete payment of any uncompleted portion of the Project (based on the estimate of the Consulting Engineers), which certificate demonstrates that the estimated Net Revenues in each of such three Fiscal Years is at least equal to 1.25 times the Annual Debt Service for the corresponding Fiscal Year.

Such certificate may anticipate projected rates not yet enacted and such certificate and the certificate delivered pursuant to clause (1) may also include as an offset to Operation and Maintenance Costs of the Enterprise any such costs which are scheduled to be paid from moneys other than Revenues which are clearly available for such purpose, and include as Revenues any other moneys, proceeds and other amounts that the SFPUC determines should be “Revenues” under the Indenture.

All certificates and written reports will be based upo n the actual interest rate or rates determined at the time the Additional Series of Bonds are sold.

Proposed Amendments to Indenture. The Forty-Third Supplemental Indenture includes amendments to the Indenture impacting the requirements for the issuance o f an Additional Series of Bonds to finance projects. See “PROPOSED AMENDMENTS TO THE INDENTURE” and “APPENDIX A – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE – FORTY-THIRD SUPPLEMENTAL INDENTURE – PROPOSED AMENDMENTS TO INDENTURE.”
Issuance of Additional Series of Bonds with Consent of Bond Owners and Credit Provider . The Indenture also provides that Additional Series of Bonds may be issued without compliance with any of the requirements described above with the written consent of Owners of a majority of the aggregate Bond Obligations of Bonds Outstanding and any Credit Provider, if applicable. See “APPENDIX A – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE.” Any Additional Series of Bonds issued under this provision would, however, be subject to the requirements for issuing revenue bonds under the Charter. See “OBLIGATIONS PAYABLE FROM REVENUES – Authority for Issuance of Revenue Bonds and Other Obligations Payable from Revenues.” Refunding Bonds
Indenture Requirements. The Indenture provides that Additional Series of Bonds may be issued to refund any Bonds, including the 2023CD Bonds, without meeting the test for the issuance of Additional Series of Bonds described above, if the SFPUC delivers to the Trustee (among other documents) a certificate of an Independent Certified Public Accountant to the effect that the Average Annual Debt Service for the Additional Series of Bonds will be equal to or less than the Average Annual Debt Service on the Bonds to be refunded.

Proposed Amendments to Indenture. The Forty-Third Supplemental Indenture includes amendments to the Indenture impacting the requirements for the issuance of an Additional Series of Bonds for refunding purposes. See “PROPOSED AMENDMENTS TO THE INDENTURE” and “APPENDIX A – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE – FORTY-THIRD SUPPLEMENTAL INDENTURE – PROPOSED AMENDMENTS TO INDENTURE.”
Other Parity Obligations; Subordinate Obligations; Obligations Not Payable from Revenues The Indenture permits the SFPUC to incur obligations payable from Revenues and Refundable Credits on a parity with the payment of principal of and interest on the Bonds upon satisfaction of the requirements set forth in the Indenture. See “SECURITY FOR THE BONDS – Additional Series of Bonds.” 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 Revenues after and subordinate to the payment from Revenues of the principal of and interest on the Bonds, or (ii) from moneys which are not Revenues. See “OBLIGATIONS PAYABLE FROM REVENUES – Subordinate Debt and Interim Funding Program” and “– Parity State Loans; No Federal Loans.”

25 Investments
The Indenture provides that moneys in all funds and accounts held by the Trustee under the Indenture shall be invested upon receipt in time or demand deposits (including certificates of deposit) in any bank or trust company (including the Trustee) authorized to accept deposits of public funds, and may be invested in Permitted Investments (as defined in Appendix A) 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.”

PROPOSED AMENDMENTS TO THE INDENTURE
The Forty-Third Supplemental Indenture will amend and supplement certain provisions of the Indenture , effective when the written consents of the Owners of a majority in aggregate amount of the Bond Obligation of the Bonds then Outstanding and each Credit Provider, if any, have been filed with the Trustee and certain other requirements under the Indenture have been satisfied. By their purchase of the 2023CD Bonds, purchasers of the 2023CD Bonds irrevocably agree to, accept and consent to the provisions of such amendments for all purposes of the Indenture. Upon the issuance of the 2023CD Bonds, approximately __% of the aggregate amount of the Bond Obligation of the Bonds then Outstanding will have been obtained.

The proposed amendments in the Forty -Third Supplemental Indenture include, among others, amendmen ts to the Indenture provisions relating to the calculation of “Maximum Annual Debt Service,” “Annual Debt Service,” “Average Annual Debt Service,” the incurrence of “Parity Loans, ” the conditions under which Additional Series of Bonds may be issued, the filing of annual audited financial information with the Trustee and the rate covenants . For a description of the proposed amendments set forth in the Forty-Third Supplemental Indenture, see “APPENDIX A – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE – FORTY-THIRD SUPPLEMENTAL INDENTURE – PROPOSED AMENDMENTS TO INDENTURE.”

OBLIGATIONS PAYABLE FROM REVENUES
Authority for Issuance of Revenue Bonds and Other Obligations Payable from Revenues City Charter. 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 Charter requires voter approval of revenue bonds issued by the SFPUC unless a specific exception to the voter approval requirement applies. See “– Reconstruction or Replacement of Existing Facilities” and “– Refunding Bonds.” Proposition A. On November 5, 2002, voters of the City approved Proposition A, specifically authorizing the issuance of up to $1.628 billion of revenue bonds for the purpose of funding the SFPUC’s Water Enterprise capital improvement program. The SFPUC has previously issued approximately $1.499 billion aggregate principal amount of Bonds pursuant to such Proposition A authorization.

Proposition E. Section 8B.124 of the Charter, enacted by voters of the City on November 5, 2002 as part of Proposition E (“ Proposition E”), authorizes the SFPUC to issue revenue bonds, including notes, commercial paper or other forms of indebtedness, when authorized by ordinance approved by two- thirds vote of the Board of Supervisors, for purposes 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 SFPUC.

Proposition E also authorizes the Board of Supervisors to take any and all actions necessary to authorize, issue and repay such revenue bonds, including, but not limited to, modifying schedules of rates and charges to provide for the payment and retirement of such revenue bonds. Issuance of such revenue bonds is subject to the following additional conditions set forth in Proposition E:

26 (a) Certification by an independent engineer retained by the SFPUC that:
(1) the projects to be financed by the revenue bonds, including the prioritization, cost estimates and scheduling, meet utility standards; and
(2) 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 revenue bonds to be issued, and estimated repair and replacement costs.
(b) Certification by the San Francisco 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”).

Any ordinance approving bonds adopted pursuant to Proposition E will become effective 30 days after its adoption unless it is opposed through the referendum process. Opposition may be made by filing with the Board of Supervisors a petition protesting the passage of that ordinance. Such petition must be signed by voters in a number equal to at least 10% of the votes cast for all candidates for Mayor in the last preceding general municipal election for Mayor. If a referendum passes, the ordinance is suspended from becoming effective. The Board of Supervisors may reconsider the ordinance. If it is not entirely repealed, the Board of Supervisors is required to submit the ordinance to voters at the next general municipal or statewide election or at a special municipal election and it will not become effective until approved by voters at such an election.

Reconstruction or Replacement of Existing Facilities. Section 9.107(6) of the Charter provides that no voter approval is required for bonds issued for the purpose of the reconstruction or replacement of existing water facilities or electric power facilities or combinations of water and electric power facilities under the jurisdiction of the SFPUC when authorized by resolution adopted by a three-fourths affirmative vote of all members of the Board of Supervisors.

Refunding Bonds . Section 9.109 of the Charter authorizes the Board of Supervisors to provide for the issuance of bonds for the purpose of refunding revenue bonds without voter approval if the issuance and sale of such refunding bonds are expected to result in net debt service savings on a present value basis, calculated as provided by ordinance.

The 2023CD Bonds will be issued by the SFPUC pursuant to authority granted by Section 9.109 of the Charter and the Refunding Ordinance. The Refunding Ordinance authorizes and approves the issuance by the SFPUC of refunding bonds and other forms of indebtedness, without limitation as to principal amount, provided that each such refunding bond issue is permitted under the applicable policies and procedures of the City and authorized by Section 9.109 of the Charter. Such refunding bonds are also subject to the following conditions: (i) three percent (3%) net present value debt service savings or greater is achieved to ensure ratepayer savings; (ii) the maturity of the refunded bonds is not extended, provided that principal payments and term may be adjusted, where permitted under federal and state tax law, only if and when the underlying capital asset funded through said refunded bonds has a useful life not in excess of any limit permitted under federal and state tax law than the refunded term; (iii) the authorization is subject to a six-year term through June 30, 2026, at which time the Board of Supervisors may consider an extension; and (iv) the SFPUC will within 30 days of any executed refunding transaction provide a savings report

27 prepared by its municipa l advisors to the Board of Supervisors, together with a copy of the final official statement with respect to such series of refunding bonds.

Outstanding Parity Revenue Bonds
All Bonds in the table below (the “ Outstanding Bonds”) have been issued pursuant to the Indenture and secured by a pledge of Revenues on parity with the 2023CD Bonds. The following table does not include the 2023AB Bonds, which are expected to be issued in July 2023.

Series of Bonds Purpose
Principal Amount
Outstanding
as of May 1, 2023
Water Revenue Bonds,
2010 Series ABC (1)(2)
Water system improvements under
Proposition E $336,390,000
Water Revenue Bonds,
2010 Series DE (1)(3)
Water system improvements under
Proposition E 331,455,000
Water Revenue Bonds,
2010 Series FG (1)(4)
Water system improvements under
Proposition E 351,470,000
Water Revenue Bonds,
2015 Series A (Refunding)
Refund previously outstanding Bonds of the
SFPUC 366,375,000
Water Revenue Bonds,
2016 Series AB (Refunding)
Refund previously outstanding Bonds of the
SFPUC 745,925,000
Water Revenue Bonds,
2016 Series C
Water system improvements under
Proposition E 225,275,000
Water Revenue Bonds,
2017 Series ABC
Water system improvements under
Proposition E 69,165,000
Water Revenue Bonds,
2017 Series DEFG
(Refunding)
Refund previously outstanding Bonds of the
SFPUC 420,360,000
Water Revenue Bonds,
2019 Series ABC
(Refunding)
(5)
Refund previously outstanding Bonds of the
SFPUC 621,915,000
Water Revenue Bonds,
2020 Series ABCD
Water system improvements under
Proposition A and Proposition E 346,760,000
Water Revenue Bonds,
2020 Series EFGH
(Refunding)
(5)
Refund previously outstanding Bonds of the
SFPUC 644,275,000
Total $4,459,365,000

____________________
(1) The San Francisco Water Revenue Bonds, 2010 Sub-Series A Bonds and 2010 Sub-Series C Bonds are no longer outstanding. (2) The San Francisco Water Revenue Bonds, 2010 Sub -Series B Bonds (the “ 2010B Bonds”), 2010 Sub-Series D Bonds (the “2010E Bonds”) and 2010 Sub-Series G Bonds (the “2010G Bonds”) were issued as Build America Bonds. (3) The San Francisco Water Revenue Bonds, 2010 Sub-Series D Bonds are no longer outstanding. (4) The San Francisco Water Revenue Bonds, 2010 Sub-Series F Bonds are no longer outstanding. (5) A portion of the outstanding 2015A Bonds, 2016A Bonds, 2017D Bonds, 2019A Bonds, 2019C Bonds, 2020E Bonds , and 2020G Bonds may be refunded by the 2023CD Bonds. See “PLAN OF REFUNDING.”

28 Parity State Loans; No Federal Loans
The SFPUC has entered into an Installment Sale Agreement and Grant (the “CWSRF Agreement”) with the State Water Resources Control Board (“SWRCB ”) to finance a portion of the cost of the SFPUC’s San Francisco Westside Recycled Water Project (the “ Westside Recycled Water Project”), a Water Enterprise recycled water project expected to satisfy the drought mitigation financing criteria and Proposition 1 grant guidelines of the SWRCB’s Water Recycling Funding Program. The CWSRF Agreement was entered into pursuant to the SWRCB’s Clean Water State Revolving Fund Loan Program.

The CWSRF Agreement, which was most recently amended in April 2023, provides for a $15,000,000 grant and a $176,094,031 loan (the “CWSRF Loan”). The CWSRF Loan has a 30-year, level amortizing fixed interest rate loan bearing interest at a rate of 1% per annum. Repayment of the CWSRF Loan begins one year after completion of the Westside Recycled Water Project (which is expected to occur in October 2024). The SFPUC’s obligation to repay the CWSRF Loan will be payable from and secured by a pledge of the Revenues of the Water Enterprise on a parity with the pledge and lien of the Indenture securing payment of principal of and interest on the Bonds. As of March 1, 2023, the SFPUC had submitted requests for reimbursement for approximately $145.8 million. In connection with the execution and delivery of the CWSRF Agreement, the SFPUC adopted the Twenty- Fourth Supplemental Indenture which amended the Indenture to clarify the status of “Parity State Loans”, defined as “loan agreements or installment sale agreements entered into between the SFPUC and the State of California (or any board, department or agency thereof) to finance additions, betterments, extensions, repairs, renewals or replacements to the Water Enterprise which, by their terms, are payable from Revenues on a parity basis with debt service on the Bonds)”, as “evidences of indebtedness” within the meaning of the term “Bond” for certain purposes of the Indenture, and to make other technical amendments to facilitate the repayment of the CWSRF Loan on a parity with the payment of debt service on the Bonds.

The SFPUC has entered into a loan agreement (the “DWSRF Loan ”) with the SWRCB to finance the cost of the SFPUC’s Mountain Tunnel Project pursuant to the SWRCB’s Drinking Water State Revolving Fund Program.

The DWSRF Loan provides for up to $238.219 million in borrowing and has a 30-year, level amortizing fixed interest rate at a rate of 1.10% per annum, repayment of the DWSRF Loan will begin one year after completion of the Mountain Tunnel Project (which is expected to occur in 2026), and the obligation of the SFPUC to repay such DWSRF Loan is payable from and secured by a pledge of Revenues of the Water Enterprise on a parity with the pledge and lien of the Indenture securing payment of principal of and interest on the Bonds, and the SFPUC’s obligation to repay the CWSRF Loan. See “CAPITAL IMPROVEMENT PROGRAM AND OTHER WATER SUPPLY INITIATIVES – Hetch Hetchy Water.”
The SFPUC has no outstanding loan obligations with respect to the Water Enterprise payable to the f ederal government from Revenues.

Proposed Amendments to Indenture. The Forty-Third Supplemental Indenture includes amendments to the Indenture impacting the requirements for additional Parity State Loans and includes amendments to the Indenture allowing loans from the federal government (or any board, department or agency thereof), upon satisfaction of certain conditions, to be payable from Revenues on a parity with the Bonds. See “PROPOSED AMENDMENTS TO THE INDENTURE” and “APPENDIX A – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE – FORTY- THIRD SUPPLEMENTAL INDENTURE – PROPOSED AMENDMENTS TO INDENTURE.” Contingent Payment Obligations
The Water Enterp rise has no interest rate swaps, caps or hedges or other contingent payment obligations payable from Revenues. The Water Enterprise may in the future, however, incur contingent payment obligations payable from Revenues. Such contingent payment obligations may be payable on parity with the 2023CD Bonds if the conditions for the issuance of parity debt under the Indenture are met. See “SECURITY FOR THE BONDS – Additional Series of Bonds.”

29 Subordinate Debt and Interim Funding Program
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 capital projects. See “FINANCING OF CAPITAL IMPROVEMENTS.”
The Interim Funding Program is authorized for the Water Enterprise in the aggregate principal amount of $500 million. Of this amount, $400 million is authorized for the SFPUC to issue tax -exempt and taxable commercial paper notes (“ Commercial Paper Notes ”) secured by three separ ate bank credit facilities, as set forth below. The remaining $100 million of the Interim Funding Program is in the form of a bank revolving credit agreement, as set forth below. The revolving credit agreement permits the SFPUC to make draws directly from the bank, with the SFPUC’s payment obligation evidenced by a tax-exempt revolving note and a taxable revolving note (the “Revolving Notes”).

The Commercial Paper Notes and the Revolving Notes are payable from 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 Commercial Paper Notes are secured by (i) a $100 million letter of credit from Sumitomo Mitsui Banking Corporation, acting through its New York Branch, which expires on May 16, 2025, (ii) a $200 million letter of credit from Sumitomo Mitsui Banking Corporation, acting through its New York Branch, which expires on June 14, 2027, and (iii) a $100 million letter of credit from Barclay’s Bank PLC which expires on July 19, 2024. The Revolving Notes were issued pursuant to a $100 million revolving credit agreement with U.S. Bank National Association which expires on July 18, 2024.

As of June 28, 2023, the SFPUC had Commercial Paper Notes outstanding in the aggregate principal amount of $ 371.4 million and no amount outstanding under the Revolving Notes. The SFPUC anticipates refunding approximately $299.8
* million principal amount of and interest on Commercial Paper Notes with proceeds of the 2023AB Bonds.

Other Subordinate Obligations Payable from Revenues
The SFPUC completed the construction of a 13- story office building at 525 Golden Gate Avenue in San Francisco to house the administrative offices of the SFPUC’s three utility enterprises and moved into the building in July 2012. Total project costs were approximately $202 million and were financed with land and property sale proceeds, fund balances, grants and the proceeds of certificates of participation (the “ 2009 Golden Gate COPs ”), representing interests in a City General Fund lease, executed and delivered in two series (one of which constitutes Build America Bonds) on October 7, 2009, in the aggregate principal amount of $167,670,000. T he final maturity date of the 2009 Golden Gate COPs is November 1, 2041. As of March 1, 2023, the principal amount outstanding of the 2009 Golden Gate COPs was $129.6 million. 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 SFPUC allocates such payment obligations internally among its three utility enterprises based on percentage usag e. The Water Enterprise has been allocated 71.4% of such obligations, payable from Revenues on a basis subordinate to the payment of principal of and interest on the Bonds and any parity State or federal loans.

* Preliminary, subject to change.

30 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 Water Enterprise, the Wastewater 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 (“BAWUA”) under the auspices of the Bay Area Water Supply and Conservation Agency (“ BAWSCA”). The seventh member is the City’s Budget Analyst or their 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 2023CD Bonds are refunding bonds and will not provide RBOC funding. The RBOC’s current term expires on January 1, 2025.

The RBOC may, by majority vote of all its members, prohibit the issuance or sale of authorized SFPUC revenue bonds which have yet to be issued or sold if, after reviewing materials provided by the SFPUC and conducting its own independent audit, and after consultation with the City Attorney, the RBOC determines that revenue bond proceeds have been or are being spent on purposes not authorized by the authorizing bond resolution or 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.

Debt Service Requirements
Set forth in the following table are debt service requirements on the Outstanding Bonds, the 2023CD Bonds and Parity Obligations.

(Remainder of Page Intentionally Left Blank)

31 DEBT SERVICE REQUIREMENTS ON
OUTSTANDING BONDS, 2023AB BONDS, 2023CD BONDS AND PARITY OBLIGATIONS Fiscal Year
(ending
June 30)
Outstanding
Bonds
(1)(2)(3)
2023AB
Bonds(4)
2023C Bonds
Principal
2023C Bonds
Interest
2023D Bonds
Principal
2023D Bonds
Interest
Other Parity
Obligations
(5)
Total Debt
Service(6)
2024 $ 332,575,608 --
2025 332,048,174 --
2026 337,015,314 $ 6,832,376
2027 335,590,956 6,832,376
2028 333,534,949 6,832,376
2029 332,934,803 6,832,376
2030 333,088,421 6,832,376
2031 331,355,150 6,832,376
2032 331,957,208 6,832,376
2033 325,625,522 6,832,376
2034 325,713,935 6,832,376
2035 323,217,361 6,832,376
2036 328,319,829 6,832,376
2037 330,094,895 6,832,376
2038 299,613,929 6,832,376
2039 298,485,780 6,832,376
2040 296,961,219 6,832,376
2041 245,254,683 6,832,376
2042 192,668,325 6,832,376
2043 146,700,043 6,832,376
2044 146,263,034 6,832,376
2045 105,504,993 6,832,376
2046 105,507,806 6,832,376
2047 105,504,560 6,832,376
2048 105,502,049 6,832,376
2049 107,356,291 6,832,376
2050 107,355,964 6,832,376
2051 107,359,425 6,832,376
2052 -- 6,832,376
2053 -- 6,832,376
2054 -- 6,832,376
Total(6) $7,003,110,226 $204,971,287
____________________
(1) Comprised of debt service relating to the Outstanding Bonds. See “ – Outstanding Parity Revenue Bonds.” (2) Net of capitalized interest payments.
(3) Calculation of interest due on Outstanding Bonds shown without an offset for Refundable Credits. See “SECURITY FOR THE BONDS – P ledge of Revenues – Refundable Credits” and “ – Rate Covenants.” (4) The 2023AB Bonds will be issued on July __, 2023.
(5) Consists of debt service on the full principal amount of the CWSRF Loan. See “OBLIGATIONS PAYABLE FROM REVENUES – Parity State Loans; No Federal Loans.” (6) Totals may not add due to independent rounding.

32 THE CITY AND COUNTY OF SAN FRANCISCO
THE FOLLOWING INFORMATION IS PROVIDED FOR CONVENIENCE ONLY. THE GENERAL

FUND OF THE CITY IS NOT LIABLE FOR THE PAYMENT OF THE PRINCIPAL OF, PREMIUM, IF ANY, OR INTEREST ON THE 2023CD 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 2023CD BONDS. THE 2023CD 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. San Francisco is the economic and cultural center of the San Francisco Bay Area and northern California. The limits of San Francisco 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”). San Francisco 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, the entrance to the Bay and the Golden Gate Bridge to the north, and San Mateo County to the south. Silicon Valley is about a 40- minute drive to the south, and the Napa -Sonoma wine country is about an hour’s drive to the north. The City estimates San Francisco’s population in fiscal year 2021-22 was 804,534.

The San Franci sco 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 i ndustries, 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 future 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, vaccination rates have increased, certain emergency orders have been lifted, and the national and local economy has been impr oving, the situation is still developing and the resulting impact on the City’s local economy, population, finances and operations remains unknown.

San Francisco 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 San Francisco. According to the San Francisco Travel Association, a nonprofit membership organization (“SFTA”), approximately 21.9 million tourists visited San Francisco in calendar year 2022, approximately 17.1 million tourists visited San Francisco in calendar year 2021, approximately 11.8 million tourists visited San Francisco in calendar year 2020 and approximately 26.3 million tourists visited San Francisco in calendar year 2019. SFTA also estimates that total spending, including spending from conventions, trade shows and group meetings, was $7.7 billion in calendar year 2022, $3.69 billion in calendar year 2021, $2.85 billion in calendar year 2020 and $10.29 billion in calendar year 2019.

San Francisco is also a leading center for financial activity in California. The headquarters of the Twelfth Federal Reserve District and the Eleventh District Federal Home Loan Bank are located in San Fr ancisco.

San Francisco benefits from a highly skilled, educated and professional labor force. The City estimates the per-capita personal income of San Francisco for fiscal year 2021-22 was $170,483. The San Francisco Unified School District (“SFUSD”), which is a separate legal entity from the City, operates 73 elementary schools, 13 middle schools, 17 high schools, 47 early education schools, and 3 County and Court schools. Higher education institutions located in San Francisco include the University of Sa n Francisco, California State University – San Francisco, University of California – San Francisco (a medical school and health science campus), UC College of the Law, San Francisco (formerly University of California Hastings College of the Law), the Unive rsity of the Pacific’s School of Dentistry, Golden Gate University, City College of San Francisco (a public community college), the San Francisco Conservatory of Music, and the Academy of Art University.

33 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. As discussed above, the COVID -19 pandemic has significantly adversely impacted tourism and travel in the San Francisco Bay Area. In fiscal year 2021-22, SFO served approximately 34.8 mi llion passengers (compared to approximately 13.7 million passengers in fiscal year 2020- 21,

40.5 million passengers in fiscal year 2019-20 and 57.4 million passengers in fiscal year 2018-19) and handled 545,335 metric tons of cargo (compared to 471,793 metric tons in fiscal year 2020-21, 490,073 metric tons in fiscal year 2019- 20 and 564,485 metric tons in fiscal year 2018- 19). San Francisco is also served by the Bay Area Rapid Transit District (“BART,” an electric rail commuter service linking San Francisco 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 San Francisco and residential areas to the north, east and south of San Francisco. San Francisco Municipal Railway (“Muni ”), operated by the San Francisco Municipal Transportation Agency (“SFMTA”), provides bus and streetcar service within San Francisco (although since fiscal year 2019- 20, telecommuting resul ting from emergency stay- at-home orders caused ridership into and within San Francisco to decline significantly compared to pre -pandemic levels). 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 California, 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 California. Voters approved the City’s current Charter at the Nov ember 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 2022-23 and 2023-24 totals $14.0 billion and $13.9 billion, respectively. The General Fund portion of the original proposed budget is $6.8 billion in fiscal year 2022-23 and $6.9 billion in fiscal year 2023 -24, 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 (the “Controller”), at the start of fiscal year 2022-23, total net assessed valuation of taxable property in San Francisco was approximately $328.6 billion.

City Financial Challenges . The COVID- 19 pandemic resulted in general negative effects on the City’s economy which materially adversely impacted the City’s tax revenues and increased expenses due to public health responses. In addition, the local, State and national economies have faced significant headwinds, including multiple interest rate increases by the Federal Reserve, continuing price inflation, volatile investment markets, and economic disruption resulting from the war in Ukraine and other factors. Furthermore, on February 28, 2023, the Controller issued its most recent report on the status of the re -opening of the City economy (the “ Controller’s Report”). The Controller’s Report noted that housing pr ices are continuing to fall faster in San Francisco than Statewide. The Controller’s Report also indicated that San Francisco continues to lag behind other metropolitan areas with respect to in-office attendance by workers in City businesses (a continuation of the remote work practices which became more prevalent during the pandemic). These factors may negatively impact the City’s revenues.

34 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 Water Enterprise, the Wastewater 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 Water Enterprise provides drinking water to Retail Customers in San Francisco, to certain Retail Customers outside San Francisco and to wholesale customers in three other Bay Area counties. • The Wastewater Enterprise provides wastewater and stormwater collection, treatment and disposal services for San Francisco (the “Wastewater 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 pr ovides hydroelectric, solar and other power for municipal and public infrastructure, services and facilities (the “Power Enterprise”).

CleanPowerSF, managed by the Power Enterprise, is a Community Choice Aggregation program (“CleanPowerSF”).

The revenues of the Wastewater 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 Revenues.”
Organization, Purposes and Powers
Water Enterprise. The SFPUC serves as the retail water supplier for San Francisco and is responsible for water deliveries to residents and institutions within San Francisco city limits, as well as to a number of retail accounts outside of San Francisco city limits. In addition, the SFPUC sells water to 27 wholesale customer entities in San Mateo, Alameda and Santa Clara counties under the WSA and/or related individual contractual agreements, as applicable. On average, approximately 69% of the SFPUC’s water supply is delivered to the wholesale customers and approximately 31% of the SFPUC’s remaining water supply is delivered to Retail Customers. See “THE WATER ENTERPRISE.”
Wastewater Enterprise. The Wastewater Enterprise’s collection and treatment system consists of a combined sewer collection system conveying sewage and stormwater flows within San Francisco to three water pollution control plants located within San Francisco. Treated effluent flows are then discharged through deep- water outfalls into the San Francisco Bay and the 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.

The revenues of the Wastewater 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 Revenues.”
Hetch Hetchy – Water and Power Operations . Hetch Hetchy Water and Power operates the dams (among them O’Shaughnessy Dam being the largest), reservoirs (among them Hetch Hetchy Reservoir being the largest), hydroelectric generation and transmission facilities and water transmission facilities from Hetch Hetchy Valley to the connection with the Water Enterprise (collectively, the “ Hetch Hetchy Project ”), which provides water for distribution through the Water Enterprise and hydroelectric, solar and other power for municipal and public infrastructure, services and facilities of San Francisco (the “Power Enterprise”). The Power Enterprise, which is a component of the Hetch Hetchy Project, was created in 2005 as a separate system within Hetch Hetchy Water and

35 Power. The Power Enterprise provides electric power to meet the municipal requirements of the City, including power to operate municipal streetcars and electric buses, street and traffic lights, municipal buildings and other City facilities, including SFO. Additionally, the Power Enterprise provides power to the Modesto Irrigation District and Turlock Irrigation District (collectively, the “ Irrigation Districts ”), located in the central valley of California, to certain commercial customers co nsistent with prescribed contractual obligations and federal law and to certain retail customers in San Francisco. 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 San Francisco’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 has not indicated a willingness to sell any such assets. The City remains interested in acquiring these assets from PG&E, and on July 27, 2021, submitted a petition to the California Public Utilities Commission (“ CPUC”) with a formal determination of the fair market value of PG&E’s assets the City intends to acquire. On April 10, 2023, the City filed direct testimony of four expert witnesses with the CPUC regarding the specific assets under consideration for acquisition and the value of such assets. A transaction has not been consummated, and the City and the SFPUC are unable to predict whether a transaction will be consummate d 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 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 San Francisco , as well as the real, personal and financial assets under the SFPUC’s jurisdiction. The SFPUC is governed by the Commission.

The Commission consists of five members appointed by the Mayor, subject to confirmation by a majority of the Board of Supervisors. Seat 1 is designated for a member with experience in environmental policy and an understanding of environmental justice issues. Seat 2 is designated for a member with experience in ratepayer or consumer advocacy. Seat 3 is designated for a member with experience in project finance. Seat 4 is designated for a member with expertise in water systems, power systems, or public utility management. Seat 5 is designated for an at- large member. Members are appointed for four -year terms and are eligible for reappointment. Mem bers may be suspended by the Mayor and may be removed by a three -fourths vote of the Board of Supervisors for official misconduct.

The current members of the Commission and their appointment dates and expiration dates of their current terms are set forth below:

Name and Title Seat Appointment Date 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

36 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 commenced 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 P. 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 agencies, 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, Loan s and Grants , 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 years of experience leading financial and governance teams in public agencies and has extensive knowledge of the City’s financial and accounting guidelines and systems, capital improvement projects and regulatory affairs. Prior to joining the SFPUC, she served 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.

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.

Masood Ordikhani. Masood Ordikhani serves as the Assistant General Manager, External Affairs and Chief Strategy Officer for the SFPUC. Previously, he served as the SFPUC’s first Chief Equity and Innovation Officer,

37 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 m atters 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 agenci es 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.

Joel Prather . Joel Prather is the Acting Assistant General Manager of the Wastewater Enterprise. His professional background includes more than a decade at SFPUC Wastewater Enterprise, and over 20 years with the City. He started with San Francisco Public Works in the Bureau of Street and Sewer Repair and came to the SFPUC in 2011 as a Maintenance Planner. He held the position of Maintenance Manager for the past seven years, where he managed the day to day maintenance systems and practices for the wastewater treatment facilities. He earned a B.A. in urban studies from San Francisco State University.

Ongoing Investigations
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 February 2020. In January 2022, Mr. Nuru pled guilty to taking bribes from contractors, developers, and entities he regulated, including bribes from Wal ter Wong, a San Francisco construction company executive and permit expediting 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 and 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.

38 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 hi s 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 Comm ission, and Retirement Board. In addition to the original charges against 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.

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.

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 Water Enterprise employees.

Wages, hours and working conditions of City employees, including employees of the SFPUC, are determined by collective bargaining pursuant to State law (the Meyers-Milias-Brown Act, California Government Code Sections 3500-3511) and the City Charter. San Francisco is unusual among California’s cities and counties in that nearly all of its employees, including managerial and executive-level employees, are represented by labor organizations.

Further, the City Charter requires binding arbitration to resolve negotiations in the event of impasse. If impasse occurs, the parties are required to convene a tripartite arbitration panel, chaired by an impartial third -party arbitrator, which sets the disputed terms of the new agreement. The award of the arbitration panel is final and binding.

This process applies to almost all City employees. Since 1976, no City employees have participated in a union-

39 authorized strike, which is prohibited by the City Charter. See “RISK FACTORS – Risks Related to Water 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 represents Water Enterprise employees. For fiscal year 2019-20, the parties agreed to wage increases of 3% on July 1, 2019 and 1% on December 28, 2019. For fiscal year 2020-21, the parties agreed to a wage increase schedule of 3% on July 1, 2020 and 0.5% on December 26, 2020, with a provision to delay the fiscal year 2020- 21 adjustment by six months if the City’s deficit for fiscal year 2020-21, as projected in the March 2020 update to the five-year financial plan, exceeds $200 million. Because the March 2020 update to the five-year financial plan projected a deficit for fiscal year 2020-21 in excess of $200 million, the scheduled wage increases as described above were delayed by approximately six months. For fiscal year 2021-22, the parties agreed to a wage increase schedule of 3% on July 1, 2021 and 0.5% on January 8, 2022, with a provision to delay the fiscal year 2021-22 increase by six months if the City’s deficit for fiscal year 2021-22, as projected in the March 2021 update to the five -year financial plan, exceeds $200 million. 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 Water 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 2023 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, 14 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 Water Enterprise employees covered by a memorandum of understanding (similar to a collective bargaining agreement), each of which expire on June 30, 2024.

40 TABLE 1

SFPUC AND WATER ENTERPRISE

EMPLOYEES COVERED BY

MEMORANDA OF UNDERSTANDING

Employee Bargaining Unit
SFPUC
Full-Time
Equivalent
Employment(1)
Water
Enterprise
Full-Time
Equivalent
Employment(1)
International Association of Machinists, Lodge 1414 56 37 Carpenters, Local 22 22 14
International Brotherhood of Electrical Workers, Local 6 139 32 Laborers, Local 261 168 94
Municipal Executives Association 203 37
Operating Engineers, Local 3 26 19
Plumbers, Local 38 239 172
International Federation of Professional and Technical Engineers, Local 21 1,092 228 Service Employees International Union, Local 790 344 86 San Francisco City Workers United 14 5
Stationary Engineers, Local 39 298 94
Teamsters, Local 853 36 19
Transport Workers Union Local 250-A, Automotive Service Workers 6 5 Hod Carriers, Local 36 2 0
Unrepresented Employees(2) 1 0
Total 2,646 842

(1) Represents budgeted numbers as of July 1, 2022. 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. The Charter specifies that employer contributions consist of the normal cost (the present value of the benefits that SFERS expects to become payable in the future attributable to a current year’s employment) plus an amortization of the unfunded liability over a period not to exceed 20 years. The Retirement Board sets the funding policy subject to the Charter requirements.

41 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 peri odic 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 th e 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 m andated 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 five 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 for its proportionate share of the net pension asset of the Plan and net pension liability of the Replacement Benefits Plan, a qualified excess benefit plan that covers some Water Enterprise employees were approximately $2.2 billion for Fiscal Year 2021 -22. The amount allocable to the Water Enterprise, as of June 30, 2022, was approximately $100.4 million.

The SFPUC is required to contribute at an actuarially determined rate and allocates the app licable portions of such contribution to the separate enterprises, including the Water Enterprise. For Fiscal Years 2017- 18 through 2021-22, the SFPUC’s employee 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 Water Enterprise has paid 100% of its required contributions. The

42 contributions by the Water Enterprise required for Fiscal Years 2017- 18 through 2021 -22 are summarized in the following table:

TABLE 3

WATER ENTERPRISE RETIREMENT SYSTEM CONTRIBUTION
FISCAL YEARS 2017-18 THROUGH 2021-22
(IN THOUSANDS)
Fiscal Year
Employer
Contribution
Rates
Water Enterprise
Contribution
2017-18 23.5% $25,922
2018-19 23.3 26,400
2019-20 25.2 29,647
2020-21 26.9 33,367
2021-22 24.4 31,151
_______________
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 includes financial statements and required supplementary information for the Plan. That report may be obtained by writing to the San Francisco City and County Employees’ Retirement System, 1145 Market Street, 5 th Floor, San Francisco, CA 94103, or by calling (415) 487-7000.

Health Care Benefits. The SFPUC participates in the City’s agent multiple employer defined benefit plan, which operates as a cost -sharing multiple employer defined benefit plan for the SFPUC (the “OPEB Plan ”). The OPEB Plan is maintained by the City and is administered through the City’s Health Service System and provides postemployment medical, dental and vision insurance benefits to eligible employees, retired employees, and surviving spouses. Health benefit provisions are established and may be amended through negotiations between the City and the respective bargaining units. The City does not issue a separate report on its other post -employment benefit plan.

As prescribed under GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other than Pensions, net OPEB liability, deferred outflows/inflows of resources related to OPEB, and OPEB expense are actuarially determined on a citywide basis. Net OPEB liability is measured as the portion of the present value of projected benefit payments to be provided to current active and inactive employees attributed to those employees’ past service, less the amount of the Retiree Healthcare Trust Fund investments measured at fair value.

The provisions of GASB Statement No. 75 are effective for the Water Enterprise beginning in Fiscal Year 2017-18. The following table shows the components of the City’s annual OPEB allocations for the Water 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:

43 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 Water Enterprise’s proportionate share of City’s
contribution 9,863

9,572 9,873
Water Enterprise’s proportionate share of City’s
OPEB liability 163,684

148,771 144,115

Source: SFPUC
The City’s OPEB net position liability was approximately $3.7 billion for Fiscal Year 2021 -22. The amount allocable to the Water Enterprise, as of June 30, 2022, was approximately $144.1 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 eligibl e to participate in the retirement health care system after five years of service, however, no employer contributions are required until 10 years of service.

From 10 to 15 years of service, employers pay 50% of the contribution, from 15 to 20 years of service 75%, and for employees with 20 years or more of service, 100%.

Proposition B also established a health care trust fund to pay for future costs related to retiree health care.

Em
ployees 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. Propos
ition 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 multipliers used to calculate pension benefits; and (4) for miscellaneous employees, raised the age of eligibility to receive vesting allowance to 53 and reduced by half the City’s contribution to vesting allowances.

44 With regard to health benefits, elected officials and employees hired on or before January 9, 2009, contribute up to 1% of compensation toward their retiree health care, with matching contribution by the City. For employees or elected officials who left the City workforce before June 30, 2001, and retire after January 6, 2012, Proposition C requires that the City contributions toward retiree health benefits remain at the same levels they were when the employee left the City workforce.

Proposition C also limits cost of living adjustments for SFERS retirees; however, in 2015, the Court of Appeals held in a suit against the City brought by a retiree organization, Protect Our Benefits v. City and County of San Francisco, 235 Cal. App. 4
th 619 (2015) that certain changes to payment of supplemental cost of living allowances imposed by Proposition C could not be applied to current City employees and those who retired after November 1996 when the supplemental cost of living allowance provisions were originally adopted, but could be applied to SFERS members who retired before November 1996. This decision is now final and its implementation increased the July 1, 2016 unfunded actuarial liability by $429.3 million for Supplemental COLAs granted retroactive to July 1, 2013 and July 1, 2014.

On July 13, 2016, the Retirement Board adopted a resolution to exempt members who retired before November 6, 1996, from the “fully funded” provision related to payment of Supplemental COLAs under Proposition C. The resolution directed that retroactive payments for Supplemental COLAs be made to these retirees. After the Retirement Board adopted said resolution, the Retirement System published an actuarial study on the cost to the fund 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 S upplemental COLA payments to these members who retired before November 6, 1996. The Superior Court’s injunction was affirmed by the Court of Appeal.

THE WATER ENTERPRISE
General
The SFPUC operates the facilities of its Water Enterprise to optimize the reliability and quality of its water deliveries. The SFPUC has made and will continue to make significant capital investments in the facilities of the Water Enterprise, designed to maximize the Water Enterprise’s ability to deliver water sufficient to meet the needs of its customers following the occurrence of a major seismic event or during an extended period of drought.

The SFPUC serves as the retail water supplier for San Francisco and is responsible for water deliveries to residents and institutions within San Francisco city limits, as well as to several retail accounts outside of San Francisco city limits. In addition, the SFPUC sells water to 26 Wholesale Customers in San Mateo, Alameda and Santa Clara counties under the WSA and related individual contract ual agreements. The Wholesale Customers are members of BAWSCA, which is a public agency separate and apart from the Wholesale Customers. The SFPUC also sells water to wholesale customer Cordilleras Mutual Water Company in San Mateo County, which is not a party to the WSA or a member of BAWSCA. Altogether, approximately 2.7 million people rely on water supplied by the Water Enterprise.

The Water Enterprise consists of over 389 miles of pipeline, over 74 miles of tunnels, 11 reservoirs, 13 groundwater wells, five pump stations, and three water treatment plants located outside of San Francisco, and over 1,235 miles of pipeline, 11 reservoirs, six groundwater wells, eight storage tanks, 24 pump stations, eight hydropneumatic stations and 17 chlorination stations located within the San Francisco city limit.

The Regional Water System draws approximately 85% of its water from the Upper Tuolumne River watershed feeding a single aqueduct system, delivering water 120 miles by gravity to Bay Area reservoirs and users .

The remaining water supply is drawn from local surface waters in the Alameda and Peninsula watersheds.

45 Water Rights and Related Proceedings
Prior to the Gold Rush in 1849, local water supplies were largely adequate to meet the needs of what is now San Francisco. The Spring Valley Water Company, purchased by the City in 1930, developed much of the local water supplies now available to the Water Enterprise. San Francisco’s population grew rapidly after the Gold Rush to nearly 400,000 by the time of the Great Earthquake of 1906.

As early as the 1880s, the City began looking to the Sierra Nevada and the Tuolumne River in what is now Yosemite National Park as a possible source of abundant, clean water for San Francisco and the Bay Area. Hetch Hetchy Valley, whi ch is located on the Tuolumne River in Yosemite National Park, was first recommended as a reservoir site at the turn of the 20
th century in a United States Geological Survey Study. Then-Mayor James D. Phelan made the first filings for water rights and reservoir rights-of-way in the Tuolumne River watershed as a private citizen and transferred those filings to the City in 1903.

Following the Great Earthquake of 1906, the City again sought water rights and reservoir rights -of-way in the Tuolumne River watershed and began to develop a preliminary design for the Hetch Hetchy System (as defined herein). The City also entered into negotiations with the Irrigation Districts to protect their existing water rights and to provide them with a share of the hydroelectric power to be produced by Hetch Hetchy facilities, at cost-based rates.

The federal Raker Act enacted on December 19, 1913 (the “ Raker Act”), grants to the City rights -of-way and public land use on United States government property in the Sierra Nevada to construct, operate and maintain reservoirs, dams, conduits and other structures necessary or incidental to developing and using water and power. It also imposes restrictions on the City’s use of Hetch Hetchy Reservoir, including, among others, the requireme nt that the City recognize the prior rights of the Irrigation Districts to receive water, up to specified amounts of natural daily flow, for direct use and storage. After 20 years of construction of dams and aqueducts, the City first delivered water from the Hetch Hetchy System to the Bay Area on October 24, 1934.

The City voluntarily releases water into the Tuolumne River and tributaries from its facilities under stipulations with the United States Department of the Interior, which controls a portion of the public lands that contain Raker Act rights of way. The SFPUC diverts water under its water rights acquired under State water law, which entitles the SFPUC to appropriate more than 400 million gallons per day (“mgd”) from the Tuolumne River and its tributaries.

The City holds “pre-1914” appropriative water rights for the City’s beneficial use, including the storage and diversion of water for the Hetch Hetchy and local water systems. The City also holds a post-1914 appropriative water right license from the SWRCB for the San Antonio Reservoir. Pre-1914 water rights are not subject to the water right permitting authority of the SWRCB but remain subject to jurisdiction concerning adequacy of the right and reasonableness of water use.

See “– Current Water Supp ly Sources” and “ – RISK FACTORS – Proposals to Restore Hetch Hetchy Valley.”
Current Water Supply Sources
Regional Water System . The Regional Water System is a complex system which supplies water from two primary sources: the Tuolumne River through Hetch Hetchy Reservoir and local runoff into Bay Area reservoirs in the Alameda and Peninsula watersheds. Water developed via Hetch Hetchy Reservoir through Hetch Hetchy facilities represents the majority of the water supply available to the SFPUC. On aver age, Hetch Hetchy Reservoir provides approximately 85% of the water delivered, and Bay Area reservoirs provide approximately 15% of the water delivered.

The local watershed facilities are operated to capture local runoff for delivery. Local area water prod uction is dependent on precipitation and the ability of the SFPUC to regulate watershed runoff.

Local Groundwater. San Francisco overlies all or part of seven groundwater basins: the Westside, Lobos, Marina, Downtown, Islais Valley, South and Visitacion Valley basins. The Lobos, Marina, Downtown and South basins are located wholly within San Francisco city limits, while the remaining three extend south into San Mateo County. The portion of the Westside Basin aquifer located within San Francisco is commonly referred to as the North

46 Westside Basin. Except for the Westside and Lobos basins, all of the basins are generally inadequate to supply a significant amount of groundwater for municipal supply due to low yield.

Early in its history, the City made significant use of local groundwater, springs, and spring fed surface water.

However, after the development of surface water supplies in the Peninsula and Alameda watersheds by Spring Valley Water Company and the subsequent completion of Hetch Hetchy Reservoir and aqueduct in the 1930s, the municipal water supply system has relied almost exclusively on surface water from the Alameda and Peninsula watersheds, and the Tuolumne River watershed. Local groundwater use, however, has continued in San Francisco primarily for irrigation purposes. The San Francisco Zoo and Golden Gate Park use approximately 1.2 mgd of groundwater for non- potable purposes. In April 2017, the SFPUC began pumping groundwater from the North Westside Basin aquifer. The groundwater is treated and blended with the SFPUC’s regional drinking water supplies before it is delivered to the SFPUC’s customers. Currently, groundwater represents approximately 0.4 mgd in the drinking water supply. See also “– Water Supply Initiatives – Local Groundwater and Recycled Water Projects.” Approximately 0.4 mgd of groundwater is delivered to Castlewood Country Club from well fields operated by the SFPUC in Pleasanton and drawn from the Central Groundwater Sub Basin in the Livermore/Amador Valley.

These wells are metered and have been in operation for several decades. There is no physical connection between the Castlewood Country Club wells and the Regional Water System. For purposes of water accounting and billing, these deliveries to Castlewood Country Club are accounted for as part of the SFPUC’s Retail Customer base.

Local Recycled Water. Current use of recycled water for non-potable purposes in San Francisco is less than one mgd, which is reflective of the limited non -potable demands in San Francisco’s dense urban en vironment. The Sharp Park Recycled Water Project and the Harding Park Recycled Water Project collectively use 0.1 mgd of recycled water for irrigating City -owned golf courses. The City also uses disinfected secondary- treated recycled water from the SFPUC’s Southeast Water Pollution Control Plant (the “ Southeast Treatment Plant ”) on a limited basis for wash-down operations and provides it to construction contractors, City departments, and other interested parties for use within San Francisco via a truck -fill station. Permitted uses include soil compaction, dust control, landscape irrigation, street cleaning, and sewer flushing. In addition, the City has adopted the Non-Potable Water Ordinance (as defined herein), which requires new developments of 100,000 gross square -feet or more to install and operate onsite water reuse projects. This program currently results in a potable water offset of 0.3 mgd.

Local Water Conservation . The SFPUC is committed to demand -side management programs; San Francisco’s per capita water use has dropped by almost 50 percent since 1977 in part due to these programs. The first substantial decrease came following the 1976 -77 drought in which gross per capita water use dropped from 160 to 130 gallons per capita per day (“gpcd”). Despite nearly continuous growth in San Francisco since then, water demand levels have remained lower than water demand levels prior to the 1976-77 drought due to building code requirements and improved technology.

A second substantial decrease in water use within San Francisco occurred because of the 1987 -92 drought, when a new level of conservation activities resulted in further water use savings and per capita use dropped sharply again in the 2012- 2015 drought. While per capita water use increased very slightly after the 2012- 2015 drought and before the recent drought started in 2020, it has remained well below 2013 levels. Gross per capita water use within San Francisco was 67.4 gpcd in Fiscal Year 2021-22, with residential per capita water use calculated to be 41.5 gpcd, one of the lowest per capita rates of any urban area in the State, and approximately one-half of the statewide average.

It is anticipated that through the continuation and expansion of these programs, per capita water use will remain low .

The SFPUC’s water conservation program offers financial incentives, services and educational assistance, all aimed at promoting efficient water use. The conservation program implemented by the SFPUC is based on, among other things, State and local indoor and outdoor efficiency requirements, the WSIP, and analysis of local efficient plumbing fixture saturation rates and water-saving opportunities in the SFPUC retail service area.

Water Supply Storage
The amount of water available to the SFPUC’s Retail Customers and wholesale customers is constrained by hydrology, physical facilities, and the institutional parameters that allocate the water supply of the Tuolumne River.

While in most years the SFPUC receives adequate water supply to meet its demands, durin g dry years, the SFPUC

47 has only a small share of Tuolumne River runoff available and the local Bay Area watersheds produce limited volume of water. Due to these constraints, the SFPUC is dependent on reservoir storage to firm up its water supplies. More importantly, reservoir storage provides the Regional Water System with year -to-year water supply carry -over capability. Reservoir storage is critical to the SFPUC during drought cycles since it enables the SFPUC to carry- over water supply from wet years to dry years. See “WATER FACILITIES – Water Storage.” Water Supply Reliability and Drought Planning
The SFPUC water supply system reliability is expressed in terms of its ability to deliver water during droughts. Reliability is defined by the amount and frequency of water delivery reductions required to balance customer demands with available supplies in droughts. The total amount of water the SFPUC has available to deliver to its Retail and wholesale customers during a defined period depends on several factors, including the amount of water that is available to the SFPUC from natural runoff; the amount of water in reservoir storage; groundwater supply; and the amount of water that must be released from the SFPUC’s system for commitments for purposes other than customer deliveries (such as releases below Hetch Hetchy Reservoir to meet Raker Act and fishery purposes).

The SFPUC operates its system to optimize the reliability and quality of its water deliveries. Two principal objectives guide Hetch Hetchy Reservoir operations: collection of Tuolumne River water runoff for diversion to the Bay Area; and fulfillment of the SFPUC’s downstream release obligations. To ensure water supply, Hetch Hetchy Project reservoirs remain high through the early winter, until sufficient snowmelt runoff is forecasted at 90% certainty to fill all Tuolumne reservoirs. When the forecasted snowmelt is certain to be in excess of the fill volume, the reservoirs may be drawn down through power operations to increase revenue without risking water supply.

Similarly, the SFPUC operates the Regional Water System Bay Area reservoirs to conserve watershed runoff, drawing down reservoirs early in the winter period to capture storms and reduce the potential for spilling water out of the reservoirs. In the spring, Hetch Hetchy water (snowmelt) is often transferred to three of the Bay Area reservoirs that are capable of receiving the water so that any unused local reservoir storage is filled prior to July 1.

Prior to 1976, droughts had not seriously affe cted the ability of the SFPUC to sustain full deliveries to its customers. During a subsequent drought in 1987-92, as reservoir storage continued to decline it became apparent that continued full deliveries could not be sustained without the risk of running out of water before the drought ended. As a result of these experiences, to provide some level of assurance that water could be delivered continuously throughout a drought (although at reduced levels), the SFPUC adopted a drought planning sequence, incorporating an 8.5 year drought scenario for planning purposes (based on combined number of actual drought years from 1976- 1977 and 1987-92), and associated operating procedures that trigger different levels of water delivery reduction rationing relative to the volume of water actually stored in SFPUC reservoirs. Each year, during the snowmelt period, the SFPUC evaluates the amount of total water storage expected to occur throughout the Regional Water System. If this evaluation finds the projected total water storage to be less than an identified level sufficient to provide sustained deliveries during the drought scenario, the SFPUC may impose delivery reductions or rationing.

Rationing. With current contractual obligations to deliver up to 184 mgd to the SFPUC ’s Wholesale Customers and 81 mgd to its Retail Customers combined with current water supplies and reservoir storages, the Regional Water System can be expected to experience up to a 25% shortage from 15% to 20% of the time, over multiple-year drought sequences. During a drought, Retail and Wholesale Customers could experience a reduction in the amount of water received from the Regional Water System. The amount of the reduction would be dictated by existing contractual agreements between the SFPUC and the Wholesale Customers, as detailed in the existing Water Shortage Allocation Plan that is an attachment to the WSA. The Water Shortage Allocation Plan allocates available water between the Retail Customers and the Wholesale Customers collectively, with specific allocations for each established for different levels of systemwide shortage. Under the Water Shortage Allocation Plan, specific rationing amounts applied to the Retail and Wholesale Customers will be determined by their subsequent shortage plans as required to remain with their share of the systemwide allocation.

The Water Shortage Allocation Plan has been carried forward in the WSA for systemwide shortages of up to 20%. For shortages in excess of this amount, the WSA provides that the SFPUC may alloca te water at its discretion, subject to legal challenge by Wholesale Customers, if agreement cannot be reached regarding treatment of shortages

48 in excess of 20%. The WSA also includes provisions for drought and emergency pricing. See “FINANCIAL OPERATIONS.”
System Delivery Capability. System delivery capability is defined as the water delivery the Regional Water System is able to sustain over historical hydrologic conditions including multiple -year drought sequences. Under existing SFPUC operations policies and procedures, the SFPUC has a system delivery capability of 257 mgd. That is, the Regional Water System is capable of sustaining a 257 mgd annual average delivery over a hydrologic period equivalent to that experienced from 1921 to 2002 with shortages due to drought. This delivery capability is based on the SFPUC’s substantial completion of the WSIP program. During non- drought years, the Regional Water System is capable of sustainably delivering 265 mgd.

Water Supply Initiatives . The SFPUC has establish ed an alternative water supply program (the “ AWS Program”) to evaluate new and diverse alternative water supply options such as expanding storage, groundwater banking, transfers, purified water (potable reuse), desalination and technological innovations. For more information regarding the AWS Program, see “CAPITAL IMPROVEMENT PROGRAM AND OTHER WATER SUPPLY INITIATIVES – Water Supply Initiatives.”
Wholesale Deliveries
Wholesale Service Area and Customer Base. The Water Enterprise provides wholesale water ser vice to 27 wholesale customers, which consist of 25 public agencies, one private utility, and one private, not -for-profit educational institution. All of the wholesale customers are located within Alameda County, Santa Clara County or San Mateo County.
• Alameda County is located to the east of San Francisco Bay and extends from the cities of Berkeley and Albany in the north to the City of Fremont in the south. Alameda County contains 14 incorporated cities.

The California Department of Finance Demographic Research Unit estimated Alameda County’s population at 1,651,979 as of January 1, 2022. Most of its population is concentrated in a highly urbanized area between the San Francisco Bay and the East Bay Hills. • Santa Clara County lies immediately south of San Mateo County and encompasses an area of approximately 1,316 square miles. Santa Clara County contains 15 incorporated cities, including San José, the third largest city in the State. The California Department of Finance Demographic Research Unit estimated Santa Clara County’s population at 1,894,783 as of January 1, 2022. Most of its population is concentrated in the extensively urbanized and heavily industrialized northern portion of Santa Clara County.
• San Mateo County is located on the San Francisco Peninsula, west of the San Francisco Bay. San Mateo County covers 446 square miles and contains 20 incorporated cities. Coastal mountains run north and south, dividing the lightly populated western part of the county from the heavily populated eastern corridor between San Francisco and Santa Clara/Silicon Valley. The California Department of Finance Demographic Research Unit estimated San Mateo County’s population at 744,662 as of January 1, 2022. • Alameda County, Santa Clara County and San Mateo County all have diversified economies and median household incomes higher than State and national averages.

Collectively, the wholesale customers provide retail water service to over 1.8 million people and 40,000 commercial, industrial and institutional accounts in their respective service areas, with the balance of the respective population being serviced by other providers. All wholesale customers are billed monthly on the basis of metered water use and in accordance with the WSA.

49 The following is a list of the 27 wholesale customers:

Wholesale Customers
Municipalities Water Purveying Districts Private Entities City of Brisbane
City of Burlingame
City of Daly City
City of East Palo Alto
City of Hayward
City of Menlo Park
City of Millbrae
City of Milpitas
City of Mountain View
City of Palo Alto
City of Redwood City
City of San Bruno
City of San José(2)
City of Santa Clara(2)
City of Sunnyvale
Town of Hillsborough
Alameda County Water District
Coastside County Water District
Cordilleras Mutual Water
Company(3)
Estero Municipal Improvement
District
Guadalupe Valley Municipal
Improvement District
Mid-Peninsula Water District
North Coast County Water District
Purissima Hills Water District
Westborough County Water
District

California Water Service
Company(1)
Stanford University

(1) California Water Service Company, an investor -owned utility, provides water service to three separate districts: Bear Gulch (Atherton/Woodside vicinity and including the former Skyline County Water District), Mid-Peninsula (San Carlos/San Mateo vicinity), and South San Francisco. California Water Service Company purchases approximately 15% of the total water delivered annually by the SFPUC. Such purchases account for approximately 10% of the SFPUC’s total yearly revenues. (2) The SFPUC provides water on an interruptible basis to fixed service areas in the northern portions of the cities of San José and Santa Clara. See “– Status of San José and Santa Clara” below. (3) Cordilleras Mutual Water Company is the only wholesale customer that is not a member of BAWSCA and not a party to the WSA.

The following table shows the percentage of water purchased from the Regional Water System by the Wholesale Customers in Fiscal Year 2021 -22. Fifteen of the Wholesale Customers derived over 90% of their water from the SFPUC.

50 TABLE 5

PERCENTAGE OF WATER PURCHASED FROM THE REGIONAL WATER SYSTEM BY WHOLESALE CUSTOMERS IN FISCAL YEAR 2021-22(1)
Water Purchased (mgd)
Population SFPUC(2) Total % SFPUC
Alameda County Water District 344,855 9.48 36.70 25.83% California Water Service Company 262,095 28.81 29.04 99.21 City of Hayward 160,591 14.05 14.07 99.86
City of Sunnyvale 156,503 9.20 16.90 54.44
City of Santa Clara 130,746 3.11 18.64 16.68
City of Daly City 107,197 3.64 6.31 57.69
City of Redwood City 89,037 7.90 8.54 92.51
City of Mountain View 81,764 7.34 8.65 84.86
City of Milpitas 80,839 4.61 8.74 52.75
City of Palo Alto 67,973 9.65 10.63 90.78
City of San Bruno 44,409 1.04 3.03 34.32
North Coast County Water District 37,533 2.19 2.22 98.65 San José Municipal Water District 40,514 4.11 5.09 80.75 Estero Municipal Improvement District 33,056 3.87 3.87 100.00 City of Burlingame 32,407 3.36 3.46 97.11
Mid-Peninsula Water District 29,260 2.40 2.40 100.00
City of East Palo Alto 25,935 1.43 1.44 99.31
City of Millbrae 22,277 1.85 1.85 100.00
City of Menlo Park 21,340 2.45 2.45 100.00
Coastside County Water District 18,839 0.96 1.58 60.76
Stanford University 32,235 1.46 2.52 57.94
Westborough Water District 13,486 0.62 0.67 92.54
Town of Hillsborough 11,397 2.34 2.34 100.00
Purissima Hills Water District 6,150 1.64 1.64 100.00
City of Brisbane /
Guadalupe Valley Municipal Improvement District
4,851 0.61 0.61 100.00
Total All Agencies 1,855,289 128.11 193.38 66.24%

(1) Does not include wholesale customer Cordilleras Mutual Water Company, which is not a BAWSCA member agency and not a party to the WSA.
(2) Amounts differ slightly from actual 2021-22 purchases totaling 128.38 mgd listed in Table 7 Wholesale Contractual Obligations (in mgd), which are based on SFPUC’s sales data (or wholesale customer meters).

Source: SFPUC; compiled from BAWSCA Annual Survey Fiscal Year 2021-22, dated March 2023.

51 The table below summarizes the sources of supply for Wholesale Customers collectively during Fiscal Year 2021-22.

TABLE 6
WATER DELIVERIES TO WHOLESALE CUSTOMERS BY SOURCE(1)
FISCAL YEAR 2021-22
Source Acre-Feet Percent of Total
SFPUC(2) 143,516 66.2%
Groundwater 22,926 10.6
Surface Water 3,722 1.7
Recycled Water 9,143 4.2
Other Sources (Includes State/Federal) 37,325 17.2
Total 216,632 100.0%

(1) Does not include wholesale customer Cordilleras Mutual Water Company, which is not a BAWSCA member agency and not a party to the WSA.
(2) Purchases from the Regional Water System. Includes supplemental deliveries.

Source: SFPUC; compiled from BAWSCA Annual Survey Fiscal Year 2021-22, dated March 2023.

The Bay Area Water Supply and Conservation Agency. BAWSCA is the successor agency to the Bay Area Water Users Association (“BAWUA”). BAWUA was originally formed as a non-profit mutual benefit corporation to represent the Wholesale Customers’ collective interests in their interactions with the SFPUC. Con cerned that their needs and interests were not properly represented by the SFPUC, BAWUA lobbied for the creation of an entity with authority to plan for and acquire supplemental water supplies, encourage water conservation and use of recycled water on a regional basis, and assist in the financing of essential repairs and improvements to the Regional Water System.

State legislation AB 2058, passed in 2002, allowed the formal creation of BAWSCA.

BAWSCA is governed by a 26- member Board of Directors which is composed of community leaders representing its 26 members. BAWSCA has the authority to coordinate water conservation, supply and recycling activities for its agencies; acquire water and make it available to other agencies on a wholesale basis; finance projects, including improvements to the Regional Water System; and build facilities jointly with other local public agencies or on its own to carry out its purposes. BAWSCA has not, to date, acquired water or built facilities.

Regional Water System Financing Authority. The Wholesale Customers, together with the SFPUC, formed the San Francisco Bay Area Regional Water System Financing Authority (“RFA”) in 2002. While BAWSCA focuses on planning and water management and may engage in public works projects, the RFA exists solely to help fund capital improvements to the Regional Water System. The RFA has the power to issue revenue bonds to fund projects to improve the reliability of the Regional Water System; provide proceeds of revenue bonds to the City under specified conditions to improve reliability of the system; and apply for and receive State and federal grants, loans and other financial assistance.

Debt service on any bonds issued by RFA in the future would be secured by, and paid from, a surcharge imposed by t he SFPUC upon Wholesale Customers and, under specific conditions, upon Retail Customers. This surcharge would be imposed in an amount sufficient to pay debt service on the RFA’s bonds and its operating expenses. Proceeds of the surcharge would not constitute Revenues under the Indenture, and debt service on these bonds, if issued, would not be a debt or liability of the SFPUC or the City.

The RFA has not, to date, issued any revenue bonds, and the SFPUC is not now aware of any current plans by the RFA to do so. The ability of the RFA to issue bonds expires in December 2030.

Prior Master Water Sales Contract . Between 1984 and 2009, Wholesale Customer rates were set pursuant to a Settlement Agreement and Master Water Sales Contract (the “Prior Master Water Sales Contract ”). The Prior Master Water Sales Contract put in place a comprehensive method for allocating the costs of the water system between the SFPUC’s Retail Customers and the Wholesale Customers. Capital costs and most operations and maintenance expenses of the Regional Water System were distributed between the SFPUC and its Retail Customers and the

52 Wholesale Customers on proportional water usage: approximately one -third to the City and two- thirds to the Wholesale Customers.

The Prior Master Water Sales Contract resolved litigation over certain rate -setting practices. Both sides dismissed, with prejudice, the claims related to water sales overcharges and undercharges with the signing of the Prior Master Water Sales Contract. However, the litigation left open certain questions, such as whether the Wholesale Customers are “Co-Grantees” under the Raker Act and, if so, what rights, benefits and privileges accrue to them by reason of such status, including the right to receive water at cost, and the extent to which the City may be legally obligated to provide water to meet growth demands in Wholesale Customer service areas.

Water Supply Agreement. In 2009, the SFPUC and the Wholesale Customers entered into the Water Supply Agreement, with an effective date of July 1, 2009, which replaced the Prior Master Water Sales Contract. The WSA has a 25 -year term (through June 30, 2034), with provisions for two conditional five -year extensions. It was most recently amended and restated in 2021 with the approval of the SFPUC and the Wholesale Customers.

The WSA separates Water Enterprise assets and expenses into three categories: “wholesale only,” “regional,” and “retail only.” Annual operations and maintenance expenses are recovered based on proportional annual use of the Regional Water System in most cases. Costs and revenues of the Hetch Hetchy Project are also separated – the Wholesale Customers do not pay for power -related costs, which are borne by the Power Enterprise, and do not share in power revenues.

The WSA includes the SFPUC’s “Supply Assurance” of 184 mgd (measured on an annual average basis) to 24 Wholesale Customers (the “ Supply Assurance ”). The SFPUC has agreed to deliver water to such Wholesale Customers up to the amount of the Supply Assurance, and this agreement is perpetual and survives the expiration of the WSA. The Supply Assurance is, however, subject to reduction due to water shortage, drought, scheduled WSA maintenance activities, and emergencies.

The Supply Assurance is shared among 24 of the Wholesale Customers, 23 of whom have an “Individual Supply Guarantee” (each an “ Individual Supply Guarantee”), which represents their dedicated individual share of the 184 mgd Supply Assurance. The two Wholesale Customers that do not share in the Supply Assurance, San José and Santa Clara, are served wholesale water on an interruptible basis and are not part of the Supply Assurance. The City of Hayward (“ Hayward”) does not have an Individual Supply Guarantee but rather an individual contract that did not limit its water use. Hayward continues to receive water under a contract entered into in 1962 with no expiration or supply limitation. If the demand of the 23 Wholesale Customers with Individual Supply Guarantees exceeds the 184 mgd Supply Assurance, the 23 Wholesale Customers with Individual Supply Guarantees would be required to reduce their allocation to meet the needs of Hayward. For Fiscal Year 2021- 22, total water purchases by the 23 Wholesale Customers with Individual Supply Guarantees (including Hayward’s use but excluding San José and Santa Clara) were approximately 65.9% of the combined Supply Assurance.

The following table shows the Individual Supply Guarantees and actual Fiscal Year 2021- 22 purchases for the Wholesale Customers and also includes Cordilleras Mutual Water Company, which is not a “Wholesale Customer” party to the WSA.

53 TABLE 7

WHOLESALE CONTRACTUAL OBLIGATIONS
(IN MGD)

Individual
Supply
Guarantee(1)
Actual 2021-22
Purchases(2)
Alameda County Water District 13.76 9.38
City of Brisbane / Guadalupe Valley Municipal Improvement District(3) 0.46 0.61 City of Burlingame 5.23 3.27
California Water Service Company(4) 35.50 29.02
Coastside County Water District 2.18 1.01
City of Daly City 4.29 3.70
City of East Palo Alto 3.46 1.43
Estero Municipal Improvement District 5.90 3.87
City of Hayward 22.80 14.05
Town of Hillsborough 4.09 2.37
City of Menlo Park 4.46 2.58
Mid-Peninsula Water District 3.89 2.42
City of Millbrae 3.15 1.69
City of Milpitas 9.23 4.78
City of Mountain View 12.46 7.38
North Coast County Water District 3.84 2.24
City of Palo Alto 16.57 9.65
Purissima Hills Water District 1.62 1.66
City of Redwood City 10.93 7.92
City of San Bruno 3.25 1.17
City of San José(5) 0.00 4.05
City of Santa Clara(5) 0.00 3.17
Stanford University 3.03 1.46
City of Sunnyvale 12.58 8.89
Westborough County Water District 1.32 0.63
Subtotal BAWSCA Demand 184.00 128.38
Cordilleras Mutual Water Company(6) -- 0.01
Total Wholesale Demand(7) -- 128.39

(1) “Individual Supply Guarantee” refers to each Wholesale Customer’s share of the Supply Assurance as defined in the Prior Master Water Sales Contract. The Supply Assurance is the 184 mgd maximum annual average metered supply of water dedicated by SFPUC to public use in the wholesale service area (excluding the cities of San José and Santa Clara). Hayward’s allocation is calculated as 184 mgd less the total of permanent customer Individual Supply Guarantees (161.9 mgd). (2) Amounts are based on SFPUC’s sales data (or wholesale customer meters) and may differ slightly from amounts of water purchased from the SFPUC totaling 128.11 mgd listed in Table 5 Percentage of Water Purchased from the Regional Water System by Wholesale Customers in Fiscal Year 2021-22, which are based on the BAWSCA Annual Survey Fiscal Year 2021- 22, dated March 2023.
(3) Brisbane and Guadalupe Valley Municipal Improvement District are two Wholesale Customers that are jointly operated. (4) Includes individual Supply Guarantee of Skyline County Water District, which was purchased by California Water Service Company-Bear Gulch in 2009.
(5) San José and Santa Clara do not have an allocated share of Supply Assurance due to their temporary, interruptible status under the WSA.
(6) Cordilleras Mutual Water Company is not a party to the WSA, does not have an Individual Supply Guarantee and does not share in the Supply Assurance.
(7) Totals may not add due to rounding.

Sources: Water Supply Agreement; SFPUC.

54 The basic framewor k of the Prior Master Water Sales Contract regarding coordination of wholesale rates with the annual SFPUC budget process, annual compliance audits, resolution of disputes concerning the SFPUC’s determination of the annual Wholesale Revenue Requirement (as defined herein) via binding arbitration and the annual true up of costs using a balancing account continue, but the WSA effected significant changes in the arrangement between the SFPUC and the Wholesale Customers. The WSA included the following significa nt changes:

Allocation of Capital Costs. Instead of continuing with the “utility method,” the WSA more timely recovers capital costs as follows:
• The costs of existing assets placed in service prior to June 30, 2009, approximately $367 million in 2009 dollars, were to be repaid based on audited actual costs in monthly installments by Wholesale Customers at an annual interest rate of 5.13% over a 25 -year period, in lieu of depreciation and a weighted return on these assets. In February 2013, the Wholesale Customers, through BAWSCA, made an early repayment of the entire cost recovery payment balance. • The costs of new regional assets placed in service after June 30, 2009 are to be paid for using the “cash method.” Annual wholesale rates are set to recover the Wholesale Customers’ share of regional asset costs from current revenues for cash -funded assets. Wholesale contributions for debt-financed assets include appropriate contributions towards debt service and coverage based on the Wholesale Customers’ proportionate annual use of the Regional Water System. • For the portion of capital projects costs that were appropriated but not expended as of June 30, 2009, a 10-year repayment schedule including 4.00% interest has been calculated, based on audited actual costs. Repayment began in Fiscal Year 2014-15 and is scheduled to end in Fiscal Year 2023-24.

For more information regarding the wholesale rate setting mechanism, see “FINANCIAL OPERATIONS – Wholesale Water Sales Revenue,” and “APPENDIX B – SUMMARY OF CERTAIN PROVISIONS OF THE WATER SUPPLY AGREEMENT – Wholesale Revenue Requirement,” “– Capital Cost Contribution – New Regional Assets” and “– Hetch Hetchy Enterprise Expenses.”
Treatment of Water Supply Issues. The 184 mgd Supply Assurance continues in existence in the WSA. The WSA sets forth how the SFPUC and Wholesale Customers will implement the “Interim Supply Limitation” imposed by the SFPUC in its approval of the WSIP in 2008, which limits to 265 mgd the amount of water annually delivered to the Retail Customers and Wholesale Customers from Regional Water System watersheds. Under the Interim Supply Limitation, Retail Customers receive up to 81 mgd and the Wholesale Customers receive up to 184 mgd from the Regional Water System.

Status of San José and Santa Clara . The cities of San José and Santa Clara retain their temporary, interruptible status. The SFPUC has agreed to supply a combined annual average of 9 mgd to the two cities through 2028, in accordance with the terms of the WSA. The 9 mgd allocated to San José and Santa Clara is not a part of the Supply Assurance but is included within the wholesale portion of the Interim Supply Limitation of 184 mgd.

Creation of Transfer Market. The WSA contemplates the creation of a water transfer market that enhances the Wholesale Customers’ ability to keep purchases within the amounts of their respective Interim Supply Allocations (as defined in the WSA). In addition, Wholesale Customers may agree to the permanent transfer of portions of their Individual Supply Guarantees. All such transfers are subject to SFPUC approval regarding operational and Raker Act concerns. In 2017, Mountain View agreed to a permanent transfer of 1.0 mgd of its Individual Supply Guarantee to East Palo Alto. Subsequently, Palo Alto agreed to a permanent transfer of 0.5 mgd of its Individual Supply Guarantee to East Palo Alto.

Enforcement of Interim Supply Limitation. Commencing in Fiscal Year 2011-12, the SFPUC established a volume-based “Environmental Enhancement Surcharge” to enforce the Interim Supply Limitation. The Environmental Enhancement Surcharge would apply only if combined retail and wholesale water deliveries from the Regional Water System watersheds exceed 265 mgd. Proceeds of the Environmental Enhancement Surcharge will be placed in a restricted reserve fund to be used only for specific environmental restoration and enhancement measures in the

55 SFPUC’s Sierra and local watersheds, such as those identified in the Watershed Environmental Improvement Program.

Specific restoration and enhancement projects would be selected by the SFPUC and BAWSCA, following input from environmental stakeholders and other interested members of the public. No surcharges have been imposed, and as discussed above, it appears unlikely that any surcharges will be imposed.

Other Significant Provisions. The WSA also contains the following provisions:
• The SFPUC agrees to operate system reservoirs in a manner that assigns higher priority to the delivery of water to the Bay Area and the environment than to generation of hydroelectric power. • The “Shortage Allocation Plan,” which establishes an allocation of water between the Retail Customers and Wholesale Customers to be applied during droughts, and governs drought shortages of up to 20%.
• Drought pricing and emergency rate increases are allowed. 2028 Water Supply Decisions. Subject to completion of necessary CEQA review and the exercise of retained discretion by the SFPUC to reject or modify proposed projects, the WSA requires the SFPUC to make several decisions by December 31, 2028 as follows:
• Whether to make San José and Santa Clara permanent customers to the extent that the SFPUC determines that long-term Regional Water System supplies are available. • Whether to provide water in excess of the Supply Assurance to meet the Wholesale Customers’ projected future water demands until the year 2040, and whether to offer a corresponding increase in the Supply Assurance.

Converting San José and Santa Clara to permanent, non-interruptible customers would require the SFPUC to secure 9.0 mgd of additional water supply, reflecting historical deliveries. As noted above, San José and Santa Clara are currently temporary customers with interruptible status. Through the development of the AWS Plan (as defined and further described herein) and planning for the South Bay Purified Water Project, the SFPUC anticipates having sufficient information to support a decision by the Commission by 2028. See “CAPITAL IMPROVEMENT PROGRAM AND OTHER WATER SUPPLY INITIATIVES – Water Supply Initiatives.” For a more detailed summary of the WSA, see “APPENDIX B – SUMMARY OF CERTAIN PROVISIONS OF THE WATER SUPPLY AGREEMENT.”
Individual Water Supply Contracts. While the WSA establishes the rate -setting mechanism and the overall supply assurance level for Wholesale Customers, each wholesale customer (including Cordilleras Mutual Water Company) has an individual water supply contract with the City that defines the terms and conditions (including, among others, the point of delivery and service area) by which water is supplied to each such wholesale customer.

Minimum Annual Purchases. Pursuant to the WSA, Alameda County Water District and the cities of Milpitas, Mountain View and Sunnyvale may purchase water from sources other than the SFPUC, provided that each agency purchases a specified minimum annual quantity of water from the SFPUC (“Minimum Annual Purchase Quantity”). Due to the recent drought and corresponding call for voluntary rationing from the wholesale and retail customers, the SFPUC waived the minimum purchase requirements from these agencies for Fiscal Years 2021-22 and 2022-23. In accordance with emergency regulations adopted by the SWRCB in May 2022, the SFPUC will continue to waive the minimum annual purchase requirements from these agencies until the SWRCB modifies such regulations to no longer require the SFPUC to implement Shortage Level 1 or Shortage Level 2 drought response actions of its Water Shortage Contingency Plan. For more information regarding the emergency re gulations, see “THE WATER ENTERPRISE – Recent Drought Actions.” The 2021 Amended and Restated WSA includes a new mechanism that allows a Wholesale Customer with a Minimum Annual Purchase Quantity to transfer a portion of that quantity to another Wholesale Customer at the same time that it transfers a portion of its Individual Supply Guarantee to that

56 other Wholesale Customer. See “APPENDIX B – SUMMARY OF CERTAIN PROVISIONS OF THE WATER SUPPLY AGREEMENT – Restrictions on Purchases of Water from Others; Minimum Annual Purchases.” Retail Deliveries
Retail Service Area and Customer Base . The SFPUC’s retail water customers include the residents, businesses and industries located within the corporate boundaries of San Francisco . In addition to these customers, retail water service is also provided to other customers located outside of San Francisco , such as the Town of Sunol, SFO, Lawrence Livermore National Laboratory, Castlewood Country Club and Groveland Community Services District. All of the SFPUC’s Retail Customers have been metered since 1916.

Residential Water Use. Due to the moderate climate and the high-density housing in San Francisco, much of the water use within San Francisco is indoors. For San Francisco’s many multi-family units, the average outdoor water use is considerably lower than the statewide residential outdoor average water use. Residential per capita water usage has been less than 50 gallons per person per day since 2011, and is currently averaging a little under 42 gallons per person per day. By comparison, the State statewide average water use in calendar year 2022 was 86 gallons per person per day.

Non-Residential Water Use. Non-residential water use includes all sectors of water users not designated as residential, such as manufacturing, transportation, trade, finance, and government employment sectors, and the large services sector.

Historical Water Sales and Top Customers
Water Sales. The following table shows water sales to Retail Customers and wholesale customers for Fiscal Years 2017-18 through 2021-22.

57 TABLE 8

HISTORICAL WHOLESALE AND RETAIL WATER SALES
FISCAL YEARS 2017-28 THROUGH 2021-22
(IN MGD)
2017-18 2018-19 2019-20 2020-21 2021-22
2021-22
% of
Total
Retail Customers
Multi-Family Residential 22.7 22.5 23.3 22.7 21.9 12.1% Single-Family Residential 14.3 13.9 14.4 14.6 13.1 7.3
Commercial(1) 17.5 16.7 15.1 10.6 11.8 6.5
Industrial 0.2 0.2 0.2 0.1 0.1 0.1
Municipal(2) 3.2 3.3 3.4 2.8 2.8 1.5
Suburban Retail(2)(3) 3.1 2.9 3.0 2.8 2.7 1.5
Retail water sales(4)(7) 61.1 59.5 59.3 53.6 52.4 29.0%

Wholesale Customers
California Water Service(6) 27.5 26.3 29.0 29.6 29.0 16.0% Hayward Municipal Water 14.6 14.0 14.2 14.5 14.0 7.7
City of Palo Alto 10.0 9.4 9.7 9.8 9.6 5.3
City of Sunnyvale 9.5 8.8 9.4 9.7 8.9 4.9
Alameda County Water District 7.9 7.7 7.7 9.5 9.4 5.2
City of Redwood City 8.4 8.1 8.8 8.6 7.9 4.4
City of Mountain View 7.5 7.3 7.6 7.9 7.4 4.1
City of Milpitas 5.2 5.1 6.1 5.4 4.8 2.6
Estero Municipal Improvement
District 4.2 4.0 4.3 4.3 3.9 2.1
City of San José 4.5 4.3 4.2 4.2 4.1 2.2
All Other Wholesale Customers(6) 29.6 30.0 31.0 31.5 29.5 16.3 Wholesale water sales(7) 128.9 125.0 131.6 135.0 128.4 71.0%

Total water sales(7) 190.0 184.5 190.9 188.6 180.8 100.0%

% Change from prior year(7) -- -2.9% 3.9% -1.6% -4.1%

(1) Includes docks and ships under Commercial.
(2) The Municipal category includes the San Bruno Jail, a City department located outside San Francisco, and master metered Treasure Island water sales. Current Treasure Island usage represents purchases by the Treasure Island Development Authority and various commercial, residential, and governmental lessees. As new development is completed on Treasure Island, customers will open individual accounts under the appropriate commercial or residential line items, and the master- metered amount will be reduced accordingly.
(3) SFO is included as a Suburban Retail Customer because SFO re-sells the water to its tenants. (4) Several factors have contributed to reduced retail water sales in beginning in Fiscal Year 2019 -20. See “– Recent Factors Impacting Retail Water Sales.”
(5) California Water Service Company, Daly City, and San Bruno participate in the conjunctive use groundwater program, and receive a bill credit for regional water system usage in -lieu of groundwater pumping. Totals reported in this table exclude water credited under such conjunctive use program.
(6) Totals may not add due to rounding.

Source: SFPUC

58 Wholesale and retail sales figures do not include “nonrevenue water.” Nonrevenue water includes system leaks and unbilled water (i.e., water used for firefighting, flushing system pipes, or a small volume of unbilled metered municipal use). Nonrevenue water has averaged approximately 10% of retail water sales per year over the last five Fiscal Years.

As set forth in the table above, total water sales in Fiscal Yea r 2018-19 decreased by 2.9% over Fiscal Year 2017-18, increased by 3.9% in Fiscal Year 2019- 20, decreased by 1.6% in Fiscal Year 2020 -21, and decreased by

4.1% in Fiscal Year 2021-22. For more information regarding factors that impact water sales, see “– Recent Factors Impacting Retail Water Sales.”
Top Ten Retail and Top Ten Wholesale Customers . The following table sets forth the top ten Retail Customers and top ten wholesale customers based on water sales revenues for Fiscal Year 2021 -22.

TABLE 9

TOP TEN RETAIL CUSTOMERS

AND TOP TEN WHOLESALE CUSTOMERS
FISCAL YEAR 2021-22

Water Sales
Revenue
(In Thousands)
Percent of all
Water
Revenues
Percent of
Wholesale
Customer
Revenues(1)
Percent of
Retail
Customer
Revenues(1)
Retail Customers
San Francisco International Airport(2) $4,420 0.8% N/A 1.5% Lawrence Livermore National Laboratory 3,214 0.6 N/A 1.1 Recreation and Parks Department 2,927 0.5 N/A 1.0
Parkmerced Investors Properties, LLC 2,615 0.5 N/A 0.9
University of California, San Francisco 2,529 0.5 N/A 0.9 NASA Shared Services Center, LLC 2,399 0.4 N/A 0.8
Golden Gate National Cemetery 1,663 0.3 N/A 0.6
Public Health Department 1,261 0.2 N/A 0.4
The Presidio 991 0.2 N/A 0.3
Menlo Country Club 859 0.2 N/A 0.3
Total: $22,878 4.3% N/A 7.7%

Wholesale Customers
California Water Service Company $64,447 12.0% 26.8% N/A Hayward Muni Water System 30,880 5.7 12.8 N/A
City of Palo Alto 21,323 4.0 8.9 N/A
Alameda County Water District 20,509 3.8 8.5 N/A
City of Sunnyvale 19,768 3.7 8.2 N/A
City of Redwood City 17,758 3.3 7.4 N/A
City of Mountain View 16,358 3.0 6.8 N/A
City of Daly City 12,288 2.3 5.1 N/A
City of Milpitas 10,997 2.0 4.6 N/A
ESD/San José Municipal Water System 8,940 1.7 3.7 N/A
Estero Municipal Improvement District 8,630 1.6 3.6 N/A Total: $231,898 43.1% 96.3% N/A

(1) Percentages based on total wholesale revenues of $240.9 million and total Retail revenues of $297.2 million. (2) Represents water sales to customers through the City enterprise fund for San Francisco International Airport, which is paid through the City’s inter-departmental billing system.

Source: SFPUC Customer Care and Billing System.

59 Recent Factors Impacting Retail Water Sales
As shown in Table 8, retail water usage was approximately 59.5 mgd in Fiscal Year 2018 -19, and approximately 52.4 mgd in Fiscal Year 2021- 22, approximately 12% lower than pre -pandemic Fiscal Year 2018 -19 levels. Several factors have contributed to the SFPUC’s reduce d retail water sales in recent years, including, but not limited to, certain developments in the local San Francisco economy and weather conditions. For example, there has been a general decline in San Francisco’s population in recent years 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, and unemployment concentrated recently in the tech-heavy information and professional and business services sectors, which can be attributable in some part to the COVID-19 pandemic.

Specifically, according to the U.S. Census Bureau, in calendar year 2019, 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. 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. In addition, San Francisco still lags the State as a whole in time spent at workplaces, and weekly office attendance has only reached approximately 4 5% of pre -pandemic levels, as compared to 63% in Austin, Texas, 49% in Los Angeles, California, 48% in New York, New York, and 39% in San Jose, California . The City has also experienced the largest increase in office vacancy among major urban office markets in the United States, currently estimated at 24% in the third quarter of calendar year 2022, compared to approximately 5% before the COVID-19 pandemic.

In addition, weather conditions and actions taken in response thereto over the past several years have resulted in reduced water usage. Water Years 2020 to 2022 represent the driest three-year period on record for California.

During such time, retail water sales have declined as customers have been asked to conserve water. See “– Recent Drought Actions.” Precipitation and snowpack in Water Year 2023 has been significantly above average. See “– Current Water Conditions.” In years with greater than normal rainfall, retail water sales have declined as customers typically reduce water use for outdoor irrigation.

The impact on the water usage of particular Water Enterprise customers has varied considerably. Water usage by residential customers was only modestly affected, for example, while water usage by commercial users was as much as 35% below pre-pandemic levels.

Recent Drought Actions
The drought in California from 2020 to 2022 represents the driest three-year period on record. Following the second driest year on record and with near record low storage in California’s largest reservoirs, Governor Newsom declared a statewide drought emergency in October 2021 and called for voluntary statewide water use reductions of 15% compared to 2020 water use. In August 2021, the SWRCB adopted emergency regulations for curtailing water diversions in the Bay- Delta tributaries. The SFPUC’s diversions on the Tuolumne River were curtailed in August 2021. In response to drought conditions, including the curtailments on the Tuolumne River, the SFPUC declared a local water shortage emergency in November 2021, adopted a 10% systemwide water use reduction compared to baseline water use during Fiscal Year 2019- 20, consistent with “Shortage Level 1” drought response actions of the SFPUC’s Water Shortage Contingency Plan (the “Water Shortage Contingency Plan”), adopted by the Commission on June 11, 2021, and the Water Shortage Allocation Plan (the “ Water Shortage Allocation Plan”). In addition, the SFPUC implemented a drought surcharge of up to 5% on all retail water and wastewater volumetric rates as of April 1, 2022. In March 2022, Governor Newsom issued an executive order directing the SWRCB to adopt emerge ncy regulations requiring each urban water supplier that has submitted a water shortage contingency plan to the California Department of Water Resources to implement, at a minimum, shortage response actions for a shortage level of up to 20% (“ Shortage Leve l 2 ”), which the SWRCB adopted in May 2022. In response to the SWRCB emergency regulations, the SFPUC adopted an increased system -wide water use reduction of 11% compared to baseline water use during Fiscal Year 2019-20, consistent with “Shortage Level 2” drought response actions of the SFPUC’s Water Shortage Contingency Plan. The percentage reduction was shared between the SFPUC’s retail (5%) and wholesale (16%) water customers.

60 California’s remarkably wet winter in late 2022 and early 2023 has eased drought conditions considerably.

Accordingly, in March 2023, Governor Newsom rescinded some of the State’s drought restrictions, including terminating the requirement that urban water suppliers implement such Shortage Level 2 drought response actions.

The SWRC B rescinded its curtailment regulations on April 3, 2023. On April 11, 2023, based on systemwide hydrological conditions and water storage in the SFPUC’s reservoirs as of such date and as projected through the rest of Water Year 2023, the SFPUC ended the l ocal water shortage emergency declaration and the 5% retail customer drought surcharge effective May 1, 2023. However, the voluntary system-wide water use reduction of 11% will remain in effect, consistent with the SWRCB emergency regulations, until such regulations expire on June 10, 2023, or the SWRCB modifies such regulations to no longer require the SFPUC to implement Shortage Level 1 or Shortage Level 2 drought response actions of its Water Shortage Contingency Plan. See “– Current Water Conditions.” Current Water Conditions
Water Year 2023 has been well above normal for both precipitation and snowpack. As of May 22, 2023, Water Year 2023 precipitation for upcountry area totals approximately 60.0 inches, which is 163.6% of normal annual total, and Water Year 2023 precipitation for local area totals approximately 44.2 inches, which is 193.9% of normal annual total.

The following graphs show precipitation levels at Hetch Hetchy and snowpack conditions as of May 22, 2023.

GRAPH 1
PRECIPITATION AT HETCH HETCHY – WATER YEAR 2023

Source: SFPUC.

61 GRAPH 2
PERCENTAGE OF MEDIAN APRIL 1 SNOWPACK CONDITIONS

Source: SFPUC.

Curtailment Actions by the State Water Resources Control Board The SWRCB sought to curtail the exercise of water rights in 2014 and 2015 in response to the 2011- 2017 drought. In 2014, the SWRCB enacted emergency regulations for the purpose of curtailing the exercise of junior, post- 1914 water rights. The City was not impacted by these 2014 regulations as the City relies primarily on senior, pre - 1914 water rights to divert water from the Tuolumne River. In 2015, the SWRCB again sought to curtail the exercise of water rights, but this time, the SWRCB issued curtailment notices to thousands of water rights holders across the State, inc luding to senior, pre -1914 water rights holders, and subsequently prosecuted several enforcement proceedings. The City’s water rights were never curtailed. The City did, however, participate in one of the enforcement proceedings before the SWRCB – the Admi nistrative Civil Liability complaint against Byron Bethany Irrigation District (“BBID”) – in order to challenge the SWRCB’s assertion that it has jurisdiction to curtail pre -1914 water rights. The SWRCB ultimately concluded the prosecution team had failed to carry its burden, and thus, dismissed the enforcement proceeding against BBID on the merits (the SWRCB also dismissed its enforcement proceeding against the West Side Irrigation District in the same order). However, in its order, the SWRCB concluded that it may exercise its enforcement authority to issue curtailment orders against pre-1914 water rights holders if water is unavailable under the diverter’s priority of right. On September 2, 2015, the San Joaquin Tributaries Authority (“SJTA”), a joint powers authority comprised of five member agencies, including the City, filed suit seeking writ relief from the SWRCB’s order. The SJTA argued that the SWRCB’s order in the BBID enforcement proceeding is inconsistent with established appellate case law. Two other challenges to the SWRCB’s order were filed and these three challenges, along with other pending challenges to the SWRCB’s 2014 and 2015 curtailment actions, were assigned to a coordination judge in Santa Clara Superior Court. Judgment was entered in favor of SJTA and other plaintiffs on June 6, 2019, and, on September 12, 2022, the Sixth District Court of Appeal upheld this decision.

In August 2021, the SWRCB again adopted emergency regulations to curtail water rights throughout the Bay-Delta, which the SWRCB then readopted in August 2022. SWRCB staff issued orders curtailing all of the City’s

62 water rights on the Tuolumne River effective August 2021, and these rights remain subject to these curtailment orders today. Throughout the time the curtailment regulations and orders have been in effect, SWRCB staff have at various times lifted and reinstated the City’s curtailment orders based on SWRCB staff’s water unavailability methodology.

The SJTA, again, filed a lawsuit on the emergency regulations for the purpose of curtailing junior water right holders.

The SFPUC filed a petition for reconsideration with the SWRCB on the curtailment orders for SFPUC’s water right diversions on the Tuolumne River in September 2021, which among other issues, informed SWRCB that it was using incorrect place of use and priority date information for the City’s water rights. On October 17, 2022, SWRCB staff favorably resolved these place of use and priority date issues. The SFPUC is unable to predict whether future SWRCB initiatives to curtail the exercise of pre -1914 water rights might affect water supplies available to the SFPUC. See “REGULATORY MATTERS – Bay-Delta Water Quality Standards” and “FERC Proceeding to Increase Flows in the Lower Tuolumne River.”
Projected Demand
Retail Demand. The SFPUC’s current retail demand projections are based on the 2020 Urban Water Management Plan, adopted by the SFPUC in June 2021 (the “ 2020 Urban Water Management Plan ”). The 2020 Urban Water Management Plan used an econometric model that incorporates socioeconomic factors to forecast demand, which has become a more prevalent methodology for forecasting demand among urban water utilities and managers. The econometric model in the 2020 Urban Water Management Plan combined 10 years (2010- 2020) of historical San Francisco account-level water usage data with property characteristics, demographic characteristics and historical climate data. Demand was then projected based on housing and employment forecasts available at that time from the San Francisco Planning Department. Housing projections were based on the City’s housing plan objective of producing an average of 5,000 housing units per year with adjustments for certain large development plans.

Employment projections were based on the Planning Department’s Land Use Allocation 2017, a City- specific refinement of the Association of Bay Area Government’s growth forecasts, and ABAG Projections 2017, which reflect assumed growth from ABAG’s Plan Bay Area and Sustainable Communities Strategy Jobs -Housing Connections Scenario. The resulting employment projections anticipate approximately 16% of growth in the number of jobs between 2020 and 2045.

Demand is forecasted to increase steadily through Fiscal Year 2044 -45, with more rapid growth happening in the later years of the projection period. After accounting for the projected conservation savings, the total retail demand (excluding water loss) is projected to increase by about 21% between Fiscal Years 2019 -20 and 2044- 45.

Although population and tot al retail water demand are projected to increase, residential per capita water usage is forecasted to decrease.

The water demand projections show that, throughout the retail service area, single family residential use is expected to decrease by 7% and mul ti-family residential water use is projected to increase by 44% between Fiscal Years 2019-20 and 2044-45. Non-residential water use is projected to increase by 13% between Fiscal Years 2019-20 and 2044-45. These projections will be updated in fall 2024 as the SFPUC begins to compile information for the 2025 Urban Water Management Plan (the “2025 Urban Water Management Plan ”), which will take into consideration the City's housing plan objectives available at that time.

The following table sets forth retail w ater demand projections, which are based on the 2020 Urban Water Management Plan.

63 TABLE 10

PROJECTED RETAIL WATER DEMAND
(IN MGD)
2025 2030 2035 2040 2045
In City Residential Demand
(Single and Multiple Family) 37.4 39.1 41.3 43.8 46.5
In City Non-residential
(Business/Industrial/Municipal Demands)(1) 22.9 22.9 22.8 23.1 23.6 Subtotal – In City Retail 60.3 62.0 64.1 66.9 70.1

In City Water Loss(2) 6.0 6.0 6.0 6.0 6.0
Subtotal – In City Losses 6.0 6.0 6.0 6.0 6.0

Suburban Residential 0.1 0.1 0.1 0.1 0.1
Suburban Non-residential(3) 4.0 4.0 4.0 4.0 4.0
Groveland CSD 0.3 0.3 0.3 0.3 0.3
Subtotal – Suburban Retail(4) 4.4 4.4 4.4 4.4 4.4

Total – Retail Demand 70.7 72.4 74.5 77.4 80.6

Local Water Supplies 3.5 4.9 5.9 6.9 6.9

Net Retail Demand from
Regional Water System 67.2 67.5 68.6 70.5 73.7

(1) Includes Builders & Contractors, Docks & Shipping, and all dedicated irrigation. (2) Water losses include both apparent and real losses. (3) Includes the San Francisco County Jail, San Francisco International Airport, Lawrence Livermore National Laboratory, Castlewood Country Club, Sunol Valley Golf Course, and other non-residential suburban or municipal accounts. (4) Suburban retail water losses are considered to be negligible.

Note: Amounts set forth in this table are projections. Actual results may differ materially from these projections. See “FORWARD-LOOKING STATEMENTS” above.

Source: 2020 Urban Water Management Plan, released July 2021.

The projected retail water demand projections set forth in Table 10, which are based on the 2020 Urban Water Management Plan released in July 2021, do not reflect the Housing Element 2022 Update (the “Housing Element 2022 Update”), which was approved by the Board of Supervisors and Mayor Breed on February 1, 2023. The Housing Element 2022 Update, the City’s housing plan for the next eight years (2022- 2030), targets the creation of 82,000 units by 2031. The 2025 Urban Water Management Plan will take into consideration the City’s housing plan objectives available at that time.

64 Wholesale Demand . In 2022, BAWSCA updated its 2020 Regional Water Demand and Conservation Projections Study, which provided demand projections of its member agencies (the Wholesale Customers) using a combination of two different models: (1) an econometric (or statistical) model developed for each member agency and (2) the Demand Side Management Least Cost Planning Decision Support System (also known as the DSS Model).

In its 2022 update titled “Regional Water Demand and Conservation Projections Update,” BAWSCA sought to meet two objectives: (1) to reflect new data that became available since the 2020 study’s completion and (2) to better understand and quantify uncertainty associated with demand estimates and the variables that influence water demands, such as population, employment, climate change, housing densification, landscape transformation, conservation adoption, and rate increases. BAWSCA’s population projections for its member agencies are based on each member agency’s population projections as provided in their individual 2020 Urban Water Management Plans, ABAG Plan Bay Area 2040 data, and Draft ABAG Plan Bay Area 2050 data. The forecast methodology and resulting projections are documented in the Regional Water Demand and Conservation Projections Update and support implementation of BAWSCA’s Long -Term Reliable Water Supply Strategy (the “BAWSCA Strategy”). The BAWSCA Strategy’s projections indicate that demands by the Wholesale Customers for Regional Water System supplies through 2045 will be significantly less than anticipated at the time the WSIP was adopted in 2008.

Water supplied by the SFPUC to the Wholesale Customers is metered. The total projected water demands of the Wholesale Customers, as compiled in the BAWSCA Annual Survey for Fiscal Year 2021- 22, are shown in Table 11.

In Fiscal Year 2021-22, Wholesale Customers collectively received approximately 128.11 mgd, or 66.2% of their water supply, from the Regional Water System. By Fiscal Year 2045-46, Wholesale Customers are projected to receive approximately 170.62 mgd, or 64.3% of their water supply, from the Regional Water System. The remaining sources, including ground water, recycled water, surface water, addi tional active conservation and other sources are projected to total approximately 94.8 mgd.

TABLE 11

PROJECTED WHOLESALE CUSTOMER WATER DEMAND AND SUPPLIES
(1)
(IN MGD)
2025-26 2030-31 2035-36 2040-41 2045-46
Wholesale Customer Purchases
from the Regional Water System(2) 149.49 155.76 160.42 165.15 170.62 Other Supplies(3) 72.28 71.86 77.73 84.30 94.78
Total Wholesale Customer Demand 221.78 227.62 238.15 249.45 265.40

(1) Does not include wholesale customer Cordilleras Mutual Water Company, which is not a BAWSCA member agency and not a party to the WSA.
(2) This projected demand includes increased deliveries to interruptible customers, the cities of San José and Santa Clara, as well as to other permanent customers such as East Palo Alto. (3) Estimated as the difference between the “Total Wholesale Customer Demand” and the “Wholesale Customer Purchases from the Regional Water System.”
Note: Amounts set forth in the table are projections. Actual results may differ materially from these projections. See “FORWARD-LOOKING STATEMENTS” above.

Source: SFPUC; compiled from BAWSCA Annual Survey Fiscal Year 2021-22, dated March 2023.

The SFPUC plans to meet its contractual obligation of serving the Wholesale Customers Supply Assurance (as defined herein) of 184 mgd. In addition to the Supply Assurance, the SFPUC provides 9 mgd to the City of San José (“San José”) and the City of Santa Clara (“Santa Clara”) as interruptible customers, which is the level of demand that is reflected through 2046 in the table above. The City of East Palo Alto (“ East Palo Alto ”) was previously projecting a 1.5 mgd supply shortfall. In 2017, the City of Mountain View (“Mountain View”) agreed to a permanent transfer of 1.0 mgd of its Individual Supply Guarantee (defined below) to East Palo Alto. Subsequently the City of Palo Alto agreed to a permanent transfer of 0.5 mgd of its Individual Supply Guarantee to East Palo Alto. See “– Wholesale Deliveries – Creation of Transfer Market” and “– 2028 Water Supply Decisions.”

65 WATER FACILITIES
General
The facilities of the Water Enterprise consist of Regional Water System facilities and In -City Distribution System facilities. The Regional Water System evolved through the development of two separate water systems: the Spring Valley Water Company and the Hetch Hetchy Project. • The Spring Valley Water Company was established in 1858, developing a spring and several creeks into a local water system. It expanded over the years w ith the construction of Pilarcitos Reservoir, followed by San Andreas Reservoir, Upper Crystal Springs Reservoir and Lower Crystal Springs Dam, all on the Peninsula in San Mateo County. Later the company extended its system to additional sources on Alameda Creek in Alameda County and expanded its service area to include additional Peninsula and South Bay customers. The City acquired the local supplies and retail distribution system of the Spring Valley Water Company in 1930.
• Following enactment of the Raker Act in 1913, the City was able to proceed with plans to develop its own water supply system. The construction of the Hetch Hetchy Project began in earnest in 1914, and after almost 20 years of construction, including building of O’Shaughnessy Dam and a re quired transmission system, Sierra Nevada water began flowing into the local distribution system in 1934. The Hetch Hetchy Project is operated as a combined water storage and conveyance and electric generation and transmission system. The Water Enterprise and the Power Enterprise coordinate operation of the Hetch Hetchy Project to ensure reliable utility services are provided by the combined system. Pursuant to State statute, the Charter and the terms of the WSA, the SFPUC operates the Hetch Hetchy Project pursuant to a “water first” policy to optimize the reliability and quality of its water deliveries and ensure that hydroelectric generation does not cause any reasonably anticipated adverse impact on water service.

Power is generated when water is delivered to meet water system operational requirements.

See “THE WATER ENTERPRISE – Water Rights and Related Proceedings.” Since the 1930s, the major additions to the SFPUC’s water system have included the raising of O’Shaughnessy Dam at Hetch Hetchy Reservoir an d the development of Lake Lloyd (Cherry) Reservoir, the construction of additional pipelines across the San Joaquin Valley, and the local construction of San Antonio Reservoir in Alameda County and the Bay Division Pipelines 2, 3 and 4. Other local projects included Crystal Springs Pipeline No. 3, Sunol Valley and San Andreas Filtration Plants, and the Crystal Springs Bypass Tunnel and Balancing Reservoir. The SFPUC has completed several WSIP projects including the Irvington Tunnels 1 and 2, Bay Division Pipeline 5, and a new tunnel under San Francisco Bay between Newark in Alameda County and East Palo Alto in San Mateo County that replaced the transbay portion of Bay Division Pipelines 1 and 2.

The Regional Water System is geographically delineated between the Hetch Hetchy Project and the Bay Area water system facilities.
• The Hetch Hetchy Project is generally comprised of the reservoirs, hydroelectric generation and transmission facilities, and water transmission facilities from Hetch Hetchy Reservoir west to the Alameda East Portal of the Coast Range Tunnel in Sunol Valley. • The Bay Area water system is generally comprised of the facilities west of Alameda East Portal and includes the Alameda and Peninsula watershed reservoirs, two water treatment plants and the conveyance system that delivers water to the SFPUC’s Retail Customers and wholesale customers.

66 Water Conveyance and Distribution
Regional Water System. The Regional Water System comprises three regional water supply and conveyance systems: the Hetch Hetchy System; the Alameda System; and the Peninsula System (as herein defined).

Hetch Hetchy System. I n the Hetch Hetchy System, water is diverted from Hetch Hetchy Reservoir into a series of tunnels and aqueducts from the Sierra Nevada to the San Joaquin Pipelines that cross the San Joaquin Valley to the Coast Range Tunnel (collectively, the “Hetch Hetchy System”) which connects to the Alameda System at the Alameda East Portal. The Tesla Treatment Facility disinfects Hetch Hetchy Water.

See “– Water Treatment – Hetch Hetchy Water.”
Alameda System . T he
“Alameda System” includes two reservoirs, San Antonio Reservoir and Calaveras Reservoir, which collect water from the upper Alameda and San Antonio Creek watersheds in Alameda County plus conveyance facilities connecting the Hetch Hetchy System and Alameda water sources to the Peninsula System. These conveyance facilities include pipelines known as the Alameda Siphons that connect the Coast Range Tunnel to Irvington Tunnels 1 and 2.

Irvington Tunnels 1 and 2 supply the five Bay Division Pipelines that cross the South Bay Area to the
Peninsula System. Bay Division Pipelines 1, 2 and 5 connect with the Bay Tunnel on opposite sides of the San Francisco Bay near the Dumbarton Bridge. The Bay Tunnel itself runs beneath the floor of the San Francisco Bay. Bay Division Pipelines 3 and 4 traverse the southerly edge of the San Francisco Bay delivering water to SFPUC customers along the way. All five pipelines reconnect near the inlet to the Pulgas Tunnel on the Peninsula.

The Sunol Valley Water Treatment Plant filters and disinfects water supplied from San Antonio and Calaveras Reservoirs, and, when necessary, water from the Sierra Nevada.

A turnout from the South Bay Aqueduct of the California State Water Project ( the “State Water Project”) can supply limited supplemental water to San Antonio Reservoir. However, the SFPUC currently possesses no entitlements to water from the State Water Project.

Peninsula System. T
wo reservoirs, Crystal Springs and San Andreas, coll ect runoff from the San Mateo Creek watershed. Water from Pilarcitos Reservoir, on Pilarcitos Creek, directly serves one of the Wholesale Customers, the Coastside County Water District (which includes the City of Half Moon Bay), and can also deliver water to Crystal Springs and San Andreas Reservoirs. Water delivered from the Bay Division Pipelines in excess of Peninsula System and in -City demands spills into Crystal Springs and San Andreas Reservoirs. The Harry Tracy Water Treatment Plant filters and disinfects water supplied from Crystal Springs and San Andreas Reservoirs before it is delivered to Peninsula customers and the In-City Distribution System.

The “Peninsula System” includes conveyance facilities connecting the Bay Division Pipelines to the In- City Distribution System and to other SFPUC customers on the Peninsula.

In-City Distribution System .

The City’s retail water supply is delivered to San Francisco in several major pipelines. Water to the east side of the In-City Distribution System is fed by two pipelines that terminate at University Mound. Water to the west side of the In- City Distribution System is fed by two pipelines that terminate at Sunset Reservoir and one that terminates at Merced Manor Reservoir. The In -City Distribution System to hom es and businesses in San Francisco is comprised of 1,235 miles of pipeline.

Summary of System Facilities . The Regional Water System and the In -City Distribution System facilities are summarized below.

67 TABLE 12

SUMMARY OF SYSTEM FACILITIES
Regional Water System In-City Distribution System
Pipelines 389 miles 1,235 miles
Tunnels 74.5 miles None
Pump Stations 5 24
Reservoirs and/or Water Tanks 11 reservoirs 11 reservoirs/8 water tanks Groundwater Wells 13 6
Treatment Plants 3 None

Source: SFPUC, Water Enterprise.

Water Treatment
Hetch Hetchy Water. Hetch Hetchy Reservoir is the largest unfiltered water supply on the West Coast and one of only a few large unfiltered municipal water supplies in the nation. The water originates from spring snowmelt flowing down the Tuolumne River to Hetch Hetchy Reservoir, where it is stored.

This water source is located in the well -protected Yosemite National Park and the High Sierra region. This area meets or exceeds all federal and State criteria for watershed protection. The water originating from Hetch Hetchy Reservoir is protected in pipes and tunnels as it is conveyed to the Bay Area, and requires pH adjustment to control pipeline corrosion and disinfection for bacteria control. Based on the SFPUC ’s disinfection treatment practice, extensive bacteriological -quality monitoring, and high- operational standards, the United States Environmental Protection Agency (the “ EPA”) and the State of California Department of Health Services have determined that t he Hetch Hetchy water source meets federal and State drinking water quality requirements without filtration, and thus the SFPUC is not required to filter water from Hetch Hetchy Reservoir. For further discussion of the State and federal regulatory requirements affecting the Water Enterprise, see “REGULATORY MATTERS.” The Tesla Treatment Facility, a key component of the WSIP, enhances high water quality through ultraviolet (“UV”) treatment. The Tesla Treatment Facility was officially dedicated in 2011, following two years of construction.

The facility uses UV light to disinfect Hetch Hetchy water to meet federal requirements to control the waterborne parasite Cryptosporidium, and is among the largest drinking-water UV disinfection facilities in North America. In the same location, a chlorine disinfection station was constructed to meet current fire and earthquake safety standards replaced the old station, which was built in 1937. See “CAPITAL IMPROVEMENT PROGRAM AND OTHER WATER SUPPLY INITIATIVES – Water System Improvement Program.” Local Water . All water derived from surface water sources other than Hetch Hetchy Reservoir requires filtration and is currently treated at one of two treatment plants: the Sunol Valley Water Treatment Plant (“ Sunol Valley WTP”) and the Harry Tracy Water Treatment Plant (“Harry Tracy WTP ”). Major upgrades of these two facilities have been completed as part of the WSIP. See “CAPITAL IMPROVEMENT PROGRAM AND OTHER WATER SUPPLY INITIATIVES – Water System Improvement Program.” New groundwater supply from the San Francisco Groundwater Supply Project does not require filtration. Treatment of groundwater for hexavalent chromium (Chrome-6), nitrate, manganese and other constituents to meet federal and State drinking water regulations will be achieved through blending. Blending treatment is currently taking place within distribution pipelines at Sunset Reservoir.

Sunol Valley Water Treatment Plant. The Sunol Valley Water Treatment Plant treats all water from the two reservoirs in the Alameda System, Calaveras and San Antonio. Sunol Valley WTP has a capacity of 160 mgd.

Treatment processes at Sunol Valley WTP include coagulation, flocculation, sedimentation, filtration, and disinfection. Fluoridation, chloramination and corrosion control treatment are provided for the combined Hetch Hetchy Project and Sunol Valley WTP water at the chloramination and fluoridation facilities in Sunol. Sunol Valley WTP also filters Hetch Hetchy water on the occasions when the Sierra supply does not meet required drin king water standards.

68 The Sunol Valley Water Treatment Plant Expansion and Treated Water Reservoir Project added a fifth sedimentation basin to increase reliable capacity, retrofitted existing filters, and created a 17.5 million gallon circular treated water reservoir as it leaves the plant. The project included other new connections and facilities that enable the plant to treat enough water to meet basic customer demands alone for up to 60 days after a major earthquake in conjunction with other facilities. These improvements help increase delivery reliability and water quality.

Harry Tracy Water Treatment Plant . The Harry Tracy WTP primarily treats water from the Peninsula System reservoirs and has a peak capacity of 140 mgd and a sustainable capacity of 120 mgd. Treatment processes at the Harry Tracy WTP include ozonation, coagulation, flocculation, filtration, disinfection, fluoridation, corrosion control treatment and chloramination.

Updates to the Harry Tracy WTP included the addition of filters, upgrades to various systems, construction of a new treated water reservoir, and seismic retrofits of critical process units. As a result of the upgrades, the Harry Tracy WTP has improved its delivery reliability and can now achieve a sustained capacity of 140 mgd for at least 60 days and provide 140 mgd within 24 hours following a seismic event on the San Andreas Fault.

Water Storage
Up-Country Storage. The majority of the water delivered by the SFPUC is supplied by runoff from the Upper Tuolumne River watershed on the western slope of the central Sierra Nevada. Three major reservoirs collect runoff:

Hetch Hetchy Reservoir, Lake Lloyd (Cherry) Reservoir and Lake Eleanor Reservoir.

Water stored in Hetch Hetchy Reservoir is also used for hydroelectric generation and released downstream to satisfy instream flow requirements. Normally, only Hetch Hetchy Reservoir supplies water exported to the Bay Area for municipal and industrial uses. Releases from Lake Eleanor Reservoir and Lake Lloyd (Cherry) Reservoir are used to satisfy instream flow requirements, satisfy the Irrigation Districts’ Raker Act entitlements and produce hydroelectric power.

Downstream of the Hetch Hetchy System on the Tuolumne River is the New Don Pedro Project, owned and operated by the Irrigation Districts. The New Don Pedro Project includes a dam that impounds the Tuolumne River, creating the New Don Pedro Reservoir, also owned by the Irrigation Districts. The City helped fund the original construction of the New Don Pedro Project in exchange for e liminating the City’s flood control responsibility and establishing a water bank account (the “ Water Bank”) allowing the SFPUC to receive water credits for advanced releases from the Hetch Hetchy Project to the New Don Pedro Reservoir to meet the Irrigation Districts’ downstream requirements. Water Bank storage space in New Don Pedro Reservoir is integrated into the Water System’s operations.

Certain water stored in New Don Pedro Reservoir is credited to the City’s Water Bank, which allows the City to meet its Raker Act water obligations to the Irrigation Districts and divert water supply from Hetch Hetchy Reservoir to the Bay Area.

Local Storage. On the San Francisco Peninsula, the SFPUC uses Crystal Springs Reservoir, San Andreas Reservoir and Pilarcitos R eservoir located in San Mateo County to capture local watershed runoff. In the Alameda Creek watershed (Alameda County), the SFPUC manages Calaveras Reservoir and San Antonio Reservoir. In addition to using these facilities to capture runoff, San Andreas, San Antonio and Crystal Springs reservoirs also provide storage for Hetch Hetchy Project diversions, and, along with Calaveras Reservoir and Pilarcitos Reservoir, serve as water supply delivery facilities in the event of an interruption to Hetch Hetchy Pro ject deliveries.

Dam Supervision. Eighteen dams under the jurisdiction of the SFPUC are presently licensed and regulated by the California Department of Water Resources’ Division of Safety of Dams (“ DSOD”). The SFPUC’s Calaveras Dam Replacement Project was completed in September 2018. See “REGULATORY MATTERS – Dam Licensing and Safety Issues.”

69 System Storage Capacity . The following table summarizes the regional water system reservoirs within the Water Enterprise.

TABLE 13

REGIONAL WATER SYSTEM STORAGE AND CAPACITY
(AS OF APRIL 3, 2023)

Current
Storage(1)(2)(3)
(Acre-Feet)
Maximum
Storage(4)
(Acre-Feet)
Available
Capacity
(Acre-Feet)
Percent of
Maximum
Storage(5)
Tuolumne Storage
Hetch Hetchy Reservoir 274,500 360,360 85,860 76.2%
Cherry Reservoir 193,500 273,345 79,845 70.8
Lake Eleanor Reservoir 25,580 27,100 1,520 94.4
Water Bank 570,000 570,000 0 100.0
Total Tuolumne Storage: 1,063,580 1,230,805 167,225 86.4% Local Storage
Calaveras Reservoir 95,090 96,670 1,580 98.4
San Antonio Reservoir 53,198 53,266 68 99.9
Crystal Springs Reservoir 54,406 68,953 14,547 78.9
San Andreas Reservoir 16,187 18,572 2,385 87.2
Pilarcitos Reservoir 2,596 3,125 529 83.1
Total Local Storage: 221,447 240,586 19,109 92.1%

Total Regional Water System 1,285,057 1,471,391 186,334 87.3%

(1) Upcountry storage is the date’s 8:00 a.m. storage value taken from United States Geological Survey data. (2) Water bank storage reported by Hetch Hetchy Water and Power for May 21, 2023. (3) Local storage is the date’s 8:00 a.m. storage value taken from United States Geological Survey data. (4) Hetch Hetchy maximum storage is with drum gates activated. Cherry and Eleanor maximum storage is with flashboards in.

All maximum storages taken from rating curve.
(5) The ratio of median storage for this day over maximum storage capacity. Median storage for this day is based on historical storage data from years 1991-2020.

Source: SFPUC.

Table 13 shows storage levels as of May 22 , 2023. Total Regional Water System storage levels would normally be at approximately 83.6% of Total Regional Water System storage capacity as of this date. The level as of May 22, 2023, is higher than that at approximately 87.3 % of Total Regional Water System storage capacity. The Water Bank is at capacity as of May 22, 2023. The Tuolumne Storage is not full at this time because the storage reservoirs are being operated to receive snowmelt runoff, which is expected to be substantial for Water Year 2023.

Local Storage is full or close to full because it relies primarily on Bay Area rainfall. See “WATER FACILITIES – Water Storage – System Storage Capacity.”
In-City Storage . The Water Enterprise’s in -City reservoirs and storage tanks have the capacity to hold approximately 421.9 million gallons, or 1,295 acre -feet. The SFPUC estimates this capacity to be an approximate five-day supply at the current average rate of consumption for San Francisco. In-City reservoirs that are also terminal reservoirs for the Regional Water System moderate flow peaking for the Regional Water System, and water stored in them can be conveyed back to the San Francisco Peninsula.

70 The following table summarizes the in-City reservoirs and storage tanks maintained by the Water Enterprise.

TABLE 14

IN-CITY DISTRIBUTION SYSTEM POTABLE WATER STORAGE CAPACITY Reservoir Millions of Gallons
Sunset(1) 176.7
University Mound(1) 140.9
Sutro 31.4
Summit 14.0
College Hill 13.5
Stanford Heights 12.9
Merced Manor(1) 9.5
Lombard 6.2
Potrero 1.3
Hunters Point 1.1
Treasure Island/Yerba Buena Tanks 4.2
Storage Tanks 10.2
Total 421.9

(1) Terminal reservoirs for the Regional Water System.

Source: SFPUC.

In addition, there is an emergency supply of existing non- potable water immediately available within San Francisco at Lake Merced. Lake Merced currently holds approximately 1.5 billion gallons or approximately 4,603 acre-feet.

Physical Condition of Certain Facilities
Certain of the Water Enterprise’s facilities are near the end of their useful life. Long- lived facilities result in decreased reliability due to unplanned outages and place a greater maintenance burden on SFPUC operations. In addition, the vulnerabilities of the Regional Water System are increased by its linear nature and limited redundancy.

Outages at critical points could disrupt delivery to large portions of the Regional Water System. See “RISK FACTORS – Risks Related to Water Enterprise Facilities and Operations.” Built between 1917 and 1925, Mountain Tunnel extends 18.9 miles from the Early Intake Dam to Priest Reservoir. The upper 7.4 miles are not lined, and the lower 11.5 miles are lined. Inspections in 1989, 2006, 2008 and 2017 identified signs of deteriorat ion in the lining which were projected to increase over time. The risk of failure of Mountain Tunnel, defined as a loss of 25% carrying capacity, is currently low but will increase over time. Failure of Mountain Tunnel would have a significant impact on the Hetch Hetchy water system (“Hetch Hetchy Water”) operations and could cause up to six or more months of water supply disruption. See CAPITAL IMPROVEMENT PROGRAM AND OTHER WATER SUPPLY INITIATIVES – Hetch Hetchy Water – Mountain Tunnel.” The Coast Range Tunnel is a 26- mile long tunnel running from Tesla Portal to the Alameda East Portal and was put into operation in 1934. The Coast Range Tunnel was inspected in January 2015 after having been last inspected in 1995. The recent inspection revealed that the Coast Range Tunnel is still in good condition, with little change noted since the 1995 inspection. Irvington Tunnel 1 was also inspected in winter 2015 and was also found to be in good condition.

The WSIP was designed in part to reduce vulnerability of the Regional Water System and increase reliability of the system to deliver water by improving seismic reliability and redundancy needed to accommodate planned outages for maintenance and unplanned outages resulting from facility failure. The WSIP was not designed to replace or upgrade the entire water system. Repair of Mountain Tunnel and other Hetch Hetchy water transmission facilities, as well as the replacement, rehabilitation and repair of water transmission and distribution pipelines and other Regional Water System and in-City facilities are included in the SFPUC’s 2024 Capital Plan (as defined herein). See “CAPITAL IMPROVEMENT PROGRAM AND OTHER WATER SUPPLY INITIATIVES.”

71 Recent Storms
Early winter storms at the end of 2022 and beginning of 2023 caused damage to some Water Enterprise facilities. The storms did not have a significant impact on the operation of the Regional Water System. The SFPUC continued to deliver high -quality drinking water to its retail and wholesale customers throughout the storm events.

Watershed roads in Alameda and San Mateo Counties experienced erosion, sinkholes and slides and are awaiting repairs for access to be reestablished. At the Alameda Creek Diversion Dam, fish screens and gates were damaged by fast rising creek flows , and debris washed into the concrete diversion structure. There was superficial surface erosion on the downstream face of Calaveras Dam that needs to be repaired. Hetch Hetchy Water and Power upcountry facilities experienced complete and partial road failures. Hetch Hetchy crews have been able to maintain access to critical facilities throughout the storm events. Additional reported damages include erosion adjacent to the headgate structure of the Early Intake Dam and damage to the Moccasin Creek bypass pipe.

The SFPUC anticipates that both short - and long-term capital projects will be required to rebuild roads and complete repairs to damaged facilities. Total cost of damages are expected to be at least $39.8 million; however, final costs will not be known until at least fall 2023. The SFPUC anticipates it will be able to pay such costs from reserves, revenues of the Water Enterprise and Power Enterprise, and/or proceeds of existing Water Enterprise and Power Enterprise bonds. The City has applied for federal and State disaster relief funding, and the SFPUC plans to seek reimbursement for qualified expenses.

Seismic Hazards
The Hetch Hetchy Project is located largely in Yosemite National Park, one of the most stable seismic zones in the State, and there ar e no known major faults in the area. The Water Enterprise’s distribution and transmission systems and its customers are, however, located in seismically active regions of the State. The San Andreas Fault lies immediately west of San Francisco, and the Hayward Fault is approximately 15 miles to the east. A third major fault, the Calaveras Fault, is a branch of the Hayward Fault and lies east of the Hayward Fault.

During the past 150 years, the San Francisco Bay Area has experienced several major and numerous minor earthquakes. The largest was the 1906 San Francisco earthquake along the San Andreas Fault with an estimated magnitude of 8.2 on the Richter scale. The 1868 Hayward earthquake along the Hayward Fault had an estimated magnitude of between 6.8 and 7.0 on the Richter scale. The 1989 Loma Prieta earthquake along the San Andreas Fault had an estimated magnitude of 6.9 on the Richter scale. The most recent significant earthquake was the August 2014 South Napa earthquake on the West Napa Fault, the northern extension of the Calaveras Fault, which had a magnitude of 6.0 on the Richter scale and an epicenter near the City of Napa, approximately 50 miles north of San Francisco.

According to United States Geological Survey findings, a significant earthquake along these or other faults is probable during the period the 2023CD Bonds will be outstanding.

The Regional Water System crosses several active and potentially active faults, including major strike -slip faults within the San Francisco Bay region. Major fault crossings along the pipeline delivery system include the Orestimba fault at Tesla Portal, the Greenville fault in the Coast Range Tunnel, the Calaveras fault at the Alameda Siphons, and the southern Hayward fault at the Bay Division Pipelines numbers 1, 2, 3, 4 and 5. In addition, other lower slip rate but potentially active faults cross the water system. These faults potentially move by secondary or triggered slip during large earthquakes on the San Andreas fault. Furthermore, three main transmission pipelines from Harry Tracy WTP – San Andreas Pipeline No. 2, San Andreas Pipeline No. 3 and Sunset Supply Branch Pipeline – cross the Serra fault, a secondary fault located along the peninsula in San Mateo County.

According to the United States Geological Surve y, the Greenville, Calaveras, Hayward and San Andreas faults have a high likelihood of producing a major (magnitude ≥ 6.7) earthquake in the San Francisco Bay region in the next 30 years. A large earthquake on these faults has the potential for generating surface fault rupture that is hazardous to specific SFPUC facilities. A major goal of the WSIP is to rehabilitate and strengthen the tunnels, pipelines and other Water Enterprise facilities that cross or are situated near known active faults. The WSIP incl uded 27 projects that had seismic reliability as a primary or secondary goal; all of these projects have been completed with the most recent completion of the Calaveras Dam Replacement project in 2019.

72 If a major seismic event or other emergency occurs, th e SFPUC is authorized under the WSA to adopt emergency rate surcharges outside of the normal budget development process. Such rate surcharges will be applicable to both Retail Customers and wholesale customers and incorporate the same percentage increase for all customers.

See “FINANCIAL OPERATIONS – Wholesale Water Sales Revenue.” Any emergency rate surcharge adopted by the SFPUC will remain in effect only until the next budget -coordinated rate-setting cycle, at which time it can be reviewed for continuance and modification.

If a significant earthquake occurs that affects the Water Enterprise’s tunnels, pipelines or other facilities, the SFPUC would attempt to repair any damage as quickly as possible, and the amount of time required to return the facilities to service would depend on the nature and extent of damage incurred. A prolonged reduction in the Water Enterprise’s water supply resulting from a major earthquake could have a material adverse effect on Revenues.

With the completion of the WSIP’s seismic improvement projects, the performance objective for the system is to deliver basic service (average winter month demand) to at least 70 percent of customer turnouts within each of three regions within 24 hours of a major seismic event. For additional re liability, the SFPUC has established intertie connections with the East Bay Municipal Utility District and the Santa Clara Valley Water District to diversify water supply options in case of a major seismic event. Should the Irvington Tunnels or the five ma jor pipelines branching from the Irvington Tunnels become inoperable, the SFPUC would attempt to negotiate additional water sharing agreements with these and other regional water utilities which interconnect with Water Enterprise facilities, but there is no assurance that such negotiations would be successful.

If damage to the Irvington Tunnels or the pipelines that connect to the tunnels resulted in the loss of water transported through the tunnel, the remaining water supply would be limited to storage in three raw water reservoirs in San Mateo County (the Crystal Springs, San Andreas and Pilarcitos Reservoirs); treated water in transmission storage reservoirs, tunnels, and pipelines; and three terminal reservoirs located in San Francisco. Additional supply may be available from existing intertie connections and Regional and San Francisco groundwater wells. The combined capacity of the three San Mateo County raw water reservoirs is approximately 29.8 billion gallons. The SFPUC has historically kept these re servoirs filled to a combined capacity of approximately 18 billion gallons, or an estimated two and one half month water supply based on historical average daily water demand of both the Retail Customers and wholesale customers. It is anticipated that in-city storage alone would last approximately four to seven days.

Separate from the SFPUC system, individual wholesale customers have storage ranging from zero to seven days.

System Level of Service Criteria after Seismic Events. The SFPUC has established basic “Level of Service” criteria for the design of new facilities and upgrade of existing facilities, including projects within the WSIP to deliver winter day demand (“WDD”) of 229 mgd (projected February 2030 demand) within 24 hours after a major earthquake.

This embodies the following primary criteria and assumptions to be used in examining system reliability with system retrofit projects in place:
• Deliver WDD to at least 70% of the wholesale customers’ turnouts within each of the three customer groups (Santa Clara/Alameda/South San Mateo County, Northern San Mateo County, and City of San Francisco).
• Achieve a 90% confidence level of meeting the above goal, given the occurrence of a major earthquake.

The earthquakes considered are treated independently and with equal weighting, without regard to their return period.
• To achieve the basic level of service, the SFPUC will rely on the wholesale customers’ own water systems and other regional water purveyors’ systems. The SFPUC will work with the wholesale customers to assess their ability to contribute to their own system reliability. • The SFPUC will consider a facility to have failed if it cannot be brought back to its intended purpose within twenty-four hours without secondary damage resulting.

73 • To achieve the basic level of service, the SFPUC will assume that power supplies are available, whether from the grid or from standby sources.

No particular item in the Regional Water System is required to be seismically upgraded or retrofitted as long as the system -wide performance goals established by the SFPUC can be satisfied. Earthquake damage to selected components and systems is acceptable, as long as the system-wide performance remains acceptable.

Wildfire Considerations
The SFPUC’s Water Enterprise owns and operates about 107 miles of overhead electrical lines that are located within the California Public Utilities Commission’s designated High Fire Threat District. The lines are primarily located in the Sierra Nevada, surrounding foothills, and on the Peninsula.

Wildfires can disrupt the operation of, or cause damage to, fa cilities used to convey the SFPUC’s water supply, e.g., hydro- generation, power and water transmission, and other operational buildings. Wildfires can also significantly impact vegetation and soils which can adversely impact water quality within the SFPUC’ s water supply and regulating reservoirs. The Rim Fire, a wildfire in 2013, substantially burned the forest around the Holm and Kirkwood Powerhouses and reached the edges of all three Sierra Nevada reservoirs. Though the Rim Fire, by consuming potential fuel, has reduced some near -term risk of wildfire in the region, the SFPUC’s Water Enterprise still owns many miles of overhead electrical lines through highly forested areas.

The SFPUC maintains a Wildfire Mitigation Plan (the “ Mitigation Plan”) which describes the numerous programs that the SFPUC has in place to construct, maintain and operate its electrical facilities in order to minimize the risk that its equipment could be the origin or contributing source for a catastrophic wildfire. The Mitigation Pla n meets or exceeds the requirements of Section 8387 of the California Public Utilities Code for publicly owned electric utilities. As required, the Mitigation Plan is reviewed by an independent evaluator, approved by the SFPUC Commission, and submitted to the California Wildfire Safety Advisory Board on or before July 1, of each year.

In addition, the SFPUC owns and manages approximately 61,000 acres of watershed lands in the Bay Area that are managed in part to prevent and minimize wildfire risks. On August 16, 2020, rare, major thunderstorm activity in the Bay Area caused numerous fires around the Bay Area and in the SFPUC’s watersheds. The Peninsula lightning strikes started approximately 12 small fires which were quickly extinguished. Major wildfires also erupted in the East Bay watersheds, referred to as the SCU Lightning Complex Fires. The SCU Lightning Complex Fires burned roughly 10,000 acres out of 38,000 acres of land that the SFPUC owns in the East Bay. The SFPUC does not own all of the land in the Calaveras Reservoir watershed; however, approximately two-thirds of Calaveras Reservoir watershed has burned. The SFPUC is working to repair watershed fences damaged in the SCU Lightning Complex Fires.

See also “RISK FACTORS – Inverse Condemnation.”
Safety and Security
The safety of the facilities of the Water Enterprise is maintained via a combination of regular inspections by SFPUC employees, electronic monitoring, and analysis of unusual incident reports. Most above -ground facilities operated and maint ained by the SFPUC are controlled- access facilities with fencing, gates, closed circuit television systems and security officers at certain points. Smaller, above- ground and subterranean pumping stations operated and maintained by the SFPUC are locked with padlock or internal locking mechanisms, and most are monitored via access/intrusion alarms. Security improvements are evaluated on an ongoing basis. The electronic operations and controls have been evaluated and designed to reduce exposure using a series of technology systems enhancements and integration.

The operation of Water Enterprise facilities is also subject to the risk of cyberattack. The SFPUC abides by the City’s Citywide Cyber Security Policy and also maintains its own cybersecurity program. Se e “RISK FACTORS – Cybersecurity.”

74 CAPITAL IMPROVEMENT PROGRAM AND OTHER WATER SUPPLY INITIATIVES 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 plan and 10-year financial plan are generally reviewed at least annually and adopted by the Commission each February. The 10 -year financial plan provides estimated rate impacts of projected capital and operating spending and assures compliance with the SFPUC’s ad opted 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 specific capital improvements to be financed can change. Consequently, even though the annual budgets passed are based on the 10- year capital plan, they may occasionally differ from it.

The Water Enterprise’s 10-year capital plan for Fiscal Years 2023 -24 to 2032-33, which includes the Water Enterprise-related components of the Hetch Hetchy Water and Power 10-year capital plan, adopted by the Commission on February 14, 2023 (the “2024 Capital Plan”), totals approximately $2.705 billion. The 2024 Capital Plan includes projects in three major Water Enterprise categories: (i) Regional Water; (ii) Local Water; and (iii) Hetch Hetchy Water.

The Regional Water, Local Water and Hetch Hetchy Water categories of the Water Enterprise’s 2024 Capital Plan are expected to be financed by a combination of revenue bonds, commercial paper, revolving notes, Parity State Loans, revenues (pay-as-you-go) and capacity charges. For more information regarding the 2024 Capital Plan programs, see “– Regional Water Program,” “– Local Water Program,” and “– Hetch Hetchy Water” below. See also “FINANCING OF CAPITAL IMPROVEMENTS.”
The following table sets forth the first five years of the Water Enterprise’s capital improvement progra m as set forth in the 2024 Capital Plan.

TABLE 15

WATER ENTERPRISE CAPITAL IMPROVEMENT PROGRAM
FOR FISCAL YEARS ENDED JUNE 30
(1)
(IN THOUSANDS)
2024 2025 2026 2027 2028 Total
Regional Water $181,477 $187,967 $191,544 $176,002 $180,027 $917,017 Local Water 108,516 249,349 252,121 161,364 65,403 $836,753 Hetch Hetchy
Water
65,521 $88,201 73,574 54,967 38,956 $321,219
Total
Appropriations(2)
$355,514 $525,517 $517,239 $392,333 $284,386 $2,074,989

(1) Amounts are based on anticipated appropriations and are projections from the Water Enterprise 2024 Capital Plan. Actual results may differ materially from these projections. See “FORWARD-LOOKING STATEMENTS” above. (2) Totals may not add due to rounding.

Source: SFPUC.

Regional Water Program
The Regional Water Program, projected to comprise approximately $1.135 billion of the 2024 Capital Plan, finances capital improvements to the Regional Water System. Regional Water Program capital investments include, but are not limited to, water treatment, water transmission, water supply and storage, watersheds and land management, communication and monitoring, and building and grounds management.

75 The Regional Water Program also includes approximately $82.7 million in funding between Fiscal Years 2023-24 and 2032 -33 for planning activities associated with the Alternative Water Supply (“ AWS”) projects that increase regional water supply diversification through expanded storage and alternative water supply sources including groundwater, recycled water, purified water (potable reuse), transfers, and desalination. Currently, there are two storage expansion projects, one recycled water/groundwater project, and three purified water projects that are being planned regionally. In parallel, innovations and diversification of local water supplies are also being explored under the Local Water Program. For more information regarding the AWS Program, see “– Water Supply Initiatives.” Local Water Program
The Local Water Program, projected to comprise approximately $1.128 billion of the 2024 Capital Plan, finances capital improvements to the In- City Distribution System. The primary component of the Local Water Program, projected to comprise approximately $650 million is for the local Water Conveyance and Distribution program, performing pipeline installation, repair and replacement. For pipeline replacement, the SFPUC has replaced an average of 8.9 miles of pipe annually over the past five years compared to a previous rate of four to six miles per year.

Hetch Hetchy Water
General. Upgrades to the aging facilities of Hetch Hetchy Water and Power are being planned to ensure reliability and preparedness for the future. The Hetch Hetchy Water category of the 2024 Capital Plan is projected to cost approximately $441 million. Upcountry water and power facilities being assessed and rehabilitated, where needed, include three impounding reservoirs, three regulating reservoirs, three large powerhouses, one small powerhouse, two switchyards, three substations, 170 miles of pipeline and tunnels, almost 100 miles of paved road, over 160 miles of transmission lines, as well as watershed land and rights-of-way property. The Water Enterprise will fund all assets relating to Hetch Hetchy Water (consisting of approximately $186 million of Hetch Hetchy Water costs) and the Hetch Hetchy Water portion of jointly- owned assets of Hetch Hetchy Water and the Power Enterprise in the Hetch Hetchy Water and Power System (consisting of approximately $255 million of Hetch Hetchy Water costs). See “THE PUBLIC UTILITIES COMMISSION – Organization, Purposes and Powers – Hetch Hetchy – Water and Power Operations.” A significant project among the Hetch Hetchy Water category is the repair of the existing Mountain Tunnel which conveys all Tuolumne River supplies through a single conduit. See “ – Mountain Tunnel.” Mountain Tunnel. As part of the Hetch Hetchy Regional Water System, Mountain Tunnel is a critical water conveyance facility. Built between 1917 and 1925, Mountain Tunnel extends 18.9 mi les from the Early Intake Dam to Priest Reservoir. The upper 7.4 miles are not lined and the lower 11.5 miles are lined. Inspections in 1989, 2006, 2008 and 2017 identified signs of deterioration in the lining which were projected to increase over time. The risk of failure of Mountain Tunnel, defined as a loss of 25% carrying capacity, is currently low but will increase over time.

Failure of Mountain Tunnel would have a significant impact on Hetch Hetchy Water operations and could cause up to six months of water supply disruption.

The SFPUC created three parallel tracks to investigate and provide repairs to Mountain Tunnel: (1) the Mountain Tunnel Inspection and Interim Repairs Project, (2) the Mountain Tunnel Adits and Access Improvement Project, and (3) t he Mountain Tunnel Improvements Project; the first two of the three projects were completed in 2017. A complete shutdown and draining of Mountain Tunnel was performed during 2017 to accomplish the Inspection and Interim Repairs Project and the Adits and Ac cess Improvement Project, as well as to develop information and knowledge for the design and construction of the Long- Term Improvements Project. Additional interim repairs were performed in 2019 to complete the most significant repairs needed to reduce the risk of failures in the concrete lining. The Mountain Tunnel Improvements Project, currently in construction, provides long term rehabilitation and repairs to the tunnel as well as the addition of flow controls (valving) on the downstream end of the tunnel near Priest Reservoir. The flow controls will allow the tunnel to be operated in a full state at different flow rates which will reduce lining deterioration. The Mountain Tunnel Improvements construction contract was awarded in October 2020, with Notice to Proceed in January 2021. Forecast substantial completion is at the end of 2026.

Improvements to Mountain Tunnel are projected to cost a total of approximately $238.2 million; $170.2 million has been appropriated to the project to date, and an additional $68.0 million will be appropriated for the 2024 Capital Plan, which was adopted by the Commission in February 2023. The portion of the project that performs repairs

76 and improvements to the Mountain Tunnel is projected to cost $119.4 million; the tunnel has been classified as a Water asset and thus these costs will be funded 100% by Water Enterprise. The remaining portion of the project that constructs the new flow control facility is projected to cost $118.8 million; because this flow control facility w ill benefit both water delivery and power production, it has been classified as a joint asset, and thus will be funded by Water Enterprise and Power Enterprise, pursuant to existing cost -sharing agreements with wholesale customers. The current cost sharing agreement allocates 45% of the cost for joint assets to the Water Enterprise and 55% of the cost to the Power Enterprise. See “FINANCIAL OPERATIONS” – General – Allocation of Hetch Hetchy Project Costs.” Water System Improvement Program
General. The Water System Improvement Program is a $4.788 billion program that consists of 87 capital projects to repair, replace and upgrade critical portions of the Regional Water System and the Local Water System to meet specific level of service goals and objectives for seismic reliability, delivery reliability, water quality and water supply in an environmentally sustainable and cost-effective manner. Objectives for WSIP include (i) furnishing system improvements to provide high quality water that reliably meets current and foreseeable local, State and federal requirements; (ii) reducing vulnerability of the water system to damage from earthquakes; (iii) increasing reliability of the system to deliver water by improving redundancy needed to accommodate planned outages fo r maintenance and unplanned outages resulting from facility failure; (iv) providing near -term improvement of water supply/drought protection; (v) setting forth long- term water supply/drought management options for technical evaluation, cost analysis and en vironmental review; (vi) enhancing sustainability through improvements that optimize protection of the natural and human environment; and (vii) providing improvements resulting in a cost -effective, fully-operational water system. As of May 2023, only two WSIP projects remain to be completed: (i) the Regional Groundwater Storage and Recovery Project, and (ii) the Alameda Creek Recapture Project. Both projects are currently in the construction phase and are further described below.

Schedule and Budget . In 2005, the SFPUC approved the original scope, schedule and a budget of $4.342 billion for WSIP (the “2005 Baseline Budget”). Since then, the SFPUC has approved several revisions to the schedule and budget for WSIP, most recently in April 2022 (the “ 2022 Budget”). The variance between the 2005 Baseline Budget and the 2022 Budget of $4.788 billion (which is the same total program budget as approved by the SFPUC in 2018 and 2020) is an increase of approximately $446 million, or a 10.3% increase and is due mainl y to construction cost increases to the WSIP’s largest project, the Calaveras Dam Replacement Project (which increased by approximately $308 million, or 118%). All appropriations for the WSIP have been made and WSIP is consequently not included in the 2024 Capital Plan (as defined herein). Pursuant to the 2022 Budget, the SFPUC anticipates overall program completion in February 2027.

Regional Groundwater Storage and Recovery Project . The Regional Groundwater Storage and Recovery Project has been divided into two phases. The Phase 1 construction contract, which includes the construction of up to 16 new groundwater recovery wells and test wells, chemical treatment equipment, pumping systems and pipelines, and other associated facilities, was completed in Sept ember 2022 and closed out in January 2023. Phase 2 has been divided into two construction contracts; the Phase 2A contract started construction in June 2022 and is anticipated to be completed in 2024, and the Phase 2B contract, delayed due to extensive time required to obtain permits and easements, is anticipated to start construction in 2024 and complete construction in 2026. Phase 2 will provide needed improvements to the wells installed under Phase 1 to meet water quality and other requirements, as well as complete installation and connection of the final well.

Alameda Creek Recapture Project. The Alameda Creek Recapture Project includes construction of facilities in and around an existing quarry pit in Sunol Valley to recapture water that will be released from Calaveras Reservoir and/or bypassed around the Alameda Creek Diversion Dam during future operations of Calaveras Reservoir.

Construction of the facility started in June 2021. On April 11, 2023 the SFPUC Commission approved terminating the construction contract to provide for further assessment and potential remediation of the quarry pit walls by the quarry operator and for further review of long-term operational challenges.

Local Groundwater and Recycled Water Projects . The water supply projects being funded as a part of the WSIP include groundwater and recycled water projects that will result in new water supply for the Retail Customers.

In April 2017, the SFPUC began pumping groundwater from the Westside Groundwater Basin aquifer that extends from approximately 270 feet to 460 feet below the surface. The groundwater is treated and blended with the SFPUC’s

77 regional drinking water supplies before it is delivered to the SFPUC’s customers. Over the next few years the SFPUC anticipates continuing to add groundwater in order to reach its goal of blending 4 mgd of treated groundwater with regional water supplies. The construction of all six well stations has been completed. The last two well stations to be completed are now undergoing final testing. The three wells in Golden Gate Park will continue to be used for irrigation until recycled water from the Westside Recycled Water Project is available. The groundwater is treated with chlorine and then delivered to the Sunset and Sutro reservoirs where it is blended with the regional water supplies. The blended water is served to more than half of the Retail Customers. The Westside Enhanced Water Recycling Project will provide approximately 1.6 mgd of recycled water for major irrigation users on the west side of S an Francisco, including Golden Gate Park, Lincoln Park Golf Course and the Presidio of San Francisco. Recycled water deliveries are expected to commence once power is secured and testing is complete.

Water Supply Initiatives
AWS Program
General. With WSIP ne
aring completion, there are two main drivers for future infrastructure water needs: (i) environmental flow requirements on the Tuolumne River that could result in a reduction of available water supplies by approximately 105 mgd during dry years at the current contract levels of demand if the 2018 Plan Amendment (as defined herein) requiring the release of 40% of unimpaired flow in the Tuolumne River is implemented (see “REGULATORY MATTERS – Bay-Delta Water Quality Standards”); and (ii) a policy decision before the SFPUC on whether to provide a permanent supply guarantee of 9 mgd to the cities of San José and Santa Clara, who are currently interruptible customers (see “– Wholesale Deliveries – Status of San José and Santa Clara” and “– 2028 Water Supply Decisions”). Both drivers may cause additional dry-year shortages. To ensure that the water needs of Retail and Wholesale Customers will continue to be met under future conditions, the SFPUC has undertaken planning for a suite of projects in the AWS Program to improve dry year supply reliability. The AWS Program was established to evaluate new and diverse alternative water supply options, such as expanding storage, groundwater banking, transfers, purified water (potable reuse), desalination, and technological innovations. The SFPUC is also exploring San Joaquin Valley opportunities and pursuing local projects and programs. The SFPUC plans to submit a plan that will include specific project recommendations and associated funding requests to the Commission in July 2023 (the “AWS Plan”).

Planning for alternative water supplies requires a comprehensive and detailed evaluation effort that cons
iders several interrelated challenges, many of which are different than those faced through traditional water supply planning at the SFPUC. These planning challenges include complex multi -party partnerships and approaches for integrating new supply sources into an expansive and largely homogenous water system.

Additionally, as with any long- term water supply planning effort, the SFPUC must also contend with uncertainties such as new and prospective regulations, climate change and extreme weather events and long- term demand projections. To minimize the risk of overbuilding, the SFPUC’s approach involves planning for existing and potential obligations and advancing projects toward implementation based on projected demands on the Regional Water System. The approach is necessarily dynamic as both supply- side and demand-side drivers continue to change over time.

AWS Program Pla nn
ing Priorities and Level of Service Goals and Objectives . The planning priorities of the AWS Program include (i) meeting regulatory requirements including instream flow releases, (ii) meeting existing obligations to existing permanent customers, (iii) making current interruptible customers permanent, and (iv) meeting increased demands of existing and interruptible customers. In conjunction with these planning priorities, the SFPUC considers the level of service goals and objections related to water supply and sustainability when planning for new water supply opportunities. The key level of service goals and objectives relevant to AWS Program planning include (a) meeting dry-year delivery needs while limiting rationing to a maximum 20% system -wide reductio n in water service during extended droughts; (b) diversifying water supply options during non -drought and drought periods; (c) improving use of new water sources and drought management, including groundwater, recycled water, conservation, and transfers; (d ) meeting, at a minimum, all current and anticipated legal requirements for protection of fish and wildlife habitat; and I providing operational flexibility.

78 AWS Projects . T he SFPUC is currently studying the feasibility of six regional AWS projects, including two storage expansion projects that increase dry- year availability, one recycled water project that offsets potable groundwater supply and three purified water projects that each provide a new source of supply, including in dry years. These projects are further described below.

The AWS projects are at varied stages of planning and there are significant uncertainties about cost, volum
e and timing of supply. All projects under consideration will require significant capital investments and ongoing operat ions and maintenance and support and, given the level of complexity and uncertainty, project implementation is expected to take between 10 -30 years. The SFPUC is planning to work with its partners to complete the feasibility phase of these projects and to decide which projects to pursue by the end of 2023. Environmental review for the Los Vaqueros Reservoir Expansion Project and the Daly City Recycled Water Expansion Project are complete. Feasibility studies for the remaining projects are expected in 2023.

While the SFPUC must prepare to meet its obligations by identifying feasible water supply and associated capital improvement projects, implementation of these large infrastructure projects may be deferred until the need is more imminent for the SFPUC to fi ll the anticipated shortfall in water deliveries from the Regional Water System.

Los Vaqueros Reservoir Expansion: The Los Vaqueros Reservoir Expansion (“ LVE ”) Project is a
storage project that will enlarge the existing reservoir located in northeastern Co ntra Costa County from 160,000 acre -feet to 275,000 acre -feet. The main objectives of the expansion include increasing water supply reliability for municipal, industrial and agricultural customers as well as ecosystem benefits to south- of-Delta wildlife refuges and Delta fisheries. While the existing reservoir is owned and operated by Contra Costa Water District (“CCWD”), the expansion will have regional benefits and will be managed by the Los Vaqueros Reservoir Joint Powers Authority (the “Los Vaqueros Reservoir JPA”), a joint powers authority formed in 2021 and comprised of eight member agencies: Alameda County Water District, Contra Costa Water District, East Bay Municipal Utility District, Grassland Water District, the SFPUC, San Luis & Delta-Mendota Water Authority, Valley Water, and Zone 7 Water Agency. Storage in LVE Project can provide a dry year water supply benefit to the SFPUC’s customers. Currently, the SFPUC is evaluating the feasibility of storing up to 30,000 acre -feet and delivering that supply over two drought years to the SFPUC service area either directly or by exchange through the South Bay Aqueduct. In order to deliver water to the SFPUC service area, the SFPUC may need to upgrade existing conveyance infrastructure or enable exchanges with project partners.

In conjunction with the LVE Project, the SFPUC is evaluating water supply alternatives that can provi
de a long -term reliable source to be stored in the expanded Los Vaqueros Reservoir. The SFPUC is evaluating two main categories of supplies: (1) transfers and (2) new water supplies generated by advanced treatment of wastewater, brackish water or groundwater. This supply would provide 4- 5 mgd of storage in normal and dry years. One alternative that has been studied extensively is the Bay Area Brackish Water Desalination (Regional Desalination) Project, which is a partnership between CCWD, SFPUC, the Santa Clara Valley Water District, Alameda County Flood Control and Water Conservation District and Zone 7 Water Agency. The East Bay Municipal Utility District may also be involved. This project could provide a new drinking water supply to the region by treating brackish water from CCWD’s existing Mallard Slough intake in Contra Costa County. This project relies primarily on available capacity in an extensive network of existing pipelines and interties that already connect the agencies, as well as existing wastewater outfalls and pump stations. Because the location for a prospective desalination facility is outside of the SFPUC’s service area, desalinated water cannot be delivered directly to the Regional Water System.

Therefore, instead of directly receiving desalinated water, the SFPUC would indirectly receive water from the desalination project by trading an equivalent volume of water through exchange partnerships.

Daly City Recycled Water Expansion : T
he Daly City Recycled Water Expansion Project i s a
recycled water project that will produce approximately 1.0 mgd of recycled water on an average

79 annual basis, resulting in approximately 0.7 mgd of additional dry year potable supply availability in the South Westside Groundwater Basin. The primary purpose of this project is to provide recycled water to certain cemeteries and other smaller irrigation customers, offsetting existing groundwater pumping from the South Westside Groundwater Basin; this will enhance the reliability of the South Westside Groundwater Basin. The project is a regional partnership between the SFPUC and Daly City, and the irrigation customers are located largely within the service area of the California Water Service Company (“Cal Water”). SFPUC Regional Water System customers will benefit from the increased reliability of the South Westside Groundwater Basin for additional drinking water supply during droughts. In this way, this project supports the Regional Groundwater Storage and Recovery Project, which is under construction through WSIP. For more information regarding the Regional Groundwater Storage and Recovery Project, see “CAPITAL IMPROVEMENT PROGRAM AND OTHER WATER SUPPLY INITIATIVES – Water System Improvement Program – Regional Groundwater Storage and Recovery Project.”
Crystal Springs Purified Water: T
he Crystal Springs Purified Water Project could provide 6-8 mgd of water supply through reservoir water augmentation at Crystal Springs Reservoir and an additional 4-6 mgd through direct potable reuse to other partner agencies. Treated wastewater from Silicon Valley Clean Water and/or the City of San Mateo would go through a water purification process that uses multi- barrier treatment technology to meet State and federal drinking water quality standards. The purified water would be transmitted over 12 miles to Crystal Springs Reservoir and/or other neighboring water service areas. Water conveyed to Crystal Springs Reservoir would be blended with regional surface water supplies and treated again at Harry Tracy Water Treatment Plant. An alternative that delivers 12 mgd directly into the SFPUC’s treated water delivery system is also being evaluated. In addition to the SFPUC and the wastewater agencies, Cal Water, the City of Redwood City, Mid-Peninsula Water District and BAWSCA are also participating in this project.

Alameda County Water District – Union
Sanitary District Purified Water Partnership: The Alameda County Water District – Union Sanitary District Purified Water Partnership Project can provide a new purified water supply utilizing Union Sanitary District (“USD”) treated wastewater and further treating it through a multi- barrier advanced treatment process to meet or exceed drinking water standards. Purified water produced at USD will be transmitted to the Quarry Lakes Groundwater Recharge Area to supplement recharge into the Niles Cone Groundwater Basin or for other uses in the Alameda County Water District (“ ACWD”) service area. With the additional water supply of up to 5.4 mgd in a first phase to ACWD, an in lieu exchange with the SFPUC would result in more water left in the SFPUC’s Regional Water System. Additional water supply could also be directly transmitted to the SFPUC through a new intertie between ACWD and SFPUC in a future second phase of this project.

Calaveras Reservoir Expansion: The Calaveras Reservoir Expansion Project envisions the expansion of Calaveras Reservoir to store excess Regional Water System sup plies or other source water in wet and normal years. No expansion of water rights from the local watershed is anticipated.

With the Calaveras Dam Replacement project now in place (which was a major component of WSIP), Calaveras Dam currently holds a capacity of 96,850 acre-feet, or 31 billion gallons of water.

Through an expansion, up to an additional 289,000 acre -feet, or 94 billion gallons of storage could be realized. The expansion of Calaveras Reservoir would provide storage for additional water that can be available in all water year types. The proposed project would include raising the dam, increasing the capacity of the outlet structures and the spillway, and the addition of any transmission and pumping needed to bring water to Calaveras Reservoir.

South Bay Purified Water : A
s noted previously, there is a policy decision before the SFPUC regarding whether to change the status of the cities of San José and Santa Clara from interruptible to permanent customers. To help offset the incremental dry year im pact of adding new obligations and support their request for permanent status, San José and Santa Clara are partnering with the SFPUC to evaluate a new water supply project. The South Bay Purified Water Project could provide

3.5 mgd of dry year supply to the SFPUC. Additionally, this project would produce 6.5 mgd of

80 supply in all years for use by San José and Santa Clara. The feasibility of this concept is currently being evaluated.

Funding for AWS Projects. Co st estimates are in development for the AWS projects and AWS projects may be more expensive than many traditional SFPUC capital projects because of the inherent technical, institutional and operational complexities. The 2024 Capital Plan includes funding of $82.7 million between Fiscal Years 2023-24 and 2032-33 for regional project planning related to AWS Projects. The AWS Plan to be presented to the Commission in July 2023 will include specific project recommendations and associated funding requests. If the SFPUC moves forward with some or all of t hese projects, appropriate funding requests will be included in future budget cycles.

San Joaquin Valley Projects
I
n addition to the AWS Program described above, the SFPUC is also exploring opportunities for collaboration in the San Joaquin Valley that could reduce potential future water supply shortfalls in the SFPUC service area. These three concepts are described below.

Groundwater Banking: Groundwater banking in the Modesto Irrigation District and Turlock Irrigation District service areas could be use d to provide some additional water supply to meet instream releases in dry years reducing water supply impacts to the SFPUC service area. For example, additional surface water could be provided to irrigators in wet years, which would off -set the use of groundwater, thereby allowing the groundwater to remain in the basin rather than be consumptively used. The groundwater that remains in the basin can then be used in a subsequent dry year for irrigation, subsequently freeing up surface water that would have otherwise been delivered to irrigators to meet instream flow requirements.

Inter-Basin Collaborations : I n
ter-Basin collaborations could include establishing a partnership between interests on the Tuolumne River and those on the Stanislaus River, which would allow responsibility for streamflow to be assigned variably based on the annual hydrology. The Tuolumne system tends to spill more excess flow in wetter years than the Stanislaus system, and this excess flow could be shaped and credited to meet Stanislau s system requirements, while New Melones Reservoir in the Stanislaus system is refilling. Stored water could then be partially used to provide required streamflow to meet Stanislaus and Tuolumne requirements in future dry years.

Dry Year Water Transfer: The
SFPUC has initiated discussions with Oakdale Irrigation District to transfer 2 mgd (2,240 acre -feet) from Oakdale Irrigation District in dry years only. While no transfer has been secured to date, the SFPUC continues to explore potential transfer opportunities on the Tuolumne River and throughout the San Joaquin Valley.

Local Water Supply Initiatives
T
he SFPUC is also continually expanding efforts to advance conservation and develop local supply sources..

These ongoing local programs are described below.

Local Water Conservation . T he SFPUC maintains a robust water conservation program and has one of the lowest rates of per capita water use in California. Conservation programs include rebates and incentives for replacement of inefficient plumb ing fixtures, appliances and equipment, water -wise evaluations, free water- saving devices, tools to help customers understand and manage their water use, education and outreach.

Onsite Water Reuse . The
SFPUC also administers the Non- Potable Water Ordinance (the “Non- Potable Water Ordinance”) and the Stormwater Management Ordinance (the “Stormwater Management Ordinance”). The Non-Potable Water Ordinance requires onsite water reuse systems for new development projects of 100,000 gross square feet or greater in San Francisco. The Stormwater Management Ordinance outlines the mandatory requirements for managing post -construction stormwater runoff and provides guidance on how to incorporate green infrastructure into site design.

81 Innovations Program: This program supports development of new technologies and initiatives to demonstrate the feasibility of atmospheric water generation technology, heat recovery in non- potable systems, expanded leak detection, and breweries treating process water for reuse. Included in the Innovations Program are demonstrations of new technologies and grant funds to support partnership opportunities.

Examples of projects within the Innovations Program include a grant program to treat process water in breweries and grants to support onsite reuse projects with heat recovery systems. San Francisco’s Onsite Water Reuse program (which is described above under “ – Onsite Water Reuse”) allows for the collection, treatment, and use of alternate water sources for non -potable applications in individual buildings and at the district-scale. The onsite water reuse systems under the Non -Potable Water Ordinance apply to new, large development projects in San Francisco. The SFPUC is also pursuing a prospective project to expand leak detection and a project to test atmospheric water generation technology.

PureWaterSF: Thi
s project envisions providing a new, local drinking water supply in San Francisco of 4 mgd by treating recycled water from the Oceanside and Southeast Treatment Plants. In addition, this project could supply 1.2 mgd to meet non- potable demands. In 2020, the SFPUC successfully completed a small-scale research and demonstration purified water (potable reuse) project at its headquarters. In 2022, the SFPUC completed an evaluation of four alternative scenarios for purified water development based on draft regulations. Final regulations are expected to be issued by the SWRCB by December 2023, and adopted by mid-2024. In the meantime, the SFPUC is continuing to evaluate the feasibility of this project.

Environmental Considerations
Pr
ojects 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 of 1969, as amended (42 U.S.C. Section 4321) (“NEPA”). The San Francisco Planning Department, acting as lead agency under Chapter 31 of the City’s Administrative Code, generally coordinates environmental review of SFPUC projects. Federal agencies which issued permits for WSIP projects completed the necessary reviews under NEPA prior to issuance of the requested permits or other regulatory approvals.

Under CEQA, a project that may have a significant effect on the environment and is to be carried out or approved by a public agency must comply with a comprehensive environmental review process, including the preparation of an Environmental Impact Report (“EIR”). The EIR reflects not only an independent technical analysis of the project’s potential impacts, but also the comments of other agencies with some form of jurisdiction over the project and the comments of interested members of the public. Contents of the EIR include a detailed statement of the project’s significant environmental effects; any s uch 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 ir reversible 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. Before approving a project, the SFPUC must make findings on whether or how it can mitigate the significant environmental effects of the project. If the project requires mitigation, the SFPUC must adopt a mitigation monitoring plan to determin e whether the mitigation is carried out during project implementation. If the SFPUC determines that the project itself will not have a significant effect on the environment, it may adopt a written statement (called a negative declaration) to that effect and need not prepare an EIR. After deciding to approve or carry out a project, either following the EIR process or after adopting a negative declaration, the SFPUC must file notice of such determination.

Prior to the sale of bonds, the San Francisco Planning Department Environmental Review Officer will issue a “Planning Certificate” required under Proposition E. 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.

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

82 projects. If an action challenging the SFPUC’s compliance with CEQA is successful, the particular project could be delayed, revised, suspended or canceled. CEQA also contains a number of 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 evalua ted under the SFPUC’s environmental evaluation procedures, developed in compliance with federal and State laws and regulations, and City Ordinances and Administrative Code procedures.

Climate Action Plan
In September 2021, the City adopted a set of emissions reduction targets: achieve net -zero greenhouse gas emissions generated by the City by 2040 and reduce emissions associated with consumption of all goods and services in the City (regardless of where emissions originate) 80% by 2050. In December 2021, Mayor Breed released the City’s Climate Action Plan (the “ Climate Action Plan ”) detailing the actions needed to accomplish these targets, developed through a multi-agency and stakeholder process led by the San Francisco Department of Environment (the “Department of Environment ”). The Climate Action Plan is a roadmap of goals, strategies and actions to achieve emission reductions across six sectors: energy supply, building operations, transportation and land use, housing, responsible production and consumption, and healthy ecosystems. Key strategies include, but are not limited to, provision of 100% carbon -free energy, decarbonization of buildings, and increases in the public transit, active transportation, and vehicle electrification networks. The Department of Environment contracted with the UC Berkeley’s Center for Law, Energy & the Environment (the “CLEE”) to assess options for funding the equitable implementation of the Climate Action Plan. CLEE released its report entitled “Funding San Francisco Climate Action” in November 2022 (the “ CLEE Report”). Over the next year, the City, in conjunction with the SFPUC, anticipates expanding the Climate Action Plan to include a water chapter that sets goals, strategies and actions around water consumption, residential and commercial water use, and diversifying water resources, including recycled water, water reuse, purification and storage.

FINANCING OF CAPITAL IMPROVEMENTS
Long Term Financing of Capital Program
Pursuant to the Water Enterprise’s 10- year financial plan for Fiscal Years 2023 -24 to 2032- 33 (the “ 2024 Financial Plan”), which is based on the 2024 Capital Plan, and which was adopted by the Commission on February 14, 2023, long- term debt financing is projected to fund approximately $2.079 billion of the 2024 Capital Plan. Revenue (pay-as-you-go) funding is projected to provide approximately $625.8 million of funds for a portion of the remaining funding of the 2024 Capital Plan. Long- term debt financing is expected to be comprised primarily of Additional Series of Bonds and Parity State Loans. See “OBLIGATIONS PAYABLE FROM REVENUES – Parity State Loans; No Federal Loans.”
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 Water Enterprise in the aggregate principal amount of $500 million. Of this amount, $400 million is authorized for the SFPUC to issue Commercial Paper Notes and the remaining $100 million is in the form of a bank revolving credit agreement, which permits the SFPUC to make draws directly from the bank, with the SFPUC’s payment obligation evidenced by the Revolving Notes.

Interim funding program obligations are then refunded and consolidated into either long- term revenue bond issues or a Parity State 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.

83 As of June 28, 2023, the SFPUC had Commercial Paper Notes outstanding in the aggregate principal amount of $ 371.4 million and no amount outstanding under the Revolving Notes. The SFPUC anticipates refunding approximately $299.8 * million principal amount of and interest on Commercial Paper Notes with proceeds of the 2023AB Bonds. The SFPUC anticipates issuing additional Commercial Paper Notes and making draws directly on the U.S. Bank National Association facility to provide interim financing for Water Enterprise capital projects. See “OBLIGATIONS PAYABLE FROM REVENUES – Subordinate Debt and Interim Funding Program.” Sources of Funding the Capital Improvement Program
The following table sets forth the projected sources of funds for the first five years of the Water Enterprise’s capital improvement program as set forth in the 2024 Capital Plan.

TABLE 16

WATER ENTERPRISE CAPITAL IMPROVEMENT PROGRAM

FUNDING SOURCES
(1)
FOR FISCAL YEARS ENDED JUNE 30
(IN THOUSANDS)
Appropriations 2024 2025 2026 2027 2028 Total
Revenue Bonds / Parity State Loan $305,138 $446,898 $433,618 $327,209 $227,742 $1,740,605 Water Revenues 48,166 77,100 82,100 63,545 55,000 325,911 Capacity Charge Revenues 2,211 1,520 1,520 1,580 1,644 8,475 Total Sources(2) $355,515 $525,518 $517,238 $392,334 $284,386 $2,074,991

Source: SFPUC
The repayment of projected principal and interest on future debt issues has been incorporated into the development of the SFPUC’s approved retail water rates through Fiscal Year 2025- 26, and has also been reflected in the remaining projection period set forth in the 2024 Financial Plan. Pursuant to the WSA, a share of debt service associated with improvements to the Regional Water System is the responsibi lity of the Wholesale Customers.

Pursuant to the 2024 Financial Plan, the SFPUC projects that retail water rates will increase annually by an average of approximately 3.9% from Fiscal Year 2023-24 to Fiscal Year 2032-33. On May 23, 2023, the Commission approved retail water rates and charges for the three- year period effective July 1, 2023 through June 30, 2026.

However, no retail rate increases beyond June 30, 2026, have been proposed to, or adopted by, the Commission or submitted to the Board of Supervisors, and any future retail water rate increases are subject to future approval by the Commission, subject to the Board of Supervisors’ ability to reject rate increases. See “FINANCIAL OPERATIONS – Retail Water Sales Revenue.”

* Preliminary, subject to change.

84 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 Water 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 Water Enterprise are organized on the basis of a proprietary fund type, specifically an enterprise fund. The financial activities of the Water 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 prepare biannual budgets. The Commission reviews and approves the SFPU C’s two-year budget, which is then submitted to the Mayor’s Office for review. The Mayor then incorporates the proposed budget, with amendments, into the City- wide budget that is submitted to the Board of Supervisors for approval. Under the Charter, the Board of Supervisors may increase or decrease any proposed expenditure in the Mayor’s budget so long as the aggregate changes do not cause the expenditures to exceed the total amount of expenditures proposed by the Mayor. The Charter further provides that the Mayor may reduce or reject any expenditure authorized by the Board of Supervisors except appropriations for bond interest, redemption or other fixed charges, subject to reinstatement of any such expenditure by a two-thirds vote of the Board of Supervisors.

City Services Auditor . On November 4, 2003, voters in the City adopted Proposition C, an ordinance that established the City Services Auditor (“CSA”), an audit function within the Office of the City Controller. Pursuant to the provisions of this ordinance, which have been incorporated into the Charter, the CSA has broad oversight authority and responsibilities including, but not limited to, (i) reporting upon level of 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.

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 revenue 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 August 2023.

Sources of Revenue. The Water Enterprise’s principal source of revenue is the sale of water to its Retail Customers and wholesale customers.

The setting of water rates by the City is not subject to any State or federal regulatory approval. The SFPUC’s ability to generate revenue may be limited by certain provisions of the State Constitution and the Charter of the City.

See “CONSTITUTIONAL, STATUTORY AND CHARTER LIMITATIONS.” Allocation of Hetch Hetchy Project Costs. A number of the facilities of the Hetch Hetchy Project are joint assets and are used for both water transmission and power generation and transmission, benefitting both Hetch Hetchy

85 Water and the Power Enterprise. All power sales revenues are allocated to the Power Enterprise. Per negotiation with the Wholesale Customers reflected in the terms of the WSA, operating and capital costs benefitting the Power Enterprise and 55% of operating and capital costs that jointly benefit both Hetch Hetchy Water and the Power Enterprise are allocated to the Power Enterprise. Operating and capital costs benefitting Hetch Hetchy Water and 45% of operating and capital costs jointly benefitting both Hetch Hetchy Water and the Power Enterprise are allocated to the Water Enterprise. Costs allocated to the Water Enterprise are paid through an inter -enterprise transfer from the Water Enterprise to Hetch Hetchy Water and Power. Such transfers constitute “Operation and Maintenance Costs of the Enterprise.” See “– Operating and Maintenance Expenses – Inter-Enterprise Transfers.” Financial Management Policies . To support sound financial management practices during periods of instability and to ensure organizational accountability and disciplined decision making, and to maintain the highest practical credit ratings, the SFPUC conducted an extensive peer review study to compare the financial policies of other United States municipal utilities, analyze rating agency evaluations of financial policies and recommend changes to the SFPUC’s existing financial policies. Based on this study, the Commission adopted in February and March 2017 a Debt Service Coverage Policy, a Capital Financing Policy and a Fund Balance Reserve Policy. The SFPUC subsequently revised its Debt Management Policies & 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, sta rting with the information for Fiscal Year 2017-18.

Wholesale Water Sales Revenue
Wholesale Rate -Setting Process . Wholesale Customer rates are determined annually based upon the Wholesale Customers’ collective share of the Water Enterprise’s total revenue requirements, known as the “Wholesale Revenue Requirement” in the WSA. The Wholesale Revenue Requirement under the WSA consists of the sum of the Wholesale Customers’ allocated shares of the following costs of the Water Enterprise in providing water to the Wholesale Customers: operating and maintenance expenses, capital expenses, administrative and general expenses, property taxes, and the “Suburban Hetch Hetchy Assessment,” the costs of operating the Hetch Hetchy Project allocated exclusively to the Water Enterprise or jointly to the Water Enterprise and the Power Enterprise.

The cost of service for Wholesale Customers includes a pro- rata share of Operation and Maintenance Costs of the Enterprise. Capital costs are recovered under the cash method as needed to cover revenue -funded capital improvements of the Regional Water System and debt service associated with bond- funded capital projects. The operating costs and plant investment for Hetch Hetchy Water and Power are first classified as power -specific, water-specific or joint. The water related costs and water’s share of joint costs are reflected in the Wholesale Revenue Requirement.

In addition to a pro-rata share of Operation and Maintenance Costs of the Enterprise, debt service and revenue funded capital, the Wholesale Customers agreed to pay a fixed annual charge to reimburse the Water Enterprise for a pro rata share of undepreciated investment in facilities capitalized prior to July 1, 2009. The WSA allowed the Wholesale Customers to repay the undepreciated value of existing assets as well as construction work in progress as of June 30, 2009, in equal annual payments over the 25 years of the WSA at an annual interest rate of 5.13%. On January 1, 2013, State legislation authorizing BAWSCA to prepay the remaining value on existing regional assets to achieve cost savings became effective. On February 27, 2013, the Wholesale Customers through BAWSCA made an early repayment of $356 million to the outstanding balance owed to the Water Enterprise.

The WSA allow ed the Wholesale Customers to reimburse the Water Enterprise for any revenue funded project expenditures made in Fiscal Year 2009-10 through Fiscal Year 2011-12 using funds appropriated, but unspent, prior to July 1, 2009 over 10 years with repayment beginning in Fiscal Year 2014-15 and ending in Fiscal Year 2023- 24 at an annual interest rate of 4.00%. The annual payment of $1.2 million has been incorporated into wholesale rates.

86 Finally, the WSA contains a rate device known as the balancing account. If the revenues received in any Fiscal Year is greater than the actual expenses associated with the allocated cost of wholesale service, the amount of the excess is added to the balancing account. If the revenues received in any Fiscal Year is less than the actual expenses associated with the allocated cost of wholesale service, the amount of the deficit is subtracted from the balancing account. As of the end of any Fiscal Year, the balancing account may have a positive balance (reflecting amounts “owed” by the SFPUC to the Wholesale Customers) or a negative balance (reflecting amounts “owed” by the Wholesale Customers to the SFPUC). The balancing account balance is used to adjust the following year’s rate recovery up or down depending on whether there is a shortfall or surplus in the balancing account. For Fiscal Year 2020-21, the balancing account balance was approximately $63.0 million due to the Wholesale Customers, and for Fiscal Year 2021-22, the balancing account balance was approximately $30.6 million due to the Wholesale Customers (i.e., such amounts were “owed” by the SFPUC to the Wholesale Customers). The SFPUC projects that the balancing account balance for Fiscal Year 2022-23 will be approximately $5.7 million due from the Wholesale Customers (i.e., such amount will be “owed” by the Wholesale Customers to the SFPUC) . See “APPENDIX B – SUMMARY OF CERTAIN PROVISIONS OF THE WATER SUPPLY AGREEMENT – Balancing Account.” Statutory and Contractual Limits on Wholesale Water Rates . The sale and delivery of water to the Wholesale Customers under the WSA are subject to the “Rules and Regulations Governing Water Service to Customers” of the Water Enterprise adopted by the Commission, and as they may from time to time be amended, that are (1) applicable to the sale and delivery of water by the SFPUC to the Wholesale Customers, (2) reasonable, and (3) not inconsistent with either the WSA or with an individual contract.

Wholesale Water Rate Adjustments . Under the WSA, adjustments to the Wholesale Customers’ rate schedules, other than emergency rate adjustments and drought pricing, discussed below, are coordinated with the budget development process. If the SFPUC intends to increase Wholesale Customer rates, it is required to provide certain yearly budget information to the Wholesale Customers prior to adoption of any such rate increases. Failure to do so will not prohibit the SFPUC from adoption of such rates, but, in the event of such failure, the Wholesale Customers may either invoke arbitration, or seek injunctive relief to compel the SFPUC to remedy the failure as soon as reasonably practical.

The SFPUC may increase the water rates applicable to the Wholesale Customers without compliance with the above-described procedures in the event a drought, earthquake, other act of God, malfunctioning of the Regional Water System or other emergency which requires an increase in rates. Rates may be increased on an emergency basis to cover operating expenses and capital costs. Any such emergency rate increase must be accompanied by a rate increase for Retail Customers of an equal percentage.

Any emergency rate surcharge adopted by the SFPUC could go into effect within 30 days of such adoption (subject to any action by the Board of Supervisors) and would remain in effect only until the next budget coordinated rate-setting cycle, at which time it can be reviewed for continuance and modification.

Drought pricing for Wholesale Customers, if required, could also be changed under similar terms and conditions set forth for emergency rate increases. Any drought -related pricing or surcharge adopted by the Commission would also remain in effect only until the next budget coordinated rate -setting cycle.

87 Historical and Adopted Wholesale Water Rate Adjustments . The following table lists wholesale water rate adjustments since Fiscal Year 2013-14 for the Wholesale Customers.

TABLE 17

HISTORICAL AND ADOPTED PERCENTAGE INCREASES (DECREASES)

IN WHOLESALE WATER RATES
Effective Date Change in Wholesale Rates(1)
July 1, 2013 (16.4)
July 1, 2014 19.6
July 1, 2015 28.0
July 1, 2016 9.3
July 1, 2017 0.0
July 1, 2018 0.0
July 1, 2019 0.0
July 1, 2020 0.0
July 1, 2021 0.0
July 1, 2022 15.9
July 1, 2023(2) 9.7

(1) Wholesale rates are set prospectively based on an estimate of the Wholesale Revenue Requirement and reflect annual true ups and the balancing account. As such, rates may vary significantly from year to year.

See “ – Wholesale Rate-Setting Process.”
(2) Adopted May 9, 2023.

Source: SFPUC, Financial Services
On May 9, 2023, the Commission approved a wholesale rate increase of 9.7%, effective July 1, 2023.

Arbitration for Disputes . The Prior Master Water Sales Contract had a binding arbitration provision for disputes related to wholesale rate setting by the SFPUC. The SFPUC and its Wholesale Customers arbitrated one dispute over the 25- year term of the Prior Master Water Sales Contract. The WSA continues the practice of binding arbitration and the SFPUC and its Wholesale Customers have resolved other disputes, without invokin g arbitration, as part of the true up process for determining the actual Wholesale Revenue Requirement following the close of each fiscal year.

Retail Water Sales Revenue
Retail Rate Structure . Retail Customers pay a flat monthly service charge based on meter size plus a volumetric charge for water usage based on one -month meter readings. Volumetric charges for single - and multi-family residential customers are based on a two-tiered rate structure, where the first tier is applicable to the first 4 CCF (400 cubic feet) of use per month (single -family) or 3 CCF (300 cubic feet) of use per month (multi -family), and the second tier is applicable to all additional use for both single - and multi- family residential customers.

Volumetric charges for non- residential customers are based on a uniform rate. The tables below detail retail water rates for Fiscal Years 2022-23 and 2023-24.

88 TABLE 18

RATES FOR RETAIL WATER SERVICE IN SAN FRANCISCO
Fiscal Year 2022-23 Fiscal Year 2023-24(1)
Single-Family
Residential
($/CCF)(2)
Multi-Family
Residential
($/CCF)
Non-
Residential
($/CCF)
Single-Family
Residential
($/CCF)(1)
Multi-Family
Residential
($/CCF)
Non-
Residential
($/CCF)
Tier 1(3) (0-4 or 0-3 CCF) 9.60 9.60 - 10.33 10.19 -
Tier 2 (All other usage) 10.71 10.76 - 11.47 10.94 -
Uniform - - 10.55 - - 11.68

(1) Rates adopted May 23, 2023.
(2) One “CCF” equals 100 cubic feet of water (equal to 748 gallons). (3) Tier 1 for single-family residential is from 0-4 CCF; tier 1 for multi-family residential is from 0-3 CCF.

Source: SFPUC, Financial Services.

The retail water rates in the previous table do not reflect any drought surcharges. See “ – Retail Water Rate Adjustments.”
The following tables compare the typical monthly charges for repres entative Retail Customer classes based on average use for Fiscal Years 2022-23 and 2023-24.

TABLE 19A

TYPICAL MONTHLY CHARGES FOR RETAIL WATER SERVICE IN SAN FRANCISCO FISCAL YEAR 2022-23
Customer Type
Average
Use (CCF)
Meter
Size
Fixed
Charge
Volume
Charge
Total Monthly
Charges
(Volume + Fixed)
Average Single Family Residence 4.8 5/8” $ 15.17 $ 46.97 $ 62.14 Larger Single Family Residence 12.0 5/8” 15.17 124.08 139.25 Large Apartment Building 101.0 3” 142.97 969.60 1,112.57 Large Office 351.0 3” 142.97 3,703.05 3,846.02
Department Store 340.0 4” 219.65 3,587.00 3,806.65
Hotel 3,314.0 6" 432.65 34,962.70 35,395.35

Source: SFPUC, Financial Services.

TABLE 19B

TYPICAL MONTHLY CHARGES FOR RETAIL WATER SERVICE IN SAN FRANCISCO FISCAL YEAR 2023-24
Customer Type
Average
Use (CCF)
Meter
Size
Fixed
Charge
Volume
Charge
Total Monthly
Charges
(Volume + Fixed)
Average Single Family Residence 4.8 5/8” $ 16.64 $ 50.50 $ 67.14 Larger Single Family Residence 12.0 5/8” 16.64 133.08 149.72 Large Apartment Building 101.0 3” 151.35 1,029.19 1,180.54 Large Office 351.0 3” 151.35 3,903.12 4,054.47
Department Store 340.0 4” 232.18 3,780.80 4,012.98
Hotel 3,314.0 6" 456.70 36,851.68 37,308.38

Source: SFPUC, Financial Services.

89 Retail Rate-Setting Process. The SFPUC is authorized and required under the Charter and Proposition E to set rates, fees, and other charges in connection with providing the utility services under its jurisdiction, subject to rejection – within 30 days of submission – by resolution of the Board of Supervisors. If the Board of Supervisors fails to act within 30 days, the rates will become effective without further action.

Under the Charter, in setting retail rates, fees, and charges (for water, wastewater and power utility services) the SFPUC is required to do the following:
(1) Establish rates, fees, and charges at levels sufficient to improve or maintain financial condition and bond ratings at or above levels equivalent to highly rated utilities of each enterprise under its jurisdiction, meet requirements and covenants under all bond resolutions and indentures (including, without limitation, increases necessary to pay for the retail customers’ share of the debt service on bonds and operating expenses of any State financing authority), and provide sufficient resources for the continued financial health (including appropriate reserves), operation, maintenance and repair of each enterprise, consistent with good utility practice. (2) Retain an independent rate consultant to conduct rate and cost of service studies for each utility at least once every five years.
(3) Set retail rates, fees, and charges based on the cost of service. (4) Conduct all s tudies mandated by applicable State and federal law to consider implementing connection fees for water and clean water facilities servicing new development. (5) Conduct studies of rate-based conservation incentives and rate structures to help low-income users, and to use the results of such studies to establish rates, fees, and charges, in accordance with applicable State and federal laws.
(6) Adopt annually a rolling five-year forecast of rates, fees and other charges. (7) Establish a Rate Fairness Board consisting 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 retail customers, one appointed by the Mayor and one by the Board of Supervisors; and two business retail customers, one a large business customer appointed by the Mayor and one a small business customer appointed by the Board of Supervisors. Duties for the Rate Fairness Board include:
(a) an annual review of a five-year rate forecast;
(b) hold one or more public hearings on annual rate recommendations before the SFPUC adopts rates;
(c) provide a report and recommendations to the SFPUC on any rate proposal; and, (d) in connection with periodic rate studies, recommend rate policies and cost allocat ions among retail utility customer classifications, subject to any outstanding bond requirements.

The Rate Fairness Board is not authorized to reject proposed rates approved by the Commission.

Retail rates and the rate -setting process must also comply with the requirements of the State Constitution, including notice, protest and public hearing requirements. See “CONSTITUTIONAL, STATUTORY AND CHARTER LIMITATIONS – State Law Limitations.”

90 Retail Water Rate Adjustments . The SFPUC’s retail rates and charges for delivered water are set to equal the cost of operation, maintenance, replacement, debt service and other costs incurred in gathering, treating, and delivering water to its retail customers. The SFPUC regularly reviews and has often increased its retail water rates to fund operating and capital costs. Furthermore, the SFPUC may adjust and re-classify rates, fees, and charges, but will not decrease them unless, following such reduction, the rates, fees, and charges will continue to be sufficient to meet the rate covenants set forth in the Indenture. See “SECURITY FOR THE BONDS – Rate Covenants.” The following table lists retail water rate adjustments since Fiscal Year 2013-14 through Fiscal Year 2022-23.

There was no water rate adjustment for Fiscal Year 2022-23.

TABLE 20

HISTORICAL PERCENTAGE INCREASES (DECREASES)

IN RETAIL WATER RATES
Effective Date Change in Retail Rates
July 1, 2013(1) 6.5%
July 1, 2014(2) 12.0
July 1, 2015(2) 12.0
July 1, 2016(2) 10.0
July 1, 2017(2) 7.0
July 1, 2018(3) 9.0
July 1, 2019(3) 8.3
July 1, 2020(3) 7.8
July 1, 2021(3) 7.9
July 1, 2022(4) 0.0

(1) Five-year retail rates effective July 1, 2009.
(2) Five-year retail rates effective July 1, 2014.
(3) Five-year retail rates effective July 1, 2018.
(4) No water rate adjustment for Fiscal Year 2022-23.

Source: SFPUC, Financial Services.

In 2022, pursuant to the Charter, the SFPUC retained an independent rate consultant to conduct a water and wastewater cost of service study to establish a proposed three-year water and wastewater retail rate schedule for Fiscal Years 2023-24 through 2025-26 (the “2023 Rate Study”). The SFPUC took several measures to mitigate the risk of over-projecting volumes, which could potentially lead to revenue shortfalls. First, projections in the 2023 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 2023 Rate Study assume that San Francisco 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 WATER ENTERPRISE – Recent Factors Impacting Retail Water Sales.” Finally, instead of approving rates for four years, as was done following the two prior rate studies, the SFPUC planned to approve a three -year rate schedule to allow for a realignment of rates to observed sales volumes on a more fr equent basis should further declines materialize.

Following completion of the 2023 Rate Study in April 2023, the Commission approved a three -year water and wastewater retail rate schedule for Fiscal Years 2023 -24 through 2025- 26 on May 23, 2023, as set for th in the following table.

91 TABLE 21

ADOPTED PERCENTAGE INCREASES (DECREASES)

IN RETAIL WATER RATES
Effective Date Retail Rates
July 1, 2023(1) 5.0%
July 1, 2024(1) 5.0
July 1, 2025(1) 5.0

(1) Three-year retail rates effective July 1, 2023.

Source: SFPUC, Financial Services.

As part of the three -year water and wastewater retail rate schedule for Fiscal Years 2023 -24 through 2025- 26, the Commission approved the implementation of a temporary drought surcharge that is levied only when the Commission puts the SFPUC’s Water Shortage Contingency Plan into effect, requesting that customers reduce water usage. When implemented, the drought surcharge increases the volumetric water and wastewater rates for all customer types up to the percentages shown in the following table. These percentages are calculated to recover costs based on reduced billed volumes. The SFPUC may set the percentage surcharge lower than shown on the following table to ensure that rates do not exceed the costs of providing water and wastewater services to customers.

TABLE 22

TEMPORARY DROUGHT SURCHARGE
Water Shortage
Cont
ingency Plan Stage
Target Water Usage
Reduction
Drought Surcharge on
Volumetric Water &
Wastewater Rates
Stages 1-3 5% Up to 5%
Stage 4 5-18% Up to 18%
Stage 5-6 18-32% Up to 32%

(1) Effective July 1, 2023.

Source: SFPUC, Financial Services.

Discount Programs . The SFPUC has several discount programs, including the Customer Assistance Program (the “CAP”), the Low-Income Non-Profit Housing Program and the Community Housing Program. Under the existing Customer Assistance Program, the SFPUC offers a 25% discount to single -family residential water and wastewater customers with incomes below 200% of the Federal Poverty Level. In March 2023, approximately 6,400 single-family residential customers received CAP discounts. In April 2023, the Commission approved changes to the CAP, effective July 1, 2023. Under the updated CAP, the SFPUC will provide bill discount s to single -family residential water and wastewater customers through a two- tiered income eligibility model: a 40% discount for households with incomes equal to or below 30% of Area Median Income, and a 25% discount for households with incomes between 31% and 50% of Area Median Income. These discounts will be funded by up to $8 million annually in non-rate revenues identified to support SFPUC’s discount programs. See also “– Delinquencies.” In addition, the Low -Income Non- Profit Housing Program offers a 15% discount off water charges for residential customers in properties owned and operated by certain nonprofits, and the Community Housing Program offers a 15% discount off water charges for certain single room occupancy hotels providing transitional housing to the homeless and general assistance recipients.

In 2020, the SFPUC established a temporary emergency customer assistance program for customers whose income had been impacted by COVID-19 or the City’s stay-at-home orders. The temporary program provided eligible residential and small business customers a 15% and 20% water bill credit, respectively. The temporary program ended March 31, 2022.

92 Billing and Collection Procedures. All Retail Customers are billed monthly for their respective metered water use. I n the event of non- payment, the SFPUC has the authority and power to discontinue service and, in owner-occupied buildings and master metered apartment buildings, to record liens on property.

Delinquencies. The table below shows the delinquency in collection of water charges from Retail Customers as of July 1, 2020, July 1, 2020 and July 1, 2022. The SFPUC considers its rates of payment delinquency, service discontinuance for non-payment, and write-offs for uncollectible accounts to be low by water industry standards for urban areas.

TABLE 23

ACCOUNTS RECEIVABLES AGING REPORT

(1) Totals may not add due to rounding.

Source: SFPUC, Financial Services.

As shown in Table 23, the amount of delinquent bills over 90 days has grown significantly since July 2020.

From July 2020 to July 2022, the amount of accounts receivable from delinquent bills more than 90 days past due increased from $ 1,746,125 to $4,218,790. 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 rental payment deferments for tenants of its facilities. From March 2020 to April 2022, the number of water accounts with delinquent bills more than 90 days past due increased from 1,712 to 5,234 for single-family residential customers and from 455 to 1,360 for commercial customers.

Once an account is delinquent, a series of notices are sent to the customer and if payment is still not made, action to shut -off the water supply is initiated. However, if the delinquent account is in the name of the property owner and payment is still not made despite such notices, the customer will receive a lien warning notice. After a lien notice is delivered, a lien hearing is held and, if the bill still remains outstanding, the lien is recorded and can only be removed upon full payment of all unpaid charges, plus administrative fees and interest. Liens n ot 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.

As of July 1, 2020 As of July 1, 2021 As of July 1, 2022 Period Amount
Percent of
Total Amount
Percent of
Total Amount
Percent of
Total
0 - 30 Days $27,085,011 83.9% $25,978,069 72.9% $27,985,674 73.5% 31 - 60 Days 2,352,327 7.3 2,604,032 7.3 2,453,115 6.4
61 - 90 Days 1,097,424 3.4 1,288,580 3.6 3,425,923 9.0
Over 90 Days 1,746,125 5.4 5,772,265 16.2 4,218,790 11.1 Total(1) $32,280,887 100.0% $35,642,946 100.0% $38,083,502 100.00%

Credit Balances ($1,602,196) ($2,392,635) ($903,834)
Total Aged Receivables $30,678,691 $33,250,310

$37,179,668

Less Receivables from
Municipal Customers ($798,976) ($916,948)

($1,095,247)

Less Allowance for
Doubtful Accounts ($1,133,302) ($4,912,131)

($4,571,491)

Accounts Receivable,
Net of Allowance $28,746,413 $27,421,232

$31,512,930

93 In April 2023, as part of the updated CAP, the Commission approved the suspension of the application of late payment charges to single-family residential water and wastewater accounts which are past -due on their bills, as well as a shutoff and lien policy which establishes that all accounts with household incomes at or below 50% of Area Median Income that are enrolled in CAP and maintain engagement with the SFPUC are eligible to be exempted from disconnection or lien due to nonpayment. See also “– Discount Programs.” Comparative Retail Water Rates . The following table compares monthly charges by selected California water providers for a typical single-family residential usage account with a 5/8-inch meter.

TABLE 24
COMPARATIVE TYPICAL MONTHLY RESIDENTIAL WATER CHARGES (1)

Water Provider
Typical
Monthly Charge
San Francisco Public Utilities Commission(2) $ 62.14
City of Oakland (East Bay Municipal Utility District) 69.92 City of San Diego 84.10
City of San Jose 88.63
Los Angeles (Los Angeles Department of Water and
Power & Los Angeles Sanitation and Environment) 102.23
City of Santa Clara 108.50

(1) Typical monthly charge has been compiled by the SFPUC based on rates that have been obtained from publicly available sources and have not been independently verified by the SFPUC. (2) Based on water charges as of July 1, 2022.

Source: SFPUC, Financial Services
Capacity Charges
The SFPUC imposes a capacity charge on any Retail Customer requesting a new connection, added collection or treatment capacity, or a change to an existing connection to the water distribution system. Beginning July 1, 2022, the capacity charge is $2,066 per equivalent 5/8 inch meter. The capacity charge is adjusted on July 1 of each year by the annual change in the 20-City Average Construction Cost Index published by ENR Magazine.

Operating and Maintenance Expenses
“Operating and Maintenance Expenses ” cover the general operations expenses of the Water Enterprise.

These expenses include labor and fringe benefits, contractual services, materials and supplies, depreciation, general and administrative, services from other departments and other miscellaneous costs. See “HISTORICAL OPERATING RESULTS.” Services from other departments include payment for services from other City departments, such as the City Attorney’s Office and the General Services Agency. Operating and Maintenance Expenses incl ude payments to Hetch Hetchy Water and Power for services related to water storage and delivery. See “– Inter-Enterprise Transfers” and “SECURITY FOR THE BONDS – Rate Covenants.”
Allocation of Costs. The SFPUC allocates various common costs it incurs among the Water Enterprise, Hetch Hetchy Water and Power and the Wastewater 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. The most recent cost allocation review was done in 2018. For Fiscal Years 2021-22 and 2022-23, the SFPUC has allocated $52.8 million and $63.1 million, respectively, in administrative costs to the Water Enterprise, which are included in the financial statements under various expense categories.

Inter-Enterprise Transfers. An annual transfer occurs from the Water Enterprise to Hetch Hetchy Water and Power to pay for services related to water storage and delivery. The projected budget transfer amount is $49.6 million for Fiscal Year 2022-23 and was $45.8 million for Fiscal Year 2021-22. Should Hetch Hetchy Water and Power incur higher capital costs or higher operating costs in the future, the amount of these transfers could increase.

94 Payments to/from the City.

Payments to City for Interdepartmental Services . A variety of City departments provide services such as engineering, purchasing, legal, data processing, telecommunications and human resources to the Water Enterprise and charge amounts designed to recover those costs. The projected budget amount is $26.6 million for Fiscal Year 2022-23 and was $16.0 million for Fiscal Year 2021-22.

Lease Certificate of Participation Financing. On October 7, 2009, the City issued $167.67 million in fixed-rate Certificates of Participation, Series 2009 C and D, to fund the headquarters of the SFPUC at 525 Golden Gate Avenue. Pursuant to a Memorandum of Understanding between the City and the SFPUC, the SFPUC agreed to reimburse the City General Fund for all costs in connection with this City financing. This obligation is subordinate to debt service on the Bonds and payments related thereto are allocated among the three SFPUC Enterprises. See “OBLIGATIONS PAYABLE FROM REVENUES – Other Subordinate Obligations Payable from Revenues.”
Water Payments from Other Agencies . The SFPUC receives payments from other agencies of the City for their share of the proportionate cost of the service provided to them. The Water Enterprise charges all City departments for water (with the exception of itself and the San Francisco Fire Department for water dispensed from fire hydrants). The SFPUC projected budget is to collect payments from other City agencies totaling approximately $14.9 million in Fiscal Year 2022-23 and the SFPUC collected $11.1 million in Fiscal Year 2021-22.

Financial Management Policies
Debt Management Policies & Procedures . The SFPUC has established “Debt Management Policies & Procedures” (the “Debt Policies”) for debt financing under its jurisdiction. The SFPUC has also established separate “SFPUC Bond Disclosure Policies & 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 Water 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 in 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 E – FORM OF CONTINUING DISCLOSURE CERTIFICATE.” In addition, pursuant to the Disclosure Policies, the SFPUC will develop 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 Chief Financial Officer and Assistant General Manager, Business Services, two Deputy Chief Financial Officers and the Debt Manager of the SFPUC, with legal consultat ion 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 cover new amendments made to the Was tewater bond indenture that will allow the SFPUC to issue variable rate obligations of the Wastewater Enterprise with more market- standard provisions. These amendments do not apply to any variable rate obligations issued by the Water Enterprise. (3) 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 SWRCB. No WIFIA loans have been executed for the Water Enterprise.

95 The SFPUC makes no representation that these policies will not be revised or amended and, except to the extent required for compliance with the terms of the Indenture, makes no representation that these policies will be followed by the SFPUC.

Debt 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 Water 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 on an Indentu re basis (including certain available fund balances) will be at least 1.35 times and debt service coverage on a current basis will be at least 1.10 times.

The Indenture includes a rate covenant of 1.25 times coverage (including certain available fund balances).

See “SECURITY FOR THE BONDS – Rate Covenants – Debt Service Coverage” and “HISTORICAL OPERATING RESULTS.”
The SFPUC makes no representation that this policy will not be revised or amended and, except to the extent required for compliance with the terms of the Indenture, makes no representation that this policy will be followed by the SFPUC.

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 Water 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 Water Enterprise. Accordingly, the SFPUC has determined that over the 10- year financial planning horizon, the SFPUC will aim to pay for a minimum ranging between 15% and 30% of the Water Enterprise’s capital budget from current revenues.

The SFPUC makes no representation that this policy will not be revised or amended and, except to the extent required for compliance with the terms of the Indenture, makes no representation that this policy will be followed by the SFPUC.

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 Water 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 services 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 this target will not be revised or amended and, except to the extent required for compliance with the terms of the Indenture, makes no representation that this target will be met .

96 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 April 30, 2023, to be 416 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 April 30, 2023. The Water Enterpri se’s pooled deposits and investments accounted for approximately $270.8 million, or approximately 1. 6%, of such amounts. The Wastewater Enterprise and the Power Enterprise each have their own pooled deposits and investments that are separate from the Water Enterprise.

TABLE 25

CITY POOLED INVESTMENT FUND
(AS OF APRIL 30, 2023)
Investments
Book Value
(millions)
U.S. Treasuries $ 3,877.9
Federal Agencies 6,955.2
Public Time Deposits 30.0
Negotiable CDs 2,070.0
Commercial Paper 631.5
Money Market Funds 3,117.4
Supranationals 611.2
Total $17,293.2

Source: Office of the Treasurer & Tax Collector of the City and County of San Francisco.

The SFPUC’s non -pooled deposits and investments consist primarily of funds related to the SFPUC’s Outstanding Bonds, which are invested pursuant to policy established by the SFPUC, subject to the restrictions contained in the applicable bond documentation.

Risk Management and Insurance
The SFPUC’s risk management program encompasses both self -insured and insured coverage. Risk assessments and coverage are coordinated by the SFPUC Enterprise Risk Manager through the City Office of Risk Management. With certain exceptions, the City and SFPUC’s general approach is to first evaluate self- insurance for the risk of loss to which it is exposed. Based on this analysis, the SFPUC has determined that mitigating risk through a “self -retention” mechanism is more economical as it manages risks internally and administers, adjusts, settles, defends and pays claims from budgeted resources (i.e., pay -as-you-go). When economically more viable or when required by debt financing covenants, the SFPUC obtains commercial insurance.

At least annually, the City reviews and actuarially determines general liability and worker s’ 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.

97 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
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 contractua l 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 .

98 HISTORICAL OPERATING RESULTS
The historical results of operations reflected in the following table are based on the tables contained in the Financial Statements entitled “Statements of Revenues, Expenses and Changes in Net Position” and “Statements of Cash Flows” for the Fiscal Years listed. This table excludes certain non -operating revenue and expenses included in the “Statements of Revenues, Expenses and Changes in Net Position” table. Consequently, “Operating and Investment Income” presented in this table differs from “Change in net position” in the “Statements of Revenues, Expenses and Changes in Net Position” table. The calculation of debt service coverage includes net operating income and funds not budgeted to be spent in the next twelve months and legally available to pay debt service, as permitted under the Indenture. The audited financial statements of the Water Enterprise for Fiscal Years 2021 -22 and 2020-21, prepared by the SFPUC and audited by KPMG LLP, independent certified public accountants, are attached as APPENDIX C 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 C – SFPUC WATER ENTERPRISE FINANCIAL STATEMENTS.”

99 TABLE 26

HISTORICAL REVENUES, OPERATING & MAINTENANCE EXPENSES

AND DEBT SERVICE COVERAGE
FOR FISCAL YEARS ENDED JUNE 30
(IN THOUSANDS)(1)
2018 2019 2020 2021 2022

OPERATING & INVESTMENT

REVENUE

Charges for Services(2)
Retail Water Sales $248,136 $261,913 $280,609 $270,514 $297,226 Wholesale Water Sales 247,002 247,790 270,144 278,981 240,925 Subtotal – Water Sales $495,138 $509,703 $550,753 $549,495 $538,151 Rental Income(3) 12,906 13,010 12,124 12,911 13,765
Other Revenues(4) 15,875 17,310 18,305 17,069 22,134
Capacity Fees(5) 1,720 2,368 2,169 1,326 2,163
Investing Activities(6) 6,448 15,650 10,517 340 (10,896) Total Revenues $532,087 $558,041 $593,868 $581,141 $565,317

OPERATING & MAINTENANCE

EXPENSE

Personnel Services(7) $128,295 $111,594 $119,943 $132,528 $83,385 Contractual Services(8) 14,131 13,715 14,523 15,501 13,457 Materials and Supplies(9) 15,936 13,421 14,050 13,175 15,719 Depreciation(10) 118,751 120,815 142,228 144,033 147,904 Services of Other Departments(11) 56,860 59,751 61,128 70,235 73,307 General/Administrative & Other(12) 36,174 37,798 46,245 73,218 67,862 Total Operating Expenses $370,147 $357,094 $398,117 $448,690 $401,634

OPERATING AND INVESTMENT
INCOME
$161,940 $200,947 $195,751 $132,451 $163,683

COVERAGE CALCULATION
Operating and Investment Income $161,940 $200,947 $195,751 $132,451 $163,683 +Adjustment to Investing Activities(13) (1,245) (4,821) (516) 3,846 13,050 +Depreciation & Non-Cash Expenses 119,624 122,248 148,294 150,257 151,114 +Changes in Working Capital(14) 31,060 (11,073) (20,763) 24,707 (42,906) +Appropriated Fund Balance(15) 1,452 4,318 17,181 27,785 21,977 = “Net Revenue” (16) (17) $312,831 $311,619 $339,947 $339,046 $306,918 +Other Available Funds(18) 186,752 221,362 241,931 128,692 103,506 Funds Available for Debt Service $499,583 $532,981 $581,878 $467,738 $410,424 Bond Debt Service(17) $233,959 $261,638 $269,210 $248,427 $279,352 Debt Service Coverage(19)
Including “Other Available Funds”(18) 2.14x 2.04x 2.16x 1.88x 1.47x Current Basis(17) (20) 1.34x 1.19x 1.26x 1.36x 1.10x

(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 a udited financial statements. See “APPENDIX C – SFPUC WATER ENTERPRISE FINANCIAL STATEMENTS.” This table excludes certain elements of non -operating revenue and expenses included in the Statements of Revenues, Expenses and Changes in Net Position. Examples of excluded elements are Grant Revenue, Interest Expense and Gains from Sale of Assets. (2) Increase in Retail Water Sales in Fiscal Year 2021-22 mainly due to a 7.9% rate increase and a 5% drought surcharge. Decrease in Wholesale Water Sales in Fiscal Year 2021-22 mainly due to decrease in sales to wholesale customers from an 8% decrease in water consumption.
(3) Increase between Fiscal Years 2020-21 and 2021-22 mainly due to a lease transfer fee charge and an increase of three tenants.

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(4) Increase between Fiscal Years 2020 -21 and 2021-22 mainly due to increase in numbers of water installations and a planned rate increase of 7% in Fiscal Year 2021-22. Also, non-operating revenues were added in Fiscal Year 2021-22 per indenture. (5) Increase between Fiscal Years 2020-21 and 2021-22 due to increase of Capacity Fees permits issued. (6) Decrease between Fiscal Years 2020-21 and 2021-22 are as a result of an increase in unrealized loss due to loss on invested cash with fiscal agent and treasurer. The increase in unrealized loss was due to the decline in market value of investments from rising interest rates to curtail inflation.
(7) Decrease between Fiscal Years 2020-21 and 2021-22 due to pensions based on actuarial reports. (8) Decrease between Fiscal Years 2020 -21 and 2021- 22 due to decreases for other current expenses, and other professional services.
(9) Increase between Fiscal Years 2020-21 and 2021-22 mainly for water treatment supplies, fuels and lubricants. (10) Increase between Fiscal Years 2020 -21 and 2021-22 due to additional capital assets placed into service in the current fiscal year.
(11) Increase between Fiscal Years 2020-21 and 2021-22 mainly due to additional water assessment fees paid to Hetchy Water and increased gas and electric charges paid to Hetchy Power. (12) Decrease between Fiscal Years 2020-21 and 2021-22 due to increase in construction in progress interest capitalization offset by pending entry for judgement and claims.
(13) Represents adjustment to show investing activities annualized on a cash basis. (14) Changes in working capital represents adjustments to reconcile operating income to net cash provided by operating activities from the Statements of Cash Flows in the a udited financial statements. Fiscal Year 2021 -22 decrease in working capital primarily driven by adjustments relating to pension and OPEB obligations (15) The SFPUC budgeted and appropriated $22 million of available fund balances to be used as a source of funds in Fiscal Year 2021-22. Such amount offsets Operating and Maintenance Expense in Current Basis calculations. (16) “Net Revenue” is presented on a cash basis.
(17) Refundable Credits actually received by the SFPUC are reflected as reductions in Bond Debt Service and are excluded from Net Revenue. Prior to January 9, 2020, due to federal sequestration, the Indenture required that Refundable Credits not be reflected as reductions in Bond Debt Service but rather permitted an adjustment to Net Revenue; however, an amendment to the Indenture that allows for Refundable Credits actually received by the SFPUC to be reflected as reductions in Bond Debt Service and excluded from Net Revenue went into effect on January 9, 2020. (18) Per Indenture, in addition to current year cash flow, coverage calculation includes certain “Other Available Funds,” which are not budgeted to be spent in such twelve months and legally available to pay debt service. (19) Coverage does not include debt service on subordinate obligations, including the Water Enterprise’s share of lease payments associated with the 2009 Golden Gate COPs and debt service on Commercial Paper Notes. (20) Unaudited. Calculated as ratio between Net Revenues over debt service o n all senior lien obligations; excludes “Other Available Funds.”
Source: SFPUC, Financial Services.

PROJECTED OPERATING RESULTS
The following table presents projected operating results for the Water Enterprise. These projections are based on an analysis of historical trends, adjusted where appropriate for known or anticipated changes in operations. The projections are also based on the assumption that all retail water rate increases necessary to finance the Water Enterprise’s capital improvement program will be approved and implemented. The projections in the following Table 27 are budget based. Therefore, line items in Table 27 will not correspond to similar line items in Table 26, which is based upon the SFPUC’s GAAP financial statements for the Water Ente rprise.

THESE PROJECTIONS, ALL OR SOME OF WHICH MAY OR MAY NOT BE REALIZED, ARE BASED

ON THE ISSUANCE OF ADDITIONAL SERIES OF BONDS FOR THE REMAINDER OF WSIP, AS WELL AS NON-WSIP CAPITAL PROJECTS AND HETCH HETCHY PROJECTS AS CURRENTLY PROPOSED.

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.

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TABLE 27

PROJECTED REVENUES, OPERATING & MAINTENANCE EXPENSES

AND DEBT SERVICE COVERAGE
FOR FISCAL YEAR ENDING JUNE 30*
(IN THOUSANDS)
2023 2024 2025 2026 2027

CURRENT REVENUE
Retail Revenues(1) $318,886 $325,906 $344,062 $364,039 $378,913 Wholesale Revenues(2) 282,898 312,109 325,395 338,771 339,783 Other Miscellaneous Income(3) 31,048 34,363 35,449 35,680 36,504 Total Current Revenues $632,832 $672,378 $704,906 $738,490 $755,200

OPERATING AND MAINTENANCE
EXPENSE(4) $316,497 $318,166 $329,234 $338,980 $348,998 less FUND BALANCES BUDGETED
& APPROPRIATED(5) (67,175) (15,082) -- -- --
NET OPERATING REVENUE(6) $383,510 $369,294 $375,672 $399,510 $406,202 plus AVAILABLE FUND BALANCE (7) 150,192 211,942 231,504 209,066 166,619 FUNDS AVAILABLE FOR DEBT SERVICE $533,702 $581,236 $607,176 $608,576 $572,821

DEBT SERVICE(8) $328,352 $333,499 $335,388 $373,653 $374,457 BABs Interest Subsidy Payments(6) (21,290) (20,841) (20,370) (19,876) (19,345) NET DEBT SERVICE $307,062 $312,658 $315,018 $353,777 $355,112

DEBT SERVICE COVERAGE(9)
Indenture Basis(6)(10) 1.74x 1.86x 1.93x 1.72x 1.61x
Sufficiency of Revenues(6)(11) 1.25x 1.18x 1.19x 1.13x 1.14x

* Projections are based on the SFPUC’s Fiscal Years 2022 -23 and 2023- 24 operating budget adopted by Commission in February 2022.
(1) Assumes projected average daily billed retail consumption of 58.1 mgd, 60.1 mgd, 60.6 mgd, 61.1 mgd, and 60.4 mgd for Fiscal Years 2022 -23, 2023-24, 2024-25, 2025-26 and 2026-27, respectively. Assumes no retail rate change in Fiscal Year 2022-23 and an average annual retail rate increase of 5.0% for Fiscal Years 2023 -24 through 2026-27. See “FINANCIAL OPERATIONS – Retail Water Sales Revenue.”
(2) Assumes projected average daily billed wholesale consumption of 121.1 mgd, 121.6 mgd, 124.6 mgd, 127.6 mgd and 128.0 mgd for Fiscal Years 2022-23, 2023- 24, 2024- 25, 2025- 26 and 2026- 27, respe ctively. Assumes a 15.9% wholesale rate increase for Fiscal Year 2022 -23, a projected rate increase of 9.68% in Fiscal Year 2023 -24, and an average annual rate increase of 1.27% in Fiscal Years 2024 -25 through 2026- 27. See “FINANCIAL OPERATIONS – Wholesale Water Sales Revenue.”
(3) Includes, among other amounts, projected interest income, property rentals, fees, cost recoveries, and service installation charges.
(4) Represents Operating and Maintenance Expense net of depreciation and other non-cash items per Indenture. See “SECURITY FOR THE BONDS” and “APPENDIX A – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE.” (5) The SFPUC budgeted and appropriated available fund balances to be used as a source of funds as follows: $67.175 million in Fiscal Year 2022-23 and $15.085 million in Fiscal Year 2023-24. Such amounts offset Operating and Maintenance Expenses in sufficiency of Revenues calculations.
(6) Refundable Credits are treated as a reduction in projected Debt Service and are not included in projected Net Revenues.

Refundable Credits expected to be received assume a sequestration rate of 5.7%. Sequestration rates are subject to change and may be increased by federal legislation.
(7) Amounts are treated as Revenues under the Indenture. See “SECURITY FOR THE BONDS.” (8) Consists of debt service on Outstanding Bonds (net of capitalized interest), projected debt service for two existing Parity State Loans, and projected debt service for the 2023AB Bonds. Does not include projected debt service for the 2023CD Bonds. See “Projected Debt Service Assumptions.”
(9) Coverage does not include debt service on subordinate obligations, including the Water Enterprise’s share of lease payments associated with the 2009 Golden Gate COPs and debt service on Commercial Paper Notes or Revolving Notes.

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(10) Calculated as the sum of Net Operating Revenue and certain available fund balances of the Water Enterprise, divided by Annual Debt Service. The Indenture includes a rate covenant of 1.25 times coverage. See “SECURITY FOR THE BONDS – Rate Covenants – Debt Service Coverage.”
(11) Calculated as ratio between Net Operating Revenue over debt service on all senior lien obligations; excludes “Available Fund Balance.”
Note: Amounts set forth in the table are projections. Actual results may differ materially from these projections. See “FORWARD LOOKING STATEMENTS” above.

Source: SFPUC, Financial Services.

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 accountants.

The assumptions used in the table above are as follows:

Projected Revenue Assumptions. The projections assume no retail rate increase in Fiscal Year 2022- 23 and an average annual retail rate increase of 5.0% for Fiscal Years 2023-24 through 2026-27. Projected retail rate increases for Fiscal Years 2023 -24 through 2025-26 were approved by the Commission on May 23, 2023. See “FINANCIAL OPERATIONS – Retail Water Sales Revenue – Retail Water Rate Adjustments.” Revenues from sales of water to the Wholesale Customers are calculated in accordance with the WSA. The projections assume a wholesale rate increase of 15.9% in Fiscal Year 2022- 23, a wholesale rate increase of 9.68% in Fiscal Year 2023-24, and an average annual wholesale rate increase of 1.27% in Fiscal Years 2024 -25 through 2026-

27. The projected wholesale rate increase for Fiscal Year 2023-24 was approved by the Commission on May 9, 2023.

See “FINANCIAL OPERATIONS – Wholesale Water Sales Revenue – Wholesale Water Rate Adjustments.” In addition, interest earnings assume average annual yields of 0.5% throughout the projected period. “Available Fund Balance” amounts are treated as “Revenues” for purposes of “Debt Service Coverage – Indenture Basis.”
“BABs Subsidy Payments” are treated as a reduction in projected Debt Service and are not included in projected Net Revenues. See also “SECURITY FOR THE BONDS – Rate Covenants – Debt Service Coverage.” Projected Operating Expense Assumptions . Operating and Maintenance Expenses of the Water Enterprise are projected to increase at an average annual rate of 2.5% per year from Fiscal Year 2022 -23 through Fiscal Year 2026-27.

Projected Debt Service Assumptions. Projected debt service consists of projected, not actual, debt service on the 2010B Bonds, the 2010E Bonds and the 2010G Bonds (net of anticipated Refundable Credits), the 2015A Bonds, the San Francisco Water Revenue Bonds, 2016 Series AB (the “2016AB Bonds”), the San Francisco Water Revenue Bonds, 2016 Series C (the “ 2016C Bonds ”), the San Francisco Water Revenue Bonds, 2017 Series ABC (the “2017ABC Bonds”), the San Francisco Water Revenue Bonds, 2017 Series DEFG (the “ 2017DEFG Bonds”), the San Francisco Water Revenue Bonds, 2019 Series ABC Bonds (the “ 2019ABC Bonds”), the San Francisco Water Revenue Bonds, 2020 Series ABCD (the “2020ABCD Bonds”), the San Francisco Water Revenue Bonds, 2020 Series EFGH (the “ 2020EFGH Bonds”), the 2023AB Bonds (net of capitalized interest), two existing Parity State Loans (see “OBLIGATIONS PAYABLE FROM REVENUES – Parity State Loans; No Federal Loans”), and anticipated Additional Series of Bonds (net of capitalized interest and debt service reserve fund earnings). Projected debt service does not reflect the anticipated purchase of the Purchased Bonds or the refunding and defeasance of the Advance Refunded Bonds and, therefore, does not include debt service on the 2023CD Bonds (see “PLAN OF REFUNDING”).

Following the issuance of the 2023AB Bonds, the SFPUC anticipates that it will issue approximately $869 million of Additional Series of Bonds in Fiscal Years 2023-24, 2025-26, and 2026-27 to fund Water Enterprise capital projects.

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The projected debt service for the 2023AB Bonds and each Additional Series of Bonds assumes a borrowing rate of

5.0%, no Bond Reserve Account and up to 2.5 years 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. See “FINANCING OF CAPITAL IMPROVEMENTS.”

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 2 023CD Bonds. This section is not meant to be a comprehensive or definitive discussion of all of the risks associated with an investment in the 2023CD 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 2023CD Bonds are advised to consider the following factors, among others, and to review this entire Official Statement to obtain information essential to the making of an informed 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 2023CD Bonds or adversely affect the ability of the SFPUC to make timely paym ents of principal of or interest on the 2023CD Bonds. There can be no assurance that other risk factors not discussed herein will not become material 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 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, drought, general and local economic conditions and changes in law and government regulations could adversely affect the amount of Revenues realized by the SFPUC or significantly raise the cost of operating the Water Enterprise.

In addition, the realization of future Revenues is subject to, among other things, the capabilities of management of the SFPUC, the ability of the SFPUC to provide service to its Retail Customers and the wholesale customers, the ability of the SFPUC to establish, maintain and collect charges from its Retail Customers and the wholesale customers and the ability of the SFPUC t o establish, maintain and collect rates and charges sufficient to pay for Operation and Maintenance Costs of the Enterprise, the Bonds and other obligations payable from Revenues.

See “FINANCIAL OPERATIONS” and “OBLIGATIONS PAYABLE FROM 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, or premium, if any, or interest on the 2023CD Bonds except from Revenues. The SFPUC has no taxing power. The General Fund of the City is not liable for the payment of the principal of, or premium, if any, or interest on the 2023CD Bonds, and neither the credit nor the taxing power of the City is pledged to the payment of the principal of, or premium, if any, or interest on the 2023CD Bonds. The 2023CD Bonds are not secured by a legal or equitable pledge of, or charge, lien or encumbrance upon, any property of the City or of the SFPUC or any of its income or receipts, except Revenues.

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No Bond Reserve Account
No Bond Reserve Account has been established for the 2023CD Bonds. The Bond Reserve Accounts established with respect to other Series of Bonds do not secure the 2023CD Bonds. Therefore, the only security pledged to the holders of the 2023CD Bonds are the Revenues pledged under the Indenture and the covenant of the SFPUC to impose rates and charges necessary to pay debt service on the 2023CD Bonds.

Risks Related to Water Enterprise Facilities and Operations The operation of the Water Enterprise, and the physical condition of the Water Enterprise facilities, are subject to a number of risk factors that could adversely affect the reliability of the SFPUC’s water supply, or increase the operating expenses of the Water Enterprise. Prolonged damage to the Water Enterprise facilities could interrupt the ability of the SFPUC to realize 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.

Failure of Water Facilities. Many of the Water Enterprise’s facilities have been in service fo r an extended period and may be near or have reached the end of their useful lives. See “WATER FACILITIES – Physical Condition of Facilities” and “CAPITAL IMPROVEMENT PROGRAM AND OTHER WATER SUPPLY INITIATIVES.” Seismic Hazards. The Water Enterprise’s dis tribution, treatment and transmission systems and some of the facilities of the Hetch Hetchy Project are located in seismically active regions of the State, and cross three major known active fault zones (the San Andreas Fault, the Hayward fault and the Ca laveras Fault). See “WATER FACILITIES – Seismic Hazards.”
Natural and Man-Made Disasters. Other natural disasters, including without limitation, wildfires, flooding, landslides, or man -made disasters or accidents, including without limitation water pipelin e failures, natural gas pipeline failures or explosions, could interrupt operation of the Hetch Hetchy Project or the Regional Water System, result in liability claims against the Water Enterprise, or otherwise adversely impact the Water Enterprise’s ability to provide services or collect Revenues. With respect to wildfires specifically, see “WATER FACILITIES – Wildfire Considerations.”
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 Water 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 Water Enterprise could occur for which no insurance or self-insurance funds will be available. There can be no assurance that insurance provid ers 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. The SFPUC is authorized under the WSA to adopt emergency rate increases which helps to mitigate this risk.

Drought. California is located in a semi-arid region and is subject to periodic drought. An extended drought could adversely affect the ability of the SFPUC to deliver water sufficient to satisfy all of the demands of its customers.

If the SFPUC were to deliver less water to its customers, the SF PUC would need to increase the rates payable by customers or Revenues would decline. The SFPUC may also seek to acquire, and would be obligated to pay the cost of, additional water to deliver to its customers. The SFPUC has adopted a drought planning seque nce and associated operating procedures respecting the delivery of water during a drought. The SFPUC is authorized under the WSA to adopt drought surcharges if needed. In addition, retail water rates and charges for the four-year period effective July 1, 2018, included a drought surcharge. See “FINANCIAL OPERATIONS – Retail Water Sales Revenue – Retail Water Rate Adjustments.” See also “THE WATER ENTERPRISE – Water Supply Reliability and Drought Planning.” For

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a discussion of the recent California drought, and current water conditions, see “THE WATER ENTERPRISE – Recent Drought; Current Water Conditions.”
Wet Years. Precipitation within the Water Enterprise service area varies from year to year. High levels of precipitation generally results in reduced water usage for irrigation, reducing the amount of water delivered by the SFPUC. If the SFPUC were to deliver less water to its customers, the SFPUC would need to increase the rates payable by customers or Revenues would decline. High levels of precipitation may also increase the supply of water available to wholesale customers, also reducing SFPUC water deliveries. See “THE WATER ENTERPRISE – Current Water Conditions.”
Safety and Security. The occurrence of military conflicts and terrorist activities could adversely impact the operations of the SFPUC, including the Water Enterprise, and/or the finances of the SFPUC. The SFPUC continually plans and prepares for emergency situations. See “WATER FACILITIES – Safety and Security.” 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 Water Enterprise or that costs of security measures will not be greater than presently anticipated.

Statutory and Regulatory Compliance. The operation of the Water Enterprise is subject to a variety of federal and State statutory and regulatory requirements concerning matters such as water quality, dam safety, instream fishery flows and endangered species. The SFPUC’s failure to comply with applicable laws and regulations could result in significant fines and penalties. In addition to claims by private parties, changes in the scope and standards for public agency water systems such as the Water Enterprise may also lead to administrative orders issued by federal or State regulators. Future compliance with such orders could also impose substantial additional operating expenses on the Water Enterprise. See “REGULATORY MATTERS.”
Endangered Species. Various aquatic species (including native fish) present in the Tuolumne River and Bay Area streams (e.g., Alameda, San Mateo and Pilarcitos Creeks) are either listed or candidates for listing under the State or federal endangered species acts . New listings and future enforcement actions under the acts, or conditions placed in permits to undertake construction for certain projects, could potentially directly affect water flow and/or water supplies available to the Water Enterprise and/or increase costs due to mitigation requirements. See “REGULATORY MATTERS – Endangered Species.”
Labor Actions . The Charter prohibits SFPUC and other City employees from engaging in certain labor actions (e.g. strikes). Nonetheless, a labor action could limit the SFPUC’s ability to operate the Water Facilities and adversely impact Revenues.

Proposals to Restore Hetch Hetchy Valley. Some environmental organizations advocate for the removal of Hetch Hetchy Reservoir and the restoration of Hetch Hetchy Valley. For exa mple, an initiative ordinance qualified for the November 2012 City ballot with support from an organization called “Restore Hetch Hetchy” and would have required the City to identify alternative sources of water and, subject to certain additional conditions, end its use of Hetch Hetchy Reservoir. This initiative was rejected by the City’s voters.

Previous studies have examined proposals to remove Hetch Hetchy Reservoir. For example, a 2006 report by the California Department of Water Resources and the Calif ornia Department of Parks and Recreation concluded that it is technically feasible to restore Hetch Hetchy Valley, but cautioned financial feasibility. The study estimated that the total cost of such a project would range from $3 billion to $10 billion in 2006 (approximately $4 billion to $13 billion in 2020, adjusted for inflation). The State agencies also concluded that the initial planning effort would take up to 10 years to complete and cost an additional $65 million.

In 2015, Restore Hetch Hetchy filed a complaint against the City alleging that the SFPUC’s operation of Hetch Hetchy Reservoir is an unreasonable method of diversion of water in violation of the State Constitution because of the O’Shaughnessy Dam’s location within a national park. The case has been fully and finally resolved in the City’s favor. In addition, in 2019, Restore Hetch Hetchy commissioned a report that concluded that restoring Hetch Hetchy Valley and opening it to greater public use had an economic use value between $2 billion to $5 billion and an intrinsic passive-use value of over $100 billion over a 50- year period. No formal federal, State or local policy proposals have been made in response to the report.

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The SFPUC is unable to predict whether any similar initiatives, or similar federal or State legislation, might be approved by the voters or adopted by legislative bodies in the future, or the potential impact of such efforts on the SFPUC or the Water Enterprise. Any such legislation or litigation, if successful, could impose substantial additional operating and capital expenses on the Water Enterprise.

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 fac es multiple cybersecurity threats including, but not limited to, hacking, viruses, malware and other attacks on its computing and other digital networks and systems (collectively, “Systems Technology”). As a recipient and provider of personal, private, or sensitive information, the City has been the subject of cybersecurity incidents that have resulted in or could have resulted in adverse consequences to the City’s Systems Technology and that required a response action to mitigate the consequences.

Cybersecurity incidents could result from unintentional events, or from deliberate attacks by unauthorized entities or individuals attempting to gain access to the City’s Systems Technology for the purposes of misappropriating assets or information or causing operational disruption and damage. To mitigate the risk of business operations impact and/or damage from cybersecurity incidents or cyber -attacks, the City invests in multiple forms of cybersecurity 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 critical infrastructure and information, manage risk, improve cyber security event detection and remediation, and facilitate cyber awareness across all City departments. The City’s Department of Technology has established a 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 regulatory requirements, and aligns with and supports the risk posture of the City. Mayor Breed addressed this issue on June 4, 2021 in Executive Directive 21-02, Ensuring Strong and Organized City Defense Against Cybersecurity Attacks (“Executive Directive 21 -02”), which sets forth requirements for City departments to strengthen and improve the City’s cyber functions and programs.

SFPUC Measures. The SFPUC also relies on a large and complex technology environment to conduct its operations. Although the SFPUC maintains its own business and control networks that are separate from the City’s network, the SFPUC faces similar cybersecurity threats as the City, including hacking, viruses, malware and other attacks on its computing and other digital networks and systems. To mitigate the risk of and damage from cybersecurity incidences or cyberattacks, the SFPUC abides by the City Cyber Policy and also maintains its own cybersecurity 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

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to the SFPUC’s policies, is charged with identifying and monitoring threats which are typically addressed by the SFPUC’s information technology services team, educating staff concerning vulnerabilities and constantly improving the SFPUC Cybersecurity Program.

While the SFPUC Cybersecurity Program is periodically reviewed, no assurances can be given by the SFPUC that such measures will ensure against other cybersecurity threats and attacks. Cybersecurity breaches could damage the SFPUC’s information security systems and cause material disruption to the SFPUC’s operations and the provision of SFPUC services. The costs of remedying any such damage or protecting against future attacks could be substantial.

Further, cybersecurity breaches could expose the SFPUC to material litigation and other legal risks, which could cause the SFPUC to incur material costs related to such legal claims or proceedings. The SFPUC currently purchases liability insurance covering cyber -losses and requires its technology vendors to purchase technology errors and omissions insurance coverage.

Construction Related Risks
Construction projects for the Water Enterprise are subject to ordinary construction risks and delays applicable to projects of their kind, including but not limited to (i) inclement weather affecting contract or 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; (vii) errors or omissions in contract documents requiring change orders; (viii) the occurrence of a major seismic event; or (ix) 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, Water Enterprise construction projects may require scheduling system shutdowns to avoid impacting water deliveries and many shutdown windows are inflexible.

Increased construction costs or delays could impact the Water Enterprise’s f inancial condition in general and the implementation of its capital programs in particular. Construction bids may also be higher than anticipated for budgeting purposes.

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 the water rates payable by its customers. The increase or maintenance of retail water rates is subject to various substantive and procedural req uirements and limitations. See “FINANCIAL OPERATIONS – Retail Water Sales Revenue” and “CONSTITUTIONAL, STATUTORY AND CHARTER LIMITATIONS.”
Water rates payable by the Wholesale Customers are established under the WSA, which may help reduce the risk that Re venues will be insufficient for the purposes described in this section. Rates established pursuant to the WSA are subject to the substantive requirements and the procedures, including procedures for resolving disputes, of applicable law and as set forth in the WSA. The WSA also provides for rate adjustments for drought and non-drought emergencies if needed. See “FINANCIAL OPERATIONS – Wholesale Water Sales Revenue” and “APPENDIX B – SUMMARY OF CERTAIN PROVISIONS OF THE WATER SUPPLY AGREEMENT.” Initiative, Referendum, 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 an d 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 Water Enterprise. See “CONSTITUTIONAL, STATUTORY AND CHARTER LIMITATIONS.”
Under the Charter, the voters of the City 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 electorate of the City approved Proposition H which, subject to certain exceptions, including a limited exception to raise rates to pay debt service on

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voter-approved debt, froze the SFPUC’s water and sewer rates through July 1, 2006. The SFPUC can give no assurance that the electorate will n ot 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.

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.” 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 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 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 Revenues 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 are secured on a basis subordinate to the payment of debt service on the Bonds.

See “OBLIGATIONS PAYABLE FROM REVENUES – Subordinate Debt and Interim Funding Program.” 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 Water Enterprise. In addition to certain direct impacts on the operations and finances of the Water Enterprise, COVID- 19 has had significant and varied impacts on general economic activity at the local, national and global levels, including supply chain and labor market disruptions. Such disruptions have, among other effects, resulted in increases in materials, labor, transportation and other costs across a wide number of sectors, as well as delays in delivery of projects and equipment. The Water 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 COV ID-19’s disruption of supply chains. Additionally, such disruptions may result in schedule delays for the Water Enterprise’s capital projects or increased costs for such projects.

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Climate Change
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, 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 1 00-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 infrastructur e, 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 req uired 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 the Sea Level Rise Action Plan, the Mayor’s Sea Level Rise Coordinating Committee, co -chaired by the Planning Department and the Port of San Francisco, worked together to develop the City’s Guidance for Incorporating Sea Level Rise into Capital Planning, Adopted September 2014, Revised December 2015, and Updated January 2020 and 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 Ac tion 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 consolidate 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 Climate 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 resilienc e refers to a range of coordinated actions that eliminate greenhouse gas emissions and adapt our built and natural environment, while achieving a more equitable and sustainable city.

In April 2017, the Working Group of the California Ocean Protection Counc il Science Advisory Team (in collaboration with several state agencies, including the California Natural Resource Agency, the Governor's Office of Planning and Research, and the California Energy Commission) published a report, that was formally adopted in March 2018, entitled “Rising Seas in California: An Update on Sea Level Rise Science” (the “Sea Level Rise Report”) to provide a new synthesis of the state of science regarding sea level rise. The Sea Level Rise Report provides the basis for State guidance to state and local agencies for incorporating sea level rise into design, planning, permitting,

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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 yea r 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 San Francisco , 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 San Francisco built on fill.

Projections of the effects of global climate change on San Francisco are complex and depend on many factors that are outside the City's control. The various scientific studies that forecast climate change and its adverse effects, including sea level rise and flooding risk, are based on assumptions contained in such studies, but actual events may vary materially. Also, the scientific understanding of climate change and its effects continues to evolve. Accordingly, the City is unable to forecast when sea level rise or other adverse effects of climate change (e.g., the occurrence and frequency of 100 -year storm events and king tides) will occur. In particular, the City cannot predict the timing or precise magnitude of adverse economic effects, including, without limitation, material adverse effects on the business operations or financial condition of the City and the local economy during the term of the 2023CD Bonds. While the effects of climate change may be mitigated by the City ’s past and future investment in adaptation strategies, the City can give no assurance about the net effects of those strategies and whether the City will be required to take additional adaptive mitigation measures. If necessary, such additional measures could require significant capital resources.

In September 2017, the City filed a lawsuit against the five largest investor-owned oil companies seeking to have the companies pay into an abatement fund to help fund infrastructure for climate change adaptation. In July 2018, the United States District Court for the Northern District of California denied the plaintiff’s motion for remand to State court and then dismissed the lawsuit, which the City had joined as a plaintiff. The plaintiffs appealed these decisions to the United States Court of Appeals for the Ninth Circuit, which in May 2020 vacated the District Court’s order that found the case arose under federal law, remanding the case back to the District Court to determine if there were any other grounds for federal jurisdiction. In June 2021, the U.S. Supreme Court declined to review the Ninth Circuit’s decision. In October 2022, the District Court ordered the case remanded to State court and stayed the remand pending any appeals. The defendants have appealed the District Court’s decision to the Ninth Circuit. While the City believes that the claims in this lawsuit are meritorious, it can give no assurance regarding whether the lawsuit will be successful and obtain the requested relief from the courts, or contributions to the abatement fund from the defendant oil companies.

Impact on SFPUC Water Enterprise. The issue of climate change has become an important factor in water resources planning in the State, and is being considered during planning for the Water Enterprise. There is evidence that increasing concentrations of greenhouse gases have caused and will continue to cause a rise in temperatures around the world, which will result in a wide range of changes in climate patterns. Moreover, there is evidence that a warming trend occurred during the latter part of the 20th century and will likely continue through the 21st century.

These changes will have a direct effect on water resources in the State, and numerous studies on climate and water in the State have been conducted to determine the potential impacts. Based on these studies, climate change could result in the following types of water resources impacts in the State, including impacts on the Water Enterprise and associated watersheds:

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• Reductions in the average annual snowpack due to a rise in the snowline and a s hallower snowpack in the low- and medium-elevation zones, such as in the Tuolumne River basin, and a shift in snowmelt runoff to earlier in the year;
• Changes in the timing, intensity and annual variability of precipitation, and an increased amount of precipitation falling as rain instead of as snow;
• Long-term changes in watershed vegetation and increased incidence of wildfires that could degrade water quality;
• Sea level rise, which could cause inundation of Water Enterprise assets and/or an increase in salt water intrusion into groundwater basins;
• Increased water temperatures with accompanying adverse effects on some fisheries and water quality; and
• Changes in urban water demand.

However, other than the general trends listed above, there is no clear scientific consensus on exactly how climate change will quantitatively affect SFPUC or State water supplies.

To help better understand the potential vulnerability of the SFPUC’s Regional Water System to uncertain future conditions, SFPUC partnered with the Water Research Foundation to develop a long- term vulnerability assessment of the Regional Water System, which was published in 2021. The study was conducted by University of Massachusetts Hydrosystems Research Group (HRG) with input from National Center for Atmos pheric Research (“NCAR”), other climate scientists, and Deltares. The goal of the long -term vulnerability assessment is to help quantitatively and qualitatively assess to what extent climate change will be a threat to the Regional Water System in comparison to or in combination with other external drivers of change over the next 50 years (2020 -2070). More specifically, the assessment aims to answer the following questions: 1) Under what conditions and when will the Regional Water System no longer meet syste m performance criteria? 2) Is climate change the most important driver of vulnerability for the Regional Water System and if not, what is? While climate change is the driver of change that triggered this study, the intent is to understand the effects of climate change in the context of effects from other drivers of change on the Regional Water System. Overall, the study finds that:
• Climate change exacerbates impacts from other external drivers of change and is not the single most important driver of vulnerability for the Regional Water System. • The Regional Water System at a baseline demand of 227 mgd is resilient to changes in climate and other external drivers.
• The Regional Water System water supply performance declines with reductions in mean precipitatio n but is mostly insensitive to increases in temperature.
• The Regional Water System is more vulnerable to changes in demand and instream flow requirement than changes in mean annual temperature and precipitation. • The Regional Water System is vulnerable to c hanges to mean climate when demand or instream flow requirements increase.

These findings are based on the following results:
• According to climate projections and expert elicitations of climate scientists, there is a central tendency of warming of +2°C and +4°C by 2040 and 2070 for RCP8.5 (which represents unmitigated global

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greenhouse gas emissions during the 21 st century), resp ectively, with no clear direction of change in mean annual precipitation over the planning horizon.
• In the Hetch Hetchy watershed, by 2040, most projections and elicitations of warming estimate between +1°C and +4°C and for precipitation change between -5% and +5% compared to historical baseline; and by 2070 estimates of warming range between +3°C and +6°C and for precipitation between - 15% and +15% (assuming RCP 8.5).
• Changes in hydrology due to climate change affect the Regional Water System’s ability t o meet water supply targets. At 227 mgd demand, the Regional Water System can sustain up to +4°C and - 5% precipitation change before failing to meet targets for delivery reliability, frequency of 20% rationing, storage reliability and duration of rationing. At 227 mgd demand, the Regional Water System is resilient to all median climate projections for the planning horizon 2020 -2070. Due to the limitations of the models, these results are likely understating the impact of climate change. Next steps will include improvements on these models to address the bias in the current versions. • Precipitation change is an important driver for Regional Water System performance. A decrease by 10% or more will cause Regional Water System targets to be missed. The climate pr ojections and expert elicitations show that such a change in precipitation is possible by 2040, although unlikely. The likelihood of this change increases toward 2070.
• The Regional Water System shows minor sensitivity to temperature change for the metrics evaluated in this study. Most metrics stay above target under warming conditions. However, warming conditions often magnify the loss in system performance if precipitation or demand change. • Demand change appears to be a major driver of future Regional Water System performance. An increase in demand of approximately 16.7% (265 mgd) will lead to failure to meet rationing frequency targets under current climate conditions. At 265 mgd demand, the rationing frequency targets would be met if there is an increase in precipitation of 10%. If demand increases by 30%, the rationing target cannot be met even when precipitation increases by 40%, which is believed plausible but unlikely over the planning horizon.
• The Regional Water System is particularly vulnerable to the SWRCB’s “Phase 1” Amendment to the Water Quality Control Plan (See “REGULATORY MATTERS – Bay-Delta Water Quality Standards”) which represents a significant reduction in water available. At a demand of 227 mgd, the effect of the 2018 Plan Amendment (as defined herein) under current conditions is equivalent to a reduction in mean annual precipitation of about 15% in terms of the water delivery reliability (reliability around 85%, rationing in 1 out of 6.5 years on average).

SFPUC hydrologists are involved in ongoing monitoring and research regarding climate change trends and will continue to monitor the changes and predictions, particularly as these changes relate to water system operations and management of the Water Enterprise.

Regarding sea level rise, the City has developed policies for considering the potential impact of sea level rise on City assets, “Guidance for Incorporating Sea Level Rise into Capital Planning” that requires all assets in the City’s 10-year capital plan be evaluated for inundation under a variety of sea level rise scenarios plus a 1% storm. The SFPUC has assets that are part of the Emergency Firefighting Water System, formerly referred to as the Auxiliary Water Supply System, the supplementary and emergency water supply for firefighting managed by the SFPUC. These assets have projected functional lifespans of between 90 and 100 years. Several of these assets such as buried pipelines, fireboat manifolds, hydrants, and pump stations are in the potential inundation zone toward the end of the 21st century. The City, through its Sea Level Rise Action Plan, will be evaluating the best approaches and potential adaptive management plans for protecting EFWS assets, along with all other public and private assets potentially subject to inundation caused by sea level rise and large storms.

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The SFPUC is a founding member of the Water Utility Climate Alliance (the “WUCA”), a group of 12 large water utilities delivering drinking water to over 50 million people in the United States that is focused on collaboratively advancing water utility climate change adaptation. WUCA meets monthly by phone, maintains active projects and committees exploring adaptation best practices on a variety of subjects and features active participation of SFPUC staff.

Green Bonds
The purpose of labeling the 2023C Bonds as “Green Bonds” is to allow owners of such bonds to invest in bonds that have financed environmentally beneficial projects and the 2023C Bonds have been certified by CBI as “Climate Bonds.” The SFPUC does not make any representation, however, as to the suitability of the 2023C Bonds to fulfill the environmental and sustainability criteria of particular investors. 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 2023C Bonds will continue to meet investor expectations.

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. See “WATER FACILITIES – Wildfire Considerations.” Economic, Political, Social and Environmental Conditions Changes in economic political, social, or environmental conditions on a local, State, federal, and/or international level may adversely affect investment risk generally. Such conditional changes may include (but are not limited to) disruptions in business activity, consumer prices, or financial markets, unemployment rates, availability of skilled labor, technological advancements, shortages or surpluses in natural resources or energy supplies, changes in law, social unrest, fluctuations in the crime rate, political conflict, acts of war or terrorism, environmental damage, and natural disasters.

Bankruptcy or Financial Failure of Wholesale Customers
The financial failure or bankruptcy of a Wholesale Customer could adversely affect the ability of such Wholesale Customer to honor its obligation under the WSA (including its obligation to pay the purchase price of water delivered by the SFPUC to such Wholesale Customer).

The SFPUC is not aware of the existing or impending financial failure or bankruptcy of any Wholesale Customer, but there can be no assurance that a financial failure or bankruptcy of a Wholesale Customer will not occur.

If a Wholesale Customer were to become bankrupt, the SFPUC may be unable to enforce the terms of the WSA against such Wholesale Customer and the SFPUC’s right to receive payment for water delivered prior to bankruptcy but not invoiced or invoiced but not paid may be limited to the rights of an unsecured creditor of the bankrupt entity. Further, there can be no assurance that the SFPUC will be physically able or legally permitted to cease or interrupt deliveries of water to a non-paying Wholesale Customer.

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Although no assurance can be provided, the SFPUC believes that any reduction in Revenues as a result of the inability to collect payment for water delivered to a bankrupt Wholesale Customer or as a result of any temporary interruption or reduction of water deliveries will not be material. The SFPUC further believes that, following such bankruptcy, the amount of water delivered for the service area currently served by such Wholesale Customer will not be reduced and that the SFPUC will be able to obtain payment for such water on terms comparable to the terms of the WSA.

Bankruptcy of the City
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 only authorized to file for bankruptcy under certain circumstances. Should the City file for bankruptcy, there could be adverse effects on the holders of the 2023CD Bonds.

To the extent that the Revenues are “special revenues” under the United States Ban kruptcy 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 2023CD Bonds may not be able to assert a claim against any property of the City other than the 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 2023CD 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 2023CD 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 2023CD 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 2023CD 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 2023CD 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 (inc luding 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 2023CD 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 2023CD 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 2023CD Bonds, as long as the bankruptcy court determines that the alterations are fair and equitable.

There may be delays in payments on the 2023CD 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 2023CD Bonds, or result in losses to the holders of the 2023CD Bonds. Regardless of any specific adverse

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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 2023CD Bonds.

The SFPUC invests Revenues in the City’s Pooled Investment Fund. See “FINANCIAL OPERATIONS – Investment of SFPUC Funds.” In the event of a bankruptcy of the City, there may be delays or reductions in payments on the 2023CD Bonds.

Limitations on Remedies
The remedies available to the Owners of the 2023CD 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 2023CD Bonds and the Indenture may be subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affectin g creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against charter cities and counties in the State.

The opinion to be delivered by Bond Counsel, concurrently with the issuance of the 2023CD Bonds, that the 2023CD 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 and the various other legal opinions to be delivered concurrently with the issuance of the 2023CD Bonds will be similarly qualified. See “APPENDIX D – PROPOSED FORM OF OPINION OF BOND COUNSEL.”
If the SFPUC fails to comply with its covenants under the Indenture or to pay principal of or interest on the 2023CD Bonds, there can be no assurance that the available legal remedies will be adequate to protect the interests of the holders of the 2023CD Bonds.

Loss of Tax Exemption/Risk of Tax Audit of Municipal Issuers As discussed under “TAX MATTERS,” interest on the 2023CD 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 2023CD 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 2023CD Bonds are not subject to redemption or any increase in interest rate and could 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 2023CD Bonds could be selected for audit by t he IRS. It is also possible that the market value of the 2023CD Bonds might be affected as a result of such an audit of the 2023CD Bonds (or by an audit of similar securities).

Change in Tax Law
As discussed under “TAX MATTERS,” current and future legis lative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the 2023CD 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 assigned ratings to the 2023CD 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 2023CD Bonds. The SFPUC undertakes

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no obligation to maintain its current credit ratings on the 2023CD 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 2023CD Bonds or, if a secondary market exists, that the 2023CD Bonds can be sold for any particular price. Occasionally, because of general market conditions or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices in connection with a particular issue are suspended or terminated. Additionally, prices of issues for which a market is being made will depend upon then prevailing circumstances. Such prices could be 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 results are likely to differ, perhaps materially, from those projected. Accordingly, such projections are not necessarily indicative of future performance, and the SFPUC assumes no responsibility for the accuracy of such projections. See “FORWARD-LOOKING STATEMENTS.”
Other Risks
The discussion in this section, “RISK FACTORS”, is not meant to be a comprehensive or definitive list of the risks associated with an investment in the 2023CD Bonds. There may be other risks inherent in ownership of the 2023CD 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 2023CD Bonds.

REGULATORY MATTERS
General
Public water supply systems in California, such as the Regional Water System and In- City Distribution System operated by the Water Enterprise, are primarily regulated by the SWRCB Division of Drinking Water (“DDW”), formerly under the California Department of Public Health (“ CDPH”) and, in some limited instances, by the EPA and California Regional Water Quality Control Boards (“RWQCBs”).

Drinking water delivered to customers must comply with statutory and regulatory water quality sta ndards designed to protect public health and safety that are now administered by DDW. The CDPH reissued a drinking water supply permit in 2004 prescribing conditions and requirements for the Water Enterprise to operate the Regional Water System. The CDPH also issued drinking water supply permits to the In-City Distribution System, several small water systems owned and operated by the Water Enterprise, and the wholesale customer public water supply systems. The CDPH and the DDW issued several amendments to t he Regional Water System and In -City Distribution System permits for various changes over the last 17 years. In accordance with the drinking water standards and permit requirements, the Water Enterprise operates and maintains water storage, treatment and conveyance facilities, implements watershed management and protection activities, performs inspections, monitors drinking water quality, conducts applied research, maintains and implements a comprehensive and effective cross -connection control program, and submits monthly and annual compliance reports. The Water Enterprise is currently operating in compliance with all State and federal drinking water regulations and permit requirements. The Regional Water System and the City’s drinking water supply permits will be updated around 2025 to reflect new facilities and operations.

In addition, public water system discharges to State and federal waters are regulated under general National Pollutant Discharge Elimination System (“ NPDES”) permits. The SWRCB issued gen eral permits, whereas the two RWQCBs (San Francisco Bay and Central Valley) issued individual region- specific NPDES permits to the SFPUC, which contain numerical effluent limitations, monitoring, reporting and notification requirements for water discharges

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from the facilities and pipelines of the Regional Water System. The SFPUC is generally operating and maintaining the water treatment and transmission facilities in compliance with the NPDES permit requirements. Coverage under existing NPDES permits will r emain since the permits issued by the SWRCB or RWQCBs are either reissued on a specific timeline or administratively extended. The SFPUC will ensure continuous coverage and re -enroll under NPDES permits as necessary.

A number of water resource management and regulatory initiatives may affect the availability of water to the Regional Water System in the future. Also, alternate water supplies currently used by wholesale customers of the Water Enterprise may be reduced in the future, increasing the customers’ reliance on the Regional Water System. In addition to those raised below, these initiatives include the Sacramento- San Joaquin Delta Reform Act of 2009, the federal or California Endangered Species Acts, the SWRCB Bay Delta Proceedings, the Federal Energy Regulatory Commission (“ FERC”) proceeding to relicense the Irrigation Districts’ New Don Pedro Dam and Reservoir and others. The effects of any of these activities, or of these activities cumulatively, are unknown.

Drinking Water Requirements
Division of Drinking Water . After decades of very limited regulatory developments, the DDW has picked up its pace updating existing and adopting new drinking water regulations. These new developments will impact the current operations of the SFPUC’s drinking water operations, with new resources needed to comply with these updated regulatory requirements. The regulatory development in the last five years includes the adoptions of: surface water augmentation regulations; a lower detection limit for reporting of perchlorate in drinking water from 4 parts per billion (“ppb”) to 2 ppb; the Total Coliform Rule Revision; a notification and a response level of 0.5 ppb and 5 ppb, respectively, for perfluorobutane sulfonic acid; a notification level and a response level of 3 nanogram per liter (“ng/L”), or part per trillion (“ppt”)) and 20 ppt, respectively, for perfluorohexane sulfonic acid (both are parts of the per- and poly-fluorinated alkyl substances, known as “PFAS” or forever chemicals); notification and response levels for four cyanotoxins (microcystins, cylindrospermopsin, anatoxin- α, and saxitoxin); and a policy handbook for monitoring of microplastics in drinking water.

Currently there are several areas of regulatory development at the State level. These regulations are expected to be adopted by the DDW in the foreseeable future. These include, but are not limited to, further lowering the detection limit for reporting perchlorate from 2 ppb to 1 ppb by January 2024; revision of the existing Lead and Copper Rule (the “ LCR”) in line with the corresponding federal Lead and Copper Rule Revision (the “ LCRR”); revised notification and response levels for manganese from existing 500 ppb and 5,000 ppb to 20 ppb and 200 ppb, respectively; a new maximum contaminant level (“MCL ”), which is a numerical drinking water standard, for chromium-6 in drinking water; a Cross-Connection Control Policy Handbook; increase in publication frequency of a Consumer Confidence Report from annual to semiannual; and lowering detection limits for reporting purposes for eight metals including lead, nickel and arsenic.

Surface Water Treatment . Several related regulations addressing surface water treatment requirements for drinking water were adopted by the EPA and the State between 1990 and 2010. These regulations, including the Surface Water Treatment Rule, Interim Enhanced Surface Water Treatment, Filter Backwash Recycling Rule, Long - Term 1 and Long- Term 2 Enhanced Surface Water Treatment Rules, require filtration of all surface water supplies unless the water supply can meet certain stringent requirements, and impose bacterial and parasitic disinfection/inactivation performance with which community water systems including those operated by the SFPUC have to comply.

As discussed under “WATER FACILITIES – Water Treatment,” the high quality of water provided from Hetch Hetchy Reservoir has been determined to be sufficient to meet filtration avoidance requirements without installation and operation of filtration facilities. However, new treatment (disinfection or filtration) facilities could be required in the future if the filtration avoidance criteria are not consistently met or regulations change. See “ – Regulatory Review by EPA and DDW.”
Local water from the Alameda and Peninsula watersheds and upcountry non- Hetch Hetchy sources requires filtration to meet applicable drinking water quality requirements. The filtered and treated water from these non-Hetch Hetchy sources may be blended with disinfected Hetch Hetchy water. Most customers receive water from blended

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sources. System water quality, including both raw water and treated water, is con tinuously monitored and tested to assure that water delivered to customers meets or exceeds federal and State drinking water/public health requirements.

The SFPUC’s advanced disinfection facility at the Tesla Treatment Facility, which uses ultraviolet ligh t technology to inactivate target organisms (Giardia and Cryptosporidium) in the Hetch Hetchy water supply, has been performing well since its operations began in 2012. See “WATER FACILITIES – Water Treatment.” Stage 2 Disinfectants and Disinfection Bypro duct Rule. The EPA promulgated the Stage 2 Disinfectants and Disinfection Byproducts Rule (“Stage 2 DBPR”) in 2006 and the State adopted its version in 2012. This rule is to reduce public health risk associated with disinfection byproducts (“ DBPs”). Since then, the SFPUC has demonstrated compliance with the Stage 2 DBPR by the continued use of the chloramination treatment process, albeit the fact that there are times of elevated DBP levels due to the increase in total organic carbon concentrations, which is the precursor for DBP formation, associated with the intensity of runoff in the Sierra region.

Regulatory Review by EPA and DDW . Under the Safe Drinking Water Act (the “SDWA ”), the EPA must review all existing regulations every six years and determine which regulations may need to be revised. The EPA has begun the fourth six- year year review process by performing analyses with relevant data, information, and technologies to further evaluate the eight National Primary Drinking Water Regulations identified under the previous review. Results of the fourth six- year review are anticipated to be completed in late 2023. The EPA is expected to propose revised regulations by July 31, 2024, and to publish a final regulation by September 30, 2027. The review and the associated regulatory revisions may result in new capital and operational expenditures to the Water Enterprise, but any regulatory revisions would not go into effect for several years.

Similarly, California Health and Safety Code §116365(g) requires the DDW to review its maximum contaminant levels (“MCLs”) at least once every five years. These quinquennial MCL reviews are to ensure that the MCLs cannot be less stringent than the corresponding federal drinking water standards, and must be as close as is technically and economically feasible to the public health goals established by the California Office of Environmental Health Hazard Assessment. Although the DDW reviewed all its MCLs between 2015 and 2017 and determined that no MCL revisions were needed as of 2018, regulatory changes resulting in the need of new infrastructure and operations may incur in future quinquennial MCL reviews.

Groundwater Rule. The EPA promulgated the Groundwater Rule (“ GWR”) to address waterborne disease and microbial contamination related to groundwater. The State adopted its own version of the GWR in 2011 by reference to the EPA’s regulations. The GWR requires that a system putting new groundwater sources in service after November 30, 2009, must conduct assessment source water monitoring if directed by the State. The GWR also requires a groundwater system to conduct triggered source water monitoring if it does not provide 4- log virus treatment and the results of bacteriological monitoring are fecal-coliform positive. The SFPUC presently has a groundwater program consisting of two projects: San Francisco Groundwater Supply for the In-City Distribution, and Groundwater Storage and Recovery for the Regional Water System. The groundwater wells of these two projects will serve as the additional and emergency water supplies to the In- City Distribution System and the Regional Water System. This rule may affect the treatment and operation of these groundwater projects, depending on the operational management and water quality of these new alternate water sources. Additional treatment facilities may be required to meet the disinfection requirements and to reduce certain mineral content of the groundwater to comply with the corresponding drinking water standards, if water quality monitoring results indicated such a need and the proposed blending with the surface water sources does not allow the water quality goals to be met.

Revised Total Coliform Rule . The EPA adopted the Revised Total Coliform Rule (“ RTCR”) in 2013, and may also consider the adoption of a new Distribution System Rule in the future to more closely regulate distribution system operations and related facilities. The DDW adopted its own version of the RTCR, which has been effective since July 1, 2021. Both the Regional Water System and the In-City Distribution System are in compliance with these regulatory requirements. It is too early at this time to identify what new treatment facilities or operational changes will be required to meet a future Distribution System Rule.

Lead and Copper Rule. The SFPUC has proactively addressed lead concerns for several decades, well before the EPA published its Lead and Copper Rule in 1991 and the State’s adoption of similar regulations in the 1990s. In the 1980s, the SFPUC removed all know n lead service lines from the In -City Distribution System. In the late 1990s,

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the SFPUC started distributing non-lead faucets to daycare centers and schools. The distribution program for non-lead faucets was then expanded to the general public served by the In -City Distribution System. In the 2000s, the SFPUC initiated a program to replace service meters with a non-leaded type in the In-City Distribution System and eliminated large, leaded, compound meters. As of end of 2022, approximately 99% of the servic e meters have been replaced.

In 2006, the SFPUC submitted a report to the State documenting that its existing corrosion control treatment using pH adjustment was optimized. The SFPUC also piloted use of other non -leaded plumbing components and sponsored the lead-free law known as Assembly Bill 1953 (“AB 1953”) that was enacted by the California Legislature in 2006. AB 1953, which requires new lead-free plumbing components containing no more than 0.25% lead, has been in effect since January 1, 2010. In January 2014, EPA began enforcing its lead-free mandate known as the Reduction of Lead in Drinking Water Act, which was enacted by Congress on January 4, 2011. The EPA’s definition of “lead free” is the same as AB 1953’s definition of “lead-free.” In 2021, the SFPUC completed its latest triennial LCR monitoring for the In- City Distribution and the Regional Water System. The monitoring results demonstrate continued compliance with the existing LCR.

Nevertheless, the SFPUC may have to conduct a new op timized corrosion control treatment study with the addition of new groundwater sources to the Regional Water System and the In- City Distribution System.

In 2016, in response to the lead problem associated with the drinking water supply in Flint, Michigan, and other parts of the United States, the EPA issued a memo clarifying the recommended LCR tap sampling procedures and published new guidelines for states and public water systems to assist them in complying with existing LCR monitoring, corrosion treatment optimization, and notification requirements.

In 2016, Section 116885 of the California Health and Safety Code was amended by Senate Bill 1398 and Senate Bill 427 requiring a community water system, such as those overseen by the SFPUC, to complete the following:
(i) compile an inventory of known Lead User Service Lines (“LUSLs”), which are service lines that have components made of lead material, by July 1, 2018; (ii) identify areas that may have LUSLs, including service lines made of unknown materials, by July 1, 2018; (iii) identify unknown user service line material by July 1, 2020; and (iv) develop a replacement timeline for LUSLs and still unknown material user service lines by July 1, 2020. The approved SFPUC replacement timeline is 10 years. The 2024 Capital Plan includes a project and funding to complete this work.

In January 2021, the EPA’s Lead and Copper Rule Revision went into effect. As part of the Biden administration’s review of all new regulations, the EPA reviewed the LCRR and decided in 2021 to keep the LCRR in place to ensure the initial customer water service line material inventory was completed by October 2024. The DDW is also in the process of updating its own version of the LCR so that its regulatory requirements will be at least consistent with the federal LCRR. The water systems owned and operated by the SFPUC will begin preparation and planning for actions to meet the new regulatory requirements of the LCRR and the State’s LUSL inventory and replacement requirements. These include, among others: compiling a LUSL inventory consisting of system- side and customer side pipeline material information; identification of new monitoring sites to comply with the new tier-criteria for tap monitoring; and removal of identified LUSLs.

The EPA has indicated that it would make changes to the LCRR pursuant to a new Lead and Copper Rule Improvement (“LCRI”) regulation and intends to finalize such regulation by October 2024. The LCRI, as well as any potential new California regulations, could require utilities to replace the customer side of the service line if such line was made of galvanized steel that was historically or is currently downstream of a leaded component.

Fluoridation. The 1995 State Assembly Bill 733 requires large water systems to fluoridate their public water supply and directs the appropriate State agency to seek funding for fluoridation. The State adopted its fluoridation regulations in 1998. These regulations, as codified in Section 64433 through 64434 of Title 22, California Code of Regulations, apply to large water systems with at least 10,000 service connections.

The SFPUC has been fluoridating its water supply since the early 1950s, and meets all the requirements of fluoridation regulations. In 2015, the United States Department of Health and Human Services Agency recommended that water systems practicing fluoridation adjust their fluoride content to 0.7 mg/L, as opposed to the previous temperature-dependent optimal levels ranging from 0.7 mg/L to 1.2 mg/L. The Center for Di sease Control and Prevention (the “ CDC”) also provided detailed information on the basis for this change. To reflect the CDC’s

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recommendation, DDW consulted with public water systems practicing fluoridation regarding amendments to their individual public w ater supply permits to reference the CDC’s recommended optimal level of 0.7 mg/L. The recommended optimal level of 0.7 mg/L currently corresponds with the existing California Water Fluoridation Standards control range of 0.6 mg/L to 1.2 mg/L. In 2016, the DDW confirmed that the fluoride control range for the Regional Water System is 0.6 mg/L to 1.2 mg/L. The SFPUC is in compliance with the operational and monitoring requirements of the State fluoridation regulations.

Environmental Laboratory Accreditation Program Regulations . In 2020, the SWRCB adopted new Environmental Laboratory Accreditation Program (“ ELAP”) regulations. The new regulations, which are applicable to the Water Enterprise’s Water Quality Division laboratories, mostly went into effect on Janu ary 1, 2021. Per the SWRCB, these comprehensive regulations were developed with the goals to modernize the ELAP program and elevate data quality of California communities. The laboratories owned by the SFPUC in support of its drinking water and wastewater operations already have a high standard of data quality assurance and new resources (such as staff consultant and records management application) have and will be added to ensure compliance with these new regulations. The SFPUC will continue evaluating the laboratory operations to determine the ultimate financial and resource impacts for the compliance with the new regulations.

New Drinking Water Standards. The SWRCB adopted a MCL of 5 ng/L or ppt for 1,2,3 -Trichloropropane in 2017. Based on monitoring of the SFPUC’s approved drinking water sources, 1,2,3- Trichloropropance is not a SFPUC contaminant of concern. No treatment for compliance is anticipated for the foreseeable future.

The DDW vacated the previously adopted MCL for chromium -6 in response to an order issued by the Superior Court of Sacramento County on May 31, 2017. The newly proposed chromium-6 MCL is 10mg/L, the same level as the previous MCL. If treatment is required, blending with high quality surface water supplies will remain as the likely treatment alternative.

PFAS. In 2019, the DDW lowered the notification levels for two PFAS contaminants: perfluoro octanoic acid (“PFOA ”) and perfluorooctane sulfonic acid (“PFOS ”). These two PFAS are most commonly found in the environment, especially in groundwater sources that are close and potentially affected by municipal landfills, military bases, and facilities at which fire -fighting practices were/are conducted regularly. The notification level for PFOA was reduced from 14 ppt to 5.1 ppt and the notification level for PFOS was lowered from 13 ppt to 6.5 ppt. Although the notification levels are not enforceable as with the other MCLs, a water system with detections of one or both of these two PFAS exceeding these notification levels will have to no tify its governing board and public. In 2020, the DDW also reduced the response levels of PFOA to 10 ppt and PFOS to 40 ppt. Previously, the response level was 70 ppt for the total concentration of the two PFAS combined. Similar to the notification leve ls, the response levels are not enforceable, but a water system’s water source containing these contaminants exceeding the response levels will not be allowed to use that water source. New notification and response levels had been adopted for two other PFA S (perfluorohexane sulfonic acid and perfluorobutane sulfonic acid). Additional PFAS legislation, regulations, and SWRCB’s expanded monitoring efforts are anticipated. In preparation for these future regulatory efforts from the State and the EPA, the SFPU C has been proactive in performing voluntary PFAS monitoring in its surface and groundwater sources. Two rounds of voluntary PFAS monitoring were completed by the SFPUC for all its surface water and groundwater sources between 2019 and 2021; all results were below the State’s detection limits.

In 2023, the In-City Distribution System and the Regional System will begin quarterly sampling of 29 PFAS components and lithium, which are specified in the EPA’s fifth Unregulated Contaminant Monitoring Rule (UCMR5).

The sampling results gathered throughout the United States under UCMR5 will be used by EPA in its future determination of rulemaking needs regarding these 30 contaminants.

The State of California has increasingly legislated new regulatory requirements over the past few years, and is expected to continue augmenting these laws and regulations with the ultimate goal of establishing applicable drinking water standards, either new or more stringent, to enhance public health protection. DDW has been working on new regulatory requirements to further reduce lead exposure in drinking water (SB 1398, 2016 and SB 427, 2017) via adopting additional requirements along with the EPA’s LCRR, developing a policy handbook to regulate cross connection control (AB 1671, 2017), human right to water (AB 685, 2012; SWRCB Resolution, 2016), The SWRCB adopted the policy handbook for microplastic monitoring in drinking water in November 2021, and is currently

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working with select community water systems to conduct a pilot -scale of m icroplastics monitoring in their source water in 2023-2024 to test for the recently adopted sampling and analytical methods.

Public Water System Discharges
As part of routine operations and maintenance activities, the SFPUC transfers treated water between storage facilities and discharges water to the environment. These transfers and discharges are regulated under the federal Clean Water Act through general NPDES permits issued by the SWRCB or appropriate RWQCB.

The SFPUC currently has several NPDES permits that cover discharges from the Regional Water System and SFPUC drinking water facilities. These permits generally impose discharge limitations, monitoring, reporting, and notification requirements. These permits require the SFPUC to control various water quality parameters (such as pH, chlorine residual, turbidity, etc.) and implement best management practices to minimize any adverse environmental effects caused by the discharges from the Regional Water System.

Bay-Delta Water Quality Standards
The Water Enterprise obtains the majority of its Bay Area water supply from Hetch Hetchy Reservoir, located on the main branch of the Tuolumne River, which is an upstream tributary to the San Joaquin River and the San Francisco Bay/Sacramento San Joaquin Delta Estuary (the “Bay Delta”).

In 2009, the SWRCB noticed its intent to update water quality objectives of the 2006 Water Quality Control Plan for the San Francisco Bay/Sacramento-San Joaquin Delta Estuary and the program of implementation, which had the potential to result in impacts to water rights and the issuance of water quality regulations consistent with the program of implementation. Following a several years -long process, in 2018, the SWRCB adopted the “Phase 1” Amendment to the Water Quality Control Plan (“2018 Plan Amendment ”) and the accompanying final Substitute Environmental Document. The adopted 2018 Plan Amendment was developed with the stated goal of increasing salmonid populations in three San Joaquin River tributaries (the Stanislaus, Merced, and Tuolumne Rivers) and the Bay-Delta. The 2018 Plan Amendment requires the release of 40% (by default, but may be variable between 30% and 50%) of the “unimpaired flow” on the three San Joaquin River tributaries from February through June in every water year type, whether wet, normal, dry, or critically dry. If the 2018 Plan Amendment were to be implemented, it would result in significant water supply shortages for the Hetch Hetchy Regional Water System during single dry and multiple dry years.

The SWRCB has three primary means of implementing the 40% unimpaired flow requirement: (1) in a separate water rights proceeding that would consider any necessary changes to upstream water rights; (2) by adopting a regulation and issuing orders on targeted water rights ; or (3) through Clean Water Act section 401 certification actions in FERC hydroelectric licensing processes, such as the FERC relicensing proceeding underway for the New Don Pedro Project on the Tuolumne River (see “– FERC Proceeding to Increase Flows in the Lower Tuolumne River” below).

In 2019, the City joined in filing a lawsuit with the San Joaquin Tributaries Authority challenging the SWRCB’s adoption of the 2018 Plan Amendment on multiple legal grounds including the California Environmental Quality Act and the Porter Cologne Act. Over a dozen other lawsuits have been filed in State and federal court challenging the 2018 Plan Amendment. In 2021, the State submitted what it concluded constituted the administrative record for the proceedings, which petitioners asserted was underinclusive. Through 2021 and 2022, the Sacramento County Superior Court has issued a series of rulings in favor of the State against a number of petitioners, which has led to the dismissal without leave to amend of several causes o f action, and upholding other causes of action. This lawsuit remains pending.

When the SWRCB approved the 2018 Plan Amendment, it also directed staff to help complete a Delta watershed-wide agreement, including potential flow measures for the Tuolumne River by March 1, 2019, and to incorporate such agreements as an alternative for a future amendment to the Bay-Delta Water Quality Control Plan to be presented to the SWRCB as early as possible after December 1, 2019. On March 1, 2019, in accordance with the SWRCB’s instruction, the SFPUC, in partnership with the Modesto Irrigation District and Turlock Irrigation District

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(collectively, the “ Tuolumne Parties”), submitted to the State a proposed voluntary agreement (“ Tuolumne Voluntary Agreement ”). A memorandum of understanding to advance the Tuolumne Voluntary Agreement was signed by the Tuolumne Parties in November 2022. The Tuolumne Parties are completing the necessary terms and agreements to submit to the SWRCB for review in spring 2023. The SWRCB expects to consider the Tuolumne Voluntary Agreement for adoption in by spring 2024. The SWRCB process will include (1) scientific peer review of the Tuolumne Voluntary Agreement, and (2) release of a draft CEQA document for public comment and a final CEQA document. After a final CEQA document is issued, the SWRCB would then be able to consider adoption of the Tuolumne Voluntary Agreement. If successful, this voluntary agreement process may allow the SFPUC to offset some of the flow requirement of the 2018 Plan Amendments by agreeing to instead implement certain “non-flow” measures designed to improve the viability of targeted fish species. These negotiations remain ongoing.

In addition, in 2019 and 2020, the State and other parties filed multiple lawsuits against the federal government for its adoption of biological opinions that altered how the U.S. Bureau of Reclamation would operate the Central Valley Project. In 2020, several other lawsuits were filed against the State for its issuance and adoption of an incidental take permit governing how the California Department of Water Resources would operate the State Water Project. While the City is not participating in these lawsuits, this litigation may continue to impact negotiations for a Delta watershed-wide agreement. Settlement negotiations relating to this litigation remain ongoing.

FERC Proceeding to Increase Flows in the Lower Tuolumne River FERC licenses the New Don Pedro Project, owned and operated by the Irrigation Districts. The City helped fund the original construction of New Don Pedro Project in exchange for a 570,000- acre-foot “water bank” account allowing the SFPUC to receive water credits for advanced releases from the Hetch Hetchy Project to the New Don Pedro Reservoir.

The current FERC license for the New Don Pedro Project expired in 2016, and the Irrigation Districts are now operating under an annual license that incorporates the conditions of their prior license. The Irrigation Districts initiated the process to relicense the New Don Pedro Project usi ng FERC’s Integrated Licensing Process in 2010.

Relicensing is a lengthy process, stretching over several years and open to public participation. It is estimated the process may cost up to $50 million to complete, which costs are split for certain studies between the Irrigation Districts and the SFPUC pursuant to an existing agreement. The Irrigation Districts submitted an Amended Final License Application (“AFLA”) for the New Don Pedro Project on October 11, 2017.

The Irrigation Districts are also working through an initial licensing proceeding for the La Grange Diversion Dam (the “La Grange Project ”), which is located on the Tuolumne River, two miles downstream of the New Don Pedro Project. The Irrigation Districts also submitted their Final License Application (“ FLA”) for the La Grange Project on October 11, 2017. The City has no legal or contractual responsibilities regarding the ownership or operation of the La Grange Project and is not subject to the licensing conditions for the La Grange Project.

NEPA and CEQA environmental review must be completed before licenses can be issued. On July 7, 2020, FERC released the Final Environmental Impact Statement (“FEIS”) for both the AFLA for the New Don Pedro Project and the FLA for the La Grange Project. The FEIS presents a “staff recommendation” that is mostly aligned with the Irrigation Districts’ AFLA.

As described in the “Bay -Delta Water Quality Standards” section above, under section 401 of the federal Clean Water Act, FERC cannot issue a new license for a hydroelectric project until a state’s water quality agency issues a certification stating that the new license will comply with the applicable water quality requirements (the “401 Certification”) or, alternatively, FERC determines that the state has waived its authority to issue a 401 Certification.

The ongoing WQCP voluntary agreement process is designed, in part, to draft the terms of the 401 Certification that would be included as part of the FERC license in lieu of the 40% unimpaired flow requirement set forth in the 2018 Plan Amendment. However, in January 2021, the SWRCB issued a final 401 Certification that sets a flow schedule more onerous than the 2018 Pl an Amendment. The SFPUC and the Irrigation Districts jointly filed a petition for reconsideration at the SWRCB in February 2021. The SWRCB did not respond to these petitions and the City and the Irrigation Districts consequently filed related lawsuits challenging the 401 Certification. In addition, the Irrigation Districts have challenged FERC to find that the SWRCB has waived its authority to issue a 401 Certification. Both the administrative and judicial proceedings are ongoing. The challenges to the SWRCB’s issuance of the 401

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Certification remain pending. The United States Court of Appeals for the District of Columbia Circuit decided the Irrigation Districts’ waiver lawsuit unfavorably to the Irrigation Districts, and, in April 2023, the United States Supreme Court denied the Irrigation Districts’ petition for certiorari, fully resolving this case.

A 1995 Don Pedro Project Settlement Agreement (“ Settlement Agreement”) and a 1996 Order by FERC (“1996 Order”) established increased water flows on the Tuolumne River to protect fisheries and riparian resources.

A restoration plan (“ Restoration Plan”) adopted in 2000 guides planning, funding and implementation efforts. The Restoration Plan calls for a series of projects with a combined estimated cost of $25 million to improve river channel, riparian, and fisheries conditions within a 27- mile stretch of the Tuolumne River corridor below the La Grange Diversion Dam. Four of the ten priority projects were completed with available State and federal funding. More recently, the City and the Irrigation Districts as well as other non -governmental organizations have been working on implementing additional habitat restoration projects related to the Restoration Plan.

Pursuant to a then-existing agreement between the City and the Irrigation Districts, the City might have been liable to provide a portion of the increased flows mandated under the 1995 Settlement Agreement. Instead, the City and the Irrigation Districts entered into a new agreement (the “Side Agreement ”) whereby the Irrigation Districts agreed to provide all flows ordered by FERC to implement the Settlement Agreement until FERC issues a new license for the New Don Pedro Project in exchange for which the City pays the Irrigation Districts $3.5 million per year, subject to an escalation clause applied to keep pace with inflation. Pursuant to the terms of its agreement with the Irrigation Districts, the City may withdraw from the agreement upon one year’s notice.

The term of the Side Agreement runs until FERC issues a new license for the New Don Pedro Project. License conditions, such as water-release requirements, could change under a new license. Changed release requirements could adversely affect the availability of Tuolumne River water to the SFPUC and incidental hydroelectric generation. To prevent these potentially adverse effects to its operations on the Tuolumne River, the SFPUC is seeking to extend the existing Side Agreement so that it would remain in effect after the New Don Pedro Project FERC license is renewed.

FERC has not yet provided a schedule for relicensing.

Dam Licensing and Safety Issues
In 1929, the California Legislature enacted legislation providing for supervision over non- federal dams in the State. The statutes place the supervision of the safety of non- federal dams and reservoirs under the jurisdiction of the DSOD. Dams under jurisdiction are artificial barriers, together with appurtenant work, including outlet towers, which are 25 feet or more in height or have an impounding capacity of 50 acre-feet or more. Any artificial barrier not in excess of six feet in height, regardless of storage, or that has a capacity not in excess of 15 acre-feet, regardless of height, is not considered jurisdictional.

The DSOD reviews plans and specifications for the construction of new dams or for the enlargement, alteration, repair or removal of existing dams, under applications, and must grant written approval before the owner can proceed with construction. The DSOD routinely inspects operating dams to assure that they are adequately maintained. The DSOD also conducts investigations of selected dams and directs the owners to additional investigations and detailed safety evaluations when necessary. In 2017, Oroville Dam, which is owned and operated by the State, s uffered significant spillway structural problems and a major downstream area was temporarily evacuated. As a result of the Oroville Dam spillway problems, the State Legislature enacted legislation to enhance the DSOD’s authority; pursuant to such authority, the DSOD has requested additional evaluations of certain spillways, including spillways at the following four dams: Cherry Valley, O’Shaughnessy, Turner, and San Andreas.

The SFPUC has 18 dams under the jurisdiction of the DSOD. In 2019, the SFPUC performed a comprehensive overview of evaluations and potential capital improvements that may be needed for these dams in the following 15 years. The SFPUC created a proposed schedule for improvement projects and submitted the schedule to the DSOD. In most cases, additional evaluations may be necessary to further determine capital needs. Such evaluations are expected to be performed at the start of the project during the planning phase. Thus, while estimated funding has been included in the 2024 Capital Plan for these facilities, the scopes, budgets and schedules may be adjusted in future years as more information becomes available. Future potential projects under the 2024 Capital Plan are described below.

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Moccasin Dam. In 2018, the town of Moccasin experienced more than 5.0 inches of precipitation over a 24- hour period, of which 3.1 inches fell within a four-hour period. The torrent of rain caused severe flood damage to the facilities in Moccasin and almost overtopped Moccasin Dam. After the event, the SFPUC issued emergency contracts to remove debris and perform emergency interim repairs. All of the emergency repairs were completed in 2020. To ensure dam safety and minimize potential flood damage in the future, the SFPUC re -evaluated the required flood protection for the dam and downstream facilities. The scope of work for the Moccasin Dam Long-Term Improvements project includes re-constructing the auxiliary spillway to handle inflow from the updated “design flood” and building additional measures to protect the major facilities. The value of construction work is estimated to be over $50 million dollars. Pre-construction phase has started, with anticipated construction completion in 2027.

O’Shaughnessy Dam. O’Shaughnessy Dam was completed in 1923 and raised in 1938. Most of the outlet facilities were installed when the dam was first built in 1923. These outlet facilities have exceeded their design life and need rehabilitation or replacement to maintain their reliability and functionality. The rehabilitation work is divided into two phases. The objectives of Phase 1 are to enhance personnel safety within the dam, address the non-functioning components of the outlet system, and prepare pre -construction work of priority items that will be implemented at the beginning of the second phase. The specific scope of Phase 1 includes replacing the access platforms in ladder wells, clearing critical drainage system within the dam, building a new bulkhead system as a safe isolation for upcoming rehabilitation of gates and va lves, replacing the instream flow release valves, and pre- construction planning of drum gates and slide gates replacement. The value of construction work for Phase 1 is estimated to be over $30 million dollars. Phase 1 pre-construction has started with anticipated construction completion in 2025. The objective of Phase 2 is to rehabilitate slide gates, drum gates, large valves such as the 60 -inch and 72-inch diameter needle valves, and associated control systems. The value of construction work for Phase 2 is estimated to be over $60 million dollars.

The planning of Phase 2 will start in 2025/2026, with anticipated construction completion in 2033.

Cherry Valley Dam. Cherry Valley Dam was built in 1955. The spillway includes a 334-feet wide ogee-type concrete weir that discharges into an unlined adjacent channel. The original design documents indicate that the spillway is rated for 52,000 cubic feet per second (“ cfs”). However, significant erosion damage occurred below the dam when corresponding spillway releases were less than 1,800 cfs. This included large scale erosion outside the lower portion of the spillway channel, as well as flooding of the Cherry Power Tunnel Adit and a campground downstream, creating a potentially hazardous condition for the dam, personnel and the public. The 2024 Capital Plan includes Cherry Dam Spillway Short -Term Improvements project. The objective of the short -term improvements is to minimize the potential spill damage by improving the portion of the spillway that is unlined with erosion protection measures and engineered berms to contain releases ranging from 2,000 cfs to 52,000 cfs based on the operational needs. The value of construction work is estimated to be between $10- 20 million dollars. The planning phase of the short-term project has started with anticipated construction completion in 2027. The SFPUC also plans to include a long-term project in the future capital plan to increase the spillway capacity and retrofit the intake tower for seismic reliability.

Early Intake Dam. Early Intake Dam is a single-curvature concrete arch structure. It was constructed between 1923 and 1924 to divert Hetch Hetchy water from the Tuolumne River into the Mountain Tunnel. Within a few years of the dam’s completion, significant cracking was observed at several locations, most likely due to the alkali-aggregate reactivity in the concrete. The structure has continued to deteriorate since then. Widely distributed and progressively worsening cracking has been observed throughout the dam and spillway structure over the years. The dam is reaching the end of its design life. The SFPUC has initiated a project to replace the dam. The cost of construction work is estimated to be over $50 million dollars. The planning phase of the project has start ed, with anticipated construction completion in 2034.

Eleanor Dam. Eleanor Dam is a multiple arch reinforced concrete dam with roadway bridge at the crest that was constructed in 1918. Due to the age of the dam, some of the structural elements including the bridge and concrete barrels exhibit various degree of deterioration including cracking and spalling of concrete, exposed rebar, leakage through the arch barrels, and cracks and erosion of the spillway concrete. There are two projects in the 2024 Capital Plan to address the issues with the bridge and the rest of the dam separately. The Lake Eleanor Dam Bridge Rehabilitation is a subproject under Bridge Replacement Project. The bridge is at the top of the dam and is an integral structure of the dam, providing the only vehicle and personnel access to the spillway structure and the other side of the dam for maintenance purposes. The project’s objective is to restore the bridge and its load capacity since the bridge’s deterioration has resulted in a reduction of its current load capacity,. The value of construction work is

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estimated to be between $10 -20 million dollars. The planning phase of the bridge rehabilitation project has started, with anticipated construction completion in 2027. The SFPUC will initiate another project to address dam improvements including concrete deficiencies, increased capacity for releases, and increased downstream erosion protection. This project is expected to start in 2025, with anticipated construction completion in 2030/2031.

Pilarcitos Dam. Pilarcitos Dam is a 95 -foot-high earth fill embankment dam originally constructed in 1866 by the Spring Valley Water Company, with a reservoir capacity of approximately 3,100 acre-feet. An overall condition and needs assessment of the facility was completed in 2021. The study confirmed that the embankment and the appurtenant structures have operational and dam safety (seismic and hydraulic) deficiencies. As of 2023, remedial alternatives are being developed as part of the capital improvement plan to mitigate these deficiencies. The project is preliminarily scheduled to complete pre-construction in 2030 with construction from 2031 to 2035.

San Andreas Dam . San Andreas Dam is a 105- foot-high earth fill embankment dam built in 1870 and modified in 1875. The dam impounds a 19,000 acre -foot reservoir in San Mateo County. An overall condition and needs assessment for the dam was completed in 2021, identifying the need to improve and upgrade the embankment and emergency outlet release facilities along with the spillway, where deficiencies were previously identified in 2019.

Development of remedial alternatives is currently underway for the dam, emergency outlet release facilities, and spillway, and these three components are currently recommended to be implemented through a single construction project as part of the 2024 Capital Plan. The project is preliminary scheduled to complete pre -construction in 2031, with construction from 2032 to 2036.

Turner Dam . Turner Dam is a 195 -foot-high earth fill embankment dam constructed in 1965. The dam impounds the 50,500-acre-foot San Antonio Reservoir in Alameda County. An overall condition and needs assessment for the facility, including the embankment, spillway and outlet works, began in 2020 and is part of a project to perform necessary upgrades anticipated to be completed by 2035. On-going activities include stability analysis, inspection, and investigations to evaluate the performance of the facility. This project will include mitigation measures to address the needs and deficiencies that may be identified upon the completion of the condition and needs assessment. The project is preliminarily scheduled to complete pre-construction in 2031, with construction from 2032 to 2034.

Calaveras Reservoir Expans ion. The new Calaveras Dam, completed in 2019, has a reservoir capacity of 96,800 acre -feet, and was designed to accommodate a potential future enlargement. This potential future project envisions the expansion of Calaveras Reservoir to create up to 289,000 acre-feet of additional storage for the Regional Water System supplies in years with average and higher than average water supply (“normal” and “wet” years). The proposed project would raise the dam, increase the capacity of the outlet structures and spillway, and add any transmission and pumping facilities needed to transport the additional water to Calaveras Reservoir. The project is funded for evaluations only at this time; construction of any expansion project would likely occur after 2035.

Summit Reservoir. Summit Reservoir is a 14 million -gallon (43 acre -feet) capacity potable water storage reservoir on Twin Peaks in San Francisco that was built during the 1950s. Based on the as-built drawings, the original inlet/outlet structure appeared to be backfilled with compacted fill, whereas the majority of the reservoir is constructed on bedrock. Following the WSIP-funded seismic improvements, roof strengthening, and installation of new inlet/outlet structure that was completed in 2012, the DSOD reviewed the reservoir improvements and concluded that the reservoir met the criteria to be under their jurisdiction as a “dam” due to the original outlet structure embankment. In 2017, at the request of the DSOD, an engineering evaluation was performed in order to analyze the subsurface conditions and confirm that the seismic improvements performed under the WSIP were adequate, particularly in the area of embankment fill where the original inlet-outlet facilities were constructed. In 2019, a geotechnical investigation report was submitted to the DSOD that provided additional test results and information about the subsurface materials and conditions and concluded that the ground and the embankment appear to be stable. While no project is anticipated for further improvements, the SFPUC has allocated funding to respond to DSOD recommendations, and further funding would be allocated to construct improvements if needed.

Stanford Heights Reservoir . Stanford Heights Reservoir, a potable water storage reservoir located within San Francisco, is impounded by a 31- foot-high earth fill dam constructed in 1928. The SFPUC performed a stability analysis in 1993, and an updated seismic stability and deformation analysis check of the embankment in 1997. Further geotechnical and seismic stability investigations are needed to determine if improvements may be necessary. Further

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investigations and pre -construction activities are planned for 2026 to 2027, with potential construction in 2028 to 2030.

Sunset Reservoir South Basin. In a 1996 study, the SFPUC recommended seismic strengthening of the roof structure and other associated reservoir structural elements at the Sunset Reservoir South Basin which is formed with a 34-foot-high earth fill dam within San Francisco. However, due to funding considerations, the WSIP only funded improvements at the Sunset Reservoir North Basin, since the embankment was considerably larger and potentially less stable, and the improvements to the South Basin were deferred. In 2018, a structural and seismic performance review of the Sunset South Basin recommended updating the seismic evaluation of the roof structure and structural elements prior to performing a structural improvement project. In addition, an updated embankment analysis is needed to better characterize the embankment fill, foundation materials, and piezometric conditions. A project to potentially strengthen the embankment, reservoir roof structure, and other structural components if needed is scheduled for pre - construction in 2024 to 2030 with construction from 2031 to 2034.

University Mound South Basin. In a 1996 study, the SFPUC recommended seismic strengthening of the roof structure and other associated reservoir structural elements at the University Mound South Basin which is formed with a 17-foot-high earth fill dam within San Francisco. However, due to funding considerations, WSIP improvements were performed only at the University Mound North Basin. A seismic stability and deformation analysis of the embankment conducted by DSOD in 2006 showed acceptable seismic performance of the embankment. Thus, it is anticipated that the improvement project will only be needed to seismically strengthen roof structure and structural components of the reservoir. Pre -construction including planning is scheduled for 2024 to 2032, with improvements constructed by 2035.

Hazardous Material Management
The handling of hazardous materials is subject to a variety of federal and State regulations. The SFPUC currently complies with regulations regarding hazardous material safety with respect to hazardous material disposal and employee safety.

Endangered Species
Various aquatic species (including native fishes) present in the Tuolumne River and Bay Area streams (e.g., Alameda, San Mateo and Pilarcitos Creeks) are either listed or candidates for listing under the State or federal endangered species acts. New listings and future enforcement actions under the acts, or conditions placed in permits to undertake construction for certain capital projects, coul d potentially directly affect water supplies available to the Regional Water System. The SFPUC is working with the responsible State and federal agencies to obtain permits under the acts, which would avoid regulatory uncertainty and ensure water supply rel iability for the Regional Water System. In addition, future enforcement actions involving the Bay Delta or Bay Delta tributaries could further affect the availability of supplies to the State Water Project and the Central Valley Project, reducing SFPUC cus tomers’ alternate water supplies and increasing their need for additional Regional Water System deliveries.

Required Instream Flow Schedules from Regional Water System Dams In order to comply with federal and State permit requirements in connection with dam and reservoir improvements to be carried out as part of the WSIP, the SFPUC has implemented schedules of instream flow releases from Lower Crystal Springs Reservoir to San Mateo Creek, from Calaveras Reservoir to Calaveras Creek/Alameda Creek, and from the Upper Alameda Creek Diversion Dam to Alameda Creek to enhance habitat for native species.

The SFPUC is constructing the Alameda Creek Recapture Project to recover a port ion of the loss of water supply associated with Calaveras Dam releases and bypasses. The SFPUC has a water supply program underway to identify and implement water supply projects to make up the water supply loss associated with existing and potential future required instream flow schedules.

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CONSTITUTIONAL, STATUTORY AND CHARTER LIMITATIONS
The activities of the SFPUC and the Water Enterprise, including, without limitation, the establishment of rates for water service and the issuance of Bonds, are subject t o a number of 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 constructed, 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 declining 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 water 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 2023 CD Bonds. However, the reasonable cost of providing water services has been determined by the State Controller to include depreciation and allowance for the cost of capital improvements. In addition, State courts have determined that fees such as capacity charges will not be special taxes if they approximate the reas onable cost of constructing the water system improvements contemplated by the local agency imposing the fee.

The United States Supreme Court has upheld Article XIIIA against a challenge alleging violation of equal protection under the Fourteenth Amendment to the United States Constitution.

Proposition 218. Proposition 218, a State ballot initiative known as the “Right to Vote on Taxes Act,” was approved by the voters on November 5, 1996. The initiative added Articles XIIIC and XIIID to the California

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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. In the view of the SFPUC, rates for water usage charged by the SFPUC to the wholesale customers are not fees or charges under Article XIIID, although no assurance may be given by the SFPUC that a court would not determine otherwise.

The California Supreme Court decisions in Richmond v. Shasta Community Services District, 32 Cal. 4th 409 (2004) (“Richmond”), and Bighorn- Desert View Water Agen cy 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 fee is not a property-related fee or charge because it results from the property owner’s voluntary decision to apply for the connection. In both Richmond and Bighorn, however, the Court stated that a fee for ongoing water service through an existing connection is imposed “as an incident of property ownership” within the meaning of Article XIIID, rejecting, in Bighorn, the water agency’s argument that consumption- based water charges are not imposed “as an incident of property ownership” but as a result of the voluntary decisions of customers as to how much water to use.

The SFPUC provides public notice of proposed water rate increases in accordance with the requirements of Article XIIID through means that include, among others, holding informational presentations at communit y 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 SF PUC itself. The SFPUC also develops and adopts retail utility user rates and fees in accordance with the requirements of Article XIIID(6)(b) that limit property-related fees and charges.

Article XIIIC extends the people’s initiative power to reduce or repeal previously authorized local taxes, assessments, fees and charges. This extension of the initiative power is not limited by the terms of Article XIIIC to fees, taxes, assessment fees and charges imposed after November 6, 1996 and absent other authority c ould 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 charges. The Court noted, however, that it was not holding that the authorized initiative power is free of all limitations, stating that it was not determining whether the electorate’s initiative power is subject to the public agency’s statutory obligation to set water service charges at a level that will “pay the operating expenses of the agency, … 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.”
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 wha t, if any, further implementing legislation will be enacted. Under the Bighorn case, City voters could adopt an initiative measure that reduces or repeals the SFPUC’s water rates and charges, though it is not clear whether (and courts have not decided whet her) 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

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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 Water Enterprise, or to call into question water rate increases previously adopted by the SFPUC. No assura nce may be given that Articles XIIIC and XIIID will not have a material adverse impact on Revenues.

A Complaint for Damages and Equitable Relief and Petition for Writ of Mandate was filed in the Superior Court of the State of California for Santa Clara County on May 17, 2022, and subsequently amended on January 13, 2023 (collectively, the “Complaint”), as a purported class action suit against the SFPUC. The principal claim of the Complaint is that the SFPUC has violated Proposition 218 by imposing rates that exceed the costs of service. The City Attorney’s Office has filed two successful motions to strike portions of plaintiffs’ pleadings, including regarding allegations that purported to extend the applicable claim period beyond the one-year deadline in the Government Tort Claims Act. Discovery is ongoing. The SFPUC cannot predict the outcome of the case, however the SFPUC believes that its rate structure has been developed in compliance with all applicable laws in all material respects.

Proposition 26. Proposition 26, which amended Article XIIIA and XIIIC of the California Constitution, was approved by the electorate at the November 2, 2010 election. Proposition 26 imposes a two- thirds voter approval requirement for the imposition of fees and charges by the State. It also imposes a majority voter approval requirement on local governments with respect to fees and charges for general purposes, and a two- thirds voter approval requirement with respect to fees and charges for special purposes. According to its supporters, Proposition 26 was designed to prevent the circumvention of tax limitations imposed by the voters pursuant to Proposition 13, approved in 1978, Proposition 218, and other measures through the use of non- tax fees and charges.

Proposition 26 expr essly 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 “assessments and property-related fees imposed in accordance with the provisions of Article XIIID.” The California Supreme Court has held that a fee for ongoing water service through an existing connection is imposed “as an incident of property ownership” within the meaning of Article XIIID. See “– Proposition 218.” The SFPUC believes that the initiative is not intended to, and would not, apply to fees for water deliveries and 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 water services by local governments such as the SFPUC.

Initiative 1935. A voter initiative entitled “The Taxpayer Protection and Government Accountability Act” (“Initiative 1935”) has been determined to be eligible for the November 2024 Statewide general election and, unless withdrawn by its proponent prior to June 27, 2024, will be certified as qualified for the ballot in such election. Were it to be adopted by a majority of voters in the Statewide general election, Initiative 1935 would amend the California Constitution to, among other things, provide that charges for services or product provided directly to the payor (such as charges for water) are “taxes” subject to voter approval unless the local government can prove by clear and convincing evidence that the charge is reasonable and does not exceed the “actual cost” of providing the service or product, defined as “(i) the minimum amount necessary to reimburse the government for the cost of providing the service or the product to the payor and (ii) where the amount charged is not used by the government for any purpose other than reimbursing that cost.” If adopted, Initiative 1935 would be subject to judicial interpretation. The SFPUC is unable to predict whether and how Initiative 1935, if adopted, would be interpreted by the courts, and there can be no assurance that any such interpretation or application would not have an adverse impact on the SFPUC, the Water Enterprise or Water Revenues.

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

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in November 2002 (Proposition E), 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 or wastewater facilities or combinations of wa ter and wastewater facilities under the jurisdiction of the SFPUC (and subject to the further conditions contained in Proposition E). See “OBLIGATIONS PAYABLE FROM REVENUES – Authority for Issuance of Revenue Bonds and Other Obligations Payable from Revenues.” In June 1998, the electorate of the City 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 rates through July 1, 2006. The SFPU C can give no assurance that the electorate will not seek in the future to freeze or limit rate increases.

Future Charter Amendments
Voters in the City could adopt additional Charter amendments in the future which would limit the ability of the SFPUC to issue debt or to enact rate increases, affect the financial condition or operation of the Water Enterprise or implement other changes affecting the financial condition or operations of the SFPUC and the Water Enterprise. See “RISK FACTORS – Initiative, Referendum, Charter Amendments and Future Legislation.”

LITIGATION
The SFPUC is not aware of any litigation pending or threatened questioning the political existence of the City or the SFPUC or contesting the SFPUC’s power to fix Water Enterprise rates and charges, or in any way questioning or affecting:
(i) the proceedings under which the 2023CD Bonds are to be issued, (ii) the validity of any provision of the 2023CD Bonds or the Indenture, (iii) the pledge of 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 a number of suits and claims pending against the City and the SFPUC impacting the Water 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 a bility of the SFPUC to pay principal of or interest on the 2023CD Bonds as they become due. Other than as disclosed elsewhere in this Official Statement, 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 2023CD Bonds as they become due. See also “CONSTITUTIONAL, STATUTORY AND CHARTER LIMITATIONS – State Law Limitations – Proposition 218.”

TAX MATTERS
Federal Tax Exemption. In the opinion of Bond Counsel to the SFPUC, under existing statutes, regulations, rulings and judicial decisions, and assuming compliance by the SFPUC with certain covenants in the applicable resolution, the Tax Certificate and other documents pertaining to the 2023CD Bonds and requirements of the Internal Revenue Code of 1986 (the “Code”) regarding the use, expenditure and investment of proceeds of the 2023CD Bonds and the timely payment of certain investment earnings to the United States, interest on the 2023CD Bonds is not included in the gross income of the owners of the 2023CD Bonds for federal income tax purposes. Failure to comply with such covenants and requirements may cause interest on the 2023CD Bonds to be included in gross income retroactive to the date of issuance of the 2023CD Bonds.

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In t he further opinion of Bond Counsel , interest on the 2023CD Bonds is not treated as an item of tax preference for purposes of the federal alternative minimum tax on individuals. Bond Counsel expresses no opinion regarding the applicability of the federal corporate alternative minimum tax to the adjusted financial statement income of certain corporations.

Ownership of, or the receipt of interest on, tax-exempt obligations may result in collateral federal income tax consequences to certain taxpayers, including, without limitation, financial institutions, property and casualty insurance companies, certain foreign corporations doing business in the United States, certain S corporations with excess passive income, individual recipients of Social Security or Railro ad Retirement benefits, taxpayers that may be deemed to have incurred or continued indebtedness to purchase or carry tax- exempt obligations and taxpayers who may be eligible for the earned income tax credit. Bond Counsel expresses no opinion with respect t o any collateral tax consequences and, accordingly, prospective purchasers of the 2023CD Bonds should consult their tax advisors as to the applicability of any collateral tax consequences.

Certain requirements and procedures contained or referred to in the applicable resolution, the Tax Certificate or other documents pertaining to the 2023CD Bonds may be changed, and certain actions may be taken or not taken, under the circumstances and subject to the terms and conditions set forth in such documents, upon the advice or with the approving opinion of counsel nationally recognized in the area of tax-exempt obligations. Bond Counsel expresses no opinion as to the effect of any change to any document pertaining to the 2023CD Bonds or of any action taken or not taken where such change is made or action is taken or not taken without the approval of Bond C ounsel or in reliance upon the advice of counsel other than Bond Counsel with respect to the exclusion from gross income of the interest on the 2023CD Bonds for federal income tax purposes.

Bond Counsel’s opinion is not a guarantee of result, but represents its legal judgment based upon its review of existing statutes, regulations, published rulings and judicial decisions and the representations and covenants of the SFPUC described above. No ruling has been sought from the Internal Revenue Service (the “ IRS”) with respect to the matters addressed in the opinion of Bond Counsel, and Bond Counsel’s opinion is not binding on the IRS. The IRS has an ongoing program of examining the tax- exempt status of the interest on municipal obligations. If an examination of the 2023CD Bonds is commenced, under current procedures the IRS is likely to treat the SFPUC as the “taxpayer,” and the owners of the 2023CD Bonds would have no right to participate in the examination process.

In responding to or defending an examination of the tax -exempt status of the interest on the 2023CD Bonds, the SFPUC may have different or conflicting interests from the owners. Additionally, public awareness of any future examination of the 2023CD Bonds could adversely affect the value and liquidity of the 2023CD Bonds during the pendency of the examination, regardless of its ultimate outcome.

Tax Accounting Treatment of Bond Premium. To the extent a purchaser acquires a 2023CD Bond at a price in excess of the amount payable at its maturity, such excess will constitute “bond premium” under the Code. The Code and applicable Treasury Regulations provide generally that bond premium on a tax- exempt obligation is amortized over the remaining term of the obligation (or a shorter period in the case of certain callable obligations) based on the obligation's yield to maturity (or shorter period in the case of certain callable obligations). The amount of premium so amortized reduces the owner’s basis in such obligation for federal income tax purposes, though such amortized premium is not deductible for federal income tax purposes. This reduction in basis will increase the amount of any gain (or decrease the amount of any loss) recognized for federal income tax purposes upon a sale or other taxable disposition of the obligation. Bond Counsel is not opining on the accounting for bond premium or the consequence to a 2023CD Bond purchaser of purchasing a 2023CD Bond with bond premium. Accordingly, persons considering the purchase of 2023CD Bonds with bond premium should consult their own tax advisors with respect to the determination of bond premium on such 2023CD Bonds for federal income tax purposes and with respect to the state and local tax consequences of owning and disposing of such 2023CD Bonds.

Tax Accounting Treatment of Original Issue Discount. The excess, if any, of the stated redemption price at maturity of 2023CD Bonds of a particular maturity over the initial offering price to the public of the 2023CD Bonds of that maturity at which a substantial amount of the 2023CD Bonds of that maturity is sold to the public is “original issue discount.” Original issue discount accruing on a 2023CD Bond is treated as interest excluded from the gross income of the owner thereof for federal income tax purposes under the same conditions and limitations as are applicable to interest payable on such 2023CD Bond. Original issue discount on a 2023CD Bond of a p articular maturity purchased pursuant to the initial public offering at the initial public offering price at which a substantial

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amount of the 2023CD Bonds of that maturity is sold to the public accrues on a semiannual basis over the term of the 2023CD Bond on the basis of a constant yield; and within each semiannual period accrues on a ratable daily basis.

The amount of original issue discount on a 2023CD Bond accruing during each period is added to the adjusted basis of such 2023CD Bond, which will affect the amount of taxable gain upon disposition (including sale, redemption or payment on maturity) of such 2023CD Bond. The Code includes certain provisions relating to the accrual of original issue discount in the case of purchasers that purchase 2023CD Bonds other than at the initial offering price. Bond Counsel is not opining on the accounting for or consequence to a 2023CD Bond purchaser of purchasing a 2023CD Bond with original issue discount. Accordingly, persons considering the purchase of 2023CD Bonds with original issue discount should consult their own tax advisors with respect to the determination of original issue discount on such 2023CD Bonds for federal income tax purposes and with respect to the state and local tax consequences of owning and disposing of such 2023CD Bonds.

CleanPowerSF Sfpuc CommissionJune 27, 2023

CleanPowerSF Sfpuc Commission
June 27, 2023