ORRICK, HERRINGTON & SUTCLIFFE LLP, DISCLOSURE COUNSEL TO THE
PUBLIC UTILITIES COMMISSION OF THE CITY AND COUNTY OF SAN FRANCISCO July 14, 2026
DISCLOSURE TRAINING
FOR COMMISSIONERS
Purpose of this training
• Provide SFPUC Commissioners with overview of responsibilities under federal securities law.
• Satisfy requirement for formal disclosure training under SFPUC's Debt Management Policies & Procedures.
2 Today's Speakers
3 Devin represents issuer, underwriter and private sponsor clients in water, wastewater, public power, and other complex infrastructure financings.
Such transactions have involved both long- and short-term, fixed and variable rate obligations, public-private partnerships (P3s), commercial paper, swaps, credit and liquidity enhancement, and revenue bonds for natural gas and electrical capacity, as well as a number of sizable special purpose financings. Devin's practice includes representing clients in water, wastewater, transportation, public power, pollution control and other infrastructure financings. Devin has also represented multiple clients in connection with chapter 9 bankruptcies, restructurings and other workouts.
Devin Brennan, Partner
San Francisco
T +1 415 773 4261 E [email protected]
Sean serves as disclosure counsel, bond counsel, and underwriter's counsel on a variety of public finance transactions, including revenue bond general obligation bond financings.
Sean's experience includes counseling large public utilities, transportation agencies, and joint powers authorities in the financing of large capital projects throughout California.
Sean Yates, Senior Associate
San Francisco
T +1 415 773 5889 E [email protected]
Preliminary Official Statement / Official Statement
• Prepared to provide a reasonable investor with information necessary to make an informed investment decision.
• Describes bond terms, sources of repayment for bonds, information about SFPUC, its operations and financial condition.
• Prepared by SFPUC staff, in consultation with City Attorney's office and professional advisors, and submitted to Commission for review and approval 4 Anti-fraud statutes and rules
• Municipal securities are exempt from the registration requirements of the Securities Act of 1933 but are not exempt from the anti-fraud rules.
• Securities Act of 1933
– Section 17(a)
• Securities Exchange Act of 1934
– Section 10(b)
– Rule 10b-5
– Rule 15c2-12
• No material misstatements or omissions of material facts. • Anti-fraud rules apply to (i) primary offerings, (ii) tender offers, (iii) annual disclosure report, and (iv) any other "speaking to the market."
5 Misstatements or omissions – Materiality
• A fact is “material” if it is something a reasonable investor would want to know in making an investment decision.
• There is no hard test for “materiality” – “materiality” depends upon the context. • Materiality determinations end up getting made with the benefit of 20/20 hindsight (i.e., after something has gone wrong).
The Preliminary Official Statement and final Official Statement are the SFPUC's disclosure documents. It is essential that they do not contain any material misstatements or omissions.
6 Commissioners' responsibilities
• Create and sustain a culture of transparency.
• Ensure staff has established and followed adequate internal review procedures.
• Ensure staff has engaged professionals knowledgeable about federal securities laws to help prepare disclosure documents.
• Review draft disclosure documents, making sure big picture challenges and risks are fairly addressed.
• Raise concerns and share important information of which Commission members have personal knowledge.
7 There is a genuine upside
A reputation for complete, accurate and forthright disclosure can be a help in good times and a lifesaver in tough times. 8 Questions?
• For bond and disclosure questions:
– Nikolai J. Sklaroff
Capital Finance Director
[email protected]
• For legal questions:
– Sheryl L. Bregman
Utilities General Counsel
[email protected]
– Estie Kus
Deputy City Attorney
[email protected]
9 APPENDIX
Securities Act of 1933 – Section 17(a)
• Section 17(a) provides:
– “It shall be unlawful for any person in the offer or sale of any securities… ○ (1) to employ any device, scheme, or artifice to defraud, or ○ (2) to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or ○ (3) to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser." A-1
Securities Exchange Act of 1934 – Section 10(b)
• Section 10(b) of the 1934 Act provides:
– “It shall be unlawful for any person…[t]o use or employ, in connection with the purchase or sale of any security…any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [Securities and Exchange] Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.”
A-2
Securities Exchange Act of 1934 – SEC Rule 10b-5
• Rule 10b-5 provides:
– “It shall be unlawful for any person…
○ (a) To employ any device, scheme or artifice to defraud, ○ (b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
○ (c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,
in connection with the purchase or sale of any security.” A-3
Securities Exchange Act of 1934 – SEC Rule 15c2-12
• Prohibits underwriter from purchasing securities unless:
– the underwriter obtains an official statement that an issuer “deems final” as of its date.
– an issuer or an “obligated person” has undertaken a continuing disclosure obligation to provide annual financial information or operating data and audited financial statements and notices of certain listed events. • Certain exemptions exist for privately placed, short-term, or demand securities or small issues.
A-4
4161-1072-4458.2
Attorney-Client Privileged Communication
M E M O R A N D U M
TO: SAN FRANCISCO PUBLIC UTILITIES COMMISSION
FROM: ORRICK, HERRINGTON & SUTCLIFFE LLP
DATE: JULY 14, 2026
COMMISSIONERS’ SECURITIES LAW DISCLOSURE RESPONSIBILITIES The Public Utilities Commission of the City and County of San Francisco (“SFPUC”) issues revenue bonds (“Revenue Bonds”) and sells such Revenue Bonds in the public capital markets to finance and refinance capital improvements. In connection with such sale, the SFPUC prepares and delivers to prospective purchasers a Preliminary Official Statement prior to the sale of the Revenue Bonds and delivers to actual purchasers a final Official Statement following such sale. Unlike securities issued by private companies, the SFPUC is not required to register its Revenue Bonds with the Securities and Exchange Commission (“SEC”) under the Securities Act of 1933 or submit a draft of its Official Statement to the SEC for review.
However, the information contained in the Official Statement pertaining to the Revenue Bonds is subject to the “anti-fraud” rules under the Securities Act of 1933 and the Securities Exchange Act of 1934. This memorandum addresses Commissioner’s securities law disclosure responsibilities.
Preliminary Official Statement/Official Statement
The Preliminary Official Statement is prepared in order to provide a reasonable investor with the information necessary to make an informed investment decision. The Preliminary Official Statement describes the terms of the Revenue Bonds and the sources of repayment (i.e., water revenues, wastewater revenues or power enterprise revenues) and discloses information about the SFPUC and its operations and financial prospects germane to the SFPUC’s ability to make timely payments of principal of and interest on the Revenue Bonds. The Preliminary Official Statement does not include information dependent upon the terms under which the Revenue Bonds are thereafter sold. The final Official Statement includes such pricing and pricing dependent information. The Preliminary Official Statement and the Official Statement are analogous to the preliminary and final prospectus in a registered public offering.
Although they are used in the sale of the Revenue Bonds, the Preliminary Official Statement and the Official Statement are not “sales” documents but are, rather, the SFPUC’s
2 4161-1072-4458.2
disclosure documents. The SFPUC is solely responsible for the information contained in the Preliminary Official Statement and the Official Statement. Therefore, it is essential that the Preliminary Official Statement and the Official Statement do not contain material misstatements or omissions. They must thus include all information, positive and negative, material to making an informed investment decision. Investors understand that the SFPUC faces financial challenges; they simply want to know what the significant challenges are and how management is responding to such challenges.
Inadequate disclosure can result in the imposition of civil and criminal penalties, investor lawsuits and an inability to access the capital markets for additional financing.
Prior to the distribution to investors of the Preliminary Official Statement and the Official Statement, the substantially final draft to be approved by the Commission will have been thoroughly and critically reviewed by SFPUC officers and staff (in consultation with the SFPUC’s professional advisors, including Disclosure Counsel) to reflect the most current material information available.
Commissioners’ Responsibilities
Commissioners have a legal responsibility to ensure that the SFPUC complies with all applicable securities laws and may be subject to personal civil and criminal penalties for failure to discharge such responsibility. Although governing boards may place reasonable reliance on staff, the SEC views governing boards as final “gatekeepers” with the responsibility to ensure that Preliminary Official Statements and Official Statements that contain material misstatements or omissions are not released to the financial markets.
For a Commissioner’s reliance on SFPUC staff in the preparation of the Preliminary Official Statement and the Official Statement to be considered “reasonable,” a Commissioner should:
• Ensure that SFPUC staff has established and followed adequate internal review procedures.
• Ensure that SFPUC staff has engaged professionals to assist it (bond counsel, disclosure counsel, financial advisors) that are expert in the requirements of federal securities laws, and pronouncements and statements of the SEC. • Review the draft Preliminary Official Statement, especially the presentation on matters about which Commission members have specific actual knowledge. • Be certain that the General Manager and Assistant General Manager, Business Services and Chief Financial Officer are aware of any matters important to the SFPUC’s financial condition of which Commission members have personal knowledge.
3 4161-1072-4458.2
• Take steps to advise the General Manager, Assistant General Manager, Business Services and Chief Financial Officer or City Attorney promptly of any concern that significant risks to or concerns about the SFPUC’s financial condition are not fully and fairly described in the Preliminary Official Statement or that any of the information presented in the Preliminary Official Statement is untrue, incomplete or potentially misleading.
• Understand the key terms of the transaction being approved and make such inquiries of professionals and SFPUC staff as are necessary for such understanding, such as
-- How much debt is being incurred?
-- How is the debt being structured (Fixed interest rates? Term? Debt service structure?)?
--Are there any particular risks associated with the issuance of the Revenue Bonds?
-- How will the Revenue Bonds be sold (i.e. competitive vs. negotiated)? -- What will the annual debt service burden be following the issuance of the Revenue Bonds?
-- Does the SFPUC have sufficient rates in place to repay the Revenue Bonds? -- How does this transaction relate to the SFPUC’s overall debt portfolio and capital improvement financing plan?
-- What commitments has the SFPUC undertaken after the issuance of the Revenue Bonds?
A Commissioner should not vote to approve the distribution of a Preliminary Official Statement and the sale of the Revenue Bonds unless and until the Commissioner believes that the SFPUC will be able to fulfill all of the obligations it will undertake in connection with the Revenue Bonds (including, but not limited to, the obligation to make timely payments of principal and interest) and is comfortable that the information in the Preliminary Official Statement and the Official Statement will be accurate in all material respects and will not omit information necessary for investors to make an informed investment decision.