Stradling – Draft of 08/30/24
4893-9537-9288v9/200891-0003
PRELIMINARY OFFICIAL STATEMENT DATED __________, 202 4
NEW ISSUE - BOOK-ENTRY ONLY Ratings: S&P: “__”
Fitch: “__”
(See “RATINGS” herein.)
In the opinion of Stradling Yocca Carlson & Rauth LLP (“Bond Counsel”), under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described in this Official Statement, interest (and original issue discount) on the Series 2024 A Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals. In the further opinion of Bond Counsel, interest (and original issue discount) on the Series 2024 A Bonds is exempt from State of California personal income tax. See “TAX MATTERS” with respect to certain tax consequences relating to the Series 2024 A Bonds, including with respect to the alternative minimum tax imposed on certain large corporations for tax years beginning af ter December 31, 2022.
$_________*
City of Santa Clara, California
Electric Revenue Bonds, Series 2024 A
Dated: Date of Delivery Due: July 1, as shown on the inside cover This cover page contains certain information for general reference only. It is not intended to be a summary of the security or terms of this issue. Potential investors are advised to read the entire Official Statement to obtain information essential to the making of an informed investment decision. Capitalized terms used on this cover page not otherwise defined shall have the meanings s et forth herein.
The Series 2024 A Bonds are being issued pursuant to an Amended and Restated Electric Revenue Bond Indenture, dated as of March 1, 2011, by and between the City of Santa Clara, California (the “City”) and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”), as supplemented and amended , including by a Fourth Supplemental Electric Revenue Bond Indenture, dated as of October 1, 2024 (collectively, the “Indenture”), by and between the City and the Trustee. The Series 2024 A Bonds will be issued in fully registered form only, and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). DTC will act as securities depository for the Series 2024 A Bonds. Individual purchases of Series 2024 A Bonds will be made in book- entry form only in denominations of $5,000 principal amount or any integral multiple thereof. Interest on the Series 2024 A Bonds will be payable semiannually on January 1 and July 1 of each year, commencing [January 1], 2025 . Payments of principal of and interest on the Series 2024 A Bonds will be paid by the Trustee to DTC, which is obligated in turn to remit such principal and interest to its DTC participants for subsequent disbursement to the beneficial owners of the Series 2024 A Bonds as described herein. See “APPENDIX C – DTC AND THE BOOK-ENTRY ONLY SYSTEM” hereto.
The Series 2024 A Bonds are being issued by the City for the purpose of providing moneys to (i) fund or reimburse the City for certain costs of improvements to the e lectric system of the City, and (ii) pay costs of issuance of the Series 2024 A Bonds. See “PLAN OF FINANCE.”
The Series 2024 A Bonds
are subject to redemption prior to maturity as described herein. See “THE SERIES 2024 A Bonds – Redemption.”
The Series 2024 A Bonds are limited obligations of the City payable solely from and secured by a pledge of Adjusted Net Revenues of the Electric Utility (as such terms are defined in the Indenture), and the other funds pledged therefor under the Indentur e. The Series 2024 A Bonds are secured by and payable from such Adjusted Net Revenues on a parity with the City’s senior Electric Revenue Bonds and Parity Debt heretofore or hereafter issued or incurred, as more fully described herein. As of September 1, 2024 , the City had outstanding $18.980 million principal amount of senior Electric Revenue Bonds issued under the Indenture payable from Adjusted Net Revenues. The City has, and may in the future, also issue or incur subordinate obligations payable from Adjusted Net Revenues on a basis junior to the Electric Revenue Bonds and Parity Debt. As of September 1, 202 4, the City had outstanding $75.850 million principal amount of Subordinate Electric Revenue Bonds. Operating Expenses of the Electric Utility (including certain take -or-pay obligations under contracts with joint powers agencies) are payable from Revenues of the Electric Utility prior to the payment of the senior Electric Revenue Bonds and Parity Debt. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2024 A BONDS.”
THE SERIES 2024 A BONDS ARE LIMITED OBLIGATIONS OF THE CITY AND ARE PAYABLE, BOTH AS TO
PRINCIPAL AND INTEREST, OUT OF THE ADJUSTED NET REVENUES AND CERTAIN FUNDS HELD UNDER THE INDENTURE. THE GENERAL FUND OF THE CITY IS NOT LIABLE, AND THE CREDIT OR TAXING POWER OF THE CITY IS NOT PLEDGED, FOR THE PAYMENT OF THE SERIES 2024 A BONDS OR THE INTEREST THEREON. THE SERIES 2024 A 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 ANY OF ITS INCOME OR RECEIPTS, EXCEPT THE ADJUSTED NET REVENUES AND SAID FUNDS HELD UNDER THE INDENTURE. NO REGISTERED OWNER OF THE SERIES 2024 A
BONDS SHALL EVER HAVE THE RIGHT TO COMPEL ANY EXERCISE OF THE TAXING POWER OF THE CITY TO PAY THE SERIES 2024 A BONDS OR THE INTEREST THEREON.
The Series 2024 A Bonds are offered when, as and if issued by the City and received by the Underwriter s, subject to the approval of validity by Stradling Yocca Carlson & Rauth LLP, Bond Counsel, and subject to certain other conditions. Certain legal matters will be passed upon for the City by the City Attorney of the City, and for the Underwriters by their counsel, Orrick, Herrington & Sutcliffe LLP.
Stradling Yocca Carlson & Rauth LLP, is acting as Disclosure Counsel to the City in connection with the issuance of the Series 2024 A Bonds. PFM Financial Advisors LLC is serving as the City’s Municipal Advisor. It is expected that the Series 2024 A Bonds will be available for delivery through the facilities of DTC in New York, New York, by Fast Automated Securities Transfer (FAST) on o r about __________, 2024.
J.P. Morgan
RBC Capital Markets Siebert Williams Shank & Co., LLC
Dated: ___________, 2024
_______________________
Preliminary, subject to change.
This Preliminary Official Statement and the information contained herein are subject to completion and amendment. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or a solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration, qualification or filing under the securities laws of any such jurisdiction.
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MATURITY SCHEDULE*
$_________*
City of Santa Clara, California
Electric Revenue Bonds, Series 2024 A
$________* Serial Series 2024 A Bonds
Maturity Date
(July 1)
Principal
Amount*
Interest
Rate
Price or
Yield
CUSIP†
(Base No. 801444)
$_________* ____% Term Series 2024 A Bonds due July 1, 20__, Yield ______% ; CUSIP†: 801444___ $_________* ____% Term Series 2024 A Bonds due July 1, 20__, Yield ______% ; CUSIP†: 801444___
___________________
* Preliminary, subject to change.
† CUSIP® is a registered trademark of the American Bankers Association. CUSIP data herein are provided by CUSIP Global Services, managed by FactSet Research Systems Inc. on behalf of the American Bankers Association. CUSIP numbers have been assigned by an independent company not affiliated with the City or the Underwriters and are included solely for the convenience of the holders of the Series 2024 A Bonds. Neither the City nor the Underwriters is responsible for the selection or use of these CUSIP numbers and no representation is made as to their correctness on the Series 2024 A Bonds or as indicated above. The CUSIP number for a specific maturity is subject to being changed after the issuance of the Series 2024 A Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part of such maturity or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of the Series 2024 A Bonds.
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CITY OF SANTA CLARA, CALIFORNIA
CITY COUNCIL
Lisa M. Gillmor, Mayor
Anthony J. Becker, Vice Mayor
Raj Chahal, Councilmember
Karen Hardy, Councilmember
Sudhanshu “Suds” Jain, Councilmember
Kevin Park, Councilmember
Kathy Watanabe, Councilmember
ADMINISTRATION
Jōvan D. Grogan, City Manager
Nadine Nader, Chief Operating Officer
Chuck Baker, Assistant City Manager
Cynthia Bojorquez, Assistant City Manager
Kenn Lee, Director of Finance
Glen R. Googins, City Attorney
Hosam Haggag, City Clerk
Nora Pimentel, MMC, Assistant City Clerk
ELECTRIC UTILITY
Manuel Pineda, Chief Electric Utility Officer
Nicolas Procos, Chief Electric Utility Operating Officer DeAnna Hilbrants, Assistant Director, Business Services Kathleen Hughes, Assistant Director, Resources Management and Customer Engagement Chris Karwick, Assistant Director, Utility Operations
Yanmei Qiu, Electric Division Manager–Market Analysis and Pricing Robert Valentukonis, Electric Division Manager–Business Modeling and Debt Administration
SPECIAL SERVICES
MUNICIPAL ADVISOR
PFM Financial Advisors LLC
Los Angeles, California
TRUSTEE
The Bank of New York Mellon
Trust Company, N.A.
Los Angeles, California
BOND COUNSEL AND
DISCLOSURE COUNSEL
Stradling Yocca Carlson & Rauth LLP
Newport Beach, California
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No dealer, broker, salesperson or other person has been authorized by the City to give any information or to make any representation other than as set forth herein and, if given or made, such other information or representation must not be relied upon as having been authorized by the City. 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 Series 2024 A Bonds by a 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 purchasers of the Series 2024 A Bonds.
The information set forth in this Official Statement has been furnished by the City and obtained from official sources and other sources which are believed to be reliable. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of facts. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall under any circumstances create any implication that there has been no change in the affairs of the City or the Electric Utility since the date hereof.
The Underwriters have provided the following two paragraphs 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 applicable to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information.
IN CONNECTION WITH THE OFFERING OF THE SERIES 2024 A BONDS THE UNDERWRITERS
MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES 2024 A BONDS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. _____________________
CAUTIONARY STATEMENTS REGARDING
FORWARD-LOOKING STATEMENTS IN
THIS OFFICIAL STATEMENT
Certain statements included or incorporated by reference in this Official Statement and the Appendices hereto constitute “forward -looking statements.” Such statements are generally identifiable by the terminology used such as “plan,” “expect,” “estimate,” “budget” or other similar words. Such forward -looking statements include, but are not limited to, certain statements contained in the information under the captions “SILICON VALLEY POWER,” “RATE REGULATION,” “and “CERTAIN FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY” in this Official Statement. Forward -looking statements in this Official Statement are subject to risks and uncertainties, including particularly those relating to natural gas costs and availability, wholesale and retail electric energy and capacity prices, federal and state legislation and regulations, the impact of weather on the energy market, industry restructuring, changes in consumer electricity demand and use patterns, and the economy of the service area of the City’s Electric Utility.
The achievement of any results or the realization of other expectations contained in such forward- looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The City does not plan to issue any updates or revisions to those forward-looking statements.
This Official Statement, including any supplement or amendment hereto, is intended to be deposited with the Municipal Securities Rulemaking Board through the Electronic Municipal Market Access (EMMA) website. The City also maintains a website and certain social media accounts. However, the information presented therein is not part of this Official Statement, is not incorporated by reference herein, and should not be relied upon in making an investment decision with respect to the Series 2024 A Bonds.
References to website addresses presented herein are for informational purposes only and may be in the form of a hyperlink solely for the reader’s convenience. Unless specified otherwise, such websites and the information or links contained therein are not incorporated into, and are not part of, this Official Statement for purposes of, and as that term is defined in, S.E.C. Rule 15c2-12(b)(5).
TABLE OF CONTENTS
Page
i
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INTRODUCTION ....................................................................................................................................... 1 Purpose .................................................................................................................................................. 1 Authority for Issuance ........................................................................................................................... 1 The City’s Electric Utility ..................................................................................................................... 1 Security for the Series 2024 A Bonds ................................................................................................... 2 Rate Covenant ....................................................................................................................................... 2 No Bond Reserve Fund ......................................................................................................................... 3 Continuing Disclosure ........................................................................................................................... 3 References to Documents ...................................................................................................................... 3 Additional Information .......................................................................................................................... 3 PLAN OF FINANCE ................................................................................................................................... 4 ESTIMATED SOURCES AND USES OF FUNDS ................................................................................... 5 THE SERIES 2024 A BONDS .................................................................................................................... 5 General Description ............................................................................................................................... 5 Redemption............................................................................................................................................ 5 AMENDMENTS TO THE MASTER INDENTURE ................................................................................. 7 SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2024 A BONDS ................................ 9 Pledge of Adjusted Net Revenues ......................................................................................................... 9 Rate Covenant ..................................................................................................................................... 11 No Bond Reserve Fund for the Series 2024 A Bonds ......................................................................... 11 Allocation of Adjusted Net Revenues ................................................................................................. 11 Rate Stabilization Fund ....................................................................................................................... 12 Outstanding Electric Revenue Obligations of the City ........................................................................ 13 Additional Electric Revenue Obligations of the City .......................................................................... 13 Investment of Monies in Funds and Accounts Under the Indenture ................................................... 14 Limitations on Remedies ..................................................................................................................... 14 SILICON VALLEY POWER .................................................................................................................... 15 Introduction ......................................................................................................................................... 15 Management ........................................................................................................................................ 15 Power Supply Resources ..................................................................................................................... 17 Fuel Supply .......................................................................................................................................... 30 Transmission Resources ...................................................................................................................... 30 Interconnections and Distribution Facilities ........................................................................................ 32 Renewable Energy ............................................................................................................................... 33 Energy Efficiency Programs ................................................................................................................ 35 Wholesale Resources ........................................................................................................................... 35 Risk Management ................................................................................................................................ 35 Cybersecurity Program ........................................................................................................................ 36 Wildfire Mitigation Measures ............................................................................................................. 37 Impact of COVID-19 Pandemic .......................................................................................................... 37 Rates and Charges ............................................................................................................................... 38 Major Customers ................................................................................................................................. 39 Customers, Energy Sales, Revenues and Demand .............................................................................. 40 Capital Requirements .......................................................................................................................... 40 Indebtedness ........................................................................................................................................ 41 Transfers to the General Fund ............................................................................................................. 44
TABLE OF CONTENTS
(Continued)
Page
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Employees and Retirement Plans ........................................................................................................ 44 Cash Reserves ...................................................................................................................................... 49 Insurance.............................................................................................................................................. 50 Litigation Affecting the Electric Utility .............................................................................................. 51 Condensed Operating Results and Selected Cash and Investments Information ................................ 51 Rate Covenant Compliance Under Electric Revenue Bond Indenture ................................................ 53 RATE REGULATION .............................................................................................................................. 55 CERTAIN FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY ...................................... 55 Federal Energy and Environmental Policies and Legislation .............................................................. 55 State Legislation and Regulatory Proceedings .................................................................................... 58 Changing Laws and Requirements Generally ..................................................................................... 64 General Economic Conditions ............................................................................................................. 65 Other Factors ....................................................................................................................................... 65 CONSTITUTIONAL LIMITATIONS IN CALIFORNIA AFFECTING FEES AND CHARGES ......... 66 Proposition 218 and Proposition 26..................................................................................................... 66 Other Initiatives ................................................................................................................................... 67 TAX MATTERS ........................................................................................................................................ 67 APPROVAL OF LEGALITY .................................................................................................................... 69 ABSENCE OF MATERIAL LITIGATION .............................................................................................. 69 CONTINUING DISCLOSURE ................................................................................................................. 70 RATINGS .................................................................................................................................................. 70 MUNICIPAL ADVISOR ........................................................................................................................... 70 UNDERWRITING .................................................................................................................................... 70 CERTAIN RELATIONSHIPS .................................................................................................................. 71 INDEPENDENT ACCOUNTANTS ......................................................................................................... 71 EXECUTION AND DELIVERY .............................................................................................................. 72
APPENDIX A – CERTAIN INFORMATION ABOUT THE CITY OF SANTA CLARA ................. A-1 APPENDIX B – AUDITED FINANCIAL STATEMENTS OF THE CITY OF SANTA
CLARA ELECTRIC UTILITY ENTERPRISE FUND (SILICON VALLEY
POWER) FOR THE FISCAL YEAR ENDED JUNE 30, 2023 ................................ B-1 APPENDIX C – DTC AND THE BOOK-ENTRY ONLY SYSTEM .................................................. C-1 APPENDIX D – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE ........................ D-1 APPENDIX E – PROPOSED FORM OF OPINION OF BOND COUNSEL OPINION .................... E-1 APPENDIX F – FORM OF CONTINUING DISCLOSURE AGREEMENT ..................................... F-1 APPENDIX G – DEBT SERVICE REQUIREMENTS ON THE ELECTRIC REVENUE BONDS ...................................................................................................................... G-1 APPENDIX H – AMENDMENTS BEING MADE TO THE MASTER INDENTURE ...................... H-1
1 4893-9537-9288v9/200891-0003
OFFICIAL STATEMENT
$____________*
City of Santa Clara, California
Electric Revenue Bonds,
Series 2024 A
INTRODUCTION
This Introduction is qualified in its entirety by the more detailed information included and referred to elsewhere in this Official Statement. A full review should be made of the entire Official Statement, including the cover page and attached appendices. The offering of Series 2024 A Bonds to potential investors is made only by means of the entire Official Statement. Capitalized terms used but not defined in this Introduction shall have the meanings given such terms elsewhere in this Official Statement.
Certain definitions of capitalized terms used and not otherwise defined in this Official Statement are set forth in “APPENDIX D – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE.” Purpose
The purpose of this Official Statement, which includes the cover page and the appendices hereto, is to set forth certain information concerning the City of Santa Clara, California (the “City”) and its electric utility (the “Electric Utility” or the “Enterprise”), in connection with the sale and delivery of the City’s $_________
* aggregate principal amount of Electric Revenue Bonds, Series 2024 A (the “Series 2024 A Bonds”). The Series 2024 A Bonds are being issued by the City for the purpose of providing moneys to (i) fund or reimburse the City for certain costs of improvements to the e lectric system of the City, and (ii) pay costs of issuance of the Series 2024 A Bonds. See “PLAN OF FINANCE” and “ESTIMATED SOURCES AND USES OF FUNDS.”
Authority for Issuance
The City is a duly constituted charter city of the State of California authorized to issue electric revenue bonds pursuant to Section 1321 of the City’s Charter (the “Charter”). The Series 2024 A Bonds will be issued under the Charter, a number of resolutions adopted pursuant to the Charter, and the Revenue Bond Law of 1941 (being Chapter 6 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California), to the extent incorporated by such procedural resolutions (collectively, the “Bond Law”), a resolution of the City, adopted ________, 2024, and an Amended and Restated Electric Revenue Bond Indenture, dated as of March 1, 2011 (the “Master Indenture”) , by and between the City and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”), as supplemented and amended, including by a Fourth Supplemental Electric Revenue Bond Indenture, dated as of October 1, 2024 (the “Fourth Supplement”), providing for the issuance of the Series 2024 A Bonds. The Master Indenture, as supplemented and amended, including as supplemented and amended by the Fourth Supplement, is sometimes referred to herein as the “Indenture.” See also “AMENDMENTS TO THE MASTER INDENTURE.”
The City’s Electric Utility
The City provides electric service within the City through its electric utility department (the “Electric Utility”). The City offers its electricity and energy services through the trademarked name of “Silicon Valley Power .” The City owns and operates the Electric Utility, which includes generation,
* Preliminary, subject to change.
2 4893-9537-9288v9/200891-0003
transmission and distribution facilities. The City also purchases power and transmission services from others and participates in other utility -type arrangements. For the Fiscal Year ended June 30, 2024, the Electric Utility served an average of 60,287 customers per month, had total sales of 4,560 gigawatt-hours (“GWh”) and had a peak demand of 6 69.2 megawatts (“MW”). In the Fiscal Year ended June 30, 202 4, approximately 94.1% of the City’s energy sales are made to commercial and industrial customers. See “SILICON VALLEY POWER.”
Security for the Series 2024 A Bonds
The Series 2024 A Bonds are limited obligations of the City payable solely from and secured solely by a pledge of the Adjusted Net Revenues of the Electric Utility (as such terms are defined in the Indenture), and the other funds pledged therefor under the Indenture. The City is obligated to make payments to cert ain joint powers agencies, including (as applicable) payments with respect to bonds issued by such agencies, as Operating Expenses of the Electric Utility which are payable prior to payment of the Series 2024 A Bonds (the “Joint Powers Agency Obligations”).
Upon the issuance of the Series 2024 A Bonds, the Series 2024 A Bonds will be secured by and payable from Adjusted Net Revenues on a parity with $18.980 million aggregate principal amount of outstanding electric revenue bonds of the City, together with any additional electric revenue bonds hereafter issued under the Indenture (collectively, “Electric Revenue Bonds” or the “Bonds”) and with any Parity Debt heretofore or hereafter issued or incurred in accordance with the Indenture. The City has, and may in the future, also issue or incur subordinate obligations payable from Adjusted Net Revenues on a basis junior and subordinate to the Bonds and Parity Debt. As of September 1, 2024, the City ha d outstanding $75.850 million principal amount of subordinated electric revenue bonds (collectively, the “Subordinate Electric Revenue Bonds”) evidencing borrowings of the City made under t wo loan agreements (collectively, the “Loan Agreements”) , between the City and Bank of America, N.A. (“BANA”). The Subordinate Electric Revenue Bonds are payable from Adjusted Net Revenues of the Electric Utility junior in right of payment to the Bonds and Parity Debt.
See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2024 A BONDS – Outstanding Electric Revenue Obligations of the City” and “– Additional Electric Revenue Obligations of the City.” See also “SILICON VALLEY POWER – Indebtedness.” The Series 2024 A Bonds are limited obligations of the City and are payable, both as to principal and interest, out of the Adjusted Net Revenues and certain funds held under the Indenture. The general fund of the City is not liable, and the credit or taxing power of the City is not pledged, for the payment of the Series 2024 A Bonds or the interest thereon. The Series 2024 A 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 any of its income or receipts, except the Adjusted Net Revenues and said funds held under the Indenture. No registered owner of the Series 2024 A Bonds shall ever have the right to compel any exercise of the taxing power of the City to pay the Series 2024 A Bonds or the interest thereon.
Rate Covenant
The City has covenanted in the Indenture to, at all times while any of the Bonds remain outstanding, fix, prescribe and collect rates, fees and charges in connection with services and facilities furnished by the Electric Utility so as to yield Revenues in each Fiscal Year sufficient so that Adjusted Net Revenues for such year will be at least equal to 1.0 times the amount of Debt Service on all Bonds and Parity Debt for such Fiscal Year. See “APPENDIX D – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE.”
3 4893-9537-9288v9/200891-0003
No Bond Reserve Fund
There is no bond reserve fund being established in connection with the Series 2024 A Bonds.
Amounts held in any other reserve fund under the Indenture for any other Series of Bonds are not available for the payment of, and do not in any manner secure, the Series 2024 A Bonds. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2024 A BONDS – No Bond Reserve Fund for the Series 2024 A Bonds.”
Continuing Disclosure
The City will covenant for the benefit of the holders and beneficial owners of the Series 2024 A Bonds to provide certain financial information and operating data relating to the Electric Utility by not later than 210 days following the end of the City’s Fiscal Year (which currently begins on July 1 and ends on June 30 of each year) (the “Annual Report”), commencing with the Annual Report for Fiscal Year 2023-24, and to provide notices of the occurrence of certain enumerated events. The Annual Report and the notices of specified events will be filed by the City or the Trustee on behalf of the City with the Municipal Securities Rulemaking Board through the Electronic Municipal Market Access ( “EMMA”) system. See “CONTINUING DISCLOSURE UNDERTAKING.” These covenants have been made in order to assist the Underwriters in complying with Securities and Exchange Commission Rule 15c2- 12(b)(5) (the “Rule”). See also “APPENDIX F – FORM OF CONTINUING DISCLOSURE AGREEMENT.”
References to Documents
This Official Statement includes summaries of the terms of the Series 2024 A Bonds, the Indenture and certain contracts and other arrangements for the supply of capacity and energy. The summaries of and references to the Indenture and all other documents, statutes, reports and other instruments referred to herein do not purport to be complete, comprehensive or definitive, and each such summary and reference is qualified in its entirety by reference to the respective document, statute, report or instrument. All references to the Series 2024 A Bonds are qualified in their entirety by reference to the forms of the Series 2024 A Bonds set forth in the Indenture. The capitalization of any word not conventionally capitalized, or otherwise defined herein, indicates that such word is defined in a particular agreement or other document and, as used herein, has the meaning given it in such agreement or document.
Additional Information
The Santa Clara Electric Utility department’s main office is located at Santa Clara City Hall, 1500 Warburton Avenue, Santa Clara, California 95050, (408) 615- 6600. The City regularly prepares a variety of publicly available reports, including audits, budgets and related documents. Any Series 2024 A Bondholder may obtain a copy of any such report, as available, from the City. Additional information regarding this Official Statement may be obtained by contacting Manuel Pineda, Chief Electric Utility Officer, at the above address and telephone number.
4 4893-9537-9288v9/200891-0003
PLAN OF FINANCE
The Series 2024 A Bonds are being issued by the City for the purpose of providing moneys to (i) fund or reimburse the City for certain costs of improvements to the electric system of the City, and (ii) pay costs of issuance of the Series 2024 A Bonds.
Proceeds of the Series 2024 A Bonds will be applied primarily to finance a portion of the costs of the improvements described below:
Scott Receiving Station Rebuild and Replacement . The City’s Scott Receiving Station ( “SRS”) was first constructed in 1975 and last upgraded in 2002. The SRS has a name plate capacity of 372 mega volt amp (“MVA”) and will be upgraded to a name plate capacity over 600 MVA in order to serve additional load and maintain system reliability. This project replaces the existing SRS with an air insulated switchgear (“AIS”) substation within the existing station site and will include the installation of two energized 336 MVA 115/60 kV power transformers, with accommodations for one future spare 336 MVA 115/60 kV power transformer. The City has estimated the total construction cost of the STS reconstruction project to be approximately $110 million.
Kifer Receiving Station Rebuild and Replacement. The City’s Kifer Receiving Station (“KRS”) was first constructed in 1955 . The KRS has a name plate capacity of 372 MVA and will be upgraded to over 600 MVA in order to serve additional load and maintain system reliability. This project replaces KRS with an AIS substation within the existing site and will include the installation of two energized 336 MVA 115/60 kV power transformers with accommodations for one future spare 336 MVA 115/60 kV power transformer. Transmission lines will be relocated for the existing 115 kV and 60 kV lines (South, Center, Northeast, and East Loop) to the new AIS substation. The City has estimated the total construction cost of the STS reconstruction project to be approximately $119 million.
Northern Receiving Station Upgrades and Expansion . The City’s Northern Receiving Station (“NRS”) was constructed in 2002. The planned expansion project will use available space within the existing station site to increase station reliability and capacity by installing additional transformers and reconfiguring/expanding the 60kV, 115kV, and 230kV buses and associated AIS. The current capacity of the station will be upgraded to over 900 MVA with the installation of 115kV and 230kV bus and AIS improvements to double -bus double-breaker configurations. The expansion will include up to three 336 MVA 115kV/60kV power transformers and two 560 MVA 230 kV/115 kV power transformers. The City has estimated the total construction cost of the STS reconstruction project to be approximately $147 million.
5 4893-9537-9288v9/200891-0003
ESTIMATED SOURCES AND USES OF FUNDS
The following table sets forth the estimated sources and uses of funds related to the Series 2024 A Bonds (rounded to the nearest dollar).
Sources of Funds:
Par Amount of the Series 2024 A Bonds................................ $ Original Issue [Premium][Discount] ......................................
TOTAL SOURCES ........................................................ $ Uses of Funds:
Deposit to Project Fund(1) ....................................................... $ Costs of Issuance(2) .................................................................
TOTAL USES ................................................................ $
(1) Includes amounts to be reimbursed to the City.
(2) Includes underwriter s’ discount, legal fees, printing costs, fees of the Trustee, fees of the rating agencies, and other miscellaneous expenses.
THE SERIES 2024 A BONDS
General Description
The Series 2024 A Bonds will be issued in the aggregate principal amount, will mature in the respective years and amounts, and will bear interest at the respective rates, all as set forth on the inside front cover page of this Official Statement. The Series 2024 A Bonds will be dated and will bear interest from their date of delivery. Purchases of the Series 2024 A Bonds may be made in authorized denominations of $5,000 or any integral multiple thereof. Interest on the Series 2024 A Bonds will be payable on January 1 and July 1 of each year, commencing [January 1], 202 5. Interest on the Series 2024 A Bonds will be calculated on the basis of a 360- day year of twelve 30 -day months. The Series 2024 A Bonds will be issued as fully registered bonds in book- entry form only and when delivered will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”), which will act as securities depository for the Series 2024 A Bonds. See “APPENDIX C – DTC AND THE BOOK-ENTRY ONLY SYSTEM.”
Redemption*
Optional Redemption. The Series 2024 A Bonds maturing on or before July 1, 20___ are not subject to optional redemption prior to maturity. The Series 2024 A Bonds maturing on and after July 1, 20___ are subject to redemption prior to their respective stated maturities, at the option of the City, from any source of available funds, as a whole or in part (by such maturities as may be specified by the City and by lot within a maturity), on any date on or after July 1, 20___, at a redemption price equal to the principal amount of Series 2024 A Bonds called for redemption, plus accrued interest to the date fixed for redemption, without premium.
Mandatory Sinking Account Redemption. The Series 2024 A Bonds maturing on July 1, 20____ are subject to redemption prior to their stated maturity, in part, by lot, from Mandatory Sinking Account Payments as specified below, commencing on July 1, 20___, at the principal amount of each Series
* Preliminary, subject to change.
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2024 A Bond so redeemed plus accrued interest thereon to but not including the date fixed for redemption, without premium.
Term Series 2024 A Bonds due July 1, 20___
Mandatory Sinking Account
Payment Dates
(July 1)
Mandatory Sinking
Account Payments
$
†
_______________
† Final Maturity.
The Series 2024 A Bonds maturing on July 1, 20____ are subject to redemption prior to their stated maturity, in part, by lot, from Mandatory Sinking Account Payments as specified below, commencing on July 1, 20___, at the principal amount of each Series 2024 A Bond so redeemed plus accrued interest thereon to but not including the date fixed for redemption, without premium.
Term Series 2024 A Bonds due July 1, 20___
Mandatory Sinking Account
Payment Dates
(July 1)
Mandatory Sinking
Account Payments
$
†
_______________
† Final Maturity.
Upon an optional redemption of a portion of any term Series 2024 A Bond, the City shall provide the Trustee with a revised schedule of the foregoing Mandatory Sinking Account Payments which shall provide for a reduction in the amount of one or more of the Mandatory Sinking Account Payments coming due on such term Series 2024 A Bond after such redemption as specified by the City in such schedule to reflect such redeemed portion.
Notice of Redemption. Notice of redemption of the Series 2024 A Bonds shall be given by the Trustee, not less than 20 nor more than 60 days prior to the redemption date, to DTC by electronic means of communication or by first-class mail or, if the book-entry system as described in Appendix E has been discontinued, to the respective Owners of any Series 2024 A Bonds designated for redemption at their addresses appearing on the bond registration books of the Trustee by first -class mail, and to EMMA by electronic means of communication, or to such other securities depositories or information services as the City may designate in a Request of the City delivered to the Trustee. Such notice of redemption will state, among other things, the date of issue of the Series 2024 A Bonds to which such notice relates, the redemption date, the redemption price and in the case of Series 2024 A Bonds to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed, and shall be given in the
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form and otherwise in accordance with the terms of the Indenture. Failure by any Owner to receive notice or any defect in any such notice shall not affect the sufficiency of the proceedings for redemption.
In the event of an optional redemption of Series 2024 A Bonds, if the City shall not have deposited or otherwise made available to the Trustee the money required for the payment of the redemption price of the Series 2024 A Bonds to be redeemed at the time of the mailing of notice of redemption, such notice of redemption may state that the redemption is expressly conditioned upon the timely deposit of sufficient funds therefor with the Trustee, and that if such moneys shall not have been so received, such notice shall be of no force and effect and the Trustee shall not be required to redeem such Series 2024 A Bonds. In the event that such notice of redemption contains such a condition and such moneys are not so received, the redemption shall not be made and the Trustee shall within a reasonable time thereafter give notice, in the manner in which the notice of redemption was given, that such moneys were not so received.
The City may, at its option, on or prior to the date fixed for redemption in any notice of optional redemption, rescind such notice of redemption by written notice of the City to the Trustee, and the Trustee is to give notice of such rescission as soon thereafter as practicable in the same manner, and to the same recipients, as notice of such redemption was given.
Selection of Bonds for Redemption. Whenever provision is made in the Indenture for the redemption of less than all of the Series 2024 A Bonds, the maturities of the Series 2024 A Bonds to be redeemed shall be specified by the City. In the case of partial redemption of less than all of the Series 2024 A Bonds of any maturity, the Trustee will select the Series 2024 A Bonds of such maturity to be redeemed from all Series 2024 A Bonds of such maturity not previously called for redemption, in authorized denominations, by lot, in any manner which the Trustee in its sole discretion deems appropriate and fair.
Effect of Redemption. If notice of redemption is given as provided in the Indenture, and moneys for payment of the redemption price of, together with interest accrued to the redemption date on, the Series 2024 A Bonds (or portions thereof) so called for redemption is held by the Trustee, then on the redemption date designated in such notice, the Series 2024 A Bonds (or portions thereof) so called for redemption will become due and payable at the redemption price specified in the notice of redemption, together with interest accrued thereon to the date fixed for redemption, interest on such Series 2024 A Bonds so called for redemption will cease to accrue, the Series 2024 A Bonds (or portions thereof) will cease to be entitled to any benefit or security under the Indenture and the owners of the Series 2024 A Bonds (or portions thereof) will have no rights in respect thereof except to receive payment of the redemption price plus accrued interest.
AMENDMENTS TO THE MASTER INDENTURE
The City’s $18.980 million outstanding principal amount of Electric Revenue Bonds , consisting of its Electric Revenue Refunding Bonds, Series 2018 A (the “Series 2018 A Bonds”) , were issued pursuant to the Master Indenture, as supplemented and amended by the Third Supplemental Electric Revenue Bond Indenture, dated as of December 1, 2018 (the “Third Supplement”) , by and between the City and the Trustee. The Fourth Supplement, pursuant to which the Series 2024 A Bonds are being issued, includes certain material amendments to the Master Indenture which purchasers of the Series 2024 A Bonds are deemed to consent to by their purchase of the Series 2024 A Bonds. Set forth in “APPENDIX H – AMENDMENTS BEING MADE TO THE MASTER INDENTURE” is a description of the amendments and a marked copy of certain provisions of the Master Indenture which show the amendments and modifications set forth in the Fourth Supplement that the City intends to make to the Master Indenture. Such amendments will become effective on the day next succeeding the date on which the written consent (or deemed written consent) of the Owners of a majority in aggregate principal
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amount of the Bonds then Outstanding has been obtained , and a written certificate of the City to such effect and specifying the amendments effective date has been delivered by the City and filed with the Trustee (the “Amendments Effective Date”).
The City is planning to effectuate the consent of Owners of the Bonds through a “springing consent” process, which means that the City will require the Owners and Beneficial Owners of the Series 2024 A Bonds to be deemed to have consented to the proposed amendments to the Master Indenture in the Fourth Supplement by their purchase and acceptance of the Series 2024 A Bonds. In addition, pursuant to the terms of the City’s Loan Agreements with BANA relating to its outstanding Subordinate Electric Revenue Bonds, the City intends to seek the consent of BANA to such amendments to the Master Indenture in order to make such amendments effective for purposes of the provisions of the Loan Agreements affected thereby. The City will not be requesting separate written consent from the Owners of Bonds for the proposed amendments included in the Fourth Supplement before the Amendments Effective Date. Upon the issuance of the Series 2024 A Bonds as contemplated under “PLAN OF FINANCE” herein, the Series 2024 A Bonds will represent more than [85%] {confirm once preliminary par finalized at POS posting} of the aggregate principal amount of the then Outstanding Bonds under the Indenture and the requisite consent of the Owners of a majority in principal amount of the Bonds will have then been obtained by the City. Thus, the amendments to the Master Indenture set forth in the Fourth Supplement are expected to become effective on or about the day next succeeding the date of delivery of the Series 2024 A Bonds.
The significant amendments to the Master Indenture to be effected by the Fourth Supplemental Indenture include the following:
• modifications to the definition of “Adjusted Net Revenues” relating to the sources of funds that may be included in calculating debt service coverage for purposes of complying with the City’s rate covenant in the Indenture;
• modifications to the provisions relating to the Rate Stabilization Fund created under the Indenture and the transfer and application of amounts to or from the Rate Stabilization Fund for purposes of complying with the City’s rate covenant in the Indenture; • modifications to the provisions allowing for the City to issue additional Bonds or incur other Parity Debt that are payable from Adjusted Net Revenues on a parity with the payment by the City of the Electric Revenue Bonds; and
• the removal of the requirement under the Indenture for the City to furnish its audited financial statements and related certifications to the Trustee for each Fiscal Year (the City remains and will be obligated to furnish its audited financial statements on EMMA under its continuing disclosure undertakings for the Bonds).
See “APPENDIX H – AMENDMENTS BEING MADE TO THE MASTER INDENTURE” for a marked copy of the provisions of the Master Indenture reflecting in additional detail the amendments and modifications set forth in the Fourth Supplement that the City intends to make to the Master Indenture .
These changes to the Master Indenture as to be amended pursuant to the Fourth Supplement are reflected elsewhere in this Official Statement and in the “SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE” contained in Appendix D.
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SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2024 A BONDS Pledge of Adjusted Net Revenues
The Series 2024 A Bonds are revenue obligations of the City payable solely from and secured solely by a pledge of the Adjusted Net Revenues (as described below) of the Electric Utility and the other funds pledged therefor under the Indenture. Pursuant to the Indenture, the City has pledged all Adjusted Net Revenues and all amounts (including proceeds of the Bonds issued under the Indenture) held by the Trustee under the Indenture (except for amounts held in the Rebate Fund) to secure the payment of the principal of and redemption premium, if any, and interest on the Bonds (including the Series 2024 A Bonds) and any Parity Debt in accordance with their terms, subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein. As provided in the Indenture, said pledge constitutes a first lien on the Adjusted Net Revenues and amounts in such funds held by the Trustee and will be valid and binding from and after delivery of the Bonds or Parity Debt, without any physical delivery thereof or further act.
Upon the issuance of the Series 2024 A Bonds, the Series 2024 A Bonds will be secured by and payable from Adjusted Net Revenues on a parity with $18.980 million aggregate principal amount of other Bonds to be outstanding upon such issuance (as described under “ – Outstanding Electric Revenue Obligations of the City – Outstanding Bonds and Parity Debt ” below), together with any additional Bonds hereafter issued under the Indenture, and with any Parity Debt heretofore or hereafter issued or incurred in accordance with the Indenture. See “ – Additional Electric Revenue Obligations of the City – Additional Bonds and Parity Debt; Other Obligations.” As noted below, the City is obligated to make payments to certain joint powers agencies, including payments with respect to bonds issued by such agencies, as Operating Expenses of the Electric Utility which are payable prior to the payment of the Bonds and Parity Debt.
The term “Parity Debt” means any indebtedness, installment sale obligation, lease obligation or other obligation of the City for borrowed money or interest rate swap agreement incurred in connection with the Electric Utility having an equal lien and charge upon the Adjusted Net Revenues and therefore payable on a parity with the Bonds with respect to such Adjusted Net Revenues (whether or not any Bonds are Outstanding).
The term “Adjusted Net Revenues” as to be amended pursuant to the Fourth Supplement means, for any period, the sum of (a) the Revenues of the Electric Utility for such period plus (b) for purposes of determining compliance with the City’s rate covenant only (see “– Rate Covenant”), (i) the amounts approved by City Council to be withdrawn from the Rate Stabilization Fund (see – “Rate Stabilization Fund”) for inclusion in Adjusted Net Revenues for such period, and (ii) the amount of Available Reserves budgeted by the City for the payment of Operating Expenses and/or Debt Service for such period (which amounts, in either case, shall be deposited in the Net Revenue Fund in accordance with the Indenture to the extent such amounts are to be included in Adjusted Net Revenues for the purpose of determining compliance with the rate covenant ), and (c) any interest paid and other income derived from the investment of funds as provided in the Indenture , less the sum of (d) all Operating Expenses for such period, (e) moneys received with respect to the sale of assets financed with the proceeds of Bonds or Parity Debt, which amounts shall be applied in accordance with the Indenture, (f) moneys received with respect to any Special Facility, and (g) any charges collected by any person to amortize or otherwise relating to the payment of the uneconomic portion of costs associated with assets and obligations (“stranded costs”) of the Electric Utility or of any joint powers agency in which the City participates which the City has dedicated to the payment of obligations other than the Bonds or Parity Debt, the payments of which obligations will be applied to or pledged to or otherwise set aside for the reduction or retirement of outstanding obligations of the City or any joint powers agency in which the City participates
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relating to such “stranded costs” of the City or of any such joint powers agency to the extent such “stranded costs” are attributable to, or the responsibility of, the City.
The term “Available Reserves” means, as of any date of calculation, the amount of unrestricted funds of the Electric Utility determined by the City to be then available to pay Operating Expenses and/or Debt Service, which may include transfers to the Net Revenue Fund from any fund which is legally available to be used for such purpose.
The term “Revenues” means, generally, for any period, all gross income and revenue received or receivable by the City from the ownership and operation of the Electric Utility, calculated in accordance with the Generally Accepted Accounting Principles Applicable to Governments, including all rates, fees and charges received by the City from the Electric Utility or arising from the Electric Utility, but excluding any gain or loss on the extinguishment of any debt of the City.
The term “Operating Expenses” means, generally, the reasonable and necessary costs of the City for maintaining and operating the Electric Utility, including the cost of supply and transmission of electric energy under long- term contracts or otherwise and all reasonable and necessary operating expenses, pension charges and proportionate payments to such compensation and other insurance and accident reserve funds as the City or the City Council may establish; expenses of management, maintenance and repair and other expenses to maintain and preserve the Enterprise in good repair and working order, and including all reasonable and necessary administrative costs of the City attributable to the Enterprise and the Bonds and Parity Debt, such as salaries and wages and the necessary contribution to retirement of employees, overhead, insurance, taxes (if any); and all other reasonable and necessary costs of the City or charges required to be paid by it to comply with the terms of the Bonds or the Indenture or of any Parity Debt; but excluding depreciation, amortization, replacement and obsolescence charges or reserves therefor, interest expense and amortization of intangibles or other bookkeeping entries of a similar nature and costs and expenses attributable to Special Facilities. Anything contained in the Indenture to the contrary notwithstanding, “Operating Expenses” include all amounts required to be paid by the City under contract with a joint powers agency for the purchase of capacity, energy, transmission capacity or any other commodity or service in connection with the foregoing, which contract requires payments by the City to be made thereunder to be treated as Operating Expenses. See “– Outstanding Electric Revenue Obligations of the City – Outstanding JPA Obligations. ” In addition to its outstanding joint powers agency obligations, the City may incur future obligations pursuant to its agreements with joint powers agencies in which it now, or in the future may, participate, and such obligations may constitute Operating Expenses of the Electric Utility payable from Revenues of the Electric Utility prior to the payment of the Bonds and Parity Debt.
The Series 2024 A Bonds are limited obligations of the City and are payable, both as to principal and interest, out of the Adjusted Net Revenues and certain funds held under the Indenture. The general fund of the City is not liable, and the credit or taxing power of the City is not pledged, for the payment of the Series 2024 A Bonds or the interest thereon. The Series 2024 A 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 any of its income or receipts, except the Adjusted Net Revenues and said funds held under the Indenture. No registered owner of the Series 2024 A Bonds shall ever have the right to compel any exercise of the taxing power of the City to pay the Series 2024 A Bonds or the interest thereon.
See also “APPENDIX H – AMENDMENTS BEING MADE TO THE MASTER INDENTURE.”
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Rate Covenant
The City has covenanted in the Indenture to, at all times while any of the Bonds remain outstanding, fix, prescribe and collect rates, fees and charges in connection with services and facilities furnished by the Electric Utility so as to yield Revenues in each Fiscal Year sufficient so that Adjusted Net Revenues for such year will be at least equal to 1.0 times the amount of Debt Service on all Bonds and Parity Debt for such Fiscal Year. The Indenture, as to be amended pursuant to the Fourth Supplement, provides that if and to the extent that the City has determined that amounts on deposit in the Rate Stabilization Fund or any Available Reserves of the Electric Utility are to be included in Adjusted Net Revenues (in accordance with the definition thereof as described above) for any Fiscal Year for the purpose of complying with the r ate covenant, such amounts are to be deposited by the City in the Net Revenue Fund at the time of such determination.
The City has covenanted not to permit any use of the Electric Utility free of charge by any private or public person or entity. The Indenture provides that nothing therein will prevent the City, in its sole and exclusive discretion, from permitting other parties from selling electricity to retail customers within the service area of the Electric Utility provided that permitting such sales will not relieve the City of its obligations under the Indenture . See “APPENDIX D – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE.”
No Bond Reserve Fund for the Series 2024 A Bonds
There is no bond reserve fund being established in connection with the Series 2024 A Bonds.
Amounts held in any other reserve fund under the Indenture for any other Series of Bonds are not available for the payment of, and do not in any manner secure, the Series 2024 A Bonds.
Allocation of Adjusted Net Revenues
In order to carry out and effectuate the obligations of the City contained in the Indenture to pay the Bonds, as long as any Bonds are Outstanding, the City agrees and covenants that all Adjusted Net Revenues received by it will be deposited when and as received in a special fund, separate and apart from other moneys of the City designated the “City of Santa Clara Electric Utility Net Revenue Fund” (the “Net Revenue Fund”). All moneys at any time held in the Net Revenue Fund will be held in trust for the benefit of the Owners of the Bonds and Parity Debt and will be disbursed, allocated and applied solely for the uses and purposes set forth in the Indenture as described herein.
So long as any Bonds are Outstanding, the City will transfer the moneys in the Net Revenue Fund into the following respective funds (each of which the Trustee will establish, maintain and hold in trust for the benefit of the Owners of the Bonds) in the following amounts, in the following order of priority, the requirements of each such fund (including the making up of any deficiencies in any such fund resulting from lack of Adjusted Net Revenues sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any deposit is made to any fund subsequent in priority; provided that on a parity with such deposits the Trustee may set aside or transfer amounts with respect to outstanding Parity Debt as provided in the proceedings for such Parity Debt (which will be proportionate in the event such amounts are insufficient to provide for all deposits required as of any date to be made with respect to the Bonds and such Parity Debt):
(1) Interest Fund. The City will transfer to the Trustee and the Trustee will set aside in the Interest Fund on or before the Business Day prior to each interest payment date therefor an amount equal to the interest becoming due and payable on the Outstanding Bonds (excluding any interest for which there are moneys on deposit in the Interest Fund from the proceeds of any Series of Bonds or other source to pay such interest). All amounts in the Interest Fund shall be
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used and withdrawn by the Trustee solely for the purpose of paying interest on the Bonds as it becomes due and payable (including accrued interest on any Bonds purchased or redeemed prior to maturity pursuant to the Indenture) and making payments on interest rate swap agreements, as provided in the Indenture.
(2) Principal Fund; Sinking Accounts . The City will transfer to the Trustee and the Trustee will set aside in the Principal Fund on or before the Business Day prior to each principal or Sinking Account payment date therefor an amount equal to (a) the amount of Bond Obligation becoming due and payable on the Outstanding Serial Bonds, plus (b) the Mandatory Sinking Account Payments to be paid into the respective Sinking Accounts for the Term Bonds; provided that if the City certifies to the Trustee that any principal payments are expected to be refunded on or prior to their respective due dates or paid from excess amounts on deposit in a bond reserve fund upon such payment, no amounts need be set aside towards such principal to be so refunded or paid. All amounts in the Principal Fund will be used and withdrawn by the Trustee solely for the purposes of paying the Bond Obligation of the Bonds when due and payable, except that all amounts in the Sinking Accounts will be used and withdrawn by the Trustee solely to purchase or redeem or pay at maturity Term Bonds, as provided in the Indenture.
Any Adjusted Net Revenues remaining in the Net Revenue Fund after the foregoing transfers, except as otherwise provided in a Supplemental Indenture, will be held free and clear of the Indenture and the City may use and apply such Adjusted Net Revenues for any lawful purpose of the City, including the replenishment of any reserve fund for any Series of Bonds and the redemption of Bonds upon terms and conditions set forth in the Supplemental Indenture relating to such Bonds and the purchase of Bonds as and when and at such prices as the City may determine. The City has incurred certain subordinate electric revenue obligations and has pledged to the payment thereof all Adjusted Net Revenues remaining in each fiscal period less all amounts required to be paid under the Indenture for principal, interest, reserve fund and any other debt service or other requirements on the Electric Revenue Bonds and any Parity Debt as the same shall become due in such fiscal period. See “– Outstanding Electric Revenue Obligations of the City – Outstanding Subordinate Obligations.”
Under the Indenture the City may enter into an interest rate swap agreement corresponding to the interest rate or rates payable on a Series of Bonds or any portion thereof and the amounts received by the City or the Trustee, if any, pursuant to such an interest rate swap agreement may be applied to the deposits required under the Indenture. If the City so designates, amounts payable under the interest rate swap agreement may be secured by Adjusted Net Revenues and other assets pledged under the Indenture to the Bonds on a parity basis therewith.
Rate Stabilization Fund
Pursuant to the Indenture, a Rate Stabilization Fund was created (which is a continuation of the Rate Stabilization Fund Reserve Account established by the City pursuant to Resolution No. 6106 of the City Council adopted on January 16, 1996), and which fund the City agrees to maintain so long as any Bonds remain unpaid under the Indenture. The Indenture , as to be amended by the Fourth Supplement, provides that the City may at any time deposit in the Rate Stabilization Fund from any available Adjusted Net Re venues and /or any other money available to be used therefor such amounts as the City may determine; provided, that notwithstanding the foregoing, no Adjusted Net Revenues will be deposited in the Rate Stabilization Fund in any Fiscal Year to the extent that such amounts are required for purposes of making the transfers specified for the payment of debt service described under “– Allocation of Adjusted Net Revenues” above for such Fiscal Year. The City may at any time withdraw any or all of the money on deposit in the Rate Stabilization Fund for inclusion in Adjuste d Net Revenues for purposes of the calculation set forth in the City’s rate covenant for any Fiscal Year in such amount as approved by City Council. Any amounts withdrawn from the Rate Stabilization Fund for such purpose shall be transferred
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to the Net Revenue Fund in accordance with the Indenture . The City may also at any time withdraw or apply amounts on deposit in the Rate Stabilization Fund for any other legal purpose. All interest or other earnings upon deposits in the Rate Stabilization Fund will be accounted for as Adjusted Net Revenues.
See also “SILICON VALLEY POWER – Cash Reserves” and “– Rate Covenant Compliance Under Electric Revenue Bond Indenture” and “APPENDIX H – AMENDMENTS BEING MADE TO THE MASTER INDENTURE.”
Outstanding Electric Revenue Obligations of the City
Outstanding JPA Obligations. As of September 1, 202 4, the City had outstanding obligations under agreements with joint powers agencies in which it participates in the aggregate principal amount of approximately $145.9 million related to debt of such joint powers agencies, which obligations constitute an Operating Expense of the Electric Utility payable from Revenues of the Electric Utility prior to the payment of the Series 2024 A Bonds. See “SILICON VALLEY POWER – Indebtedness – Joint Powers Agency Obligations.”
Outstanding Bonds and Parity Debt. Upon the issuance of the Series 2024 A Bonds, the City will have outstanding, in addition to the Series 2024 A Bonds, $18.980 million aggregate principal amount of Bonds issued under the Indenture and payable from Adjusted Net Revenues on parity with the Series 2024 A Bonds, consisting of its Series 2018 A Bonds. See “SILICON VALLEY POWER – Indebtedness – City Electric Revenue Bonds.”
Outstanding Subordinate Obligations . As of September 1, 2024, the City had outstanding $75.850 million principal amount of Subordinate Electric Revenue Bonds evidencing borrowings of the City made under the Loan Agreements between the City and BANA . The Subordinate Electric Revenue Bonds are payable from Adjusted Net Revenues of the Electric Utility on a basis junior and subordinate to the Bonds (including the Series 2024 A Bonds) and Parity Debt. The City’s outstanding Subordinate Electric Revenue Bonds consist of the following: (i) $52.985 million amount of Subordinated Electric Revenue Refunding Bonds, Series 2020- 1 (the “Subordinate 2020- 1 Bonds”); and (ii) $22.865 million amount of Subordinated Electric Revenue Refunding Bonds, Series 2020- 2 (the “Subordinate 2020- 2 Bonds”). See “SILICON VALLEY POWER – Indebtedness – City Electric Revenue Bonds.” Additional Electric Revenue Obligations of the City
Take-or-Pay Power Sales Contracts; Additional JPA Obligations. As described herein, the City has entered into certain contracts for the purchase of capacity, energy, transmission capability and natural gas and certain other agreements for the payment of its share of the costs of certain projects in which it is participating through joint powers agencies, including the M-S-R Public Power Agency (“M-S-R PPA”), the M-S-R Energy Authority (“ M-S-R EA”), the Northern California Power Agency (“NCPA”) and the Transmission Agency of Northern California (“TANC”). See “SILICON VALLEY POWER – Power Supply Resources – Joint Powers Agency Resources” and “– Fuel Supply.” Obligations of the City under its agreements with M -S-R PPA, M-S-R EA, NCPA and TANC constitute Operating Expenses of the Electric Utility, and are payable from Revenues of the Electric Utility prior to the payment of the Bonds (including the Series 2024 A Bonds) and Parity Debt. Such obligations under agreements with joint powers agencies include (except as otherwise described), obligations for the payment of debt service costs on indebtedness issued by such joint powers agencies. The City may incur additional obligations pursuant to its agreements with such joint powers agencies in which it participates and has, and may in the future, enter into other contracts for the purchase of capacity, energy, transmission capacity, natural gas or any other commodity or service in connection with the foregoing, which contracts may require payments by the City to be made thereunder to be treated as Operating Expenses.
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Additional Bonds and Parity Debt; Other Obligations. The City has covenanted in the Indenture that it will not create any pledge, lien or charge upon any of the Adjusted Net Revenues having priority over the lien of the Bonds (including the Series 2024 A Bonds). The Indenture, as to be amended by the Fourth Supplement provides that the City may issue additional Bonds under the Indenture and Parity Debt may be issued or incurred at any time in such principal amounts as is determined by the City so long as no Event of Default exists under the Indenture at the time of issuance thereof. See also “ APPENDIX H – AMENDMENTS BEING MADE TO THE MASTER INDENTURE.”
The Indenture does not restrict the ability of the City to issue or incur subordinate obligations, payable from Adjusted Net Revenues, on a basis junior in right of payment to the Bonds and Parity Debt.
The City may also, from time -to-time, enter into interest rate swap agreements with security and payment provisions as determined by the City and subject to any conditions contained in the Indenture and/or the City’s adopted master bond interest rate swap policy (if any) as in effect at such time.
Investment of Monies in Funds and Accounts Under the Indenture All monies held in any of the funds and accounts held by the Trustee and established pursuant to the Indenture will be invested, as directed by the City, solely in Investment Securities (see “APPENDIX D – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE – Definitions” for the definition of Investment Securities under the Indenture). If and to the extent the Trustee does not receive investment instructions from the City with respect to the monies in such funds and accounts, such monies will be invested in money market funds (including funds for which the Trustee or its affiliates provide investment advisory or other management services).
Unless otherwise provided in the Supplemental Indenture, all interest, profits and other income received from the investment of monies in any fund or account other than the Rebate Fund will be transferred to the Net Revenue Fund when received; provided, however, that an amount of interest received with respect to any Investment Security equal to the amount of accrued interest, if any, paid as part of the purchase price of such Investment Security shall be credited to the fund or account from which such accrued interest was paid.
See “APPENDIX D – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE – Investments.”
Limitations on Remedies
The rights of the owners of the Series 2024 A Bonds are subject to the limitations on legal remedies against cities and other public agencies in the State. Additionally, enforceability of the rights and remedies of the owners of the Series 2024 A Bonds, and the obligations incurred by the City, may become subject to the following: the federal Bankruptcy Code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditor’s rights generally, now or hereafter in effect; equity principles which may limit the specific enforcement under State law of certain remedies; the exercise by the United States of America of the powers delegated to it by the Constitution; and the reasonable and necessary exercise, in certain exceptional situations, of the police powers inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose. Bankruptcy proceedings, or the exercise of powers by the federal or State government, if initiated, could subject the owners of the Series 2024 A Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation, or modification of their rights.
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SILICON VALLEY POWER
Introduction
The City is a charter city located in the State of California. Pursuant to its charter, the City has the power to furnish electric utility service within its service area. In connection therewith, the City has the powers of eminent domain, to contract, to construct works, to fix rates and charges for commodities or services it provides and to incur indebtedness.
The City provides electric utility service, including electricity and energy services, through its Electric Utility department operating with the trademarked name of “Silicon Valley Power.” In addition, the City is a full- service city that provides other services including police and fire protection, libraries, parks and recreation, and water and sewer service.
The legal responsibilities and powers of the City, including the establishment of rates and charges for electric service, are exercised by the seven -member Santa Clara City Council. The City Council is made up of the Mayor, elected at large, and six council members. Under the provisions of the City Charter, the members of the City Council have historically been elected city-wide for staggered four-year terms; beginning in 2020, the City has implemented a six-district election process.
The Electric Utility department of the City is under the direction of the Chief Electric Utility Officer who, together with certain other senior managers of the Electric Utility department, is appointed by and reports to the Santa Clara City Manager.
To provide electric service within its service area, the City owns and operates an e lectric system which includes generation, transmission and distribution facilities. The City also purchases power and transmission services from other providers and participates in other utility type arrangements.
Since 1896, the City has provided all electric service within an area coterminous with the City of Santa Clara’s boundaries. As of January 1, 2024, the City had an estimated population of 132,048. For the Fiscal Year ended June 30, 2024, the City served an average of 60,287 customers per month, had total sales of 4, 560 GWh and a peak demand of 669.2 MW. In the Fiscal Year ended June 30, 2024, approximately 94.1% of the City’s energy sales were made to commercial and industrial customers.
Management
Current management of the Electric Utility is as follows:
MANUEL PINEDA is the Chief Electric Utility Officer for Silicon Valley Power. He has served in such position since July 2019. In his role as Chief Electric Utility Officer, Mr. Pineda leads a team of 222 staff members to provide the delivery of reliable power and essential services to the City. He is currently guiding Silicon Valley Power’s $600 million expansion plan over the next five years, a project expected to double the utility’s size and reinforce its commitment to innovation and sustainability. Mr.
Pineda has over 27 years of public sector experience, including having served as an Assistant City Manager of the City from 2017 to 2023, with functional oversight of Silicon Valley Power, the Water and Sewer departments, Parks and Recreation, Community Development and Public Works. Prior to his work in Santa Clara, Mr. Pineda served as the Deputy Director in San Jose’s Department of Transportation, where he managed the City’s $300 million transportation capital budget and some of the city’s largest projects, such as the BART extension and the reconstruction of four freeway interchanges. Mr. Pineda also served as the Director of Public Works in the City of Sunnyvale, where he managed city maintenance and operations and the city’s 20- year billion -dollar capital program. He has worked on major utility
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construction and relocation projects including sanitary and storm sewers, water, gas, and electrical. Mr.
Pineda holds a Civil Engineering degree from San Jose State University.
NICOLAS PROCOS is the Chief Electric Utility Operating Officer for Silicon Valley Power. Mr.
Procos was appointed to such position in 2024. He has 24 years of experience in the electric utility industry. Prior to joining the City, Mr. Procos was the General Manager at Alameda Municipal Power for seven years and had primary management responsibility over the electric utility that provides power to the residents and businesses in the City of Alameda, with a staff of 85 full -time employees. Before that Mr Procos worked at several other municipal utilities in the San Francisco B ay Area. Mr. Procos began his career in the electric utility industry as a regulator at the California Public Utilities Commission (“CPUC”). Mr. Procos holds a Bachelor of Science degree in Biology from McGill University in Canada.
DEANNA HILBRANTS is the Assistant Director of Business Services. Mrs. Hilbrants was appointed to such position in 2020. She has over 25 years of experience in finance and local government, including over 20 years with local government agencies, most recently as Finance Director and Deputy City Manager for the city of Milbrae , as well as several years working with private companies in the financial sector. In her current capacity, Mrs. Hilbrants is responsible for working closely with the City’s Finance Department and City Attorney’s Office to oversee contracting and financial operations of the utility, including budget, accounting, procurement, and contracting. Mrs. Hilbrants obtained a Bachelor of Science degree in Biological Sciences from University of California, Irvine and a Master of Business Administration from University of California, Irvine.
KATHLEEN HUGHES is the Assistant Director of the Electric Utility – Resources Management and Customer Engagement. Ms. Hughes was appointed to such position in 2023. She has over 23 years of experience with the City of Santa Clara. Since joining the City in 2001, Ms. Hughes worked for four years as Senior Division Manager overseeing Customer Engagement, for four years overseeing joint powers agency management, legislative and regulatory policy, and environmental compliance, and for fourteen years in key account and senior key account management. Ms. Hughes oversees resource planning and acquisitions, wholesale purchases and sales, rates and forecasting, customer services and marketing, dark fiber enterprise, communications, energy efficiency, electrification, and renewable energy programs. Ms. Hughes obtained a Bachelor of Science degree in Organizational Management from Illinois State University and served as an officer in the Army Reserves.
CHRIS KARWICK is the Assistant Director of Utility Operations. Mr. Karwick was appointed to this position in 2019. He has over 25 years of experience in electric utility and marine engineering operations. Mr. Karwick joined the City in 2017 as the Division Manager of Generation overseeing the Electric Utility’s fleet of power plants. Prior to joining the City, Mr. Karwick held management and engineering roles with Calpine Corporation, Parsons Corporation, Alaska Tanker Company, Central Gulf Lines and American President Lines. Mr. Karwick holds a Bachelor of Science in Marine Engineering from the California Maritime Academy, and a Master of Business Administration from the University of Phoenix. Mr. Karwick holds certifications from the American Society of Safety Engineers, the Occupational Safety and Health Administration (OSHA), and the National Fire Protection Agency. He holds a U.S. Coast Guard 3rd Assistant Engineer license for Steam, Diesel, and Gas Turbines -Unlimited HP.
YANMEI QIU is the Electric Division Manager – Market Analysis and Pricing. Ms. Qiu oversees wholesale risk management, manages the debt portfolio for the Electric Utility , and is responsible for setting prices and rates, and tracking relevant legislative and regulatory matters for the Electric Utility.
Ms. Qiu joined the Electric Utility as a full -time employee in 2007 as a Risk Control Analyst. Prior to becoming a City employee, Ms. Qiu worked as a risk management consultant for the Electric Utility for six years. She has over 20 years of energy and utility experience, including credit and risk management.
Ms. Qiu obtained a Bachelor of Science degree in Economics from the University of California at
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Berkeley and a Master of Science degree in Finance from Boston College. She is a Chartered Financial Analyst (CFA) charter holder.
ROBERT VALENTUKONIS is the Electric Division Manager – Business Modeling & Debt Administration. Mr. Valentukonis manages the Financial Services group for the Electric Utility that is responsible for budget, accounts payable/receivable, and most financial controls along with business processes. Mr. Valentukonis joined the City in 2012 with the Municipal Services Division of the Finance Department managing delinquent utility accounts. Since then, Mr. Valentukonis has held several manager/analyst financial positions within the City. Previous to the City, he worked as a Financial Services Representative recommending a variety of financial products and held multiple security licenses through Financial Industry Regulatory Authority (FINRA). He has over 14 years of financial experience with over six years working in the Electric Utility department. Mr. Valentukonis obtained a Bachelor of Science Degree in Finance from Devry University and a Master of Accounting and Financial Management (CPA Concentration) from Keller Graduate School of Management.
Power Supply Resources
The following table sets forth information concerning the City’s power supply resources and the energy supplied by each during the Fiscal Year ended June 30, 2024.
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CITY OF SANTA CLARA
ELECTRIC UTILITY DEPARTMENT
POWER SUPPLY RESOURCES
(For the Fiscal Year Ended June 30, 2024
Source
Capacity
Available (MW)
Recorded
Energy (GWh)
Percent of
Total Energy
City-Owned Generating Facilities(1)
Cogeneration(2) 7.0 4.5 0.1%
Stony Creek Hydro System 11.6 32.7 0.7
Gianera Generating Station 49.5 9.5 0.2
Grizzly Project 17.7 29.4 0.6
Donald Von Raesfield Power Plant 147.8 875.8 18.8
Jenny Strand Solar Park 0.1 0.2 0.0
Purchased Power:(3)
Western(4) 136.0 302.5 6.5%
Manzana Wind 50.0 137.3 2.9
G2 (Landfill) 1.5 6.0 0.1
Ameresco (Landfill) 0.8 0.9 0.0
Ameresco FWD (Landfill) 4.2 32.4 0.7
Ameresco VASCO (Landfill) 4.3 31.4 0.7
TriDam-Beardsley 11.5 66.0 1.4
TriDam-Donnells 72.0 285.6 6.1
TriDam-Tulloch 25.9 132.2 2.8
TriDam-Sandbar 16.2 96.9 2.1
Rio Bravo 14.0 35.0 0.8
Rosamond (Recurrent Solar) 20.0 53.2 1.1
Central 40 Solar 40.0 70.6 1.5
Aquamarine 75.0 130.1 2.8
Friant 25.0 109.8 2.4
Quinten Luallen (Friant 2) 7.3 44.3 1.0
Camp Far West 6.8 11.2 0.2
South Feather Water 78.0 247.4 5.3
Santa Clara Tioga Canopy 0.4 0.5 0.0
Joint Power Agencies(3)
NCPA
Geothermal 55.7 241.0 5.2%
Combustion Turbine Project 31.0 2.1 0.0
LEC Combustion Turbine Project 77.9 242.5 5.2
Hydroelectric Project 93.6 222.7 4.8
M-S-R PPA
Big Horn I Wind Project 105.0 250.3 5.4%
Big Horn II Wind Project 17.0 38.8 0.8
Market Purchases 0.0 914.9 19.6
Total(5) 1,202.9 4,657.6 100.0%
(1) Rated or name-plate capacities.
(2) The City’s cogeneration plant was taken out of service in November 2023. (3) Capacity available represents entitlements, firm allocations and contract amounts. (4) The City purchased varying amounts of capacity from Western during the year. (5) Columns may not add to totals due to rounding.
Source: City of Santa Clara.
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Generating Facilities
Cogeneration. The City owns and operated a cogeneration plant which began operation in 1981.
The cogeneration plant provided steam for sale to a paperboard plant within the City and delivered power to the City’s electric distribution system. The City upgraded this plant to obtain a name-plate rating of 7.0 MW, effective July 1995. Fuel for the cogeneration plant (natural gas) has generally been acquired under term contracts at prices fixed for the contract term. On November 11, 2023 the plant was taken out of service. For the Fiscal Year ended June 30, 2024, prior to the cessation of plant operations, the cogeneration plant generated approximately 4.5 GWh of energy. The City will be reviewing future power options for the plant site.
Stony Creek Hydroelectric System . The City owns and operates three hydroelectric plants consisting of (i) a 4.9 MW hydroelectric generating plant located at the United States Bureau of Reclamation Stony Gorge Dam near Willows, California, which was completed in 1985, (ii) a 6.2 MW hydroelectric generating plant located at the United States Army Corps of Engineers’ Black Butte Dam near Orland, California, which was completed in late 1988, and (iii) a 0.53 MW hydroelectric generating plant located at the Orland Unit Water Users’ Association High Line Canal/South Side Canal drop near the Black Butte dam, which was completed in late 1988. For the Fiscal Year ended June 30, 2024, the Stony Creek hydroelectric plants generated approximately 32.7 GWh of energy.
Gianera Generating Station. The City owns and operates a nominal 49.5 MW dual fuel (natural gas and fuel -oil) combustion turbine generating plant consisting of two 24.75 MW units, which were completed in 1986 and 1987, respectively. This generation station is used to help meet the City’s peak load and resource adequacy requirements. For the Fiscal Year ended June 30, 202 4, the Gianera Generating Station generated approximately 9.5 GWh of energy.
PG&E Grizzly Project. Pursuant to a 1990 settlement agreement with PG&E, the City agreed to finance and own 100% of a 20 MW hydroelectric facility (the “Grizzly Project”) located on Grizzly Creek above the North Fork of the Feather River in Plumas County, California. The Grizzly Project operates in combination with the hydroelectric facilities of PG&E’s Bucks Creek project. The construction of the Grizzly Project was financed through the issuance by the City of electric revenue bonds. Pursuant to the settlement agreement, PG&E constructed and operates the Grizzly Project, which was placed into operation in November 1993, and the City became a joint licensee in PG&E’s Bucks Creek project. In June 2022, PG&E and the City completed the re -licensing process and FERC issued a new license for a 50-year term.
Until the date the City’s ownership of the Grizzly Project is terminated (as described below), the City will own and receive all energy generated by the Grizzly Project, less transmission losses, as described in the settlement agreement, which reflects a contract capacity amount of 17.66 MW.
The Grizzly Project facilities include a tunnel intake structure, surge tank, steel penstock, powerhouse, turbine, an approximately 4.2 mile transmission line (nominally rated at 115 kV) for interconnection with PG&E’s transmission system, and certain additional switchyard equipment and related facilities . The Grizzly Project was connected to the electric grid via the project’s 115 kV transmission line (referred to as the Grizzly T ie Line), at PG&E’s 115 kV Caribou- Palermo transmission line. Due to damage c aused by the 2018 Camp Fire to PG&E’s Caribou- Palermo line, the Caribou- Palermo 115 kV line was de-energized in November 2018, and no energy was generated at the Grizzly Project beginning in December 2018. The Grizzly Project was subsequently interconnected to the 230-kV Bucks Creek -Cresta transmission line via a new 115 kV -230 kV transformer owned by PG&E and installed at PG&E’s Bucks Creek substation. PG&E has been undertaking a re -build of the 4.2 mile Grizzly Tie Line as a result of damage that occurred during the 2021 Dixie Fire. The cause of the fire was
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found to be unrelated to the Grizzly Tie Line or any City assets. PG&E completed the first phase of the transmission line re-build that included the installation of three miles of light duty steel poles along the ridge of the 4.2 mile 115 kV transmission line. Upon completion of this first phase of work, the transmission line was temporarily re-energized beginning on December 23, 2023, and Grizzly powerhouse operations resumed. The final phase of the transmission line re -build project includes installing 1.2 miles of larger tubular steel poles on the steep grade to the Bucks Creek substation, and is expected to be completed in December 2024. As a result of this work, the transmission line was de-energized beginning in July 2024, which is expected to continue while the final phase of the re -build project is being completed (expected to be in December 2024 ). While the transmission line is de-energized, the Grizzly Project will not operate. During normal operations, annual energy generation of the Grizzly Project is estimated at 39.4 GWh in an average water year and 26.2 GWh in dry years. For the Fiscal Year ended June 30, 2024, the Grizzly Project generated approximately 29.4 GWh of energy.
Pursuant to the settlement agreement, the City’s interest in the Grizzly Project may revert to PG&E under certain limited circumstances. In the event of such reversion, the City will be reimbursed by PG&E for the depreciated value of the City’s capital investment in the project as provided in the settlement agreement. The earliest possible reverter date under the settlement agreement is November 18, 2027.
Donald Von Raesfeld Power Plant . The City constructed and placed into commercial operation in March 2005, a 122 MW nominal/147.8 MW peak, natural gas -fired, combined cycle power plant known as the “Donald Von Raesfeld Power Plant” (initially designated by the City Council as the Pico Power Plant). The Donald Von Raesfeld Power Plant is located in an industrial area of the City, on the site of the City’s Kifer Receiving Station. The Donald Von Raesfeld Power Plant includes its own switchyard and connects to an existing 115 kV transmission line that currently crosses the plant site.
Natural gas for the Donald Von Raesfeld Power Plant is delivered through an approximately two mile gas pipeline from the local transmission main of PG&E. The City has long -term agreements in place with EDF Trading North America and M-S-R EA for a significant portion of the plant’s fuel requirements, and actively manages the quantity and price risks associated with fuel supply quantities not under long- term agreement. See “ – Fuel Supply” below. For the Fiscal Year ended June 30, 2024, the Donald Von Raesfeld Power Plant generated approximately 875.8 GWh of energy. If it were fully baseloaded, the Donald Von Raesfeld Power Plant could generate approximately 1,000 GWh of energy per year.
However, the City substitutes market purchases when it is economical to do so.
Jenny Strand Solar Park. The City originally entered into an agreement with MiaSole, a California corporation, in December 2011 for the purpose of having MiaSole donate 1,000 solar modules to the City at no cost to the City. On February 1, 2015, the original party “MiaSole” transferred ownership to MiaSole Hi-Tech Corp. MiaSole Hi-Tech Corp subsequently provided 1,121 solar modules to the City, at no cost to the City, to further the City’s ability to provide renewable power. For the Fiscal Year ended June 30, 2024, the City received approximately 0.2 GWh of energy from the solar modules.
Joint Powers Agency Resources
The City, together with the cities of Alameda, Biggs, Gridley, Healdsburg, Lodi, Lompoc, Palo Alto, Redding, Roseville, Shasta Lake, and Ukiah, the Plumas- Sierra Rural Electric Cooperative, the Truckee-Donner Public Utility District, the San Francisco Bay Area Rapid Transit District (“BART”) and the City of Oakland, acting by and through its Board of Port Commissioners (the “Port of Oakland”), is a member of the California joint powers agency known as the Northern California Power Agency (“NCPA”).
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NCPA Geothermal Project . NCPA developed a geothermal project (the “Geothermal Project”) located on federal land in certain areas of Sonoma and Lake Counties, California. In addition to the geothermal leasehold, wells, gathering system and related facilities, the Geothermal Project consists of two electric generating stations (Geothermal Plant 1 and Geothermal Plant 2), with combined 165 MW (nameplate rating) turbine generating units utilizing low pressure, low temperature geothermal steam, associated electrical, mechanical and control facilities, a heat dissipation system, a steam gathering system, a transmission tapline, and other related facilities. NCPA formed two not -for-profit corporations controlled by its members to own the generating plants of the Geothermal Project. NCPA manages the Geothermal Project for the corporations and is entitled to all the capacity and energy generated by the Geothermal Project. Geothermal Plant 1 and Geothermal Plant 2 were originally developed and operated as separate projects referred to as “Geothermal Project Number 2” and “Geothermal Project Number 3,” respectively. Geothermal Plant 1 and Geothermal Plant 2 are now operated together as a single project pursuant to the terms of the NCPA Amended and Restated Geothermal Operating Agreement. NCPA financed the Geothermal Project with Geothermal Project Number 3 Revenue Bonds , all of which bonds were retired as of July 1, 2024.
Steam for NCPA’s geothermal plants comes from lands in the Geysers Area, which are leased by NCPA from the federal government. NCPA operates these steam -supply areas. Operation of the geothermal plants at high generation levels, together with high steam usage by others in the same area, resulted in a decline in the steam production from the steam wells at a rate greater -than-originally expected. As a result, an operating plan has been developed that encompasses steam field management, water injection pressure operation and additional water source development, and includes a detailed steam well monitoring system that has enabled a more efficient utilization of the existing steam field resources.
NCPA, along with other producers in the Geysers Area, also constructed a pipeline to deliver treated wastewater from Lake County Sanitation District’s treatment plant near the project for injection into the steam field. This wastewater is pumped to the steam field to continue to regenerate its capacity.
NCPA has sold the capacity of the Geothermal Project to some of its members, including the City, pursuant to a “take-or-pay” power sales contract which requires payments to be made whether or not the project is operable. Each participant is responsible under the power sales contract for paying its capacity share of all of NCPA’s costs of the Geothermal Project, including debt service on the aforementioned NCPA bonds, and subject to a “step- up” obligation of up to 25% upon the unremedied default of another NCPA Geothermal Project participant. The City has purchased from NCPA, pursuant to power sales contracts, 54.65% and 34.13% entitlement shares, respectively, in the capacity of NCPA’s Geothermal Project Plant 1 and Plant 2 and is obligated to pay 44.39% of the debt service and operating costs associated with such plants and steam field. The City is currently taking delivery of its share of the capacity and associated energy from the Geothermal Project. The City’s share of the current California Independent System Operator Corporation (“CAISO”) maximum rated capacity of the project is 58.4 MW. For the Fiscal Year ended June 30, 202 4, the City received approximately 241.0 GWh of electric energy from the Geothermal Project. Current expectations are that the output from the plant will decrease gradually over time. These anticipated decreases are not material to the City’s supply and can be replaced by additional short-term purchases, additional generation or reduced wholesale sales.
Under terms of the federal geothermal leasehold agreements, which became effective August 1, 1974, the leasehold had a 10- year primary term with provision for renewal as long thereafter as geothermal steam is produced or utilized, but not longer than 40 years. At the expiration of that period, if geothermal steam was still being produced, NCPA had a preferential right to renew the leasehold for a second term. In 2013, NCPA renewed the leasehold. The leasehold also requires NCPA to remove its leasehold improvements including the geothermal plants and steam gathering system when and if NCPA abandons the leasehold. Based upon a decommission study obtained by NCPA in December 2016, these decommissioning costs are estimated to total approximately $71.7 million as of June 30, 2023. NCPA has
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been collecting monies to pay the expected decommissioning costs since 2007 and held $28.5 million in a reserve for such purpose as of June 30, 2023.
NCPA Combustion Turbine Project No. 1. NCPA has developed its Combustion Turbine Project Number One (CT 1) (the “Combustion Turbine Project”), originally consisting of five combustion turbine units, each nominally rated at 25 MW, with two of the units located in the City of Roseville, two in the City of Alameda and one in the City of Lodi. Sale of the two units located in Roseville to the city of Roseville was effective on September 1, 2010. The City purchased a 25% entitlement share in NCPA’s Combustion Turbine Project pursuant to a power sales contract with NCPA, which has been amended to reflect that the City’s 25% share comes specifically from the two Alameda plants and the one Lodi plant.
The Combustion Turbine Project provides capacity (i) that is economically dispatched during the peak load period to the extent permitted by air quality restrictions and (ii) to be used to meet the capacity reserve requirements (e.g., resource adequacy requirements). This resource provides the capacity below current spot market prices for capacity but as is typical of this type of technology, the average cost for power per kWh of power delivered to the participants in the Combustion Turbine Project is comparatively expensive. Such reserve capacity is operated only during emergency periods and when other resources are unexpectedly out of service.
The City uses its NCPA Combustion Turbine Project entitlement for resource adequacy purposes and to meet peak load requirements. The City delivers this entitlement to its electric system in accordance with CAISO tariffs. For the Fiscal Year ended June 30, 2024, the City received approximately 2.1 GWh of electric energy from the Combustion Turbine Project.
NCPA Hydroelectric Project. NCPA’s Hydroelectric Project Number One (the “Hydroelectric Project”) consists of (a) three diversion dams, (b) the 246.86-MW Collierville Powerhouse, (c) the Spicer Meadow Dam with a 6.0- MW powerhouse, and (d) associated tunnels located essentially on the North Fork Stanislaus River in Alpine, Tuolumne and Calaveras Counties, California, together with required transmission and related facilities.
The Hydroelectric Project, with the exception of certain transmission facilities, is owned by the Calaveras County Water District (“CCWD”) and is licensed by the Federal Energy Regulatory Commission (“FERC”) pursuant to a 50- year License Project No. 2409 (issued in 1982) to CCWD.
Pursuant to a power purchase contract, NCPA (i) is entitled to the electric output of the Hydroelectric Project until February 2032, (ii) managed the construction of the Hydroelectric Project, and (iii) operates the generating and recreational facilities of the Hydroelectric Project. Under a separate FERC -issued license with an expiration date coterminous with the Project No. 2409 license (Project No. 11197), NCPA holds the license and owns the 230 kV Collierville -Bellota and the 21 kV Spicer Meadows -Cabbage Patch transmission lines for Project No. 2409. NCPA also has a separate FERC license for Project No. 11563 (Upper Utica Project), which consists of three storage reservoirs that mainly feed the New Spicer Meadow Reservoir. This license expires in 2033. After the present FERC License for Project No. 2409 expires in the year 2032, NCPA has the option to continue to purchase Hydroelectric Project capacity and energy during a subsequent license renewal period. The purchase option includes all capacity and energy which is surplus to CCWD’s needs for power within the boundaries of Calaveras County.
In February 1990, the operating portions of the Hydroelectric Project were declared substantially complete and commercially operable. As with any hydroelectric generation project, the operation of the Hydroelectric Project is determined by consideration of its storage capacity, hydrology conditions, and available stream flows and requirements. Based upon historical hydrology conditions and the demonstrated generation record, the Hydroelectric Project’s average production is estimated to be approximately 369 GWh annually. The Hydroelectric Project is optimized together with NCPA’s other
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resources as determined by NCPA to economically meet the load requirements of the respective project participants. The load-following characteristics of the Hydroelectric Project give NCPA a great degree of flexibility in meeting the hourly and daily variations which occur in the project participants’ loads.
NCPA financed the Hydroelectric Project through the issuance of Hydroelectric Project Number One Revenue Bonds, of which approximately $122.3 million principal amount was outstanding as of September 1, 2024 (the “NCPA Hydroelectric Revenue Bonds”). NCPA has sold the capacity of the Hydroelectric Project to certain of its project participants, including the City, pursuant to “take -or-pay” power sales contracts which require payments to be made whether or not the Hydroelectric Project is operable. Each purchaser is responsible under its power sales contract for paying its entitlement share in the Hydroelectric Project of all of NCPA’s costs of the Hydroelectric Project, including debt service on the aforementioned bonds as well as a “step -up” of up to 25% in the event of the unremedied default of another project participant.
Pursuant to a power sales contract, the City has purchased from NCPA a 37.02% entitlement share in NCPA’s Hydroelectric Project (including a 1.16% entitlement share laid off to the City from the cities of Biggs and Gridley). The City is using its Hydroelectric Project entitlement to serve peak load and to provide capacity to support non- firm purchases of energy at market prices. For the Fiscal Year ended June 30, 2024, the City received approximately 222.7 GWh of electric energy from the NCPA Hydroelectric Project. The City receives this entitlement to its system by using transmission service available under its Metered Subsystem Agreement (“MSS Agreement”) with the CAISO.
NCPA Lodi Energy Center. Through NCPA, the City is a participant in the Lodi Energy Center.
The Lodi Energy Center is a natural gas -fired, combined-cycle power generation plant located in the City of Lodi, San Joaquin County, California (“Lodi”), which was placed into commercial operation in November 2012. The electric generation components of the Lodi Energy Center consist of one gas -fired Siemens STG6 -5000F combustion turbine -generator, a heat recovery steam generator, a selective catalytic reduction and carbon monoxide catalyst, one Siemens SST -900RH condensing steam turbine generator, a natural gas- fired auxiliary boiler, an evaporative cooling tower, and associated support equipment. The costs of construction of the Lodi Energy Center were approximately $385.7 million. To provide funding for a portion of the costs of the Lodi Energy Center, in June 2010, NCPA issued two series of revenue bonds, its Lodi Energy Center Revenue Bonds, Issue One, issued on behalf of eleven of the thirteen participants in the Lodi Energy Center (being all of the below -named LEC Project Participants other than Modesto Irrigation District (“MID”) and the California Department of Water Resources (“CDWR”), such eleven participants hereinafter referred to the “Indenture Group A Participants”) and its Lodi Energy Center Revenue Bonds, Issue Two, issued on behalf of CDWR. See “ – Indebtedness – Joint Powers Agency Obligations .” MID provided its own financing for its share of the estimated costs of construction of the Lodi Energy Center.
Pursuant to the Lodi Energy Center Power Sales Agreement (the “LEC Power Sales Agreement”), by and among NCPA and (i) the NCPA Member project participants: The City, the cities of Biggs, Gridley, Healdsburg, Lodi, Lompoc, Plumas -Sierra, Ukiah and BART; and (ii) the non- NCPA Member project participants: the city of Azusa, MID, the Power and Water Resources Pooling Authority and CDWR (such entities other than NCPA, collectively the “LEC Project Participants”), NCPA has sold the capacity and energy of the Lodi Energy Center to the thirteen LEC Project Participants, in accordance with their respective generation entitlement shares to the capacity and energy of the Lodi Energy Center.
Pursuant to the LEC Power Sales Agreement, the City has purchased from NCPA a 25.75% generation entitlement share of the capacity and energy of the Lodi Energy Center on an unconditional take-or-pay basis, and is obligated to pay 25.75% of NCPA’s Lodi Energy Center operating and maintenance expenses and 46.16% of the debt service for the Lodi Energy Center Revenue Bonds, Issue One, of which approximately $184.5 million principal amount was outstanding as of September 1, 2024.
The City’s obligations to make payments to NCPA under the LEC Power Sales Agreement are not
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dependent upon the operation of the Lodi Energy Center and are not subject to reduction. Upon an unremedied default by one Indenture Group A Participant (being all of the LEC Project Participants other than MID and CDWR) in making a payment required under the LEC Power Sales Agreement, the nondefaulting Indenture Group A Participants are required (except as lay- offs are made pursuant to the LEC Power Sales Agreement) to increase pro -rata their participation percentage by the amount of the defaulting Indenture Group A Participant’s entitlement share, provided that no such increase can result in a greater than 35% increase in the participation percentage of the nondefaulting Indenture Group A Participants.
The Lodi Energy Center plant has a registered Pmax of 302 MW. The Pmax is a measure of the maximum normal capability of a generating unit that is utilized by the CAISO in determining the amount of capacity that can be counted toward meeting resource adequacy requirements. For the Fiscal Year ended June 30, 2024, the City received approximately 242.5 GWh of electric energy from the Lodi Energy Center. The City received this entitlement to its system by using transmission service available under its MSS Agreement with the CAISO.
M-S-R PPA Purchased Power –Big Horn Project . The City, along with MID and the City of Redding (“Redding”), is a member of a California joint powers agency known as the M-S-R Public Power Agency (as defined above, referred to herein as M -S-R PPA). In 2005, M-S-R PPA entered into a series of power purchase agreements with Avangrid Renewables LLC (originally PPM Energy, Inc. and formerly Iberdrola Renewables, Inc.) (“Avangrid”), certain of which agreements have been assigned to Avangrid’s subsidiary, Big Horn I, LLC, for the purchase of energy from the Big Horn I wind energy project (the “Big Horn I Project”) located near the town of Bickleton, in Klickitat County, Washington.
The 199.5 MW project consists of 133 1.5 MW GE wind turbines. The City receives 52.5% of the power purchased by M-S-R PPA from the Big Horn I Project. The City ’s share equates to approximately a 105 MW share of the output at a cost comparable to combined cycle gas- fuel generation. Power deliveries commenced on October 1, 2006 and will continue through September 30, 2026. Through an amendment of the original agreements M -S-R PPA has an obligation to continue to take the same output through September 30, 2031, or if the Big Horn Project is repowered M-S-R PPA will have a right of first offer to negotiate a long-term power purchase for such repowered project. The project interconnects with the high voltage transmission grid through an 11- mile transmission line at Bonneville Power Administration’s (“BPA”) Spring Creek Substation. Through the shaping and firming agreement between M -S-R and Avangrid, Avangrid receives Big Horn energy, as generated, and delivers such energy to M-S-R at the California-Oregon border pursuant to firm pre -established delivery schedules. The City uses a portion of its transfer capability of the COTP to provide for transmission of the output from the Big Horn I Project from the California -Oregon border. For the Fiscal Year ended June 30, 2024, the City received approximately 250.3 GWh of energy from the Big Horn I Project.
The Big Horn Project is operated within the Avangrid balancing authority (which began operating in mid-2018) and delivered through the BPA balancing authority area. On October 1, 2009, BPA began imposing a wind integration charge for the purpose of recovering its costs to provide within- hour generation balancing services for wind generators. Pursuant to a series of amendments of the power purchase agreements between M-S-R PPA and Avangrid effective September 18, 2019, M -S-R PPA agreed to pay to Avangrid, following the effective date of operation of the Avangrid balancing authority on July 31, 2018, in lieu of responsibility for payment of any wind integration charges to BPA, a wind integration charge of $1.10/kW month through December 31, 2018 and $1.01/kW month thereafter.
Through a collaborative effort between Avangrid and M -S-R PPA, the Big Horn I Project has obtained California Renewable Portfolio Standard (“RPS”) certification as an eligible renewable resource by the California Energy Commission (“CEC”). The Big Horn I Project has been registered with the Western Renewable Energy Generation Information System (”WREGIS”) by Avangrid with BPA acting as the
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Qualified Reporting Entity. The RECs are transferred from Avangrid, the originator, to M-S-R PPA and finally to the members of M-S-R PPA, for either retirement or wholesale sales by such members.
M-S-R PPA subsequently negotiated a 25- year agreement with Avangrid for the purchase of the output from a 50 MW expansion of the Big Horn I Project, the Big Horn II Project. The City began receiving deliveries from the Big Horn II Project in November 2010. Similarly, as described above, in accordance with M -S-R PPA’s power purchase agreement with Avangrid and amendments thereto, Avangrid has agreed to impose, and M-S-R PPA agreed to pay, a fixed wind integration charge of $1.10/kW month through December 31, 2018 and $1.05/kW month thereafter. M-S-R PPA will reimburse the cost of necessary BPA transmission services to Avangrid to deliver the output from the Big Horn II Project to a northern California market trading hub. The City receives 35% of the output from this project, or approximately 17.0 MW of project capacity. For the Fiscal Year ended June 30, 2024, the City received approximately 38.8 GWh of energy from the Big Horn II Project.
M-S-R PPA–San Juan Retained Obligations . The City ’s resources acquired through M-S-R PPA previously included an entitlement to a portion of the output of M -S-R PPA’s prior ownership interest in Unit No. 4 of the San Juan Generating Station (the “ M-S-R PPA San Juan Unit No. 4 Interest”), a coal-fired steam electric generating unit located in San Juan County, New Mexico, which was constructed and operated by Public Service Company of New Mexico (“PNM”). San Juan Unit No. 4 was one of four generating units that together made up the San Juan Generation Station. M-S-R PPA divested its ownership interest in San Juan Unit No. 4 in December 2017 but the City retains cost responsibility for its share of certain environmental and decommissioning obligations of M -S-R PPA in connection with this resource, which are described in more detail below.
M-S-R PPA purchased its 28.8% (approximately 146 MW) M-S-R PPA San Juan Unit No. 4 Interest on December 31, 1983 and began dispatching power from such interest in May 1995. M-S-R PPA financed the acquisition of its M -S-R PPA San Juan Unit No. 4 Interest, and certain costs of related transmission arrangements, through the issuance of San Juan Project revenue bonds, all of which were retired as of July 1, 2022. The City purchased from M-S-R PPA, on a take -or-pay basis, a 35% entitlement share (approximately 51.1 MW of capacity and associated energy) in the M-S-R PPA San Juan Unit No. 4 Interest pursuant to a power sales agreement (the “ M-S-R PPA Agreement”), among M-S-R PPA and its members. The City utilized its entitlement share of capacity and associated energy from the M -S-R PPA San Juan Unit No. 4 Interest from May 1995 through December 2017 either in its own system or for lay- offs or other transactions with third parties. M-S-R PPA divested its M-S-R PPA San Juan Unit No. 4 Interest on December 31, 2017, although it retains certain liabilities for a share of the costs of environmental remediation obligations and plant decommissioning and mine reclamation (as described below). The final operating unit of the San Juan Project, Unit No. 4, permanently ceased operations on September 29, 2022.
The divestiture of M-S-R PPA’s interests in San Juan Unit No. 4 was completed pursuant to a number of agreements (the “San Juan Restructuring Agreements”) between and among the prior San Juan Generation Station owners (the “San Juan Participants”), which provided for the interests of M-S-R PPA and certain other San Juan Participants (the “Divested San Juan Participants”) in the San Juan Generation Station to be transferred to the remaining San Juan Participants effective December 31, 2017. In addition to the ownership divesture, the San Juan Restructuring Agreements provide for, among other things, the allocation of ongoing responsibility for plant decommissioning costs, mine reclamation costs and any environmental remediation obligations among the Divested San Juan Participants and the remaining San Juan Participants, and the establishment and funding of mine reclamation and plant decommissioning trust funds.
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Pursuant to the San Juan Restructuring Agreements, M-S-R PPA and the other Divested San Juan Participants retain certain liabilities for a share of the costs of San Juan Generation Station decommissioning and pre -exit date mine reclamation costs. Under the San Juan Restructuring Agreements, M-S-R PPA was required to maintain a balance of approximately $12.1 million in the mine reclamation trust funds as of December 31, 2023 to fund its currently expected share of ongoing and final reclamation costs, which requirement was met by a year -end balance at such date of approximately $12.2 million. As of December 31, 2023, M-S-R PPA’s liability for mine reclamation costs is recorded pursuant to Governmental Accounting Standards Board (“GASB”) Statement No. 83, Certain Asset Retirement Obligations (“GASB 83”) requirements as approximately $14.6 million. In addition, under the San Juan Restructuring Agreements, M-S-R PPA was required to maintain a balance of approximately $2.3 million in the decommissioning trust fund as of December 31, 2023 to fund its currently expected share of the initial work for known asset removal and remediation activities in connection with demolition of the San Juan Generation Station, which requirement was met by a year-end balance at such date of approximately $2.6 million. As of December 31, 2023, M -S-R PPA’s liability for plant demolition costs is recorded pursuant to GASB 83 requirements as approximately $3.3 million. However, M-S-R PPA’s final total proportionate share of San Juan Generation Station decommissioning and mine reclamation costs cannot yet be determined and will depend on a number of factors, including, among other things, actual costs for the demolition work. Additional deposits to the trust funds may be required in the future if trust earnings are below expectations or if determined necessary by future decommissioning and reclamation costs study updates.
Pursuant to the M-S-R PPA Agreement, the City is unconditionally obligated thereunder to pay its entitlement share of all of M-S-R PPA’s costs associated with the M -S-R PPA San Juan Unit No. 4 Interest, including any remaining liabilities for environmental remediation obligations, decommissioning and mine reclamation of the plant associated with the M -S-R PPA San Juan Unit No. 4 Interest. The City’s payments to M-S-R PPA under the M-S-R PPA Agreement constitute an operating expense of the City’s Electric Utility. The City’s obligations to make payments under the M-S-R PPA Agreement are not dependent upon the operation of the San Juan Unit No. 4 and are not subject to reduction. Pursuant to the M-S-R PPA Agreement, upon failure of any M-S-R PPA member to make any payment thereunder which failure constitutes a default under the M-S-R PPA Agreement, the participation percentage of each non- defaulting member automatically shall be increased for the remaining term of the M-S-R PPA Agreement in proportion to its participation percentage; provided, however, that the sum of such increase for any non-defaulting member shall not exceed 25% of its original participation percentage.
In light of the divesture of its active ownership interest in San Juan Unit No. 4, the majority of M-S-R PPA activities are currently related to renewables (including the Big Horn I and Big Horn II wind projects described above). Coordinating, regulatory, and compliance services costs are shared as follows:
MID – 40%; Santa Clara – 40%; and Redding – 20%. Renewable administrative services, electric product, delivery and environmental attribute rights benefits and costs will be shared in accordance with contracted participation ratios.
See also “–Indebtedness – Joint Powers Agency Obligations” below for information regarding the City’s obligations in connection with bonds issued by the joint powers agencies in which it participates.
Purchased Power
Western Purchased Power. The Central Valley Project (the “CVP”), for which the Western Area Power Administration (“Western”) serves as marketing agency, is a series of federal hydroelectric facilities in Northern California operated by the United States Bureau of Reclamation. In December 2000, the City signed a 20-year agreement with Western for the continued purchase of low-cost hydroelectricity generated from the CVP, replacing a prior agreement which expired December 31, 2004. Service under
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the successor agreement began on January 1, 2005 and continues through December 31, 2024, with the City receiving a 9.06592% “slice of the system” allocation from Western. Effective April 1, 2015, Western reallocated shares and the City’s base resource allocation increased to 9.60341%, which shall remain in effect until either superseded by another Exhibit A revision or termination of the agreement. On April 9, 2021, the City executed a 30- year agreement with Western for the continued purchase of hydroelectricity from the CVP, the term of which agreement will begin on January 1, 2025 and will continue through December 31, 2054 (unless terminated earlier). The agreement is similar to the City’s existing contract with Western, but the City’s base resource allocation decreases to 9.41134% beginning in 2025. In addition, in 2040, the Western customers’ allocation of CVP will be reduced by 2% to allow for new Western customers. Under the new agreement, the City may reduce the CVP quantity or terminate the agreement when a new rate schedule is adopted or extended (at least every five years). The power marketed by Western to the City is provided on a take -or-pay basis where Western’s annual costs are allocated to preference customers based on their CVP participation percentage. Western then allocates the annual take -or-pay charges to the preference customers based on a monthly percentage that is designed to reflect the anticipated seasonal energy deliveries. The City is obligated to its preference customer share of the costs associated with operating the CVP facilities. For the Fiscal Year ended June 30, 2024, the City received approximately 302.5 GWh of energy from Western.
Manzana Wind. In February 2012, the City entered into a 20- year power purchase agreement for 50 MW of the output from Avangrid’s Manzana Wind Power Project in Kern County, California, which began power deliveries in December 2012. For the Fiscal Year ended June 30, 2024, the City received approximately 137.3 GWh of energy from the Manzana Wind Power Project.
G-2 Energy LLC – Wheatland Landfill. In June 2007, the City entered into a power purchase agreement for energy from a 1.5 MW landfill gas facility, G2, near Wheatland, California. The City began taking delivery of energy from the G2 project in January 2009. For the Fiscal Year ended June 30, 2024, the City received approximately 6.0 GWh of energy from the G2 project. The G2 project power purchase agreement concluded at the end of the contract term on January 8, 2024.
Ameresco. In February 2008, the City entered into a 20- year purchase power agreement with Ameresco for landfill gas generated electricity from the closed municipal landfill located in the city limits of the City of Santa Clara, which includes three microturbines, and is estimated to generate approximately 4,700 MWh per year during the first ten years of the contract and approximately 3,100 MWh per year during the final ten years of the contract. On May 25, 2010, the City entered into a second 20- year power purchase agreement with Ameresco for landfill gas generated electricity from the Forward landfill in Manteca, California. This 4.2 MW project became operational in February 2014. On August 17, 2010, the City entered into a third 20- year power purchase agreement with Ameresco for landfill gas generated electricity from the Vasco Road landfill near Livermore, California. The 4.3 MW Vasco Road landfill project became operational in February 2014. For the Fiscal Year ended June 30, 2024, the City received approximately 0.9 GWh of energy from the initial Ameresco landfill project, and approximately 32.4 GWh and 31.4 GWh for the Ameresco Forward landfill and Ameresco Vasco Road landfill projects, respectively.
Tri-Dam. In October 2013, the City entered into a power purchase agreement with the Tri -Dam Project and the Tri -Dam Power Authority to purchase the output from four hydroelectric power plants located on the Middle Fork of the Stanislaus River in Tuolumne County: the 72.0 MW Donnells Powerhouse, the 25.9 MW Tulloch Powerhouse, the 11.5 MW Beardsley Powerhouse, and the 16.2 MW Sandbar Powerhouse. Power deliveries from Donnells, Tulloch, and Beardsley commenced on January 1, 2014. Power deliveries from Sandbar commenced on January 1, 2017. The agreement is scheduled to terminate on December 31, 2028. For the Fiscal Year ended June 30, 2024, the City received
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approximately 66.0 GWh from Beardsley, 285.6 GWh from Donnells, 132.2 GWh from Tulloch, and 96.9 GWh from Sandbar under this agreement.
Rio Bravo. In August 2019, the City entered into a power purchase agreement with the Olcese Water District to purchase the output from Rio Bravo, a 14 MW hydroelectric power plant located in Kern County. The agreement commenced on September 1, 2019 for an initial five-year term. The City has entered into a new agreement for an additional five-year term from September 1, 2024 through August 31, 2029. For the Fiscal Year ended June 30, 2024, the City received approximately 35.0 GWh of energy from the Rio Bravo hydroelectric project.
Recurrent. In July 2011, the City entered into a 25 -year power purchase agreement for the entire output from the RE Rosamond One LLC project, a 20.0 net MW solar photovoltaic -powered project in Kern County, California, which became operational in December 2013. For the Fiscal Year ended June 30, 2024, the City received approximately 53.2 GWh of energy from Recurrent.
Central 40 Solar. In July 2017, the City has entered into a 20- year power purchase and sale agreement with Samsung, contracted as Central 40, LLC, to develop, own and operate a 40 MW solar PV project located in Stanislaus County. The project became operational in February 2021. For the Fiscal Year ended June 30, 2024, the City received approximately 70.6 GWh of energy from the Central 40 solar project.
Aquamarine Westside Solar. In April 2021, the City entered into a power purchase and sale agreement with Aquamarine Westside, LLC for three years. Pursuant to the agreement, the City has purchased 75 MW (a 30% share) of the total solar PV project, which is located in Kings County, California. The project became operational in September 2021 and the term of the current power purchase and sale agreement extends to September 2024. Negotiations for a new agreement to succeed the expiring agreement for a potential 15- year term are ongoing. For the Fiscal Year ended June 30, 2024, the City received approximately 130.1 GWh of energy from the Aquamarine solar project.
Friant Power Authority, Facility 1. The City executed a power purchase agreement with Friant Power Authority to purchase up to 68,000 MWh per year of electricity from Friant Power Authority, Facility 1, from January 1, 2016 to August 31, 2032. Facility 1 consists of three existing run -of-river hydroelectric generating plants: the River Outlet (2 MW), the Friant -Kern (15 MW), and the Madera (8 MW). For the Fiscal Year ended June 30, 2024, the City received approximately 109.8 GWh of energy from the Friant Power Authority, Facility 1.
Friant Power Authority, Facility 2. The City has executed a power purchase agreement with Friant Power Authority to purchase the net electrical output from Friant Power Authority, Facility 2, a run-of-the river hydroelectric generating plant, Quinten Luallen Power Plant ( 7.3 MW), from July 10, 2012 to December 31, 2032. For the Fiscal Year ended June 30, 2024, the City received approximately
44.3 GWh of energy from the Friant Power Authority, Facility 2.
Camp Far West Hydroelectric. In March 2022, the City entered into a power purchase agreement (via a “third phase agreement” with NCPA), pursuant to which the City purchases the generation output of the Camp Far West hydroelectric facility for a 20-year term. The Camp Far West Hydroelectric facility has a capacity of 6.8 MW and is owned and operated by the South Sutter Water District. The facility generates energy on a run -of-river basis associated with the release of water for environmental and irrigation purposes. The City will receive 100% of the generation output which is estimated to be approximately 23,659 MWh based on forecasts of average hydrological conditions annually. The generation output will vary annually based on water availability. For the Fiscal Year ended June 30, 2024, the City received approximately 11.2 GWh of energy from the Camp Far West hydroelectric project.
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South Feather River Hydroelectric. In December 2021, the City entered into a power purchase agreement (via a “third phase agreement” with NCPA), pursuant to which the City has purchased a 64.2% project participation share in the output of the South Feather Power Project. The project consists of four hydroelectric power plants: the 37.5 MW Forbestown Powerhouse, the 11 MW Kelly Ridge Powerhouse, the 13 MW Sly Creek Powerhouse and the 60 MW Woodleaf Powerhouse. The four plants that make up the South Feather Power Project are located across Butte, Plumas and Yuba counties on the South Fork of the Feather River and Slate Creek. Based on the average historical generation from the project, the City’s project participation share of the generation output is expected to be approximately 245 GWh annually.
On December 19, 2021, the City began receiving delivery of the project output. The term of the agreement ends on December 31, 2031. The term of the agreement shall automatically extend for an additional 10 years unless the seller provides written notice of termination to not automatically extend the term. For the Fiscal Year ended June 30, 2024, the City received approximately 247.4 GWh of energy from the South Feather River hydroelectric project.
Santa Clara Tioga Canopy. In February 2012, the City entered into a 20- year power purchase agreement with Tioga Solar Santa Clara, LLC. The project is located on the City’s multi -level parking structure on Tasman Drive in the City of Santa Clara. The nameplate capacity of the project is 389.76 kW. For the Fiscal Year ended June 30, 2024, the City received approximately 0.5 GWh of energy from the solar canopy.
Future Power Supply Resources
In anticipation of the City’s projected load growth and increasing renewable portfolio standards requirements, the City has entered into power purchase agreements for the future delivery of renewable energy.
The City has contracts with Rooney Ranch Wind, LLC, Sand Hill A LLC and Sand Hill B, LLC to develop 49.5 MW of wind energy from the Altamont Wind Repower Area. The developers are currently re-negotiating with the City to extend the initial delivery date, increase the price and size of the project. The Altamont wind projects are anticipated to begin deliveries in 2026 if the parties are able to reach agreement on the new terms.
In December 2021, the City entered into a power purchase agreement (via a “third phase agreement” with NCPA), pursuant to which the City will purchase a 70% project participation share in the output from a portfolio of geothermal projects operated by Calpine in the Geysers Area. Beginning on January 1, 2025, the City is expected to receive approximately 306.6 GWh of energy per year and beginning in January 1, 2027, the City is expected to receive approximately 613.2 GWh of energy per year.
In October 2022, the City entered into a 20- year agreement with Energia Sierra Juarez U.S., LLC to purchase approximately 300 MW of wind generation from a to- be-constructed project located in Baja California. This project is anticipated to be operational beginning in 2026.
In October 2023, the City entered into an 20- year agreement with Kifer Energy Storage, LLC. to build up to a 50 MW/200 MWh battery energy storage system (“BESS”) to be located on City- owned property within the City’s electric system. The agreement will provide energy storage services from the BESS. In addition to providing energy storage services, the BESS will increase local area capacity for system reliability and serve peak load. The BESS is anticipated to be operational in late-2025.
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Fuel Supply
Natural gas is the primary fuel and the primary variable operating cost of the City’s gas -fired peaker plant, the Gianera Generating Station, and combined cycle generation plant, the Donald Von Raesfeld Power Plant. See “– Power Supply Resources – Generating Facilities” above. These plants can require delivery of up to 46,486 million British Thermal Units (“MMBtu”) of natural gas per day, with an estimated average gas burn for calendar year 2024 of 18,520 MMBtu per day. This fuel supply is delivered to the City through PG&E’s natural gas pipeline system. Including the fuel requirements for the City’s share of NCPA natural gas fired generation facilities, the estimated average daily gas burn gas for calendar year 2024 is 23,440 MMBtu per day.
The City has a comprehensive natural gas hedging strategy to mitigate the market exposure due to price volatility for the City’s in -town plants and the City’s share of NCPA natural gas fired generation facilities. The City’s current gas hedges include (i) the procurement of a supply of natural gas at a discount from the monthly index price pursuant to a gas prepayment arrangement through M -S-R EA (described below), (ii) two long term fixed price futures contracts for 15,000 MMBtu per day to 2025, (iii) a long-term fixed price contract for 5,000 MMBtu per day to 2026, and (iv) two five-year fixed price contracts for the total of 15,000 MMBtu per day from 2026 to 2030. As a result of these contracts (excluding the M-S-R EA-Gas Prepay which is not a fixed rate contract), approximately 9 2% of gas needed for City -owned generation is hedged for calendar year 2025, and 91% of gas needed for City - owned generation is hedged in calendar year 2026 (based in each case on the projected gas -fired production for City- owned generation facilities during such period and the City’s share of NCPA generation facilities during such period).
M-S-R Energy Authority–Gas Prepay. The City, along with MID and Redding have formed a joint power agency known as M -S-R Energy Authority ( as defined above, referred to herein as M -S-R EA). In 2009, the City participated in the M-S-R EA Gas Prepay Project. The M-S-R EA Gas Prepay Project provides, through a Gas Supply Agreement between M-S-R EA and the City, for a secure and long-term supply of natural gas of 7,500 MMBtu daily (or 2,730,500 MMBtu annually) through December 31, 2012, and 12,500 MMBtu daily (or 4,562,500 MMBtu annually) thereafter until September 30, 2039. The Gas Supply Agreement provides this supply at a discounted price below the monthly market index price (the PG&E Citygate index) over the 30- year term. M-S-R EA entered into a prepaid gas purchase agreement with Citigroup Energy, Inc. (“CEI”) to provide this gas supply and issued $500.2 million of its Gas Project Revenue Bonds to finance the prepayment for the City , of which $482.4 million principal amount was outstanding a s of September 1, 2024. Under the terms of the Gas Supply Agreement, M-S-R EA will bill the City for actual quantities of natural gas delivered each month on a “take-and-pay” basis. Moreover, any default by CEI or the other participants in M-S-R EA’s Gas Prepay Project, MID and Redding, is non-recourse to the City.
Transmission Resources
TANC California –Oregon Transmission Project . The City, together with fourteen other Northern California cities and districts and one rural electric cooperative, is a member, or associate member, of a California joint powers agency known as the Transmission Agency of Northern California (“TANC”). TANC, together with Redding, Western, two California water districts and PG&E (collectively, the “COTP Participants”) own the California–Oregon Transmission Project (“COTP”), a 340-mile long, 1,600 MW, 500- kV AC tra nsmission project between southern Oregon and central California. The COTP was placed in service on March 24, 1993, at an original cost of approximately $430 million. TANC financed its interest in the COTP through the issuance of California -Oregon Transmission Project Revenue Bonds, of which approximately $159.565 million principal amount of
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revenue bonds was outstanding as of September 1, 2024. See “ – Indebtedness – Joint Powers Agency Obligations.”
To utilize the full transfer capability of the COTP and the Intertie (described below) on a firm basis between the Pacific Northwest and California, it is necessary to coordinate the operation of all three transmission lines. The Pacific AC Intertie (the “Intertie”) is a two line system which, like the COTP, connects California utilities with those in the Pacific Northwest. The Intertie lines are owned by PG&E, PacifiCorp and Western and are operated by the CAISO. Rate schedules are on file with the Federal Energy Regulatory Commission (“FERC”) to accomplish this coordination. The three -line system comprised of the COTP and the Intertie is collectively referred to as the California- Oregon Intertie (“COI”).
Pursuant to Project Agreement No. 3 for the COTP (the “TANC Agreement”), TANC has agreed to provide to the City and 12 other members of TANC (the “TANC Member-Participants”) a participation percentage of TANC’s entitlement of COTP transfer capability. In return, each TANC Member - Participant has severally agreed to pay TANC a corresponding percentage of TANC’s share of the COTP construction costs, including debt service on TANC’s outstanding revenue bonds and other obligations (including any TANC short -term notes) issued by TANC to finance or refinance its ownership share of the COTP and improvements thereto. A TANC Member -Participant’s obligations to make payments to TANC are not dependent upon the operation of the COTP and are not subject to reduction. Upon an unremedied default by one TANC Member -Participant in making a payment required under the TANC Agreement, the non- defaulting TANC Member -Participants are required to increase pro -rata their participation percentage by the amount of the defaulting TANC Member -Participant’s entitlement share, provided that no such increase can result in a greater than 25% increase in the participation percentage of the non-defaulting TANC Member-Participants.
Pursuant to the TANC Agreement, the City’s participation percentage was 20.4745% of TANC’s share of COTP transfer capability (approximately 278 MW net of third party layoffs of TANC). Effective July 1, 2014, the City laid- off 147 MWs of this entitlement to MID, Turlock Irrigation District and Sacramento Municipal Utility District (“SMUD”) pursuant to a 25-year layoff agreement. During the term of this agreement, the parties taking on the entitlement will assume responsibility for all associated debt service, operations and maintenance costs and all administrative and general costs. A fter giving effect to the layoff agreement, the City is currently responsible for paying approximately 10.01% of the operating and maintenance expenses of the COTP and approximately 9.65 % of TANC’s COTP debt service. The City remains contractually obligated for its full participation share. The City’s payments to TANC under the TANC Agreement, including debt service on TANC’s revenue bonds, constitute an operating expense of the City’s Electric Utility.
The City
is using a portion of its share of the project transfer capability of the COTP to provide transmission of energy generated from the Big Horn Projects (described under “ – Joint Powers Agency Resources – M-S-R PPA Purchased Power –Big Horn Project ”) and turning over the City’s share of project transfer capability of the COTP to the CAISO in exchange for Congestion Revenue Rights and Congestion Revenue Rights revenues.
In April 2008, TANC completed the acquisition of approximately 121 MW of COTP entitlement from the City of Vernon, California (“Vernon”). TANC utilized a combination of cash and the issuance of commercial paper (which was subsequently refunded with taxable fixed -rate bonds) to fund the acquisition of Vernon’s COTP entitlement. The City, as well as six other TANC Members, participated in the acquisition and enjoy the increase in COTP entitlement rights and the associated cost obligation.
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In November 2021, TANC approved a 20- year capital replacements plan for the COTP. In August 2024, TANC approved the execution and delivery of a Credit Agreement with JPMorgan Chase Bank, National Association (the “TANC Credit Agreement”), establishing a line of credit pursuant to which TANC may borrow, pay down, refund and re -borrow, through the issuance and sale from time to time of short -term variable rate notes (“TANC short -term notes”), an aggregate amount outstanding at any time of up to $120,000,000 for the purpose of financing improvements to the COTP on an interim basis. TANC executed the TANC Credit Agreement in September 2024. See “ – Indebtedness – Joint Powers Agency Obligations.”
As the 340- mile COTP transmission line runs from Kamath County in Southern Oregon to the Tesla Substation located south of the City of Tracy in San Joaquin County, in central California, approximately 34% of the transmission line runs through the “elevated” Tier 2 fire risk zone and 1% runs through the “extreme” Tier 3 fire risk zone as identified on the CPUC’s Fire-Threat Map. TANC employs a fire risk management plan to mitigate its wildfire risk exposure that includes semi -annual aerial inspections; a series of annual ground inspections; a rigorous vegetation management program; as well as limiting crops and vegetation height in orchard areas. The COTP is constructed entirely of steel lattice towers or single pole steel structures which includes a 200 foot right-of-way for the majority of the COTP that is kept clear of trees and large vegetation. TANC has submitted its wildfire mitigation plan for the COTP to the California Wildfire Safety Advisory Board as required by California Senate Bill 901 (“SB 901”). See “CERTAIN FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY – State Legislation and Regulatory Proceedings – Legislation Relating to Wildfires; Related Risks.” TANC Tesla –Midway Transmission Service. The southern physical terminus of the COTP is near PG&E’s Tesla Substation near Tracy, California. The COTP is connected to Western’s Tracy and Olinda Substations. PG&E provides TANC and certain of the TANC members with 300 MW of firm, bi - directional transmission service on its transmission system from its Midway Substation near Buttonwillow, California (the “Tesla -Midway Service”) to those members under a long- term agreement known as the South of Tesla Principles. The City’s share of Tesla –Midway Transmission Service is 81 MW. The City utilizes its share of the TANC Tesla– Midway Transmission Service to provide access to power supplies located in the southwest.
Geysers Transmission Project. The City is a participant in a double circuit 230 kV transmission line between Castle Rock Junction and PG&E’s Lakeville substation with a combined rated capacity of 1,206 MW. There were four original participants in this project (PG&E, with a 931 MW interest; CDWR, with a 165 MW interest; NCPA, with a 50 MW interest; and the City, with a 60 MW interest), and through a long-term layoff agreement with CDWR, the City has the right to use an additional 31 MW of this transmission facilities’ capacity for the life of the asset. CDWR has terminated its participation in the project, but the remaining participants in the project have yet to formally reallocate CDWR’s interest in the project, and the City has yet to reach agreement with CDWR regarding CDWR’s continuing obligations to the City under the long-term layoff agreement.
Interconnections and Distribution Facilities
The City’s service area is surrounded by a portion of PG&E’s service area and the two systems are interconnected at two City -owned 115 kV receiving stations – Northern Receiving Station (“NRS”) and Kifer Receiving Station (“KRS”), each located within the city limits. There is also a 230 kV interconnection with PG&E at PG&E’s Los Esteros Substation (“LES”) in the City of San Jose. Power received at LES is transmitted by the City approximately six miles to NRS. The City owns facilities for the distribution of electric power within its city limits (approximately 18.4 square miles), which includes approximately 27 miles of 115/230kV transmission lines, 35 miles of 60 kV power lines, approximately 569 miles of 12 kV distribution lines (approximately 67% of which are underground), and 29 active
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stations. The City’s electric system experienced approximately 2.48 hours of outage time per customer on average in 2023 (based on its the System Average Interruption Duration Index (SAIDI) ). This compares with PG&E with its reported average outage time per customer (SAIDI) of 2.11 hours (San Jose Division) in 2023.
Historically, PG&E provided interconnection, partial power and other support services to the City under an interconnection agreement. Beginning March 31, 1998, the operation of the transmission facilities owned by California’s investor-owned utilities, including PG&E, was undertaken by the CAISO.
In July 2002, FERC approved a series of agreements between the City, PG&E, the CAISO and NCPA (which acts as scheduling coordinator for the City), including the City’s MSS Agreement with the CAISO, to replace the City’s interconnection agreement with PG&E and to allow the City to operate within the CAISO control area.
To the extent the City requires transmission/ancillary/power services beyond those contained in other remaining existing contracts or from the City’s own generating resources, the City will procure such transmission/ancillary/power services from the CAISO or via the CAISO’s markets.
The City is unable to predict how future industry changes, especially those concerning resource adequacy requirements, renewable fuels, greenhouse gas limitations and new transmission facilities to serve potential renewable energy projects, will affect future costs for the purchase of services under its interconnection, scheduling and CAISO agreements.
Renewable Energy
A significant portion of the energy received by the City’s electric customers is generated from renewable energy and carbon free resources. The City’s power mix in calendar year 2022 consisted of approximately 33% eligible renewable resources. When large hydroelectric resources are included, the City’s power mix consisted of approximately 45.4% clean energy sources.
The table below set forth the City’s estimated energy mix for residential and non- residential customers (actual numbers for calendar year 2022).
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CITY OF SANTA CLARA
ELECTRIC UTILITY DEPARTMENT
GENERATION MIX PERCENTAGES
(2022)(1)
Resource Type
Residential
Energy
Percentage(1)
Non-Residential
Energy
Percentage(2)
Eligible Renewable(2) 34.6% 33.1%
Biomass and Biowaste 0.0 1.8
Geothermal 0.0 6.3
Eligible Hydroelectric 0.0 8.7
Solar 19.4 7.0
Wind 15.2 9.3
Coal 0.0 0.0
Large Hydroelectric 65.4 8.8
Natural Gas 0.0 23.3
Nuclear 0.0 0.0
Other 0.0 0.0
Unspecified Sources of Power(3) 0.0 34.8
Total 100.0% 100.0%
(1) Based on the City’s calendar year 2022 (most recent) Annual Power Content label submission to the California Energy Commission.
(2) The eligible re newable percentage in table above does not reflect RPS compliance, which is determined using a different methodology.
(3) Unspecified power is electricity that has been purchased through open market transactions and is not traceable to a specific generation source.
Source: City of Santa Clara
On December 6, 2011, the Santa Clara City Council adopted revisions to the City’s Environmental Stewardship and Renewable Portfolio Standard Policy Statement, and adopted a new RPS Enforcement Program, to conform to the standards and timetable set forth in California Senate Bill X1-2, signed by the Governor on April 12, 2011. The City satisfied the RPS target for Compliance Period 1 (from 2011 through 2013), with an average of approximately 20% of the City’s energy portfolio supplied from renewable resources over such period, which has been verified and approved by the State of California. The City has satisfied the RPS target for Compliance Period 2 (from 2014 through 2016), meeting the compliance requirement of 20% of retail sales in 2014 and 2015, and 25% of retail sales in 2016. The City has also satisfied the RPS target for Compliance Period 3 (from 2017 through 2020), meeting the compliance requirement of 27% of retail sales in 2017, 29% of retail sales in 2018, 31% of retail sales in 2019, and 33% of retail sales in 2020. California Senate Bill 350 requires that the target amount of electricity generated each year from eligible renewable energy resources be increased to at least 50% of total retail sales by December 31, 2030. California Senate Bill 100 accelerates the State’s RPS target as established by Senate Bill 350 from 50% by 2030 to 60% by 2030. The City expects to satisfy the interim target of 44% of retail sales from eligible renewable energy resources under California Senate Bill 100. In addition, the City is preparing to meet the accelerated eligible renewable energy compliance requirement of 60% of retail sales by December 31, 2030 in accordance with California Senate Bill 100. See “CERTAIN FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY – State Legislation and Regulatory Proceedings – California Renewables Portfolio Standard.”
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Energy Efficiency Programs
The City’s energy efficiency programs are separated into residential and business programs, with the majority of funding toward its largest customer segment, the business sector. Energy efficiency programs are funded by the Public Benefits Charge revenue which is typically about $18 million per year.
Residential energy efficiency programs include rate assistance for low -income customers, energy efficiency rebates (for example, clothes dryers, heat pump water heaters, and variable speed pool pumps), energy audits, and programs for schools and libraries. Business energy efficiency programs include energy audits, installation management for small companies, rebates for a wide variety of equipment (for example, data center efficiency program, lighting, air conditioning systems, chillers, motors, new construction, food service equipment and customized installations), and design and construction assistance. The City also offers a variety of electrification rebates (for example, electric vehicle charging stations, food service equipment, and heat pump water heaters).
Wholesale Resources
For a number of years, the City has used its energy and transmission resources together with its power scheduling capabilities to buy and sell energy in the western North American market. As described under “– Fuel Supply” above, the City has developed a natural gas hedging strategy to mitigate the market exposure due to price volatility, and has procured several long- term contracts for both physical and financial gas. As deregulation unfolded, a greater need to manage resources on a day- to-day basis evolved, resulting in a more comprehensive approach to trading operations at the City. The principal reason for wholesale power trading is to optimize the value of the utility’s assets and cost -effectively serve its retail load. The wholesale gas trading includes the resell of excess gas beyond the daily gas consumption and the financial settlement on the futures contracts. For the Fiscal Years ended June 30, 2022 and 2023, net trading revenues (wholesale resource sales less wholesale resource purchase costs) were approximately $31.7 million, and $65.6 million, respectively. For the Fiscal Year ended June 30, 2024, the estimated net trading revenue is approximately $1.7 million (based on preliminary financial results). The $34 million increase in wholesale resource net sales during the Fiscal Year ended June 30, 2023 was attributed to the recognition of a $60 million gain in wholesale future trading, in contrast to the $14 million gain recognized in the Fiscal Year ended June 30, 2022. The $64 million decrease in wholesale resource net sales during the Fiscal Year Ended June 30, 2024, compared to the prior fiscal year, is due to the estimated negative $2.3 million recognized in wholesale futures trading (based on preliminary financial results). The City engages in the trading of commodity forward contracts (gas and electric energy contracts) to secure fuel supply and hedge daily power purchase/sales from/to CAISO.
The primary type of forward contracts the City currently engages in is the futures contracts transacted on Intercontinental Exchange (“ICE”).
The City is exposed to credit risk if hedging instruments are in asset positions. To eliminate counterparty credit risk, the City has transacted both long -term power and gas contracts in the futures market on ICE. As of June 30, 2024, the City’s open derivative power and gas contracts were in an asset position, reflecting a positive $12.0 million mark-to market value.
Risk Management
On December 5, 2006 Santa Clara City Council approved an amended Risk Management Policy to provide policy guidance with respect to its wholesale trading power activities. Pursuant to the Policy, the City has established a Risk Oversight Committee (composed of the City Manager, the Director of Finance, the Chief Electric Utility Officer and the Santa Clara City Attorney) and a Risk Management Committee, to oversee all proposed energy, energy related products, and natural gas purchase/sales agreements, whether for retail or wholesale purposes. Pursuant to the policy, the City has also established
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regulations approved by the Risk Oversight Committee to govern the various functions of its trading operations. The policy and regulations are intended to: (a) provide a common risk management infrastructure to facilitate management control and reporting; (b) create a procedure to evaluate the creditworthiness of the counterparties, and to monitor and manage the aggregate credit exposure; (c) establish a corporate culture exemplifying best practices in risk management; (d) create a mechanism to identify market- related opportunities within the City’s overall exposure balance or “book” and opportunities to internalize related transactions; and (e) develop an effective, streamlined ability to timely commit to transactions. The regulations establish guidelines for, among other things, acceptable counterparty creditworthiness standards and requirements for limits on credit exposure to any individual counterparty. Individual trading authority is clearly established in the Regulations. The City is preparing an updated Risk Management Policy which is expected to be presented to the City Council for consideration for adoption later in 2024.
Cybersecurity Program
The City’s Electric Utility, like many other public and private entities, relies on computers, digital networks, and integrated layered systems to conduct its operations. As a recipient and provider of sensitive electronic information, the City’s Electric Utility functions within one of the Department of Homeland Security’s 16 Critical Infrastructure industries which subjects it to a high potential for multiple cyber threats, including and without limitation, hacking, viruses, ransomware, malware, Direct Denial of Service (DDoS), phishing, pharming, smishing, vishing, and other attacks. Cybersecurity incidents could result from intentional or unintentional events, posed by internal or external threats, from unauthorized entities or individuals attempting to gain access to the Electric Utility’s digital networks and systems for the purposes of misappropriating assets or information or causing operational disruption and damage. To reduce or mitigate the risk of business operations impact and/or damage from cyber related incidents or cyber-attacks, the Electric Utility invests in multiple forms of cybersecurity and operational safeguards.
These practices include, but are not limited to: device administration only by qualified information technology (“IT”) and cybersecurity professionals; active threat hunting on networks; segmented, isolated, and air -gapped network topology; strong security profile settings for device use and management; insistent use of “Least Privilege” philosophy; pursuit of zero -trust implementation throughout Electric Utility platforms; performance of periodic security risk assessments and gap analyses to identify security strengths and vulnerabilities; implementation of access controls and restrictions; personnel risk assessments; software patch management; active management of appropriate malware protection; practices for the designation of and proper safeguards for confidential or sensitive information; practices for the backup and recovery of data; and security awareness training.
These efforts are fortified by the Utility’s IT team partnering with the Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency (CISA) and Federal Bureau of Investigation through the Northern California Regional Intelligence Center and other similar fusion centers. Industry specific resources include the Electricity Information and Sharing Analysis Center (E -ISAC) and Reliability Coordinator West Cyber Security Collaboration Working Group (RC WEST CWCSWG).
These resources promote cyber and physical, incident and threat information sharing, specifically impacting critical infrastructure.
Pursuant to the 2013 Presidential Policy Directive on Critical Infrastructure Security and Resilience, the resulting outline of defined industries from CISA identified the energy sector to be one of the most critical to protect. To promote the best security and operational response, the Electric Utility maintains its networks and technology profile separate from the City government systems as a whole. All systems are maintained with consideration of guidance from National Institute of Standards and Technology (NIST) and other similar industry standards. Applicable portions of the Electric Utility’s cybersecurity program are audited by the Western Electricity Coordinating Council (“WECC”) under the
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direction of the North American Electric Reliability Corporation (“NERC”). The City’s E lectric Utility self-certifies its compliance with NERC reliability standards pertaining to cybersecurity annually and is audited every three years by WECC (most recently in April 2023).
Wildfire Mitigation Measures
The service area of the Electric Utility is contiguous with the City of Santa Clara city limits and extends to neighboring jurisdictions in limited cases. The City is an urban environment and is surrounded on all sides by urban environments in other cities. The City owns a limited number of remote transmission assets, including, but not limited to, wires, poles, and other equipment needed to safely deliver power generated from generation assets located outside the city limits. Certain of these remote assets are located in a CPUC High Fire Threat District. Pursuant to the requirements of California Senate Bill 1028, the Santa Clara City Council made a wildfire risk determination at its October 9, 2018 City Council meeting and directed the electric utility to create a wildfire mitigation plan. The initial Silicon Valley Power Wildfire Mitigation Plan was adopted by City Council on June 25, 2019. The City reviews and updates its wildfire mitigation plan on an annual basis with a comprehensive review required every three years. The most recent comprehensive review (including a review by an independent evaluator) of the City’s wildfire mitigation plan was completed in September 2022. The City’s wildfire mitigation plan was most recently updated in June 2024 and adopted by the City Council on July 16, 2024. Current wildfire mitigation practices for assets owned and operated by the City include periodic inspection and maintenance, vegetation management , monitoring of current and forecasted weather conditions and associated fire danger data, isolation ( de-energization) of lines based upon fire -threat conditions and identified considerations, and restoration (re-energization) procedures with physical inspection. See also “CERTAIN FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY – State Legislation and Regulatory Proceedings – Legislation Relating to Wildfires; Related Risks.” Impact of COVID-19 Pandemic
While the COVID -19 pandemic impacted the City in certain respects, there was not a material adverse impact to the Electric Utility operations or its ability to meet its financial obligations as a result of the COVID-19 pandemic.
The City’s ability to provide electric service was not impaired during the COVID -19 pandemic.
The City’s Electric Utility is in a federally designated critical infrastructure sector and continued to operate throughout the COVID -19 pandemic. The City continued to experience an overall increase in energy consumption during the pandemic. This was largely driven by the City’s large industrial sector customers, many of which are data center and semiconductor related businesses. For information regarding Santa Clara’s load requirements, see “– Customers, Energy Sales, Revenues and Demand.” For information regarding the types of businesses comprising the Electric Utility ’s largest customers, see “– Major Customers.”
Historically, Santa Clara’s annual write-offs for uncollectible accounts have been less than 0.01% of gross billings of the Electric Utility . During the COVID -19 pandemic, write -offs for uncollectible accounts increased to approximately 0.02% of gross billings for Fiscal Year 2020- 21 and approximately
0.03% of gross billings for Fiscal Year 2021-22. To help mitigate the economic impact of COVID-19 and the related governmental regulations on its customers, the City implemented a payment deferral program for all customers of Santa Clara utilities, which included the suspension of the disconnection of services by City utilities for non- payment of utility bills beginning March 13, 2020. Normal practices for non- payment resumed in April 2023. In addition, numerous programs have been implemented for payment assistance. These programs include Long -Term Rate Assistance, Payment Arrangements, a Help Your
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Neighbor Program, and a one -time $30 Energy Efficiency credit to all residential accounts. The City continues to work with customers by providing payment assistance and arrangement options.
In 2021, the California Legislature established the California Arrearage Payment Program (“CAPP”) administered by the California’s Department of Community Services and Development. CAPP is designed to provide financial assistance to residential and commercial customer accounts that had delinquent utility balances of 60 days or more incurred during the COVID -19 pandemic, specifically covering the period from March 4, 2020 through June 15, 2021. The City received $1.3 million of funding under the 2021 CAPP program in February 2022, which was credited towards residential arrearages.
Rates and Charges
The City Council is authorized by the City Code of the City of Santa Clara to set charges, pay for and supply all electric energy and power to be furnished to customers according to such schedules, tariffs, rules and regulations as adopted by the City Council. The authority of the City to impose and collect rates and charges for electric power and energy is not presently subject to the regulatory jurisdiction of the CPUC or any other regulatory authority. See “RATE REGULATION.” The following table summarizes a history of the City’s electric rate increases over the last five years.
CITY OF SANTA CLARA
ELECTRIC UTILITY DEPARTMENT
HISTORY OF ELECTRIC RATE CHANGES
Date Percent Change
January 1, 2024 10.00%
July 1, 2023 5.00
January 1, 2023 8.00
January 1, 2022 3.00
February 1, 2021 3.00
January 1, 2020 3.00
Source: City of Santa Clara.
The City has a monthly billing system set up for all its electric accounts, except municipal electric accounts which are set up for bi -monthly billing. Charges for electric service are typically included in a customer’s Municipal Utilities Regular Bill with other utility charges for the same time period. Bills are due and payable upon receipt of billing and generally become delinquent if not paid within 21 days thereafter. Late charges begin to accrue the day following the past due date. Electric service may be discontinued for nonpayment of any undisputed bill, following issuance by the City to the customer of a Shut-Off Notice Bill (typically the next bill sent to the customer following the past due bill) and a 48-Hour Notice of Service Discontinuance. Service will be restored only upon payment, in cash or certified funds, of all amounts then due and payable, including required deposits, utility service charges, and other related charges as permitted in the schedule of fees established and adopted by resolution of the City Council. During the COVID -19 pandemic, the City temporarily stopped utility disconnections for non-payment. See “ – COVID-19” for information regarding certain payment deferral and customer payment assistance programs implemented by the City during the COVID -19 pandemic. However, beginning April 2023, the City has restored its pre- pandemic collection practices and service discontinuance for non-payment.
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Major Customers
The ten largest customers of the City’s Electric Utility, in terms of kWh sales for the Fiscal Year ended June 30, 2024, which are listed below, accounted for 6 4.7% of total kWh sales and 5 9.3% of revenues. The largest customer accounted for 1 6.3% of total kWh sales and 1 4.5% of charges from the sale of energy, while the smallest customer of the largest ten customers accounted for 1. 4% of total kWh sales and 1. 6% of charges from the sale of energy. The City is heavily dependent upon its industrial customers, which comprise approximately 91. 7% of its energy sales and 90. 2% of its revenues (in the Fiscal Year ended June 30, 2024). For reference, the City’s industrial category includes all customers using more than 8,000 kWh per month. For many years, the City has been home to a number of the world’s best known “high tech” firms involved in the design and production of computers and software.
In the past few years, some of these firms have shifted production away from the City; however, this shift has been more than offset by the development of numerous data centers established to serve the data needs of corporate offices and of internet-related businesses.
To help retain its industrial customers, and thus assure the stability of the Electric Utility’s electric sales and revenue, historically, the City entered into multi- year electric service agreements with a number of its larger customers. In 2018, the City adopted voluntary, standardized rate tariffs to replace these individually negotiated electric service agreements to facilitate transparency and efficiency. The new rate tariffs took effect on January 1, 2019 and all contracted customers have opted in the new tariffs as their electric service agreements expired. Currently all customers are served under standardized rate tariffs.
CITY OF SANTA CLARA
ELECTRIC UTILITY DEPARTMENT
MAJOR CUSTOMERS
(For the Fiscal Year Ended June 30, 2024)
Customer Business
Air Products and Chemicals Industrial Gas and Chemicals Apple Data Processing – Manufacturing
Coresite Coranado Stender LLC Data Centers
Cyxtera Data Centers Inc.(1) Data Centers
Digital Realty Trust LP Data Centers
Intel Corporation Semiconductors
Microsoft Corporation Data Center
Nvidia Corporation Computer-Software Developers
Oracle America Inc. Database Software Products
Vantage Data Centers LLC Data Centers
(1) In June 2023, Cyxtera Technologies, Inc and certain of its subsidiaries (“Cyxtera”) initiated voluntary Chapter 11 bankruptcy proceedings. At the time of the bankruptcy filing, Cyxtera had pre -petition debt owing to the City for utility services due and unpaid in the amount of $3,280,060 (“Pre -Petition Debt”). This amount is comprised of $3,220,910 owed for electric accounts and $59,150 owed for water and sewer accounts. In November 2023, the Bankruptcy Court confirmed a plan of reorganization for Cyxtera, including a sale of substantially all of the company’s assets to Phoenix Data Center Holdings. The sale closed on or about January 2024 and Cyxtera ceased to exist.
The Pre- Petition Debt remains unpaid. Phoenix
Infrastructure LLC, a subsidiary, will be the new customer for the former Cyxtera accounts.
Source: City of Santa Clara.
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Customers, Energy Sales, Revenues and Demand
The average number of customer accounts, kWh sales and revenues derived from sales, by classification of service, and peak demand during the past five Fiscal Years, are listed below.
CITY OF SANTA CLARA
ELECTRIC UTILITY DEPARTMENT
CUSTOMERS, SALES, REVENUES AND DEMAND(1)
(Fiscal Year Ended June 30)
2020 2021 2022 2023
Preliminary
2024
Average Monthly Number
of Customers Accounts:
Residential ........................................ 49,020 50,177 50,955 51,393 51,862 Commercial ....................................... 6,722 6,754 6,779 6,836 6,830 Industrial ........................................... 1,405 1,377 1,348 1,312 1,282 Municipal .......................................... 306 307 306 310 313 Total ............................................. 57,453 58,615 59,388 59,851 60,287 Kilowatt-hour Sales (000):
Residential ........................................ 242,962 269,657 246,316 261,129 253,974 Commercial ....................................... 98,343 96,323 99,636 102,477 107,584 Industrial ........................................... 3,312,988 3,470,543 3,895,222 4,103,315 4,180,709 Municipal .......................................... 18,510 18,533 16,633 15,994 17,265 Total(2) .......................................... 3,672,802 3,855,056 4,257,807 4,482,915 4,559,533 Charges from Sale of Energy (000)(3):
Residential ........................................ $ 28,672 $ 34,133 $ 32,309 $ 35,004 $ 39,906 Commercial ....................................... 17,531 17,457 18,676 20,136 23,589 Industrial ........................................... 387,001 408,876 466,747 521,934 608,026 Municipal .......................................... 2,071 2,088 1,969 2,026 2,491 Total(2)(4) ........................................ $435,275 $462,553 $519,701 $579,101 $674,011 Peak Demand (MW) ............................ 579.3 593.1 647.6 693.9 669.2
(1) Minor differences in numbers from those previously reported reflect the removal of inactive accounts, assignment of unmetered accounts from other category to applicable customer class and subsequent billing adjustments. Municipal category reflects City of Santa Clara usage.
(2) Totals may not foot due to rounding.
(3) Differs from Operating Revenues in Summary of Financial Operating table due to: (i) timing differences in accruals and billings; and (ii) exclusion of non-consumption based revenues. (4) Includes public benefits charge and sales of steam.
Source: City of Santa Clara
Capital Requirements
As shown in the table below, the City expects net capital requirements for five Fiscal Years 2024-25 through 2028-29 to total approximately $824.0 million. Such improvements include distribution system improvements and replacements, including several new distribution substations and significant upgrades to its internal bulk distribution loops and distribution feeders. These distribution facilities are needed to meet increased capacity requirements of new and existing customers and are expected to be funded through a combination of load development fees, direct customer contributions, interdepartmental
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transfers, fiber revenue, public benefits funds, and electric revenues. Approximately $376.0 million of such capital requirements are expected to be financed from proceeds of electric revenue bonds of the City (including approximately $130 million from proceeds of the Series 2024 A Bonds).
CITY OF SANTA CLARA
ELECTRIC UTILITY DEPARTMENT
CAPITAL IMPROVEMENT PLAN SUMMARY
Fiscal Year Ending
June 30
Projected Capital
Requirements
2025(1) $217,697,515
2026 324,154,500
2027 100,616,000
2028 107,933,200
2029 73,595,000
Total(2) : $823,996,215
(1) Net of amounts to be funded from unused appropriated funds (cash designated for construction) available from Fiscal Year 2023-24.
(2) Totals may not add due to rounding.
Source: City of Santa Clara.
Indebtedness
City Electric Revenue Bonds. As of September 1, 2024, the City had outstanding senior lien electric revenue bonds (“Senior Electric Revenue Bonds”) in the aggregate principal amount of $18.980 million, payable from net revenues of the E lectric Utility. Such outstanding Senior Electric Revenue Bonds consist of the City’s Electric Revenue Refunding Bonds, Series 2018 A.
In addition to the outstanding Senior Electric Revenue Bonds, the City has entered into two Loan Agreements with BANA, each providing for a direct loan from BANA to the City. The City’s obligation to make repayment to BANA of each of the loans is evidenced by a Subordinate E lectric Revenue Bond of the City, payable from net revenues of the Electric Utility on a basis junior and subordinate to the payment of the City’s outstanding Senior Electric Revenue Bonds. As of September 1, 2024, the City had outstanding $75.850 million aggregate principal amount of such Subordinate Electric Revenue Bonds.
Certain terms of the Loan Agreements and related Subordinate Electric Revenue Bonds of the City are further described below.
The City entered into a Loan Agreement (2020 -1), dated as of April 1, 2020 (the “2020- 1 Loan Agreement”) with BANA, and in connection therewith issued and delivered to BANA its $52.985 million principal amount of Subordinated Electric Revenue Refunding Bonds, Series 2020- 1 (the “Subordinate 2020-1 Bonds”), all of which were outstanding as of September 1, 2024. The Subordinate 2020- 1 Bonds mature on July 1, 2032 (subject to prior redemption), with the aggregate principal amount thereof payable in installments on July 1 of each of the years 2028 through 2032. The Subordinate 2020- 1 Bonds currently bear interest at the tax-exempt rate of 1.36% per annum.
The City entered into a Loan Agreement (2020 -2), dated as of April 1, 2020 (the “2020- 2 Loan Agreement”) with BANA, and in connection therewith issued and delivered to BANA its $34.315 million principal amount of Subordinated Electric Revenue Refunding Bonds, Series 2020- 2 (the “Subordinate 2020-2 Bonds”), of which $ 22.865 million principal amount was outstanding as of September 1, 2024.
The Subordinate 2020-2 Bonds mature on July 1, 2028 (subject to prior redemption), with the aggregate
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principal amount thereof payable in installments on July 1 of each of the years 2023 through 2028. The Subordinate 2020-2 Bonds currently bear interest at the tax-exempt rate of 1.02% per annum.
Under each of the Loan Agreements, upon a failure by the City to pay principal or interest of any of the related Subordinate Electric Revenue Bonds, a failure by the City to perform or observe its covenants, a default in other specified indebtedness or obligations of the City, certain acts of bankruptcy or insolvency, or other specified events of default (including if S&P shall have assigned a credit rating below “BBB–,” or if any of Fitch, S&P or Moody’s shall have downgraded its credit rating on the City’s Senior Electric Revenue Bonds or parity debt to below “BBB” or “Baa2”), BANA has the right to accelerate (immediately in the case of certain bankruptcy or insolvency events or upon the acceleration of other specified indebtedness or obligations, or, depending on the event, not earlier than seven days after the occurrence, or for certain events, not earlier than 180 days’ after the occurrence and only after at least 60 days’ notice) and declare the City’s obligation to repay the related Subordinate Electric Revenue Bonds and all other obligations of the City to BANA under the respective Loan Agreement then due and payable.
The City’s outstanding Electric Revenue Bonds and Subordinate Electric Revenue Bonds are summarized in the table below.
CITY OF SANTA CLARA
ELECTRIC UTILITY DEPARTMENT
OUTSTANDING ELECTRIC SYSTEM BONDS
(as of September 1, 2024)
Name of Issue
Original Principal
Amount
Principal Amount
Outstanding
Senior Electric Revenue Bonds
Electric Revenue Refunding Bonds, Series 2018 A $ 48,800,000 $ 18,980,000 Sub-Total $ 48,800,000 $ 18,980,000
Subordinate Electric Revenue Bonds
Subordinated Electric Revenue
Refunding Bonds, Series 2020-1 52,985,000 52,985,000
Subordinated Electric Revenue
Refunding Bonds, Series 2020-2 34,315,000 22,865,000
Sub-Total $ 87,300,000 $ 75,850,000
Total Electric Revenue Bond Indebtedness $136,100,000 $94,830,000
Source: City of Santa Clara.
For the Fiscal Year ending June 30, 2024, the City’s annual debt service on the outstanding Senior Electric Revenue Bonds and the Subordinate Electric Revenue Bonds totaled approximately $17.6 million. See “APPENDIX G – DEBT SERVICE REQUIREMENTS ON THE ELECTRIC REVENUE BONDS” for future estimated annual debt service requirements on the senior lien Electric Revenue Bonds to be outstanding, including the Series 2024 A Bonds offered herein.
Joint Powers Agency Obligations . As previously discussed, the City participates in several joint powers agencies, including TANC, NCPA, M-S-R PPA and M-S-R EA, which have issued joint powers agency indebtedness to finance the costs of certain projects on behalf of their respective project participants. Obligations of the City under its agreements with respect to TANC, NCPA and M-S-R PPA constitute operating expenses of the City’s Electric Utility payable prior to any of the payments required
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to be made on the City’s Electric Revenue Bonds described above. Agreements with TANC, NCPA and M-S-R PPA are on a “take-or-pay” basis, which requires payments to be made whether or not projects are completed or operable, or whether output from such projects is suspended, interrupted or terminated.
Certain of these agreements contain “step -up” provisions obligating the City to pay a share of the obligations of a defaulting participant. As described herein, the City also participates in M-S-R EA and has certain payment obligation in connection therewith which constitute operating expenses of the City’s Electric Utility. However, the City’s payment obligation to M-S-R EA is with respect to actual quantity of natural gas delivered each month on a take-and- pay (rather than take -or-pay) basis. Responsibility for bond repayment is non-recourse to the City. See “ – Fuel Supply—M-S-R Energy Authority–Gas Prepay” above.
The City’s participation and share of debt service obligation (without giving effect to any “step- up” provisions) for the TANC and NCPA projects in which it participates are shown in the following table. All of M-S-R PPA’s bonded indebtedness was retired on July 1, 2022.
CITY OF SANTA CLARA
ELECTRIC UTILITY DEPARTMENT
OUTSTANDING DEBT OF JOINT POWERS AGENCIES
(Dollar Amounts in Millions)
(as of September 1, 2024)
Outstanding
Debt(1)
Santa Clara
Participation(2)
Santa Clara Share
of Outstanding
Debt(1)
NCPA
Calaveras Hydroelectric Project $122.3 37.02%(3) $ 45.3 Lodi Energy Center, Issue One 184.5 46.16 85.2
TANC
COTP 159.6(4) 9.65(5) 15.4
TOTAL(6) $466.4 $145.9
____________________
(1) Principal only. Does not include obligation for payment of interest on such debt. Excludes M-S-R EA as described above. (2) Participation based on actual debt service obligation. Participation obligation is subject to increase (in an amount up to a specified accumulated maximum above the original participation) upon default of another Participant. (3) Includes 1.16% additional share purchased from other NCPA participants. (4) As described under “– Transmission Resources – TANC California-Oregon Transmission Project , in August 2024, TANC authorized the issuance pursuant to the TANC Credit Agreement of up to $120.0 million of TANC short -term notes to be outstanding at any time for the purpose of financing certain improvements to the COTP on an interim basis. (5) Excludes 10.4705% of the City’s original 20.4745% participation share for which, as described herein, the City has entered into an agreement to layoff to other TANC Member -Participants for a term of 25 years. The City remains contractually obligated for its full participation share. The City’s actual debt service obligation also reflects the varying shares of each TANC member-participant with respect to prior bond issues refunded by the outstanding TANC bonds and the portion of bonds allocable to South of Tesla transmission.
(6) Columns may not add to totals due to independent rounding.
Source: City of Santa Clara.
For the Fiscal Year ended June 30, 2024, the City’s payment obligations under its agreements with the joint powers agencies related to debt service for outstanding debt of the joint powers agencies aggregated approximately $23.4 million. The City’s obligations to the joint powers agencies related to debt service for outstanding debt of the joint powers agencies is expected to range between $17.6 million and $7.7 million through Fiscal Year 2039- 40. This projection assumes that layoff agreements affecting expected obligations to be paid by the City remain effective for their full term and are performed by the parties thereto. In addition, this projection does not include any future debt issuances that may occur. All of the outstanding joint powers agency indebtedness included in the above table is currently fixed rate
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debt. As described under “ – Transmission Resources – TANC California-Oregon Transmission Project , in August 2024, TANC authorized the issuance pursuant to the TANC Credit Agreement of up to $120.0 million of variable rate TANC short-term notes to be outstanding at any time for the purpose of financing certain improvements to the COTP on an interim basis. Any TANC short -term notes issued pursuant to the TANC Credit Agreement will mature in September 2025 (with a corresponding amount proportionate to Santa Clara’s debt service obligations under the TANC Agreement due from Santa Clara), unless the commitment of the lender under the TANC Credit Agreement is extended in accordance with its terms. It is expected that TANC will refinance any TANC short -term notes issued pursuant to the TANC Credit Agreement from the proceeds of TANC bonds on or before their maturity date.
Transfers to the General Fund
At a municipal election held on November 8, 2022, the voters of the City approved Measure G, a ballot measure reaffirming the City’s Electric Utility transfer to the General Fund. As amended by Measure G, the Santa Clara City Charter provides that 5% of gross receipts (not including revenues from wholesale transactions) from the Electric Utility is paid to the Santa Clara General Fund. Pursuant to the Charter, such amounts are to be made from the Electric Utility Enterprise Fund after the payment of debt service on the Electric Revenue Bonds.
The following table sets out the transfers from the Electric Utility to the Santa Clara General Fund for the last five Fiscal Years.
CITY OF SANTA CLARA
ELECTRIC UTILITY DEPARTMENT
TRANSFERS TO THE GENERAL FUND
(Dollar Amounts in Thousands)
Fiscal Year Transfer Amount
2019-20 $22,710
2020-21 24,548
2021-22 27,259
2022-23 29,584
2023-24 (preliminary) 33,144
_______________________
Source: City of Santa Clara.
Employees and Retirement Plans
General. For the Fiscal Year ended June 30, 2024, the City had 223 budgeted employees for its Electric Utility department. All Electric Utility department employees are represented either by the International Brotherhood of Electrical Workers (“IBEW”) or one of the other City employees’ associations, in matters pertaining to wages, benefits and working conditions. The current labor agreements with the miscellaneous unclassified management employees, IBEW, Engineers of the City of Santa Clara, and City of Santa Clara Employees Association (for miscellaneous employees) will expire December 2024, December 2025, June 2025, and December 2027, respectively. Until a successor agreement is executed for City of Santa Clara Employees Association, the terms of the expired agreement will continue to govern. There have been no strikes or other union work stoppages at the City, including its Electric Utility department.
Pension Plans. The City ’s permanent employees, including those in the Electric Utility department, are covered by the California Public Employees Retirement System (“CalPERS”), an agent multiple-employer defined benefit plan administered by CalPERS, which acts as a common investment
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and administrative agent for participating public employers within the State. CalPERS issues a separate annual comprehensive financial report. Copies of the CalPERS annual financial report may be obtained from the CalPERS Executive Office, 400 Q Street, Sacramento, California 95814.
The City’s defined benefit pension plans, the Miscellaneous Plan and Safety Plan, provide retirement and disability benefits, annual cost-of- living adjustments, and death benefits to plan members and beneficiaries for C ity employees. All permanent (full- time and part -time) and eligible “as- needed” hourly City employees are required to participate in CalPERS. All employees assigned to the Electric Utility department participate in the Miscellaneous Plan.
The cost of the Miscellaneous Plan is funded through bi -weekly contributions from employees and from employer contributions by the City. The member employees’ contribution rates are set by State statute and only change with significant contract amendments. The member contribution can be paid by the employee or by the City on the employee’s behalf in accordance with applicable labor agreements. In accordance with applicable state law, the contribution rate for all public employers is determined annually by the actuary and is effective on the July 1 following notice of a change in rate. Funding contribution amounts are determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The City is required to contribute the actuarially determined remaining amounts necessary to fund the benefits for its members, using the actuarial basis recommended by CalPERS actuaries and actuarial consultants and adopted by the CalPERS Board of Administration. The employer contribution rates are established, and may be amended, by CalPERS.
The Electric Utility department is allocated its portion of the City’s required contributions for the Miscellaneous Plan. This allocation is based on eligible employee wages.
The table below sets forth the E lectric Utility department’s allocated share of the City’s required contributions to the Miscellaneous Plan for the five Fiscal Years 201 9-20 through 2023-24. The amount budgeted for the Electric Utility department’s allocated share of the City’s actuarial required contributions to such plan for Fiscal Year 2024-25 is $13,050,655.
Miscellaneous Plan
Fiscal Year
Ended
June 30
Electric Utility
Department
Allocated Share
Total City
Required
Contribution Amount
Contributions
as a % of
Covered Payroll
2020 $ 9,365,958 $28,987,800 32.50%
2021 10,027,454 31,035,143 34.75
2022 11,026,399 34,126,897 36.84
2023 11,321,067 36,763,759 34.93
2024 13,463,646 39,958,971 42.21
______________________
Source: City of Santa Clara.
The City’s required contributions to CalPERS fluctuate each year and include a normal cost component and a component equal to an amortized amount of the unfunded liability. Many assumptions are used to estimate the ultimate liability of pensions and the contributions that will be required to meet those obligations, and these assumptions and contribution requirement are subject to changes implemented by CalPERS Board of Administration. On July 12, 2021, CalPERS reported a preliminary
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investment return of 21.3% for the period from July 1, 2020 through June 30, 2021. Based on the thresholds specified in CalPERS’ funding risk mitigation policy, the CalPERS Board of Administration lowered the CalPERS’ discount rate from 7.0% to 6.8% on November 15, 2021, which policy calls for the discount rate to be lowered if returns exceed the then- current discount rate by two or more percentage points. Lowering the discount rate generally means that employers which contract with CalPERS to administer their pension plans will see increases in their normal costs and unfunded actuarial liabilities.
On November 17, 2021, the CalPERS Board of Administration adopted new actuarial assumptions based on the November 2021 CalPERS Experience Study and Review of Actuarial Assumptions. This study reviewed the retirement rates, termination rates, mortality rates, rate of salary increases, and inflation assumption for public agencies. The CalPERS Board of Administration also changed the strategic asset allocation, capital market assumptions, and economic assumptions all of which support the new 6.8% discount rate. In addition, the CalPERS Board of Administration reduced the inflation assumption from
2.50% to 2.30%. These changes were incorporated in the June 30, 2021 valuation and impact the City’s required contribution beginning for the Fiscal Year ended June 30, 2024. The CalPERS Board of Administration may in the future further adjust certain assumptions used in the CalPERS actuarial valuations, which adjustments may increase the City’s required contributions to CalPERS in future years.
Accordingly, the City cannot provide any assurances that the City’s required contributions to CalPERS in future years will not significantly increase (or otherwise vary) from any past or current projected levels of contributions.
Effective for Fiscal Year 2014 -15, the City adopted Governmental Accounting Standards Board (“GASB”) Statement No. 68, Accounting and Financial Reporting for Pensions (“GASB 68”), affecting the reporting of pension liabilities for accounting purposes. Under GASB 68, the City is required to report the Net Pension Liability ( i.e., the difference between the Total Pension Liability (the long- term obligation for pension benefits) and the Pension Plan’s Net Position (the amount held in a trust for paying retirement benefits, generally, the market value of assets) in its financial statements. The GASB 68 standards apply to financial reporting but not to the actuarial calculation of annual employer pension contributions, which continue to be determined actuarially by each plan.
The table below summarizes certain information relating to the E lectric Utility department’s proportionate share of the Net Pension Liability of the City ’s Miscellaneous Plan for the measurement periods ended June 30, 2019 through June 30, 2023. The Electric Utility department’s proportion of the Net Pension Liability was based on a projection of the Electric Utility department’s long- term share of contributions to the Miscellaneous Plan relative to the projected contributions of all funds of the City.
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City of Santa Clara Electric Utility Department
Proportionate Share of the Net Pension Liability – Miscellaneous Plan Measurement
Date(1)
(June 30)
Proportionate
Share of the Net
Pension Liability(2)
Electric Utility
Enterprise Fund Share
of the Net Pension
Liability(2)
Share of Net Position
as a % of Share of
Total Pension Liability
Share of Net
Pension Liability
as a % of Its
Covered Payroll
2019 32.31% $ 92,007,139 62.72% 321.36%
2020 32.31 98,396,395 61.90 341.44
2021 32.31 73,533,480(3) 72.48 254.79
2022 32.31 105,823,291 62.47 353.54
2023 32.31 108,269,790 63.05 384.99
(1) Measured using prior fiscal year annual actuarial valuation rolled forward to measurement date using standard update procedures.
(2) Reflects the Electric Utility department’s share of City’s Miscellaneous Plan Net Pension Liability of $284,763,675, $304,538,518, $227,587,376, $327,524,889, and $335,096,844, as of June 30, 2019, June 30, 2020, June 30, 2021, June 30, 2022, and June 30, 2023 measurement date, respectively. (3) Decline in Net Pension Liability as of the June 30, 2021 measurement date reflects the significantly higher than projected investment returns earned for that fiscal year (discussed above).
Source: City of Santa Clara.
As of the June 30, 202 3 measurement date, the city -wide Total Pension Liability for the Miscellaneous Plan was $906,859,415 and the Plan Fiduciary Net Position was $571,762,571, resulting in a city -wide Miscellaneous Plan Net Pension Liability of $335,096,844. In the June 30, 2022 actuarial valuation utilized for measuring the pension liability as of the June 30, 2023 measurement date, the Entry Age Normal Actuarial Cost Method was used. The actuarial valuation assumptions used for determining pension liabilities included (a) a 7.00% investment rate of return (net of pension plan investment and administrative expense); (b) projected salary increases that vary based on age and type of service; (c) an inflation component of 2.30% per year; (d) payroll growth of 2.80%; and (e) a discount rate of 6.90%.
Public Agencies Post -Employment Benefits Trust Program. In Fiscal Year 2016 -17, the Santa Clara City Council approved a resolution creating the Public Agencies Post -Employment Benefits Trust Program (the “Program”) to allow the City to pre -fund its pension obligation. The Program was established within the meaning of Section 115 of the Internal Revenue Code, as amended, and the Regulations issued thereunder, and is a tax- exempt trust under the relevant statutory provisions of the State. The Program provides the City with an alternative to depositing additional funds with CalPERS and provides for greater City control over assets and portfolio management, while allowing the City to set aside additional funds towards future CalPERS costs. The Program is administered by Public Agency Retirement Services (“PARS”). As of June 30, 2023, the market value of the City’s contributions to the Program (city-wide) was $28,668,522, including the Electric Utility department’s portion of $4,871,838.
Retiree Health Benefits. The City’s single- employer defined benefit Other Post Employment Benefit (“OPEB”) Plan Trust Fund, which was established by the Santa Clara City Council in Fiscal Year 2007-08 in accordance with GAAP, provides reimbursements to retirees for qualified healthcare expenses. Employees, including those assigned to the Electric Utility department, who have retired from the City with at least ten years of service and meet certain criterion based upon retirement date, household income in the most recent calendar year and age are entitled to reimbursements for qualified expenses.
Annual maximum reimbursement amounts differ depending on when an employee retired from Santa Clara service. In Fiscal Year 2007 -08, the City established an irrevocable exclusive agent multiple - employer defined benefit trust which is administered by PARS. The trust is used to accumulate and invest assets necessary to reimburse retirees.
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The OPEB Plan trust annual contributions are based on actuarial valuations. The contribution requirements are established and may be amended by the Santa Clara City Council.
Effective for Fiscal Year 2017 -18, the City follows the provisions of GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (“GASB 75”) affecting the reporting of OPEB liabilities for accounting purposes. GASB 75 establishes standards for employers with other postemployment liabilities for recognizing and measuring net OPEB liabilities, along with deferred inflows and outflows of resources, and expenses/expenditures related to the other postemployment liability. GASB 75 does not establish requirements for funding.
The table below sets forth certain information regarding the Electric Utility department’s allocated share of the City’s annual contributions to the OPEB Plan trust for the for the five Fiscal Years 2018-19 through 2022- 23, including the relation of such contributions to the actuarially determined contribution amount for such fiscal year. The amount budgeted for the Electric Utility department’s share of OPEB Plan contributions for Fiscal Year 2023- 24 was $812,125, and for Fiscal Year 2024- 25 is $837,864.
City of Santa Clara OPEB Plan
(dollar amounts in thousands)
Fiscal Year
Ended
June 30
Contribution Funded by
Electric Utility
Enterprise Fund
Actuarially Determined
Contribution Amount by
Electric Utility
Enterprise Fund
Electric Utility
Contribution Deficiency
(Excess) to Actuarially
Determined Contribution
2019 $748 $1,856 $1,108
2020 638 1,512 874
2021 570 1,559 989
2022 635 1,534 899
2023 758 950 192
Fiscal Year
Ended
June 30
Total City
Contribution
Total City
Actuarially Determined
Contribution Amount
Total City Contribution
Deficiency (Excess) to
Actuarially Determined
Contribution
2019 $5,366 $5,306 $ (60)
2020 4,696 4,681 (15)
2021 4,535 4,826 291
2022 5,068 4,748 (320)
2023(1) 4,915 4,896 (18)
(1) For the fiscal year ending June 30, 2023, the City’s cash contribution was $3,842,000 in payment to the trust, $18,934 in administrative expenses paid outside of the trust, and the estimated implied subsidy was $1,0 54,000, for total contributions of $4,914,934.
Source: City of Santa Clara.
Pursuant to GASB 75, for the Fiscal Year ended June 30, 2023, the City reported a net OPEB liability of $7,288,705 for the Electric Utility Enterprise Fund’s proportionate share (32.31%) of the City of Santa Clara’s net OPEB liability of $37,718,000 (reflecting a total OPEB liability of $67,386,000 and a fiduciary net position of $29,668,000 for the OPEB Plan). The OPEB Plan Net Position as a percentage of the City’s total OPEB liability was 44.0%. The net OPEB liability as a percentage of covered -employee payroll was 20.9%. The net OPEB liability was measured as of June 30, 2023 and the total OPEB liability used to calculate the net OPEB liability was determined by a June 30, 2022 actuarial valuation, rolled
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forward to June 30, 2023 using standard actuarial methods, based on actuarial methods and assumptions.
In the June 30, 2022 actuarial valuation, the actuarial assumptions used in determining the total OPEB liability include (a) a 4.50% discount rate at June 30, 2023; (b) a 4.75% investment rate of return at June 30, 2022; (c) aggregate projected salary increases of 2.75% annually; (d) an inflation component of
2.50% per year; and (e) a healthcare cost trend of 8.5% for 2023, scaling down to 3.45% in year 2076 for Non-Medicare participants, 7.5% for 2023, scaling down to 3.45% in year 2076 for Medicare (Non- Kaiser) participants, and 6.25% for 2023, scaling down to 3.45% in year 2076 for Medicare (Kaiser) participants.
Additional information regarding the City of Santa Clara’s retirement plans and other post - employment benefits can be found in the City of Santa Clara annual comprehensive financial report for the Fiscal Year ended June 30, 2023, which may be obtained at http://santaclaraca.gov.
Cash Reserves
The Electric Utility maintains cash reserves for a number of reasons, including operating cash requirements, construction cash requirements, dealing with the cost impacts of dry hydroelectric conditions, gas and electric market volatility, and allowing the City the flexibility to increase rates on a scheduled basis. The City initially established a rate stabilization reserve in January 1996, which rate stabilization reserve was continued as the Rate Stabilization Fund established pursuant to the Indenture.
Amounts in the Rate Stabilization Fund are available to pay costs of the Electric Utility subject to certain terms and conditions. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2024 A BONDS – Rate Stabilization Fund.”
The City has established certain budget and fiscal policies for the maintenance of reserves in the City utilities funds, including the Electric Utility Enterprise Fund, as set forth in the City’s biennial budget. The City’s current reserve policies provide for the maintenance of, among others, an operations and maintenance reserve, with a reserve target for the Electric Utility ranging from 90 to 180 days of operations, and a rate stabilization reserve, with a minimum reserve target for the Electric Utility of 10% of the Electric Utility’s projected current year rate payer revenue. The operations and maintenance reserve and rate stabilization reserve balances maintained by the Electric Utility pursuant to such budget and fiscal policies of the City together comprise the Rate Stabilization Fund, as determined in Resolution No. 22-9107 adopted by the City Council on June 21, 2022 and effective as of July 1, 2022. The current budget and fiscal policies of the City also provide for the maintenance of certain other reserves, including reserves for capital projects and such other reserves as may be established to address specific needs or requirements of the utility. The budget and fiscal policies may be changed at the City Council’s discretion.
See the table entitled “City of Santa Clara Electric Utility Department Summary of Financial Operating Results” under the caption “– Condensed Operating Results and Selected Cash and Investments Information” for information regarding the total cash and investments of the Electric Utility, including certain reserves maintained by Electric Utility, as of June 30 for each of the five fiscal year s ended June 30, 2020 through 2024.
Collectively, these reserves are designed to help insulate the City from market volatility. As described herein, pursuant to the Indenture, amounts may be transferred from the Rate Stabilization Fund and other Available Reserves for inclusion in Adjusted Net Revenues of the Electric Utility for purposes of determining compliance with the rate covenant in any fiscal year. See “– Rate Covenant Compliance Under Electric Revenue Bond Indenture.” During the past five fiscal years, the City made deposits into the Rate Stabilization Fund as set forth below.
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Fiscal Year
Transfer from
Rate Stabilization Fund to
Adjusted Net Revenues
Deposit to
Rate Stabilization Fund
2019-20 -- --
2020-21 -- $33,789,186
2021-22 -- 9,805,801
2022-23 -- 40,000,000
2023-24 (preliminary)(1) -- 53,457,831
(1) Based on preliminary, unaudited results.
Source: City of Santa Clara.
The City has determined that it is appropriate to use a portion of its unrestricted cash and reserves from time-to-time to stabilize or subsidize its electric rates in the near term and to increase rates when appropriate. Most recently, the City adopted an 8.0% electric rate increase effective in January 2023, an additional mid-year 5.0% electric rate increase effective in July 2023, and a 10.0% electric rate increase effective in January 2024. See “ – Condensed Operating Results and Selected Cash and Investments Information” and “– Rates and Charges.”
Insurance
The insurable property and facilities of the Electric Utility are covered under the City’s general insurance policies. The City maintains property damage coverage through the Alliant Property Insurance Program (“APIP”), which has a $1,000,000,000 per occurrence limit with a $25,000 deductible.
Terrorism coverage is included in insurance provided through APIP. In addition, such insurance includes boiler and machinery property coverage with limits of $100,000,000 with a $10,000 deductible.
Separately, the Electric Utility maintains its own property damage insurance policies in a specialized form through its Energy Solutions Department. The Electric Utility maintains a property insurance policy with Zurich as the lead carrier with limits of $250,000,000 and a $250,000 deductible (subject to certain specified special deductibles). Boiler and machinery (equipment breakdown) coverage is included in this coverage. The Electric Utility also maintains a terrorism policy with Lloyds of London with $250,000 limits for any occurrence, with a $250,000 deductible with some exceptions.
The City maintains a dedicated flood limit through APIP with limits of $27.5 million and $7.5 million for locations in specified flood zones. The Electric Utility is provided flood coverage separately through its placement with Zurich in the amount of $250 million and $20 million limits for high hazard locations. The City do es not carry earthquake insurance on the property and facilities of the Electric Utility except for a dedicated earthquake coverage of up to $20 million for the Grizzly power plant.
The City has a $3 million self -insured retention for general liability claims. The City has $25 million in liability coverage (inclusive of the City’s self -insured retention) with Public Risk Innovation, Solutions, and Management (“PRISM”), a pooling entity and an additional $25 million in various layers for a total of $50 million (inclusive of the City’s self -insured retention). These policies include various aggregates.
In addition, the City has a self-insured retention of $750,000 per claim for workers’ compensation claims with excess coverage up to the State of California statutory limit with employer’s liability coverage of $5 million per claim (inclusive of the City’s retention) through PRISM. All self- insurance programs are administered jointly by City personnel and third-party claims administrators.
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The Electric Utility purchases a separate premises only liability policy related to the Grizzly power plant with limits of $10,000,000 and a deductible of $50,000.
The City and the Electric Utility also maintain pollution and cyber coverage through PRISM. In addition, the City and the Electric Utility each maintain separate dedicated deadly weapon response policies.
Insurance limits maintained by the City and the Electric Utility are subject to change. The City and the Electric Utility may modify the current configuration of commercial insurance and self -insurance retention limits as they deem appropriate for market conditions and assessments by the City and the Electric Utility as to risk exposure.
Litigation Affecting the Electric Utility
At any given time, the City is party to or affected by various claims, disputes and litigation, including proceedings before FERC and other matters, that arise in the course of the Electric Utility’s activities and operations.
Present lawsuits and other claims against the City’s Electric Utility are incidental to the ordinary course of operations of the Electric Utility and are covered by the City’s liability coverage, including its self-insurance program (see “– Insurance”). In the opinion of the City’s management and, with respect to such litigation against the City, the Santa Clara City Attorney, such claims and litigation will not have a materially adverse effect upon the financial position of the Electric Utility.
In addition, from time -to-time, there are ongoing proceedings that involve projects in which the City has an interest and which comprise a portion of the current resource portfolio of the City’s Electric Utility. Although the City is generally not a party to such litigation, the outcome of such proceedings may impact the costs and operations of the affected project. The City is not aware of any such presently ongoing proceedings that, if determined adversely, would be expected to materially adversely affect the financial position or operations of the Electric Utility.
Condensed Operating Results and Selected Cash and Investments Information The following table sets forth net income and selected cash and investments information of the City’s Electric Utility for the five Fiscal Years ended June 30, 2024. The information for the Fiscal Years ended June 30, 2020 through June 30, 2023 was prepared by the City on the basis of its audited financial statements for such years. The information for the fiscal year ended June 30, 2024 is preliminary, based on unaudited financial information and remains subject to revision and amendment.
No independent accountant has audited the financial table below or other financial information or data included in this Official Statement, other than the audited financial statements as of and for the fiscal year ended June 30, 2023 (with comparative totals as of June 30, 2022) included in Appendix B to this Official Statement. A complete review of the audited financial statements and notes to such financial statements set forth in Appendix B is integral to an understanding of all such other financial information and data included herein.
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52 4893-9537-9288v9/200891-0003
CITY OF SANTA CLARA
ELECTRIC UTILITY DEPARTMENT
SUMMARY OF FINANCIAL OPERATING RESULTS(1)
($ in 000s)
Fiscal Year ended June 30,
2020 2021 2022 2023
Preliminary
2024
Summary of Income
Operating Revenues(2) $483,048 $509,663 $567,025(6) $687,164 $739,388 Operating Expenses:
Salaries, Wages and Benefits 40,376 46,483 41,165 48,401 60,478 Materials, Supplies and Services(3) 384,784 382,574 485,017(6) 579,719(7) 482,807 Amortization -- -- 673 1,052 1,159
Depreciation 20,562 21,360 23,548 25,935 27,196
Total Operating Expenses $445,722 $450,417 $550,403(6) $655,107(7) $571,640 Operating Income (Loss) $ 37,326 $ 59,246 $ 16,622 $ 32,057 $167,748 Other Income(4) 36,658 17,179 29,579 69,795 51,595
Interest Expense (6,859) (3,744) (3,118) (2,659) (2,207) Other Expenses -- -- -- (3,763) --
Equity Gain (Loss) in Joint Power Agencies(5) 3,662 1,678 14,639 8,533 (635) Net Income Before Operating Transfers $ 70,787 $ 74,359 $ 57,722 $103,963 $216,501 Selected Cash and Investments Information
Rate Stabilization Fund(8) $123,947 $157,736 $167,542 $207,542 $261,000 Cash Designated for Construction 132,340 125,363 126,115 167,117 212,222 Operating Cash 126,464 151,778 123,926 86,397(9) 127,239 Total Pooled Cash and Investments(10) $382,751 $434,877 $417,583 $461,056 $600,461 Cash Restricted for Pension Liability(11) 5,166 6,809 6,146 6,324 10,066 Total Cash and Investments $387,917 $441,686 $423,729 $467,380 $610,527 ____________________
(1) Columns may not add to totals due to rounding.
(2) See “– Rates and Charges” above. Beginning in Fiscal Year 2020 -21, Operating Revenues includes public benefit charge revenues, wholesale trading revenues and renewable energy credits as components of retail related revenue. Fiscal Year 2019-20 numbers shown above differ from those previously presented in order to conform with the presentation of Fiscal Year 2020-21.
(3) Includes purchased power payments and payments to joint power agencies. Beginning in Fiscal Year 2020- 21, also includes additional costs of wholesale resources purchases and public benefits charge programs (previously categorized as Other Expenses). Fiscal Year 2019-20 numbers shown above differ from those previously presented in order to conform with the presentation of Fiscal Year 2020-21. Also includes payment of a portion of gross revenues to Santa Clara’s General Fund as contribution in lieu of taxes which payment is subordinate to the payment of other operating expenses and debt service. Per the Santa Clara City Charter, up to 5% of gross revenues (not including revenues from wholesale transactions) from the electric utility is paid to Santa Clara’s General Fund each year. Transfers to the General Fund for the last five Fiscal Years were: $22.710 million in Fiscal Year 2019- 2020, $24.548 million in Fiscal Year 2020 -21, $27.259 million in Fiscal Year 2021-22, $29.584 million in Fiscal Year 2022- 23, and $33.144 million in Fiscal Year 2023- 24. See “– Transfers to the General Fund.”
(4) Beginning in Fiscal Year 2020 -21, Other Income includes interest income, rents, and other non-recurring miscellaneous income. Fiscal Year 2019 -20 numbers shown above differ from those previously presented in order to conform with the presentation of Fiscal Year 2020 -21. Unrealized gains are included in Fiscal Year 2019 -20 ($8.352 million). Unrealized losses are included in Fiscal Years 2020 -21 ($4.791 million), 2021-22 ($21.011 million) and 2022- 23 ($2.841 million).
Fiscal Year 2022-23 also includes one-time revenue of $21.0 million from lawsuit settlements. (5) In Fiscal Year 202 3-24,the Equity (Loss) in Joint Power Agencies was mainly due to equity share of loss from NCPA of $2.72 million, and gains from TANC of $1.51 million, and M-S-R PPA of $0.58 million. (Footnotes to table continue on next page)
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(Footnotes to table continued from prior page)
(6) In all years, except for Fiscal Year 2021-22, Futures Trading revenues are included in the Wholesale Sales. The Fiscal Year 2021-22 amount of $14.0 million gain in Futures trading was accounted for in Materials, Supplies, & Services expense category to offset the resources purchase costs in total Operating Expenses. If included in Wholesales Sales rather than an offset to expenses, total Operating Revenues would increase by $14.0 million and total Operating expenses would be $14.0 million higher, with no change to Net Income. See also “SILICON VALLEY POWER – Wholesale Resources.”
(7) Increase in Fiscal Year 2022 -23 primarily reflects significantly higher market prices for energy and natural gas. See also “CERTAIN FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY – General Economic Conditions.”
(8) As provided in Resolution No. 22- 9107 of the City, effective as of July 1, 2022, includes the operations and maintenance reserve and the rate stabilization reserve established by the City’s budget and fiscal policies as set forth in the City’s biennial budget.
(9) Decline in Operating Cash in Fiscal Year 2022 -23 reflects the transfer of a portion of prior year’s surplus to the rate stabilization reserve.
(10) Total Pooled Cash and Investments as presented in audited annual Electric Utility Enterprise Fund (Silicon Valley Power) Financial Statements.
(11) Cash Restricted for Pension Liability as presented in audited annual Electric Utility Enterprise Fund (Silicon Valley Power) Financial Statements under Other Noncurrent Assets; and held in a third party administered trust account.
Source: City of Santa Clara.
Rate Covenant Compliance Under Electric Revenue Bond Indenture The Indenture requires the City to produce Revenues in each year such that Adjusted Net Revenue will be sufficient to pay debt service on all Bonds and Parity Debt for such Fiscal Year. The Indenture permits amounts in the Rate Stabilization Fund of the Electric Utility to be used to satisfy the rate covenant. See “Cash Reserves” above.
The City has satisfied its rate covenant in each year as shown below. In addition to operating expenses and debt service, the Electric Utility has other obligations which it is required to satisfy. Such obligations include payments in lieu of taxes as well as capital expenditures not otherwise financed with bond proceeds, which obligations are, in accordance with the Santa Clara City Charter, payable subordinate to the payment of debt service on the Electric Revenue Bonds and Parity Debt. Capital expenditures not financed with bond proceeds are funded from a variety of sources, including reserves, developer contributions and electric system revenues. See “– Cash Reserves.” See also “AMENDMENTS TO THE MASTER INDENTURE” and “ APPENDIX H – AMENDMENTS BEING MADE TO THE MASTER INDENTURE” for a discussion of amendments being made to the Indenture pursuant to the Fourth Supplement that will affect the calculation of debt service coverage for purposes of the rate covenant in future years after the Amendments Effective Date.
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CITY OF SANTA CLARA
RATE COVENANT COMPLIANCE UNDER
ELECTRIC REVENUE BOND INDENTURE(1)
($ in 000s)
Fiscal Year Ending June 30,
2020 2021 2022 2023
Preliminary
2024
Debt Service Coverage:
Adjusted Revenues(2) $445,142 $465,675 $550,445(6) $635,066 $637,785 Adjusted Operating Expenses(3) 368,162 407,627 493,302(6) 602,370 (7) 508,443 Adjusted Net Revenue Available for
Debt Service $ 76,980 $ 58,048 $ 57,143 $32,696 $129,342
Debt Service on Senior Electric
Revenue Bonds(4) $ 14,178 $ 11,064 $ 11,102 $11,188 $ 6,661 Debt Service on Subordinate
Electric Revenue Bonds 4,625 2,727 5,143 5,103 10,739
Total Debt Service(5) $ 18,803 $ 13,791 $ 16,245 $16,291 $17,400
Adjusted Revenues in Excess
of Debt Service Requirements $ 58,177 $ 44,257 $ 40,898 $16,405 $111,942
Debt Service Coverage Ratio –
Senior Electric Revenue Bonds 5.43 5.25 5.15 2.92(7) 19.42 Debt Service Coverage Ratio –
Senior and Subordinate Bonds 4.09 4.21 3.52 2.01(7) 7.43
(1) Numbers may not add due to rounding.
(2) Adjusted Revenue includes operating revenues and non- operating revenues, other income (excluding unrealized gains or losses and developer contributions), net wholesale transactions and renewable energy credits, any gain on retirement of fixed assets, and equity in joint powers agency projects accounted for on the equity method of accounting. In addition, transfers to capital improvement project funds have been excluded in Adjusted Revenues ($19.375 million in Fiscal Year 2019- 20, $21.002 million in Fiscal Year 2020 -21, $17.536 million in Fiscal Year 2021-22, $50.040 million in Fiscal Year 2022- 23 and $72.373 million in Fiscal Year 2023- 24). A djusted net revenue also reflects Rate Stabilization Fund transfers related to operating revenues. In each of Fiscal Years 2021-22 through 2023-24 deposits were made into the Rate Stabilization Fund (reducing Adjusted Net Revenues) (transfers to the Rate Stabilization Fund were $33.8 million in Fiscal Year 2020 -21, $9.8 million in Fiscal Year 2021-22, $40.0 million in Fiscal Year 2022 -23, and $53.5 million in Fiscal Year 2023 -24 (based preliminary 2023-24 results), respectively. See “– Rates and Charges” and “– Cash Reserves.” (3) Adjusted Operating Expenses include operating expenses (including joint powers agency obligation payments) and other expenses, less depreciation and amortization expense and contribution -in-lieu to the General Fund.
Adjusted Operating Expenses do not include any loss on retirement of fixed assets or any loss on joint powers agency projects accounted for on an equity method of accounting basis. (4) Includes net swap payments and letter of credit fees relating to variable rate electric revenue bonds . All outstanding variable rate electric revenue bonds were redeemed in December 2018 and the related interest rate swap agreements were terminated.
(5) Excludes joint powers agency obligations, the costs of which are a component of adjusted operating expenses. See footnote (3).
(6) In all years, except for Fiscal Year 2021 -22, Futures Trading revenues are included in the Wholesale Sales. The Fiscal Year 2021 -22 amount of $14.0 million gain in Futures trading was accounted for in Materials, Supplies, & Services expense category to offset the resources purchase costs in total Operating Expenses. If included in Wholesales Sales rather than an offset to expenses, Adjusted Revenues would increase by $14.0 million and Adjusted Operating E xpenses would be $14.0 million higher, with no change to Adjusted Net Revenue. See also “SILICON VALLEY POWER – Wholesale Resources.”
(7) Increase in Adjusted Operating Expenses and decline in debt service coverage in Fiscal Year 2022-23 primarily reflects significantly higher market prices for energy and natural gas. See also “CERTAIN FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY – General Economic Conditions.” Source: City of Santa Clara.
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RATE REGULATION
The City sets rates, fees and charges for electric service provided by the Electric Utility. The authority of the City to impose and collect rates and charges for electric power and energy sold and delivered by the Electric Utility is not subject to the general regulatory jurisdiction of the CPUC, and currently neither the CPUC nor any other regulatory authority of the State of California nor FERC approves such rates and charges. It is possible that future legislative and/or regulatory changes could subject the rates and/or service area of the Electric Utility to the jurisdiction of the CPUC or to other limitations or requirements. See “CONSTITUTIONAL LIMITATIONS IN CALIFORNIA AFFECTING FEES AND CHARGES” for a discussion of certain voter -approved constitutional measures affecting the imposition of fees and charges by governmental agencies in the State.
FERC could potentially assert jurisdiction over rates of licensees of hydroelectric projects and customers of such licensees under Part I of the Federal Power Act, although it has not as a practical matter exercised or sought to exercise such jurisdiction to modify rates that would legitimately be charged. If it did assert such jurisdiction, the result might have some significance for the City with respect to its own hydroelectric projects and as a participant in NCPA’s Hydroelectric Project.
Under provisions of the Federal Power Act, FERC has the authority, under certain circumstances and pursuant to certain procedures, to order any utility (municipal or otherwise) to provide transmission access to others at FERC -approved rates. See “CERTAIN FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY.” In addition, the federal Energy Policy Act of 2005 ( “EPAct 2005”) expanded FERC’s jurisdiction to require municipal utilities that sell more than eight million megawatt hours of energy per year to pay refunds under certain circumstances for sales into organized markets. The City is unable to predict when, if ever, it would meet this threshold requirement.
The CEC is authorized to evaluate rate policies for electric energy as related to the goals of the Energy Resources Conservation and Development Act and to make recommendations to the Governor, the Legislature and publicly owned electric utilities.
CERTAIN FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY The following discussion of legislative, regulatory and other factors affecting the electric utility industry should be considered when evaluating the Electric Utility and considering an investment in the Series 2024 A Bonds. This discussion does not purport to be comprehensive or definitive, and these matters are subject to change subsequent to the date hereof. The electric industry has historically been subject to continuing legislative and administrative reform. The City cannot predict at this time whether any additional legislation or rules will be enacted which will affect the Electric Utility ’s finances or operations, but the impacts could be significant. Extensive information on the electric utility industry is available from the legislative and regulatory bodies and other sources in the public domain, and potential purchasers of the Series 2024 A Bonds should obtain and review such information. Such information is not incorporated herein by reference.
Federal Energy and Environmental Policies and Legislation Energy Policy Act of 2005. Although the City is exempt from most federal rate regulation pursuant to Section 201(f) of the Federal Power Act (see “RATE REGULATION”), EPAct 2005 imposed specific exceptions. In particular, FERC was given authority over the behavior of market participants.
Under FERC’s authority it can impose penalties on any seller for using a manipulative or deceptive device, including market manipulation, in connection with the purchase or sale of energy or of
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transmission service. The Commodity Futures Trading Commission (“CFTC”) also has jurisdiction to enforce certain types of market manipulation or deception claims under the Commodity Exchange Act.
EPAct 2005 authorized FERC to issue permits to construct or modify transmission facilities located in a national interest electric transmission corridor if FERC determines that the statutory conditions are met. EPAct 2005 also required the creation of an electric reliability organization (“ERO”) to establish and enforce, under FERC supervision, mandatory Reliability Standards to increase system reliability and minimize blackouts. The Reliability Standards apply to users, owners and operators of the Bulk-Power System, as more specifically set forth in each Reliability Standard. In February 2006, FERC issued Order 672, which certified NERC as the ERO. Many Reliability Standards have since been approved by FERC. Such Reliability Standards pertain not only to the planning, operations, and maintenance of Bulk- Power System facilities, but also to cyber and physical security of systems that could affect the reliable operation of the electric grid. The Reliability Standards are frequently being amended to address emerging reliability issues.
The ERO or the entities to which NERC has delegated enforcement authority through an agreement approved by FERC (“Regional Entities”), such as the WECC, may enforce the Reliability Standards, subject to FERC oversight, or FERC may independently enforce them. Potential monetary sanctions include fines in excess of $1 million per violation per day. FERC Order 693 further provided the ERO and Regional Entities with the discretion necessary to assess penalties for such violations, while also having discretion to calculate a penalty without collecting the penalty if circumstances warrant.
Federal Regulation of Transmission Access. EPAct 2005 authorizes FERC to compel “open access” to the transmission systems of certain utilities that are not generally regulated by FERC, including municipal utilities if the utility sells more than four million MWhs of electricity per year. Under open access, a transmission provider must allow all customers to use the system under standardized rates, terms and conditions of service.
FERC Order No. 888 requires the provision of open access transmission services on a nondiscriminatory basis by all “jurisdictional utilities” (which, by definition, does not include municipal entities like the City) by requiring all such utilities to file Open Access Transmission Tariffs (“OATTs”).
Order No. 888 also requires “non-jurisdictional utilities” (which, by definition, does include the City) that purchase transmission services from a jurisdictional utility under an open access tariff and that owns or controls transmission facilities to provide open access service to the jurisdictional utility under terms that are comparable to the service that the non-jurisdictional utility provides itself. Section 211A of the EPAct 2005 authorizes, but does not require, FERC to order unregulated transmission utilities to provide transmission services. Specifically, FERC may require an unregulated transmitting utility to provide access to their transmission facilities (1) at rates that are comparable to those that the unregulated transmitting utility charges to itself; and (2) on terms and conditions (not relating to rates) that are comparable to those under which the unregulated transmitting utility provides transmission services to itself that are not unduly discriminatory or preferential.
On February 16, 2007, FERC issued Order 890, which concluded that reform of its pro forma OATT was necessary to reduce the potential for undue discrimination and provide clarity in the obligations of transmission providers and customers. Significantly, in Order 890 FERC stated that it will implement its authority under Section 211A with respect to unregulated transmitting utilities on a case - by-case basis and retain the current reciprocity provisions.
On July 21, 2011, FERC issued Order 1000, which among other things requires public utility (jurisdictional) transmission providers to participate in a regional transmission planning process that produces a regional transmission plan and that incorporates a regional and inter -regional cost allocation
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methodology. Further, FERC states that it has the authority to allocate costs to beneficiaries of transmission services, even in the absence of a contractual relationship between the owner of the transmission facilities and the beneficiary. Under EPAct 2005, FERC may not require municipal utilities to join regional transmission organizations, in which participating utilities allow an independent entity to oversee operation of the utilities’ transmission facilities. FERC has stated, however, that FERC expects such utilities to participate in the regional processes for transmission planning and that FERC will pursue associated complaints against such utilities on a case-by-case basis.
On May 13, 2024, FERC issued Order 1920 to reform the planning of the nation’s transmission system as well as the allocation of costs for new transmission projects. Order 1920, among other things, requires public utility (jurisdictional) transmission providers to conduct and periodically update long-term regional transmission planning to anticipate future needs, consider a broad set of benefits when planning new facilities, identify opportunities to modify in -kind replacement of existing transmission facilities to increase their transfer capability, propose methods of cost allocation to pay for selected long- term regional transmission facilities, and increase transparency regarding local transmission planning information. Order 1920 expands the role of states throughout the process of planning, selecting and determining how to pay for new transmission facilities. Order 1920 reflects input FERC sought from interested parties on a variety of reforms aimed at expanding the nation’s transmission grid to accommodate the surge of renewable generation expected in the next two decades to achieve aggressive decarbonization goals of the Biden Administration and many states. The City is evaluating the implications of Order 1920 with respect to the operations of the Electric Utility.
Federal Policy on Cybersecurity. In February 2013, then- President Obama issued Executive Order 13636 “Improving Critical Infrastructure Cybersecurity” (the “Cybersecurity Order”). Among other things, the Cybersecurity Order called for improved information sharing and processing of security clearances for owners and operators of critical infrastructure. The Cybersecurity Order further required the Secretary of Commerce to direct the National Institute of Standards and Technology (“NIST”) to lead the development of a framework (“Framework”) to reduce cyber risks to critical infrastructure. The voluntary Framework will continue to be updated and improved as industry provides feedback on implementation.
The Cybersecurity Information Sharing Act of 2015 was signed into law in December 2015. It creates an industry-supported, voluntary cybersecurity information sharing program which facilitates the secure sharing of cyber-related threat information among both public and private sector entities. The City participates in sharing and receiving information about cybersecurity threats in real time through several hubs, including the Electricity Information Sharing and Analysis Center (E -ISAC) and the National Cybersecurity and Communication Integration Center, as tools to actively manage risk related to potential cyber intrusion.
Regulatory Actions Under the Clean Air Act. The United States Environmental Protection Agency (the “EPA”) regulates GHG emissions under existing law by imposing monitoring and reporting requirements, and through its permitting programs. Like other air pollutants, GHGs are regulated under the Clean Air Act through the Prevention of Significant Deterioration (“PSD”) Permit Program and the Title V Permit Program. A PSD permit is required before commencement of construction of new major stationary sources or major modifications of a major stationary source and requires best available control technologies (“BACT”) to control emissions at a facility. Title V permits are operating permits for major sources that consolidate all Clean Air Act requirements (arising, for example, under the Acid Rain, New Source Performance Standards, National Emission Standards for Hazardous Air Pollutants, and/or PSD programs) into a single document and the permit process provides for review of the documents by the EPA, state agencies and the public. GHGs from major natural gas- fired facilities are regulated under both permitting programs through performance standards imposing efficiency and emissions standards.
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In April 2024, the EPA released new carbon pollution standards for coal and natural gas -fired power plants. The rule establishes carbon dioxide (“CO2”) emissions standards and guidelines for newly built and reconstructed stationary combustion turbines (generally natural gas -fired) and existing and modified fossil fuel-fired steam generating units (generally coal-fired). The EPA previously announced in February 2024 that it would defer promulgating emissions guidelines for existing natural gas -fired power plants (as contemplated in its proposed rule) and stated that it will commence a new rulemaking process that will apply to existing natural gas -fired plants and regulate additional pollutants. In March 2024, the EPA opened a non- regulatory docket which includes key framing questions intended to help the EPA develop standards for reducing GHG emissions and possibly criteria pollutant emissions from existing gas combustion turbines in the power sector. The EPA’s final rule for existing coal-fired and new natural gas- fired power plants is designed to ensure that all coal -fired power plant that plan to run in the long- term and all new baseload gas -fired power plants control 90% of their carbon pollution. The final rule identifies a standard of performance reflecting the application of best systems for emissions reduction (BSER), taking into account costs, energy requirements and other statutory factors. Under the final rule, emissions standards and guidelines are established for different subcategories of power plants according to unit characteristics such as their generating technology, capacity, level of operations, and anticipated remaining operational life of the unit. The rule would generally require more CO2 emissions control at fossil fuel -fired power plants that operate more frequently and for more years and would phase in increasingly stringent CO2 requirements over time. The standards are based on emission control methods that can be installed at the plants, including technologies such as carbon capture and sequestration/storage, and natural gas co-firing; however, the determination of whether to implement such technologies or to comply with the proposed emissions limits by other means would be made by power plant operators and state regulators. Under the rule, states would be required to submit compliance plans to the EPA within 24 months of the effective date of the adoption of the final rule.
The City does not have any remaining interest in any existing coal -fired power plants. The City’s Gianera Generating Station and Donald Von Raesfeld Power Plant and the NCPA Combustion Turbine Project and Lodi Energy Center Project will be subject to a separate rule being developed for existing gas- fired units when promulgated.
Inflation Reduction Act. On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (the “IRA”). The IRA introduces a large amount of funding and grants for governmental and non-profit organizations. Among the most significant energy-related grants are grants for “zero-emissions technologies” and other GHG reduction activities as determined the EPA. Pursuant to the IRA, public power utilities and other tax -exempt entities are also given access to refundable direct payment tax credits. Among the energy- related tax credits that may be available if certain requirements are met are a clean hydrogen production tax credit, a biogas and energy storage credit, and enhancements to the credit for carbon capture. The IRA also expands and extends the renewable electricity production tax credit and the investment tax credits for renewable energy sources.
State Legislation and Regulatory Proceedings
A number of bills affecting the electric utility industry have been introduced or enacted by the California Legislature in recent years. In general, these bills reflect California climate policy developments by regulating GHG emissions and providing for greater investment in energy efficiency and environmentally friendly generation and storage alternatives, principally through more stringent RPS requirements and more aggressive emissions reduction programs to combat the effects of climate change.
Legislation enacted in recent years has also focused on addressing issues relating to wildfire risks and occurrences in California, including imposing certain requirements on electric utilities in connection with planning for and mitigating such occurrences and risks. Set forth below is a brief summary of certain of these bills and regulatory proceedings.
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California Climate Program. In September 2006, then-Governor Arnold Schwarzenegger signed into law Assembly Bill 32, the California Global Warming Solutions Act of 2006 (“AB 32” or the “Global Warming Solutions Act”). This law, which became effective on January 1, 2007, required the California Air Resources Board (“CARB”) to adopt enforceable GHG emission limits and emission reduction measures in order to reduce GHG emissions from within the State to 1990 levels by 2020. In September 2016, then-Governor Jerry Brown signed into law Senate Bill 32, an amendment to the Global Warming Solutions Act, that requires CARB to take such actions to ensure that statewide GHG emissions from within the State are reduced to at least 40% below 1990 levels by 2030.
Senate Bill 350 (“SB 350”), the Clean Energy and Pollution Reduction Act of 2015, signed into law by then-Governor Brown in October 2015, among other things, requires CARB, in consultation with the CPUC and the CEC, to establish 2030 GHG emission targets for each electric utility in the State. At present, these targets are non -binding, and primarily intended to help the State measure progress toward the 2030 statewide goal outlined in SB 32. The targets, however, are an input to the development of the Integrated Resource Plans that are required of the State’s 16 largest local publicly-owned electric utilities (“POUs”), which includes the City. See “– California Renewables Portfolio Standard” below.
The Global Warming Solutions Act established an annual mandatory reporting requirement for all investor-owned utilities (“ IOUs”), POUs and other load- serving entities (electric utilities providing energy to end-use customers) to inventory and report GHG emissions to CARB, required CARB to adopt regulations for significant GHG emission sources, and gave CARB the authority to enforce such regulations beginning in 2012. The City is complying with the applicable reporting requirements under the Global Warming Solutions Act.
In September 2022, Governor Newsom signed into law Assembly Bill 1279 (“AB 1279”), which became effective on January 1, 2023, and establishes additional GHG emission reduction goals. AB 1279 declares the policy of the State both to achieve net -zero GHG emissions as soon as possible, but no later than 2045, and achieve and maintain net negative GHG emissions thereafter, and to ensure that by 2045, Statewide anthropogenic GHG emissions are reduced to at least 85% below the 1990 levels. Under AB 1279, “net zero GHG emissions” means emissions of GHGs to the atmosphere are balanced by removals of GHG emissions over a period of time. The bill directs CARB to ensure that its scoping plan identifies and recommends measures to achieve these policy goals. The State Legislative Analyst’s Office is required to conduct an independent assessment of progress towards the bill’s objectives every two years and to make its findings available to the public.
Cap-and-Trade Regulations. CARB has implemented the Global Warming Solutions Act through a series of regulations (collectively referred to as the “Cap-and-Trade Regulations”) that imposed a declining economy-wide limit or cap on GHG emissions from major sources within the State, including the electricity generation industry, and allocates the aggregate emission limit through the distribution of allowances, or emission credits. The Cap -and-Trade Regulations require all regulated entities , including the City, to report annual GHG emissions and to obtain and submit to CARB compliance instruments (allowances and/or offsets) that represent GHG emissions related to its industrial processes within the State; for electric utilities this includes generation and GHG emissions associated with imported electricity from out- of-state resources. The City, like other electric utilities, receives an administrative allocation of allowances for compliance. Entities that emit GHGs at levels above those for which they receive administrative allocations, if any, must purchase the additional allowances they require at quarterly CARB auctions or from other covered entities with surplus allowances.
In July 2017, then- Governor Brown signed into law Assembly Bill 398 (“AB 398”), which extends the Cap -and-Trade Regulations from 2021 to 2030. The bill passed both chambers with a 2/3 supermajority vote, which protects the legislation from certain legal challenges. Under AB 398, CARB
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was directed to address the following: establish a price ceiling, offer non- tradeable allowances at two price containment points below the price ceiling, transfer current vintages unsold for more than 24 months to the allowance price containment reserve, evaluate and address allowance over -allocation concerns, set industry assistance factors for allowance allocation, and establish allowance banking rules. Under AB 398, CARB was directed to include cost containment provisions to keep allowance prices from rising too high and pushing business expansion outside of the state (referred to as “leakage”). AB 398 was passed in conjunction with AB 617, which strengthens the monitoring of criteria air pollutants and toxic air contaminants in local communities. Amendments to the Cap -and-Trade Regulations to reflect the requirements of AB 398 were adopted by CARB and went into effect on April 1, 2019. CARB is in the process of developing the 2024 amendments to the Cap-and-Trade Regulations. The administrative record commencement date for such amendments occurred on February 13, 2023.
The City is unable to predict at this time the full impact of the Cap -and-Trade Regulations over the long-term on the City’s Electric Utility or on the electric utility industry generally or whether any additional changes to the adopted program will be made. Since the advent of the cap-and-trade program in 2012, regulations by CARB have provided the electric sector, including the City on behalf of its ratepayers, with sufficient allocated GHG allowances or credits to cover existing operations in meeting retail load obligations. The City may bank allocated allowances in its compliance account to satisfy a portion of its ongoing compliance obligations. Currently, the City monetizes the allocated allowances from CARB by consigning the allocated allowances to the quarterly allowance. The City also buys or sells allowances in the quarterly auctions or on the bi -lateral market to meet its additional compliance obligations. The City could be adversely affected in the future if the GHG emissions of its resource portfolio are in excess of the allowances administratively allocated to it and it is required to purchase compliance instruments on the market to cover its emissions.
GHG Emissions Performance Standard and Financial Commitment Limits. Senate Bill 1368 (“SB 1368”) became effective as law on January 1, 2007. SB 1368 provided for an emission performance standard (“EPS”) restricting new investments in baseload electric generating resources that exceed a specified rate of GHG emissions. SB 1368 allows the CEC to establish a regulatory framework to enforce the EPS for POUs. Pursuant to SB 1368, the CEC adopted a GHG EPS for electric generating facilities of 1,100 pounds of carbon dioxide (CO2) per MWh for “covered procurements” by POUs. SB 1368 also prohibits POUs from making any “long- term financial commitment” in connection with “baseload generation” that does not satisfy the EPS. Generally, a “long- term financial commitment” is any new or renewed power purchase agreement with a term of five years or more, the purchase of an interest in a new power plant, or any investment (other than routine maintenance) in an existing power plant that extends the life of the plant by more than five years or results in an increase in its rated capacity. “Baseload generation” means a power plant that is intended to operate at an annualized capacity factor of 60% or more.
As modified, the EPS regulations require a POU to post a notice of a public meeting at which its governing board will consider any expenditure over $2.5 million to meet environmental regulatory requirements at a non-EPS compliant baseload facility. In addition, each POU is required to file an annual notice identifying all investments over $2.5 million that it anticipates making during the subsequent 12 months on non-EPS compliant baseload facilities to comply with environmental regulatory requirements.
This requirement is waived for any POU that has entered into a binding agreement to divest within five years of all baseload facilities exceeding the EPS. CEC staff has confirmed that the $2.5 million threshold applies to an individual investment by each utility, and not the combined investment of all participants in a project.
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Any future procurement or investment by the City in a baseload generating resource of greater than 10 MW or with a term of five years or more (or extend ing the life of an existing plant by more than five years) will be subject to the requirements of SB 1368.
Energy Procurement and Efficiency Reporting. Senate Bill 1037 (“SB 1037”) was signed into law by then-Governor Schwarzenegger in September 2005. It requires that each POU, including the City, prior to procuring new energy generation resources, first acquire all available energy efficiency, demand reduction, and renewable resources that are cost effective, reliable and feasible. SB 1037 also requires each POU to report annually to its customers and to the CEC its investment in energy efficiency and demand reduction programs. The City is complying with these ongoing reporting requirements.
Further, Assembly Bill 2021 (“AB 2021”), signed into law by then- Governor Schwarzenegger in September 2006, requires that POUs establish, report, and explain the basis of the annual energy efficiency and demand reduction targets by June 1, 2007 and every three years thereafter for a ten -year horizon. A subsequent amendment, Assembly Bill 2227, extended the reporting timeframe from three to four years. The City is complying with these ongoing reporting requirements. The information obtained from the POUs is being used by the CEC to present progress made by the State to double energy efficiency savings in electricity and natural gas final end uses by 2030, to the extent doing so is cost effective, feasible, and does not adversely impact public health and safety, as prescribed in SB 350. On June 6, 2023, the City Council approved the Electric Utility’s five-year public benefits program plan for Fiscal Years 2023-24 through 2027-28 in furtherance of its energy efficiency targets.
California Renewables Portfolio Standard. California’s legislature and executive branch have been active in promoting increasingly stringent renewable energy procurement requirements since 2002.
Early efforts established a renewables portfolio standard (“RPS”) of 20% of renewable electricity generation by 2017. Since then, both legislative and executive branch initiatives have raised that standard in multiple phases.
Senate Bill X1-2 (“SBX1-2”), the California Renewable Energy Resources Act, was signed into law by then- Governor Brown in April 2011. SBX1 -2 required each POU to adopt and implement a renewable energy resource procurement plan and established targets for specified compliance periods for the procurement of at least the following amounts of electricity products from eligible renewable energy resources (which could include renewable energy certificates (“RECs”)) as a proportion of total kilowatt hours sold to the utility’s retail end- use customers: (i) over the 2011-2013 compliance period, an average of 20% of retail sales from January 1, 2011 to December 31, 2013, inclusive; (ii) over the 2014- 2016 compliance period, a total equal to 20% of 2014 retail sales, 20% of 2015 retail sales, and 25% of 2016 retail sales; (iii) over the 2017-2020 compliance period, a total equal to 27% of 2017 retail sales, 29% of 2018 retail sales, 31% of 2019 retail sales, and 33% of 2020 retail sales; and (iv) for 2021 and each subsequent year, 33% of retail sales for the applicable year. The governing boards of POUs are responsible for implementing the requirements of SBX1- 2, rather than the CPUC, as is the case for the IOUs. In addition, the CEC was given certain enforcement authority for POUs and CARB was given the authority to set penalties. The CEC developed detailed rules to implement SBX1- 2, and has adopted regulations for the enforcement of the RPS program requirements for POUs, which regulations have been subsequently amended from time to time.
SB 350, the Clean Energy and Pollution Reduction Act of 2015, as enacted, establishes an RPS target of 50% by December 31, 2030 for the amount of electricity generated and sold to retail customers from eligible renewable energy resources for retail sellers and POUs, including interim targets of (i) 40% of retail sales from eligible renewable energy resources by December 31, 2024; (ii) 45% of retail sales from eligible renewable energy resources by December 31, 2027; and (iii) 50% of retail sales from eligible renewable energy resources by December 31, 2030.
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SB 350 requires each retail seller of electricity (including IOUs, most POUs above a certain size threshold, community choice aggregators and energy service providers) to p repare a renewable energy procurement plan on an annual basis, and all POUs with demand greater than 700 gigawatt hours to develop an integrated resource plan (“IRP”) at least once every five years, commencing no later than January 1, 2019. The City is complying with these requirements. As required in the statute, all IRPs are to be submitted to the CEC, including information outlined in the CEC’s POU IRP Guidelines. The City completed its initial IRP , the 2019 IRP, within the required timeline. In accordance with SB 350, the City’s first update the 2019 IRP was approved by the City Council in December 2023 and filed with the CEC by April 30, 2024.
Senate Bill 100 (“SB 100”), the 100 Percent Clean Energy Act of 2018, was signed into law by then-Governor Brown in September 2018. SB 100 accelerates the State’s RPS target as established by SB 350 from 50% by 2030 to 60% by 2030 and sets a goal of 100% “clean energy” by the year 2045. SB 100 requires retail electric sellers and POUs to procure a minimum quantity of electricity products from eligible renewable energy resources so that the total kWhs of those products sold to retail end -use customers achieve (i) 44% of retail sales by December 31, 2024; (ii) 52% of retail sales by December 31, 2027; and (iii) 60% of retail sales by December 31, 2030. SB 100 additionally establishes that it is the policy of the State that eligible renewable energy resources and zero -carbon resources supply 100% of retail sales of electricity to California end -use customers by December 31, 2045. Along with SB 100, Governor Brown signed an executive order that directs the State to achieve carbon neutrality by 2045 and net negative GHG emissions thereafter. The goal of carbon neutrality by 2045 is in addition to existing Statewide targets of reducing GHG emissions. By expanding the State’s carbon reduction goal the State will also look to reduce carbon through sequestration in forests, soils and other natural landscapes.
In December 2020, the CEC adopted regulations to update its RPS enforcement procedures for POUs, including to update regulations amended by both SB 350 and SB 100, among other enacted bills.
This includes implementing a provision relating to the long- term procurement of renewable resources which requires, beginning January 1, 2021, that at least 65% of renewable procurement must be for a duration of 10 years or more. The regulations implement the new RPS procurement requirements for the compliance periods between 2021 and 2030, establish soft procurement targets for the intervening years of the compliance periods to demonstrate reasonable progress in meeting the RPS procurement target for the compliance periods, and establish three- year compliance periods beginning after 2030. The regulations also define requirements for 10- year procurement contracts for purposes of satisfying the long-term procurement requirement.
Senate Bill 1020 (“SB 1020”), the Clean Energy, Jobs, and Affordability Act of 2022, was signed into law by Governor Newsom in September 2022 and became effective on January 1, 2023. SB 1020 revises SB 100’s State policy on eligible renewable energy resources and zero -carbon resources supply, and establishes that it is the policy of the State that eligible renewable energy resources and zero -carbon resources supply (i) 90% of all retail sales of electricity to California end-use customers by December 31, 2035, (ii) 95% of all retail sales of electricity to California end -use customers by December 31, 2040, (iii) 100% of all retail sales of electricity to California end -use customers by December 31, 2045, and (iv) 100% of electricity procured to serve all state agencies by December 31, 2035.
Legislation Relating to Wildfires; Related Risks. Senate Bill 1028 (“SB 1028”) was signed into law by then- Governor Brown in September 2016. SB 1028 requires that each POU and each electric cooperative in the State construct, maintain, and operate its electrical lines and equipment in a manner that will minimize the risk of catastrophic wildfire posed by those electrical lines and equipment. SB 1028 required the governing board of each POU to determine, based on historical fire data and local conditions, and in consultation with the fire departments or other entities responsible for the control of wildfires within the geographical area where the utility’s overhead electrical lines and equipment are located,
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whether any portion of that geographical area has a significant risk of wildfire resulting from those electrical lines and equipment, and if so, to present for its governing board approval wildfire mitigation measures the utility intends to undertake to minimize the risk of its overhead electrical lines and equipment causing a catastrophic wildfire.
SB 901 was signed into law by then-Governor Brown in September 2018. SB 901 amends certain provisions of SB 1028 requiring POUs and electric cooperatives to prepare wildfire mitigation measures if the utilities’ overhead electrical lines and equipment are located in an area that has a significant risk of wildfire resulting from those electrical lines and equipment. Under SB 901, each POU or electric cooperative is required to prepare before January 1, 2020 and annually thereafter, a wildfire mitigation plan. SB 901 requires specified information and elements to be considered as necessary, at minimum, in the wildfire mitigation plan. The POU or electric cooperative is required to present each wildfire mitigation plan in an appropriately noticed public meeting, and to accept comments on its wildfire mitigation plan from the public, other local and state agencies, and interested parties. In addition, SB 901 requires the POU or electric cooperative to contract with a qualified independent evaluator with experience in assessing the safe operation of electrical infrastructure to review and assess the comprehensiveness of its wildfire mitigation plan. The report of the independent evaluator is to be made available to the public and to be presented at a public meeting of the POU’s governing board. In accordance with the requirements of SB 901, the City’s initial wildfire mitigation plan was adopted by the City Council on June 25, 2019. The review and assessment of the City’s wildfire mitigation plan by an independent evaluator was subsequently completed. In accordance with the requirements of SB 901 and subsequent legislation (AB 1054 discussed below) , the City’s wildfire mitigation plan is updated annually, with comprehensive revisions and independent evaluator reviews occurring every three years.
The City’s wildfire mitigation plan was most recently updated in June 202 4 (following the last three-year comprehensive review and assessment by an independent evaluator that occurred in 2022 and a subsequent annual update in 2023 ). See also “SILICON VALLEY POWER – Wildfire Mitigation Measures.”
Assembly Bill 1054 (“AB 1054”) was signed into law by Governor Newsom in July 2019. AB 1054 establishes a Wildfire Fund for IOUs to facilitate payment of eligible, uninsured third- party damage claims resulting from future catastrophic wildfires. Participation in the Wildfire Fund is exclusive to IOUs. Each of the major IOUs in California are now participating in the in the Wildfire Fund. POUs, such as the City, are not eligible to participate in or receive funding for wildfire claims from the Wildfire Fund.
AB 1054 expands on the existing requirements for POUs established under SB 901 for wildfire mitigation plans. AB 1054 requires each POU, by July 1 of each year, to submit its wildfire mitigation plan to a newly created California Wildfire Safety Advisory Board (the “Wildfire Advisory Board”) for review and comment. Under AB 1054, the Wildfire Advisory Board is required to provide comments and an advisory opinion to each POU regarding the content and sufficiency of its plan and to make recommendations on the mitigation of wildfire risks. AB 1054 requires each POU to comprehensively revise its wildfire mitigation plan at least once every three years. The City has prepared and submitted wildfire mitigation plans in accordance with the provisions of SB 901 and AB 1054 as required.
A number of significant wildfires occurred in California during the last several years. Under the doctrine of inverse condemnation (a legal concept that entitles property owners to just compensation if their property is damaged by a public use), California courts have imposed liability on utilities in legal actions brought by property holders for damages caused by the utility’s infrastructure. Thus, if the facilities of a utility, such as its electric distribution and transmission lines, are determined to b e the substantial cause of a fire, and the doctrine of inverse condemnation applies, the utility could be liable for damages without having been found negligent. In August 2019, in its decision in the case of City of Oroville v. Superior Court of Butte County , 7 Cal.5th 1091, 446 P.3d 304 (2019), involving damages
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related to sewage overflows from a city sewer system, the California Supreme Court held that to succeed on an inverse condemnation claim, a property owner must demonstrate that the property damage was the probable result or necessary effect of an inherent risk associated with the design, construction or maintenance of the relevant public improvement. SB 1028, SB 901 and AB 1054 do not address the existing legal doctrine relating to utilities’ liability for wildfires. How any future legislation addresses California’s inverse condemnation and “strict liability” issues for utilities in the context of wildfires in particular could be significant for the electric utility industry.
Impact of California Energy Market Developments on the City. The effect of the developments in the California energy markets described above on the City cannot be fully ascertained at this time.
Also, volatility in energy prices in California may return due to a variety of factors that affect both the supply and demand for electric energy in the western United States. These factors include, but are not limited to, the adequacy of generation resources to meet peak demands at all times, the availability and cost of renewable energy, the impact of economy -wide GHG emission legislation and regulations, fuel costs and availability, weather effects on customer demand, the impact of climate change, wildfire mitigation and potential liability cost recovery, insurance costs, transmission congestion, the strength of the economy in California and surrounding states and levels of hydroelectric generation within the region (including the Pacific Northwest). This price volatility may contribute to greater volatility in the City’s revenues from the sale (and purchase) of electric energy and, therefore, could materially affect the City’s financial condition. The City, individually and/or through joint powers agencies in which it participates, undertakes resource planning and risk management activities and manages its resource portfolio to mitigate such price volatility and spot market rate exposure. See “SILICON VALLEY POWER.” Changing Laws and Requirements Generally
Electric utilities are subject to continuing environmental regulation. Federal, State and local standards and procedures which regulate the environmental impact of electric utilities are subject to change. These changes may arise from continuing legislative, regulatory and judicial action regarding such standards and procedures. In addition, the election of new administrations, including the President of the United States, could impact substantially the current environmental standards and regulations and other matters described herein. For example, upon taking office in January 2021, President Biden issued an executive order requiring federal agencies to consider suspending, revising or rescinding multiple environmental standards and regulations imposed during the prior administration. In light of the changing regulatory requirements and standards for electric utilities, there is no assurance that any facilities or projects of the City will remain subject to the laws and regulations currently in effect, will always be in compliance with future laws and regulations or will always be able to obtain all required operating permits. An inability to comply with environmental standards could result in, for example, additional capital expenditures, reduced operating levels or the shutdown of individual units not in compliance. In addition, increased environmental laws and regulations may create certain barriers to new facility development, may require modification of existing facilities and may result in additional costs for affected resources.
In addition, on both the federal and State levels, legislation is introduced frequently addressing domestic energy policies and various environmental matters and impacts relating to energy, including the generation of energy using conventional and unconventional technologies. Issues raised in legislative proposals in recent years have included implementation of energy efficiency and renewable energy standards, addressing transmission planning, siting and cost allocation to support the construction of renewable energy facilities, cybersecurity legislation, climate change and the reduction or elimination of net carbon dioxide emission attributable to the electric grid and financial incentives that could provide grants and credits to municipal utilities to invest in renewable energy infrastructure. Congress has also considered other bills relating to energy supplies and development (such as expedited permitting for
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natural gas drilling projects, reducing regulatory burdens, climate change and water quality). The City is unable to predict at this time whether any of these or other legislative proposals will be enacted into law or what the impact of any such proposals that may ultimately be enacted will be.
General Economic Conditions
The City’s costs are affected by numerous factors, many of which are macroeconomic industry variables that are beyond its control. Some of the recent factors include rising inflation, supply chain disruptions and delays, labor shortages and rising labor costs, and rising interest rates. More specifically, the rate of inflation has increased in recent years , increasing the price of fuel and commodities integral to the City’s Electric Utility operations. In response to rising inflation, the United States Federal Reserve increased interest rates a number of times from 2022 to 2023, which is expected to result in an increase to the City’s costs of capital so long as such inflationary pressures continue . The global economy has also faced supply chain shortages and delays in recent years. These issues may be further exacerbated by rising labor costs in the Unites States and global economic geopolitical crises. The occurrence of global events and macroeconomic factors and their impacts are difficult to predict but may have a material adverse effect on the Electric Utility’s results of operations and financial condition.
Other Factors
The electric utility industry in general has been, or in the future may be, affected by a number of other factors which could impact the financial condition and competitiveness of many electric utilities and the level of utilization of generating and transmission facilities. Such factors (a number of which are further discussed elsewhere in the this Official Statement) include, among others, (a) effects of compliance with rapidly changing environmental, safety, licensing, regulatory and legislative requirements other than those described above (including those affecting nuclear power plants or potential new energy storage requirements); (b) changes resulting from conservation and demand-side management programs on the timing and use of electric energy; (c) effects on the integration and reliability of power supply from the increased usage of renewables; (d) changes resulting from a national energy policy; (e) effects of competition from other electric utilities (including increased competition resulting from a movement to allow direct access or expanded community choice aggregation or from mergers, acquisitions, and “strategic alliances” of competing electric and natural gas utilities and from competitors transmitting less expensive electricity from much greater distances over an interconnected system) and new methods of, and new facilities for, producing low -cost electricity; (f) the repeal of certain federal statutes that would have the effect of increasing the competitiveness of many IOUs; (g) increased competition from independent power producers and marketers, brokers and federal power marketing agencies; (h) “self-generation” or “distributed generation” (such as microturbines, fuel cells and solar installations) by industrial and commercial customers and others; (i) issues relating to the ability to issue tax-exempt obligations, including restrictions on the ability to sell to nongovernmental entities electricity from generation projects and transmission service from transmission line projects financed with outstanding tax-exempt obligations; (j) wildfires and potential liabilities of electric utilities in connection therewith; (k) effects of inflation on the operating and maintenance costs of an electric utility and its facilities; (l) changes from projected future load requirements; (m) increases in costs and uncertain availability of capital; (n) shifts in the availability and relative costs of different fuels (including the cost of natural gas and nuclear fuel); (o) changes in the electric market structure for neighboring electric grids, such as the energy imbalance market operated by the CAISO; (p) sudden and dramatic increases in the price of energy purchased on the open market that may occur in times of high peak demand in an area of the country experiencing such high peak demand, such as has occurred in the past in California; (q) issues relating to risk management procedures and practices with respect to, among other things, the purchase and sale of natural gas, energy and transmission capacity; (r) other legislative changes, voter initiatives, referenda and statewide propositions; (s) effects of the changes in the economy, population and demand
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of customers within a utility’s service area; (t) effects of possible manipulation of the electric markets; (u) acts of terrorism or cyber -terrorism impacting a utility and/or significant load customers; (v) impacts of the COVID-19 pandemic or the outbreak of another infectious disease impacting the global, national or local economy or a utility’s service area; or (w) effects of and regulatory responses to climate change; (x) natural disasters or other physical calamities, including, but not limited to, earthquakes, droughts, severe weather and floods; and (y) adverse impacts to the market for insurance relating to wildfires and other calamities, leading to higher costs or prohibitively expensive coverage, or limited or unavailability of coverage for certain types of risk. Any of these factors (as well as other factors) could have an adverse effect on the financial condition of any given electric utility, including the City, and likely will affect individual utilities in different ways.
CONSTITUTIONAL LIMITATIONS IN CALIFORNIA
AFFECTING FEES AND CHARGES
Proposition 218 and Proposition 26
Proposition 218, a State ballot initiative known as the “Right to Vote on Taxes Act,” was approved by the voters of the State of California on November 5, 1996. Proposition 218 added Articles XIIIC and XIIID to the State Constitution. Article XIIIC imposes a majority voter approval requirement on local governments (including the City) with respect to taxes for general purposes, and a two-thirds voter approval requirement with respect to taxes for special purposes. Article XIIID creates additional requirements for the imposition by most local governments of general taxes, special taxes, assessments and “property -related” fees and charges. Article XIIID explicitly exempts fees for the provision of electric service from the provisions of such article.
Article XIIIC expressly extends the people’s initiative power to the reduction or repeal of local taxes, assessments, and fees and charges imposed prior to its effective date (November 1996). The California Supreme Court held in Bighorn-Desert View Water Agency v. Verjil, 39 Cal.4th 205 (2006) that, under Article XIIIC, local voters by initiative may reduce a public agency’s water rates and delivery charges, as those are property-related fees or charges within the meaning of Article XIIID, and noted that the initiative power described in Article XIIIC may extend to a broader category of fees and charges than the property-related fees and charges governed by Article XIIID. Moreover, in the case of Bock v. City Council of Lompoc , 109 Cal.App.3d 52 (1980), the Court of Appeal determined that an electric rate ordinance was not subject to the same constitutional restrictions that are applied to the use of the initiative process for tax measures so as to render it an improper subject of the initiative process. Thus, even electric service charges (which are expressly exempted from the provisions of Article XIIID) might be subject to the initiative provision of Article XIIIC, thereby subjecting such fees and charges imposed by the City to reduction by the electorate. The City believes that even if the electric rates of the City are subject to the initiative power, under Article XIIIC or otherwise, the electorate of the City would be precluded from reducing electric rates and charges in a manner adversely affecting the payment of the Series 2024 A Bonds by virtue of the “impairment of contracts clause” of the United States Constitution.
The California electorate approved Proposition 26 at the November 2, 2010 election, amending Article XIIIC of the California Constitution. Proposition 26 was designed to supplement tax limitations California voters adopted when they approved Proposition 13 in 1978, and Proposition 218 in 1996.
Proposition 26 applies by its terms to any levy, charge or exaction imposed, increased or extended by a local government on or after November 3, 2010. Proposition 26 deems any such levy, charge or fee to be a “tax”, r equiring voter approval unless it comes within one of the listed exceptions. Proposition 26 expressly excludes from its definition of a “tax,” among other things, a “charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged,
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and which does not exceed the reasonable costs to the local government of providing the service or product.”
Proposition 26 is subject to interpretation by California courts, including the extent to which it is applicable to pre-existing electric rates and general fund transfers. A number of lawsuits have been filed against public agencies in California relating to electric utility fund transfers. In Citizens for Fair REU Rates v. City of Redding (filed on January 20, 2015 and modified on February 19, 2015), for example, the California Court of Appeal considered a ratepayer challenge to a “payment in lieu of taxes” (or “PILOT”) required by the city of Redding to be made by its electric utility as an annual budgetary transfer amount without voter approval. The city’s PILOT was designed to compensate the general fund for the costs of services that other city departments provide to the electric utility. The amount of the PILOT was equivalent to the ad valorem taxes the electric utility would have had to pay if the electric utility were privately owned. The suits alleged that the PILOT was passed through to the city’s electric utility customers as part of the rates and charges for electric service in excess of the reasonable costs to the city of providing electric service. The Court of Appeal determined that Proposition 26 has no retroactive effect as to local taxes that existed prior to November 3, 2010, but found that since the PILOT was subject to the City Council’s recurring discretion, the PILOT did not escape the purview of Proposition 26. The Court of Appeal concluded that the PILOT constituted a “tax” under Proposition 26 for which the city must secure voter approval unless the city proved that the amount collected was necessary to cover the reasonable costs to the city of providing electric service. On April 29, 2015, the California Supreme Court granted review of the decision of the Court of Appeal. The California Supreme Court rendered its decision on August 27, 2018, reversing the judgment of the Court of Appeal. The California Supreme Court determined that the budgetary transfer from the Redding electric utility to the city’s general fund, calculated by using the PILOT, itself is not the type of exaction that is subject to Article XIIIC of the California Constitution. The court reasoned that it is only the Redding electric utility rate, not the PILOT, that is imposed on customers for electric service. The California Supreme Court concluded that because the total rate revenue of the electric utility was insufficient to cover the electric utility’s uncontested operating expenses (other than the PILOT) in the years at issue, the challenged rate did not exceed the reasonable costs of providing electric service, and therefore did not constitute a tax.
The City is unable to predict at this time how Propositions 218 and 26 will ultimately be interpreted by the courts in the context of any particular electric utility rates or what the ultimate impact of Propositions 218 or 26 will be.
Other Initiatives
General. Articles XIIIC and XIIID and Propositions 218 and 26 were adopted as measures that qualified for the ballot pursuant to California’s initiative process. From time to time, including presently, other initiatives have been, and could be, proposed, and if qualified for the ballot could be adopted affecting the City’s and/or the Electric Utility’s revenues or operations. Such initiatives may purport to be retroactive. Neither the nature and impact of these measures nor the likelihood of qualification for ballot or passage can be predicted by the City.
TAX MATTERS
In the opinion of Stradling Yocca Carlson & Rauth LLP, Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest (and original issue discount) on the Series 2024 A Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals. However, it should be noted that for tax years beginning after December 31, 2022, with
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respect to applicable corporations as defined in Section 59(k) of the Internal Revenue Code of 1986, as amended (the “Code”), generally certain corporations with more than $1,000,000,000 of average annual adjusted financial statement income, interest (and original issue discount) with respect to the Series 2024 A Bonds might be taken into account in determining adjusted financial statement income for purposes of computing the alternative minimum tax imposed by Section 55 of the Code on such corporations. In the further opinion of Bond Counsel, interest (and original issue discount) on the Series 2024 A Bonds is exempt from State of California personal income tax.
The excess of the stated redemption price at maturity of a Series 2024 A Bond over the issue price of a Series 2024 A Bond (the first price at which a substantial amount of the Series 2024 A Bonds of a maturity is to be sold to the public) constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to an owner of a Series 2024 A Bond before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by the owner will increase the owner’s basis in the applicable Series 2024 A Bond.
Bond Counsel’s opinion as to the exclusion from gross income for federal income tax purposes of interest (and original issue discount) on the Series 2024 A Bonds is based upon certain representations of fact and certifications made by the City and others and is subject to the condition that the City comply with all requirements of the Code that must be satisfied subsequent to the issuance of the Series 2024 A Bonds to assure that interest (and original issue discount) on the Series 2024 A Bonds will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest (and original issue discount) on the Series 2024 A Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Series 2024 A Bonds. The City has covenanted to comply with all such requirements.
The amount by which a Series 2024 A Bond owner’s original basis for determining loss on sale or exchange in the applicable Series 2024 A Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable bond premium, which must be amortized under Section 171 of the Code; such amortizable bond premium reduces the owner’s basis in the applicable bond (and the amount of tax- exempt interest received), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of bond premium may result in an owner realizing a taxable gain when a Series 2024 A Bond is sold by the owner for an amount equal to or less (under certain circumstances) than the original cost of the Series 2024 A Bond to the owner.
Purchasers of the Series 2024 A Bonds should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable bond premium.
The Internal Revenue Service (the “IRS”) has initiated an expanded program for the auditing of tax exempt bond issues, including both random and targeted audits. It is possible that the Series 2024 A Bonds will be selected for audit by the IRS. It is also possible that the market value of the Series 2024 A Bonds might be affected as a result of such an audit of the Series 2024 A Bonds (or by an audit of similar municipal obligations). No assurance can be given that in the course of an audit, as a result of an audit, or otherwise, Congress or the IRS might not change the Code (or interpretation thereof) subsequent to the issuance of the Series 2024 A Bonds to the extent that it materially adversely affects the exclusion from gross income of interest (and original issue discount) on the Series 2024 A Bonds or their market value.
Subsequent to the issuance of the Series 2024 A Bonds there might be federal, state, or local statutory changes (or judicial or regulatory changes to or interpretations of federal, state, or local law) that affect the federal, state, or local tax treatment of the Series 2024 A Bonds including the imposition of additional federal income or state taxes on owners of tax -exempt state or local obligations, such as the Series 2024 A Bonds. The introduction or enactment of any of such changes could adversely affec t the market value or liquidity of the Series 2024 A Bonds. No assurance can be given that subsequent to the
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issuance of the Series 2024 A Bonds statutory changes will not be introduced or enacted or judicial or regulatory interpretations will not occur having the effects described above. Before purchasing any of the Series 2024 A Bonds, all potential purchasers should consult their tax advisors regarding possible statutory changes or judicial or regulatory changes or interpretations, and their collateral tax consequences relating to the Series 2024 A Bonds.
Bond Counsel’s opinion with respect to the Series 2024 A Bonds may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date of issuance of the Series 2024 A Bonds. Bond Counsel has not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. The Indenture and the Tax Certificate relating to the Series 2024 A Bonds permit certain actions to be taken or to be omitted if a favorable opinion of Bond Counsel is provided with respect thereto. Bond Counsel expresses no opinion as to the effect on the exclusion from gross income of interest (and original issue discount) on the Series 2024 A Bonds for federal income tax purposes with respect to any Series 2024 A Bond if any such action is taken or omitted based upon the advice of counsel other than Stradling Yocca Carlson & Rauth LLP.
Although Bond Counsel has rendered its opinion that interest (and original issue discount) on the Series 2024 A Bonds is excluded from gross income for federal income tax purposes provided that the City continues to comply with certain requirements of the Code, the ownership of the Series 2024 A Bonds and the accrual or receipt of interest (and original issue discount) on the Series 2024 A Bonds may otherwise affect the tax liability of certain persons. Bond Counsel expresses no opinion regarding any such tax consequences. Accordingly, before purchasing any of the Series 2024 A Bonds, all potential purchasers should consult their tax advisors with respect to collateral tax consequences relating to the Series 2024 A Bonds.
A copy of the proposed form of opinion of Bond Counsel relating to the Series 2024 A Bonds is included in Appendix E hereto.
APPROVAL OF LEGALITY
The validity of the Series 2024 A Bonds and certain other legal matters are subject to the approving opinion of Stradling Yocca Carlson & Rauth LLP, Bond Counsel. The proposed form of the legal opinion of Bond Counsel is attached hereto as Appendix E. Certain legal matters will be passed upon for the City by the City Attorney of the City of Santa Clara, and for the Underwriters by their counsel, Orrick, Herrington & Sutcliffe LLP . Stradling Yocca Carlson & Rauth LLP, is acting as Disclosure Counsel to the City in connection with the issuance of the Series 2024 A Bonds. Certain fees of Bond Counsel and Disclosure Counsel are contingent upon the issuance and delivery of the Series 2024 A Bonds.
ABSENCE OF MATERIAL LITIGATION
There is no action, suit, proceeding, inquiry or investigation at law or in equity or before or by any court, public board or body pending or, to the knowledge of the City, threatened, against the City seeking to restrain or enjoin the issuance, sale, execution or delivery of the Series 2024 A Bonds, or in any way contesting or affecting the validity of the Series 2024 A Bonds or any proceeding of the City taken with respect to the issuance or sale thereof, the pledge or application of any moneys or security provided for the payment of the Series 2024 A Bonds, or existence or powers of the City, or the authority of the City to execute and deliver the Indenture or the Series 2024 A Bonds.
At any given time, including the present, there are certain other claims and lawsuits arising out of matters usually incidental to the operation of an enterprise such as the Electric Utility. See also
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“SILICON VALLEY POWER – Litigation Affecting the Electric Utility.” The City is of the view that, if determined adversely to the City, the actual damage awards likely to be ultimately paid with respect to such claims and lawsuits would not, in the aggregate, materially impair the City’s ability to perform its obligations under the Indenture or to pay the Series 2024 A Bonds when due.
CONTINUING DISCLOSURE
The City has covenanted for the benefit of the holders and beneficial owners of the Series 2024 A Bonds to provide in an annual report certain financial information and operating data relating to the City’s Electric Utility (the “Annual Report”) by not later than 210 days following the end of the City’s Fiscal Year (which currently is June 30 of each year), commencing with the Annual Report for Fiscal Year 2023-24, and to provide notices of the occurrence of certain enumerated events. The Annual Report and notices of specified events will be filed by the City or the Trustee on behalf of the City with the Municipal Securities Rulemaking Board through the EMMA system . The Municipal Securities Rulemaking Board has made such information available to the public without charge through such internet portal. The specific nature of the information to be contained in the Annual Report and the notices of certain events is set forth in “APPENDIX F – FORM OF CONTINUING DISCLOSURE AGREEMENT.” These covenants have been made in order to assist the Underwriters in complying with the Rule.
RATINGS
Fitch Ratings, Inc. (“Fitch”) and S&P Global Ratings (“S&P”) have assigned the Series 2024 A Bonds the ratings of “____” and “___,” respectively. Each of Fitch’s and S&P’s rating outlook with respect to the Series 2024 A Bonds is “___________.” No application has been made to any other rating agency for the purpose of obtaining any additional rating on the Series 2024 A Bonds. Such rating expresses only the view of the rating agency and any desired explanation of any such rating should be obtained from the rating agency furnishing the same. Generally, a rating agency bases its rating on information and materials furnished to it (which may include information and material from the City which is not included in this Official Statement) and on investigations, studies and assumptions by the rating agency. A securities rating is not a recommendation to buy, sell or hold securities. There is no assurance that any rating or rating outlook ascribed thereto will continue for any given period of time or that it will not be revised downward or withdrawn entirely by such rating agency if, in the judgment of such rating agency, circumstances so warrant. Any such downward revision or withdrawal of any such rating could have an adverse effect on the market price of the Series 2024 A Bonds.
MUNICIPAL ADVISOR
The City has retained PFM Financial Advisors LLC, as financial advisor (the “Municipal Advisor”) in connection with the issuance of the Series 2024 A Bonds. The Municipal Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume responsibility for the accuracy, completeness, or fairness of the information contained in this Official Statement. The Municipal Advisor is an independent financial advisory firm and is not engaged in the business of underwriting, trading or distributing municipal securities or other public securities. The payment of certain fees of the Municipal Advisor is contingent upon the issuance and delivery of the Series 2024 A Bonds.
UNDERWRITING
The City has entered into a bond purchase contract with J.P. Morgan Securities LLC (“JPMS”), as representative of the underwriters listed on the front cover of this Official Statement (the “Underwriters”), pursuant to which the Underwriters have agreed, subject to certain conditions, to
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purchase the Series 2024 A Bonds from the City at a purchase price of $________ (which represents the principal amount of the Series 2024 A Bonds of $__________, [plus/less] original issue [premium/discount] of $__________, less an Underwriter’s discount of $_______).
The bond purchase contract between the City and the Underwriters provides that the Underwriters will purchase all of the Series 2024 A Bonds, if any are purchased. Series 2024 A Bonds may be offered and sold by the Underwriters to certain dealers and others at prices lower than the public offering prices set forth on the inside cover page of this Official Statement, and such public offering prices may be changed by the Underwriters from time to time without notice.
JPMS, one of the Underwriters of the Series 2024 A Bonds, has entered into negotiated dealer agreements (each, a “Dealer Agreement”) with each of Charles Schwab & Co., Inc. (“CS&Co.”) and LPL Financial LLC (“LPL”) for the retail distribution of certain securities offerings at the original issue prices.
Pursuant to each Dealer Agreement, each of CS&Co. and LPL may purchase Series 2024 A Bonds from JPMS at the original issue price less a negotiated portion of the selling concession applicable to any Series 2024 A Bonds that such firm sells.
CERTAIN RELATIONSHIPS
The Underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non- financial activities and services. The Underwriters and their respective affiliates have provided, and may in the future provide, a variety of these services to the City and to persons and entities with relationships with the City, for which they received or will receive customary fees and expenses.
In the ordinary course of their various business activities, the Underwriters and their respective affiliates, officers, directors and employees may purchase, sell or hold a broad array of investments and actively trade securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for their own account and for the accounts of their customers, and such investment and trading activities may involve or relate to assets, securities and/or instruments of the City (directly, as collateral securing other obligations or otherwise) and/or persons and entities with relationships with the City. The Underwriters and their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments.
INDEPENDENT ACCOUNTANTS
Included as Appendix B to this Official Statement are the financial statements of the City’s Electric Utility Enterprise Fund as of and for the Fiscal Year ended June 30, 2023 (with comparative totals as of June 30, 2022). Such financial statements included in Appendix B have been audited by Maze & Associates, certified public accountants. Maze & Associates has not been requested to consent to the inclusion of its report in Appendix B and it has not undertaken to update its report or to take any action intended or likely to elicit information concerning the accuracy, completeness or fairness of the statements made in this Official Statement, and no opinion is expressed by Maze & Associates with respect to any event subsequent to the date of its report.
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EXECUTION AND DELIVERY
The execution of this Official Statement has been duly authorized by the City.
CITY OF SANTA CLARA
By:
City Manager
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APPENDIX A
CERTAIN INFORMATION ABOUT THE CITY OF SANTA CLARA
The economic and demographic information provided in this Appendix A is presented as general background data and has been collected from sources which the City deems to be reliable. The General Fund of the City is not liable, and the credit or taxing power of the City is not pledged, for the payment of the Series 2024 A Bonds or the interest thereon. The Series 2024 A 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 any of its income or receipts, except the Adjusted Net Revenues of the Electric Utility and the other funds which are pledged to the payment of the Series 2024 A Bonds pursuant to the Indenture. See the section in the Official Statement entitled “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2024 A BONDS.”
Area, Geography and Population
The City is located at the southern end of the San Francisco Bay, approximately 45 miles southeast of San Francisco and three miles west of downtown San Jose. Encompassing a total area of approximately 18.41 square miles within northern Santa Clara County, the City is situated in the heart of “Silicon Valley.” Surrounded by the Diablo Mountain Range to the east and the Santa Cruz mountains to the west, the valley is protected from ocean fog.
The City experienced rapid population growth, particularly during the 1990’s. The City’s population growth has moderated in recent years , declining slightly (by 0.3%) from 2023 to 2024. This population history is shown in the table below , along with comparable population data from Santa Clara County and the State of California.
CITY OF SANTA CLARA, COUNTYAND STATE
POPULATION
(1980, 1990, 2000, 2010 and 2020 as of April 1;
2021-2024 as of January 1, with 2020 benchmark)
City of
Santa Clara
County of
Santa Clara
State of
California
1980 ....................... 87,700 1,295,071 23,667,764 1990 ....................... 93,613 1,497,577 29,758,213 2000 ....................... 102,361 1,682,585 33,873,086 2010 ....................... 116,468 1,781,642 37,253,956 2020 ....................... 127,874 1,936,259 39,538,223 2021 ....................... 130,059 1,913,779 39,327,868 2022 ....................... 130,460 1,895,752 39,114,785 2023 ....................... 132,386 1,902,799 39,061,058 2024 ....................... 132,048 1,903,198 39,128,162 ____________________
Source: 1980-2020–State of California, Department of Finance, E- 4 Population Estimates for Cities, Counties, and the State, 1980 -2020 Census data ; 2021-2024–State of California, Department of Finance, E -4 Population Estimates for Cities, Counties, and the State , 2021 -2024, with 2020 Census Benchmark. Sacramento, California, May 2024.
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History
The first inhabitants of the Santa Clara Valley were the Ohlone Indians. In the 1770’s, Spanish adventurers and ranchers, impressed by the richness of the soil and mild climate, explored and settled the area. In 1777, Spanish Padres chose the area as the site of Mission Santa Clara de Asis, the eighth of 21 missions which stretch 600 miles along the California coast, When Mexico took over the Spanish possession in 1822, livestock and farming became the main sources of livelihood. In 1850, California was admitted to the Union and the valley officially became known as Santa Clara County. The City of Santa Clara was incorporated in 1852. For the next century the City enjoyed a period of rich agricultural growth. More recently, orchards have given way to homes and businesses. The area is now known as “Silicon Valley” because of its important role in electronic and aerospace industries. Computer parts, lasers and other sophisticated electronic equipment are produced in and around the City.
Governing Body
The City operates under a Council -Manager form of government, whereby policies of the City Council are administered by a City Manager, who is appointed by the City Council. All municipal departments, other than the City Attorney’s Office, operate under the supervision of the City Manager.
The City Council currently consists of six members, elected by district, and serving staggered four -year terms. The Mayor is elected from the City at-large for a four-year term. The City Charter limits the Mayor and all Councilmembers to serving two consecutive terms.
The current members of the City Council and key administrative personnel of the City are listed in the following tables:
CITY OF SANTA CLARA
City Councilmembers
Name Office Term Expires
Lisa M. Gillmor Mayor December 2026
Anthony J. Becker Vice Mayor – District 6 December 2024 Raj Chahal Councilmember – District 2 December 2026
Karen Hardy Councilmember – District 3 December 2026
Sudhanshu “Suds” Jain Councilmember – District 5 December 2024 Kevin Park Councilmember – District 4 December 2024
Kathy Watanabe Councilmember – District 1 December 2024
CITY OF SANTA CLARA
Key Administrative Personnel
Member Position
Jōvan D. Grogan City Manager
Nadine Nader Chief Operating Officer
Chuck Baker Assistant City Manager
Cynthia Borjorquez Assistant City Manager
Manuel Pineda Chief Electric Utility Officer
Kenn Lee Director of Finance
Glen R. Googins, Esq. City Attorney
Hosam Haggag City Clerk
Nora Pimentel, MMC Assistant City Clerk
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Budgetary Policies
The City budget is prepared each year by the City Manager with the assistance of the Finance Department of the City and is approved by the City Council. The budget is prepared in accordance with generally accepted accounting principles (“GAAP”), except encumbrances which are recognized as expenditures when legal contracts or commitments are entered into. The budget for governmental funds is prepared on a modified accrual basis, recognizing revenue when they are measurable and available to be used to finance expenditures in the fiscal year. Expenditures are recognized when they occur, regardless of when cash is received or disbursed. The budgets for proprietary funds are prepared on a full accrual basis, recognizing revenue and expenditure activity for the fiscal year for which the activity occurred. The budgetary accounting basis and the consolidated annual financial reports include the reconciliation between GAAP modified and/or full accrual accounting for the financial reports and the budgetary basis budget. All of the year -end financial reports are kept on the basis of modified or full accrual accounting.
The budget of the City is a detailed operating and capital plan that identifies estimated costs and program benefits in relation to estimated revenues. The budget includes the adopted services to be provided during the fiscal year and the associated appropriations to cover the costs of the adopted programs, projects, services, and activities. These are funded by the estimated revenue and/or fund balance available to finance the adopted service levels.
Budgetary Process
The budget process is the mechanism through which policy decisions are made, implemented and controlled. The Charter requires that the City establish a budgetary system for general operations, and prohibits expending funds for which there is no legal appropriation. The City is required to adopt an annual budget on or before June 30 for the ensuing fiscal year that begins July 1. The City uses a biennial budget process that alternates between an operating and capital budget. In a biennial operating budget year, the City adopts the budget for two fiscal years. In a biennial capital budget year, the City adopts a five year Capital Improvement Program ( “CIP”) budget. In alternating years, the City may bring forth adjustments to the adopted or capital budget. In addition, all capital and operating source and use statements are presented every year in the budget for adoption. The procedures to establish the budget are as follows.
1. Departments review their annual operating budget to determine their base budget needs in the following year, in order to provide the City Council-approved current level of service.
2. For the alternating capital budget year, departments review their existing projects, evaluate the potential need for any new projects in the upcoming fiscal year, and submit CIP project requests for final approval. Requests are reviewed by a Project Review Committee that consists of representatives from the City Manager’s Office, the Finance Department, and the Department of Public Works.
3. A base budget is established for each department following review by the Finance Department and the City Manager’s Office.
4. A City Council strategic priority setting retreat is typically held annually. During this retreat, the Ten-Year General Fund Financial Forecast is presented to City Council.
5. Following budget meetings between the department, the City Manager’s Office and the Finance Department, decisions are finalized and each fund balanced based on the items presented and City Council priorities.
6. The City Manager submits to the City Council a proposed operating or capital budget (in alternating years) for the two following fiscal years, commencing the following July 1.
Submission to the City Council occurs at least 35 days prior to the beginning of each fiscal year.
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7. Budget study sessions and a public hearings are conducted to obtain City Council members’ and residents’ comments.
8. The budget is legally enacted through passage of a minute order.
From the effective date of the budget, the amounts stated therein as expenditures become appropriations to the applicable funds. In order to amend the budget during the year, departments must submit a report to Council, explaining the need for the change and budget implications. Upon review and approval of the City Council, the budget may be amended. For the operating budget, t he legal level of budgetary control (that is, the level at which expenditures cannot legally exceed the appropriated amount) is at the fund and department level. For funds that do not have an associated department, the legal level of budgetary control is at the fund level. For the capital budget, the legal level of budgetary control is at the project level.
All appropriations lapse at the end of the fiscal year to the extent they have not been expended or encumbered. Encumbered appropriations are not reported as expenditures but are reported as a reservation of fund balance available for subsequent year expenditures based on the encumbered appropriation authority carried over to the next fiscal year.
Ad Valorem Property Taxes
Taxes are levied for each fiscal year on taxable real and personal property which is situated in the County of Santa Clara as of the preceding March 1. For assessment and collection purposes, property is classified either as “secured” or “unsecured,” and is listed accordingly on separate parts of the assessment roll. The “secured roll” is that part of the assessment roll containing State -assessed property and property the taxes on which are a lien on real property sufficient, in the opinion of the County Assessor, to secure payment of the taxes. Other property is assessed on the “unsecured roll.” Assessed Valuations
The valuation of property in the City is established by the Santa Clara County Assessor. Assessed valuations are reported at 100% of the full value, of the property, as defined in Article XIIIA of the California Constitution. Prior to 1981- 82, assessed valuations were reported at 25% of the full value of property.
The California State Legislature adopted two types of State- reimbursed exemptions beginning in the tax years 1969- 1970. The first currently provides a credit of $7,000 of the full value of an owner - occupied dwelling for which application has been made to the County Assessor. Revenue estimated to be lost to local taxing agencies due to the above exemptions has in the past been reimbursed from State sources. Reimbursement is based upon total taxes due upon such exemption values and therefore is not reduced by any estimated amount of actual delinquencies.
Pursuant to legislation adopted in 1979 (Statutes of 1979, Chapter 1150), business inventories are entirely exempt from taxation in fiscal year 1980- 81, and each fiscal year thereafter. This law further provides a formula for reimbursement by the State to cities, counties, special districts and school districts for the amount of tax revenues lost by reason of such exemption, as adjusted for percentage changes in the population and the cost of living. Under prior State law, the State paid 50% of the taxes that were levied against business inventories. Under Chapter 1150, the State pays, as a subvention, an amount equal to 100% of taxes that would otherwise be due (excluding taxes to pay for voter approved indebtedness) from business inventories commencing with the 1980-81 fiscal year. To compute amounts payable by the State, 1979- 80 was established as the base year for business inventory subventions; thereafter, the subventions due are increased based upon increases in population and inflation rather than expanded business inventories.
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In addition, certain classes of property such as churches, colleges, not -for-profit hospitals and charitable institutions are exempt from property taxation and do not appear on the tax rolls. No reimbursement is made by the State for such exemptions.
The following table provides City of Santa Clara Assessed Valuations of Taxable Property for Fiscal Years 2018-19 through 2022-23.
CITY OF SANTA CLARA
ASSESSED VALUATIONS OF TAXABLE PROPERTY
Fiscal Years 2018-19 through 2022-23
(In Thousands)
Fiscal Year
Net Local
Secured
Valuation
State Assessed
Valuation(2)
Net
Unsecured
Roll
Net Assessed
Valuation(1)(3)
2018-19 $36,596,483 $354 $7,266,592 $43,863,429
2019-20 38,502,828 870 7,629,244 46,132,942
2020-21 42,047,766 870 7,972,493 50,021,129
2021-22 44,162,052 870 8,007,077 52,170,000
2022-23 48,144,003 870 8,668,804 56,833,678
____________________
(1) Net of Home Owner Property Tax Relief.
(2) Public utility.
(3) Totals may not add due to rounding.
Sources: Santa Clara County, Department of Finance.
The tax rolls for property located within the City for the fiscal year ended June 30, 2024, aggregated a total assessed valuation of approximately [$61.1] billion, before deduction of redevelopment project areas incremental valuations of which the taxes payable were due to the redevelopment agency. In 2011, the State of California enacted legislation commonly referred to as “AB1X 26,” which required the dissolution of California redevelopment agencies and the dissolution and winding up of the operations of those agencies, which dissolution occurred on February 1, 2012. AB1X 26 provides a framework for the management of the remaining obligations of the dissolved redevelopment agencies by their respective successor agencies and oversight boards to oversee those successor agencies. Pursuant to AB1X 26, tax increment continues to flow to the payment of “enforceable obligations” (such as tax allocation bonds) of the dissolved redevelopment agencies.
The following two tables present Property Tax Levies and Collections in the City for Fiscal Years 2018-19 through 2022-23, and the Ten Largest Fiscal Year 2022-23 Local Secured Taxpayers in the City, respectively.
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CITY OF SANTA CLARA
PROPERTY TAX LEVIES AND COLLECTIONS
Fiscal Years 2018-19 through 2022-23
(In Thousands)
Fiscal Year
Gross
Tax Levy
Current Tax
Collections
Percentage of
Current Levy
Received
2018-19 $37,374 $37,374 100.00%
2019-20 40,288 40,288 100.00
2020-21 43,680 43,680 100.00
2021-22 45,539 45,539 100.00
2022-23 57,619 57,619 100.00
____________________
Source: City of Santa Clara.
Pursuant to California Revenue and Taxation Code Sections 4701 et seq., Santa Clara County maintains a reserve fund for the purpose of guaranteeing 100% of the secured levies of the electing governmental jurisdictions for which such county collects taxes (commonly referred to as “The Teeter Plan”). The City has elected to participate in Santa Clara County’s Teeter Plan. Consequently, the City is not exposed to the effect of delinquencies in tax collections as long as the Teeter Plan is in effect.
CITY OF SANTA CLARA
TEN LARGEST FISCAL YEAR 2022-23 LOCAL SECURED TAXPAYERS (In Thousands)
Company Primary Land Use
2022-23
Assessed Valuation
Intel Corporation Office Building $2,193,816
Santa Clara Square Office 2B LLC Office Building 1,831,503 Nvidia Corporation (formerly Nvidia
Land Development LLC) Industrial 1,544,984
Microsoft Corporation Industrial 1,201,470
SI LLC Commercial 890,736
Vantage Data Centers LLC Industrial 867,314
Forty Niners SC Stadium Company LLC Sports & Entertainment 777,020 Santa Clara Phase III EFH LLC Commercial 712,919
Apple Inc. Industrial & Technology 689,186
Coresite Real Estate Apartments 539,535
____________________
Source: Santa Clara County Assessor 2022-23 Combined Tax Rolls through HdL Coren & Cone Employment
The main businesses in the City are manufacturing and industrial. There are numerous manufacturing plants producing electric components, communications equipment, computer systems, electronic games and similar products.
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The largest employers in the City as of June 30, 2023 were as follows:
CITY OF SANTA CLARA
TEN LARGEST EMPLOYERS
Employer Business Number of Employees
Applied Materials Inc. Semiconductor Manufacturing Equip (Mfrs) 8,500 Intel Corporation Semiconductor Devices (Mfg). 7,801
Advanced Micro Devices Inc. Semiconductor Devices (Mfg). 3,000 Nvidia Technology Company 2,700
California’s Great America Amusement and Theme Parks 2,500 Dell Computers 2,088
Santa Clara University University-College Dept/Facility/Office 2,000 City of Santa Clara Local Government 1,650
SVB Financial Group Banking 1,250
Macy’s Department Store 1,200
____________________
Source: City of Santa Clara, Annual Comprehensive Financial Report as of June 30, 2023.
Due to the nature of local industry, with its heavy emphasis on electronics, aerospace and research, Santa Clara has attracted many professional people and industrial workers possessing skills well above the average.
The San Jose Labor Market, as defined by the California Employment Development Department, includes all cities within Santa Clara County. This area is a highly developed industrial, research, and educational center of employment for a labor force that ranks well above the average in educational attainment and income. The following table presents the annual average wage and salary employment figures by industry classification for Santa Clara County for the years 2018 through 2022 (the most recent full year information available).
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LABOR FORCE IN SANTA CLARA COUNTY
AVERAGE ANNUAL EMPLOYMENT BY INDUSTRY
Calendar Years 2019 through 2023(1)
2019 2020 2021 2022 2023
Wage and Salary Employment:
Farm ..................................................... 3,300 3,100 3,000 3,000 3,000 Mining, Logging, and
Construction ......................................
51,600
48,800
50,300
52,300
52,300
Manufacturing ...................................... 168,900 165,500 164,400 175,300 176,200 Trade, Transportation and Utilities ...... 128,400 116,000 116,700 118,900 118,800 Information Services ............................ 100,500 105,800 107,000 105,900 97,800 Financial Activities .............................. 37,600 37,700 38,100 37,800 37,600 Professional and Business Services ..... 241,900 236,300 241,200 248,900 244,200 Private Education and Health
Services .............................................
177,200
171,200
176,900
185,400
194,400
Leisure and Hospitality ........................ 105,900 71,700 77,400 94,900 99,600 Other Services ...................................... 28,400 21,700 22,400 24,900 25,900 Government .......................................... 94,300 90,900 90,100 92,500 94,600 Total(2) ............................................. 1,137,900 1,068,600 1,087,400 1,139,900 1,144,300 __________________
(1) March 2023 Benchmark; not seasonally adjusted.
(2) Columns may not add to totals due to independent rounding.
Source: California Employment Development Department.
According to the California Employment Development Department, the County of Santa Clara’s unemployment rate was 3.5% for the year 2023. The following table sets forth certain information regarding employment in the County of Santa Clara from 2019 through 2023.
COUNTY OF SANTA CLARA
CIVILIAN LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT
Calendar Years 2019 through 2023
2019 2020 2021 2022 2023
Civilian Labor Force 1,050,600 1,025,600 1,012,400 1,040,900 1,039,000 Employment 1,024,200 952,500 963,700 1,013,300 1,002,600 Unemployment 26,400 73,100 48,600 27,600 36,400
Unemployment Rate 2.5% 7.1% 4.8% 2.6% 3.5%
____________________
Source: California Employment Development Department; Annual averages (not seasonally adjusted).
Commercial Activity
The following table shows the annual volume of taxable sales within the City from 2019 through 2023. During 2023, retail sales totaled nearly $2.4 billion and total taxable sales were over $4.9 billion.
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CITY OF SANTA CLARA
Taxable Transactions
Calendar Years 2019 through 2023
(Dollars In Thousands)
Year
Retail Stores
Taxable Transactions
Total All Outlets Taxable
Transactions
2019 $2,248,916 $4,629,693
2020 1,624,725 3,991,259
2021 1,995,416 4,487,600
2022 2,367,525 4,831,300
2023 2,378,770 4,963,949
__________________
Source: California Department of Tax and Fee Administration - Taxable Sales in California Personal Income
The United States Department of Commerce, Bureau of Economic Analysis (the “BEA”) produces economic accounts statistics that enable government and business decision- makers, researchers, and the public to follow and understand the performance of the national economy.
The BEA defines “personal income” as income received by persons from all sources, including income received from participation in production as well as from government and business transfer payments. Personal income represents the sum of compensation of employees (received), supplements to wages and salaries, proprietors’ income with inventory valuation adjustment and capital consumption adjustment (“CCAdj”), rental income of persons with CCAdj, personal income receipts on assets, and personal current transfer receipts, less contributions for government social insurance. Per capita personal income is calculated as the personal income divided by the resident population based upon the Census Bureau’s annual midyear population estimates.
The table on the following page presents total personal income and per capita personal income for the San Jose-Sunnyvale-Santa Clara Metropolitan Statistical Area, the State and the United States for the period 2018 through 2022. Local figures are not yet available for 2023.
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SAN JOSE-SUNNYVALE-SANTA CLARA METROPOLITAN STATISTICAL AREA,
STATE OF CALIFORNIA AND UNITED STATES
PERSONAL INCOME AND PER CAPITA PERSONAL INCOME
Calendar Years 2018 through 2022(1)
Year Area
Personal Income
(millions of dollars)
Per Capita Personal
Income (dollars)
2018 San Jose-Sunnyvale-
Santa Clara MSA
$ 210,975.4
$104,834
California 2,411,055.1 60,984
United States 17,514,402.0 53,309
2019 San Jose-Sunnyvale-
Santa Clara MSA
$ 221,954.3
$110,618
California 2,537,950.6 64,174
United States 18,343,601.0 55,547
2020 San Jose-Sunnyvale-
Santa Clara MSA
$ 244,542.3
$122,544
California 2,767,521.4 70,058
United States 19,609,985.0 59,151
2021 San Jose-Sunnyvale-
Santa Clara MSA
$ 276,855.5
$141,739
California 3,013,676.9 76,987
United States 21,392,812.0 64,427
2022 San Jose-Sunnyvale-
Santa Clara MSA
$ 274,331.3
$141,516
California 3,006,647.3 77,013
United States 21,820,248.0 65,473
_____________________
(1) Latest available annual data. MSA CAINC1 data last updated November 16, 2023. State and United States SAINC1 data last updated March 29, 2024.
Source: Bureau of Economic Analysis
Education
The Santa Clara Unified School District provides public schooling from kindergarten through high school in most of the City. Small geographical areas in the southern city limits are served by the Campbell Union Elementary School District and the Cupertino Union Elementary School District.
The City is also the home of the oldest institution of higher education in the West, Santa Clara University. City residents are also in close proximity to San Jose State University, Stanford University and Mission College, as well as other units of the Community College System.
Transportation
The City is served by the Bayshore Freeway (U.S. Highway 101), which runs southeast from San Francisco to Los Angeles and is the major freeway connecting San Francisco and San Jose; Interstate 880, which runs north/south connecting San Jose and Oakland and becomes State Highway 17 (south of Interstate 280) and continues into Santa Cruz with access to Monterey; and Interstate 280, which runs
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north/south to San Francisco and State Highway 82. These freeways link the City to all parts of northern California.
Air transportation is available at both the San Francisco International Airport, approximately 40 miles to the north, and the San Jose International Airport, two miles from downtown Santa Clara. Rail service is provided by Union Pacific Railroad, on a north/south track linking San Jose and San Francisco, and CalTrain commuter service to Gilroy and San Francisco. The Guadalupe Corridor Light Rail has 20 completed miles of track from the Santa Clara Convention Center to the San Jose Convention Center, stretching to South San Jose, Mountain View and Milpitas.
The Santa Clara Valley Transportation Authority operates several lines within the City with connections to major cities in the San Francisco Bay A rea. Interstate bus service is available via Greyhound Bus and Peerless. Most major trucking firms serve Santa Clara in addition to numerous local carriers.
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APPENDIX B
AUDITED FINANCIAL STATEMENTS
OF THE CITY OF SANTA CLARA
ELECTRIC UTILITY ENTERPRISE FUND
(SILICON VALLEY POWER)
FOR THE FISCAL YEARS ENDED JUNE 30, 2023 AND 2022
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APPENDIX C
DTC AND THE BOOK-ENTRY ONLY SYSTEM
General
The Depository Trust Company (“DTC”), New York, New York, will act as securities depository for the Series 2024 A Bonds. The Series 2024 A Bonds will be issued as fully- registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully- registered certificate will be issued for each maturity of the Series 2024 A Bonds, in the aggregate principal amount of such maturity, and will be deposited with DTC.
DTC, the world’s largest securities depository, is a limited -purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over
3.5 million issues of U.S. and non- U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post -trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book -entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non- U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly- owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non- U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has S&P Global Ratings’ rating of AA+. The DTC Rules applicable to Direct and Indirect Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. The information on such website is not incorporated herein by reference.
Purchases of Series 2024 A Bonds under the DTC book-entry system must be made by or through Direct Participants, which will receive a credit for the Series 2024 A Bonds on DTC’s records. The ownership interest
of each actual purchaser of each Series 2024 A Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction.
Transfers of ownership interests in the Series 2024 A Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Series 2024 A Bonds, except in the event that use of the book-entry system for the Series 2024 A Bonds is discontinued.
To facilitate subsequent transfers, all Series 2024 A Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of the Series 2024 A Bonds with DTC
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and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2024 A Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Series 2024 A Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the Series 2024 A Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Series 2024 A Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Series 2024 A Bond documents. For example, Beneficial Owners of the Series 2024 A Bonds may wish to ascertain that the nominee holding the Series 2024 A Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.
Redemption notices shall be sent to DTC. If less than all of a maturity of the Series 2024 A Bonds is being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Series 2024 A Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Series 2024 A Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).
Payments of principal of, premium, if any, and interest on the Series 2024 A Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC.
DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding
detail information from the City or the Trustee, on the payable date in accordance with their respective holdings shown on DTC’s records. Payments by Direct or Indirect Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Direct or Indirect Participant and not of DTC, the Trustee, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal of, premium, if any, and interest on the Series 2024 A Bonds to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as securities depository with respect to the Series 2024 A Bonds at any time by giving notice to the Trustee and the City. Under certain circumstances, in the event that a successor depository is not obtained, Series 2024 A Bond certificates are required to be printed and delivered.
The City may decide to discontinue use of the system of book- entry transfers for the Series 2024 A Bonds through DTC (or a successor securities depository). In that event, Series 2024 A Bond certificates will be printed and delivered as provided in the Indenture.
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The foregoing description concerning DTC and DTC’s book -entry system is based solely on information furnished by DTC. The City and the Trustee take no responsibility for the completeness or accuracy thereof. The City and the Trustee cannot and do not give any assurances that DTC, Direct Participants (as defined below) or Indirect Participants (as defined below) will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Series 2024 A Bonds, (b) certificates representing ownership interest in or other confirmation of ownership interest in the Series 2024 A Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Series 2024 A Bonds, or that they will do so on a timely basis, or that DTC, Direct Participants or Indirect Participants will act in the manner described in this Appendix C. The City, the Trustee and the Underwriters are not responsible or liable for the failure of DTC or any DTC Participant to make any payment or give any notice to a beneficial owner with respect to the Series 2024 A Bonds or an error or delay relating thereto.
Discontinuance of DTC Services
In the event that (a) DTC determines not to continue to act as securities depository for the Series 2024 A Bonds or (b) the City determines to remove DTC from its functions as a depository, DTC’s role as securities depository for the Series 2024 A Bonds and use of the book- entry system will be discontinued. If the City fails to select a qualified securities depository to replace DTC, the City will cause the Trustee to execute and deliver new Series 2024 A Bonds registered in the names of such persons as shall be specified to the Trustee in writing. Upon such registration, such persons in whose names the Series 2024 A Bonds are registered will become the registered owners of the Series 2024 A Bonds for all purposes.
In the event that the book -entry system is discontinued, the following provisions would also apply: the principal or redemption price of the Series 2024 A Bonds will be payable upon presentation thereof, at the designated corporate trust office of the Trustee, or such other or additional offices as may be designated by the Trustee; interest on the Series 2024 A Bonds will be payable by check mailed on each interest payment date to the registered owners thereof as shown on the registration books of the Trustee as of the close of business on the fifteenth day of the calendar month immediately preceding the applicable interest payment date (the “record date”), except that upon the written request of an Owner of $1,000,000 or more in aggregate principal amount of Series 2024 A Bonds received by the Trustee prior to the applicable record date (which request shall remain in effect until rescinded in writing by such Owner), such interest shall be paid by wire transfer in immediately available funds; Series 2024 A Bonds may be transferred upon the register required to be kept by the Trustee by the person in whose name it is registered, in person or by his or her duly authorized attorney, upon surrender of such Series 2024 A Bond for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form approved by the Trustee; and Series 2024 A Bonds may be exchanged at the designated corporate trust office of the Trustee, or such other or additional offices as may be designated by the Trustee, for a like aggregate principal amount of Series 2024 A Bonds of other authorized denominations of the same tenor, maturity and interest rate; provided, that no transfer or exchange may occur during the period established by the Trustee for selection of Series 2024 A Bonds for redemption, or of any Series 2024 A Bond or portion thereof so selected for redemption; and, provided further, that the Trustee shall require the Bondholder requesting any such transfer or exchange to pay any tax or other governmental charge required to be paid with respect thereto.
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APPENDIX D
SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE
The following is a summary of certain provisions of the Indenture. The Fourth Supplement contains certain amendments to the Master Indenture that will become effective on the Amendments Effective Date (as defined below), which has been determined to be the day next succeeding the date of delivery of the Series 2024 A Bonds. A description of such amendments is provided in APPENDIX H – “AMENDMENTS BEING MADE TO THE MASTER INDENTURE.” This summary is not to be considered a full statement of the terms of the Indenture and accordingly is qualified by reference thereto and is subject to the full text thereof. Capitalized terms not defined in this summary or elsewhere in the Official Statement have the respective meanings set forth in the Indenture.
Definitions
“Accreted Value” means, with respect to any Capital Appreciation Indebtedness or any Convertible Capital Appreciation Indebtedness, the amount representing principal and interest on (i) such Capital Appreciation Indebtedness at or prior to the maturity date thereof or (ii) such Convertible Capital Appreciation Indebtedness at and prior to the expiration of the Accretion Period thereof, being, in either such case, as of any date of computation an amount equal to the principal amount of such Capital Appreciation Indebtedness or Convertible Capital Appreciation Indebtedness at its initial offering plus the interest accrued thereon from the date of delivery thereof to the dates specified in the Supplemental Indenture or other document providing for such Capital Appreciation Indebtedness or Convertible Capital Appreciation Bond, such interest to accrue at the rate per annum established as provided in a Supplemental Indenture, compounded periodically, plus, with respect to matters relating to the payment upon redemption of such Capital Appreciation Indebtedness or Convertible Capital Appreciation Indebtedness, if such date of computation shall not be one of such specified dates, the ratable portion of the difference between the Accreted Value as of the immediately preceding such specified date (or the date of delivery thereof if the date of computation is prior to the first such specified date succeeding the date of delivery) and the Accreted Value as of the immediately succeeding such specified date, calculated based on the assumption that the Accreted Value accrues during any period in equal daily amounts on the basis of a year of twelve 30-day months.
“Accretion Period ” means, with respect to any particular Convertible Capital Appreciation Indebtedness, the period from the date of delivery thereof through the date specified in the Supplemental Indenture or other document providing for the sale of such Convertible Capital Appreciation Indebtedness (which date must be prior to the maturity date thereof), after which interest accruing on such Convertible Capital Appreciation Indebtedness shall be payable semiannually, with the first such payment date being the applicable interest payment date immediately succeeding the expiration of the Accretion Period. “Adjusted Net Revenues” for any period means the sum of (a) the Revenues for such period plus (b) for purposes of determining compliance with the rate covenant in the Indenture only, (i) the amounts approved by City Council to be withdrawn from the Rate Stabilization Fund for inclusion in Adjusted Net Revenues for such period in accordance with the Indenture , and (ii) the amount of Available Reserves budgeted by the City for the payment of Operating Expenses and/or Debt Service for such period (which amounts, in either case, shall be deposited in the Net Revenue Fund in accordance with the Indenture to the extent such amounts are to be included in Adjusted Net Revenues for the purpose of determining compliance with the rate covenant in the Indenture ), and (c) any interest paid and other income derived from the investment of funds as provided in the Indenture, less the sum of (d) all Operating Expenses for such period, (e) moneys received with respect to the sale of assets financed with the proceeds of Bonds or Parity Debt, which amounts shall be applied in accordance with the Indenture , (f) moneys received with
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respect to any Special Facility, and (g) any charges collected by any person to amortize or otherwise relating to the payment of the uneconomic portion of costs associated with assets and obligations (“stranded costs”) of the Electric Utility or of any joint powers agency in which the City participates which the City has dedicated to the payment of obligations other than the Bonds or Parity Debt, the payments of which obligations will be applied to or pledged to or otherwise set aside for the reduction or retirement of outstanding obligations of the City or any joint powers agency in which the City participates relating to such “stranded costs” of the City or of any such joint powers agency to the extent such “stranded costs” are attributable to, or the responsibility of, the City. “Amendments Effective Date ” means the day next succeeding the date on which the written consent (or deemed written consent) of the Owners of a majority in aggregate amount of the Bond Obligation of the Bonds then Outstanding has been obtained to the amendments to the Indenture set forth in the Fourth Supplement and a written Certificate of the City to such effect shall have been delivered by the City and filed with the Trustee, which Amendments Effective Date shall be specified in such Certificate of the City. The Amendments Effective Date has been determined to be the day next succeeding the date of delivery of the Series 2024 A Bonds. “Annual Debt Service” means for any Fiscal Year the aggregate amount of principal and interest on all Bonds and Parity Debt becoming due and payable during such Fiscal Year calculated using the principles and assumptions set forth under the definition of Debt Service. “Assumed Debt Service” means for any Fiscal Year the aggregate amount of principal and interest which would be payable on all Bonds and Parity Debt if each Excluded Principal Payment were amortized for a period specified by the City (but no longer than thirty (30) years from the date of the issuance of the Bonds or Parity Debt to which such Excluded Principal Payment relates) on a substantially level debt service basis, calculated based on a fixed interest rate equal to the rate at which the City could borrow for such period, as certified by a certificate of a financial advisor or investment banker delivered to the Trustee, who may rely conclusively on such certificate, within thirty (30) days of the date of calculation.
“Authorized Officer” means the Mayor, the City Manager, the City Clerk, the Director of the Electric Utility, the Director of Finance or any other officer or employee of the City authorized by resolution of the City Council to perform the act or sign the document in question. “Available Reserves” means, as of any date of calculation, the amount of unrestricted funds of the Enterprise determined by the City to be then available to pay Operating Expenses and/or Debt Service, which may include transfers to the Net Revenue Fund from any fund which is legally available to be used for such purpose.
“Bond Law” means Section 1321 of the Charter, the Resolution, the Revenue Bond Law of 1941 referred to in the Resolution, to the extent adopted as the Bond Law by the Resolution, and Article 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California . Whenever reference is made in the Indenture to the Bond Law, reference is made to the Bond Law as in force on the date of the execution and delivery of the Indenture, unless the context otherwise requires. “Bond Obligation ” means, as of any given date of calculation, (1) with respect to any Outstanding Bond or Parity Debt which is Current Interest Indebtedness or Convertible Capital Appreciation Indebtedness after the expiration of the Accretion Period thereof, the principal amount thereof, and (2) with respect to any Outstanding Bond or Parity Debt which is Capital Appreciation Indebtedness or Convertible Capital Appreciation Indebtedness at and prior to the expiration of the Accretion Period thereof, the Accreted Value thereof.
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“Bonds” means the City of Santa Clara Electric Revenue Bonds, authorized by, and at any time Outstanding pursuant to, the Indenture.
“Book Value ” means, when used in connection with the works, plant, properties, facilities or other part of the Electric Utility owned by the City or any real or personal property comprising a part of the Electric Utility owned by the City, the value of such works, plant, properties, facilities or other part of the Electric Utility owned by the City or real or personal property comprising a part of the Electric Utility owned by the City, net of accumulated depreciation, as it is carried on the books of the City and in conformity with Generally Accepted Accounting Principles Applicable to Governments. “Business Day” means any day other than (1) a Saturday, Sunday, or a day on which banking institutions in the State of California or the State of New York are authorized or obligated by law or executive order to be closed, and (2) for purposes of payments and other actions relating to Bonds secured by a letter of credit or other credit facility, a day upon which commercial banks in the city in which is located the office of the issuing bank at which demands for payment under the letter of credit or other credit facility are to be presented are authorized or obligated by law or executive order to be closed. “Capital Appreciation Indebtedness ” means Bonds and Parity Debt on which interest is compounded and paid less frequently than annually (not constituting Convertible Capital Appreciation Indebtedness).
“Certificate,” “ Statement,” “ Request,” “ Requisition” and “ Order” of the City mean, respectively, a written certificate, statement, request, requisition or order signed in the name of the City by an Authorized Officer or any other person authorized by an Authorized Officer to execute such instruments.
“City” means the City of Santa Clara, a chartered city of the State of California, organized and existing under and by virtue of the Constitution and laws of the State of California. “City Council” means the City Council of the City.
“Code” means the Internal Revenue Code of 1986, and the regulations issued thereunder, as the same may be amended from time to time, and any successor provisions of law . Reference to a particular section of the Code will be deemed to be a reference to any successor to any such section. “Convertible Capital Appreciation Indebtedness ” means any Bonds and Parity Debt as to which interest accruing is not paid prior to the expiration of the specified Accretion Period and, prior thereto, is compounded periodically on certain designated dates. “Costs of Issuance” means items of expense payable or reimbursable directly or indirectly by the City and related to the authorization, sale and issuance of the Bonds, which items of expense will include but not be limited to, printing costs, costs of reproducing documents, election costs, filing and recording fees, initial fees and charges of the Trustee, remarketing agents, or other agents, bond discounts, legal fees and charges, financial and other professional consultants’ fees, costs of credit ratings, municipal bond insurance premiums, bank letter of credit fees, fees and charges for execution, transportation and safekeeping of Bonds, costs and expenses of refunding and other costs, charges and fees in connection with the foregoing.
“Current Interest Indebtedness” means the Bonds and Parity Debt on which interest is paid at least annually.
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“Debt Service ” means the amount of principal and interest becoming due and payable on all Bonds and Parity Debt; provided, however, that for the purposes of computing Debt Service:
(a) Excluded Principal Payments will be excluded from such calculation and Assumed Debt Service will be included in such calculation; (b) if the Bonds or Parity Debt are Variable Rate Indebtedness, the interest rate thereon for periods when the actual interest rate cannot yet be determined will be assumed to be equal to the rate that is ninety percent (90%) of the average RBI during the twelve (12) calendar month period immediately preceding the date in which the calculation is made (the “assumed RBI-based rate”);
(c) principal and interest payments on Bonds and Parity Debt will be excluded to the extent such payments are to be paid from amounts on deposit with the Trustee or another fiduciary in escrow specifically therefor and to the extent that such interest payments are to be paid from the proceeds of Bonds or Parity Debt held by the Trustee or another fiduciary as capitalized interest;
(d) in determining the principal amount, payment will (unless a different subsection of this definition applies for purposes of determining principal maturities or amortization) be assumed to be made in accordance with any amortization schedule established for such debt, including any Mandatory Sinking Account Payments or any scheduled redemption or payment of Bonds or Parity Debt constituting Capital Appreciation Indebtedness or Convertible Capital Appreciation Indebtedness at or prior to the expiration of the Accretion Period on the basis of Accreted Value, and for such purpose, the redemption payment or payment of Accreted Value will be deemed a principal payment and interest that is compounded and paid as Accreted Value will be deemed due on the scheduled redemption or payment date of such Capital Appreciation Indebtedness or Convertible Capital Appreciation Indebtedness at or prior to the expiration of the Accretion Period;
(e) if any interest rate swap agreement is in effect with respect to, and is payable on a parity with, the Bonds or Parity Debt to which it relates, no amounts payable under such interest rate swap agreement will be included in the calculation of Debt Service unless the sum of (i) interest payable on such Bonds or Parity Debt, plus (ii) amounts payable by the City under such interest rate swap agreement, less (iii) amounts receivable by the City under such interest rate swap agreement are greater than the interest payable on the Bonds or Parity Debt to which it relates, then, in such instance, the amount of such payments to be made that exceed the interest to be paid on the Bonds or Parity Debt will be included in such calculation. For such purposes, the variable amount under any such interest rate swap agreement will be assumed to be equal to the assumed RBI-based rate; and
(f) if any Bonds or Parity Debt include an option or an obligation to tender all or a portion of such Bonds or Parity Debt to the City, the Trustee or another fiduciary or agent and require that such Bonds or Parity Debt or portion thereof be purchased if properly presented, then for purposes of determining the amounts of principal and interest due, the options or obligations to tender will be treated as a principal maturity occurring on the first date on which holders or owners thereof may or are required to t ender, except that any such option or obligation to tender will be ignored and not treated as a principal maturity, if (1) such Bonds or Parity Debt are rated in one of the two highest long- term Rating Categories by Moody’s and/or Fitch and by Standard & Poor’s or such Bonds or Parity Debt are rated in the highest short -term, note or commercial paper Rating Categories by Moody’s and/or Fitch and by Standard & Poor’s and (2) funds for the
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purchase price are to be provided by a letter of credit or standby bond purchase agreement and the obligation of the City with respect to the provider of such letter of credit or standby bond purchase agreement, other than its obligations on such Bonds or Parity Debt, will be subordinated to the obligation of the City on the Bonds and Parity Debt. “Electronic Means” means telecopy, facsimile transmission, e-mail transmission or other similar electronic means of communication providing evidence of transmission, including a telephonic communication confirmed by any other method set forth in this definition. “Engineer’s Report” means a report signed by an Independent Engineer. “Enterprise” or “ Electric Utility ” means the whole and each and every part of the existing electric energy system of the City, including facilities of others to which City has a special right to some of the output from or the use of such facilities, comprising all facilities for the generation, production, transmission and distribution of electric energy and otherwise conducting the business of the electric energy system of the City, together with all additions, betterments, extensions and improvements to such system, or any part thereof, hereafter acquired or constructed or financed; provided, however, that the term does not include any Special Facility which has not been designated by the City to be included as part of the Enterprise or Electric Utility under the Indenture. “Event of Default” means any of the events specified as such in the Indenture. “Excluded Principal Payments ” means each payment of principal (or the principal component of lease or installment purchase payments) of Bonds or Parity Debt which the City determines on a date not later than the date of issuance thereof that the City intends to pay with moneys which are not Revenues or Adjusted Net Revenues but from the proceeds of future debt obligations of the City and the Trustee may rely conclusively on such determination of the City. “Fiscal Year” means any twelve (12) consecutive calendar months commencing with the first day of July and ending on the last day of the following June or such other twelve -month period as the City Council may designate.
“Fitch” means Fitch Ratings, a corporation duly organized and existing under and by virtue of the laws of the State of Delaware, and its successors and assigns, except that if such a corporation will be dissolved or liquidated or will no longer perform the functions of a securities rating agency, then the term “Fitch” will be deemed to refer to any other nationally recognized securities rating agency selected by the City.
“Generally Accepted Accounting Principles Applicable to Governments” means generally accepted accounting principles applicable to governments as promulgated by the Governmental Accounting Standards Board or its successor.
“Indenture” means the Amended and Restated Electric Revenue Bond Indenture, dated as of March 1, 2011, by and between the Trustee and the City, as originally executed or as it may from time to time be supplemented or amended by any Supplemental Indenture delivered pursuant to the provisions of the Indenture.
“Independent Engineer ” means any registered engineer or firm of registered engineers of national reputation generally recognized to be well qualified in engineering matters relating to electric utility systems, appointed and paid by the City, and who or each of whom:
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(1) is in fact independent and not under the domination of the City; (2) does not have a substantial financial interest, direct or indirect, in the operations of the Electric Utility of the City; and
(3) is not connected with the City as a City Council member, officer or employee of the City, but may be regularly retained to make reports to the City. “Interest Fund” means the fund by that name established pursuant to the Indenture. “Investment Securities” means any permissible investments of funds of the City as stated in its current investment policy (copies of which the City should provide on a current basis to the Trustee) and to the extent then permitted by law.
“Mandatory Sinking Account Payment” means the amount required to be deposited by the City in a sinking account for the payment of Term Bonds.
“Moody’s” means Moody’s Investors Service, a corporation duly organized and existing under and by virtue of the laws of the State of Delaware, and its successors and assigns, except that if such corporation will be dissolved or liquidated or will no longer perform the functions of a securities rating agency, then the term “Moody’s” will be deemed to refer to any other nationally recognized securities rating agency selected by the City.
“Net Revenue Fund” means the Net Revenue Fund established pursuant to the Indenture. “Operating Expenses” means the reasonable and necessary costs of the nature of costs which have historically and customarily been accounted for as such in the operation of the Electric Utility and spent or incurred by the City for maintaining and operating the Enterprise, calculated in accordance with Generally Accepted Accounting Principles Applicable to Governments (unless otherwise inconsistent with this definition), including the cost of supply and transmission of electric energy under long- term contracts or otherwise, and all reasonable and necessary operating expenses, pension charges and proportionate payments to such compensation and other insurance and accident reserve funds as the City or the City Council may establish; expenses of management, maintenance and repair and other expenses to maintain and preserve the Enterprise in good repair and working order, and including all reasonable and necessary administrative costs of the City attributable to the Enterprise and the Bonds and Parity Debt, such as salaries and wages and the necessary contribution to retirement of employees, overhead, insurance, taxes (if any); expenses, compensation and indemnification of the Trustee, the trustee under Parity Debt and any paying agent or any other agents appointed pursuant thereto and fees of auditors, accountants, attorneys or engineers, and including all other reasonable and necessary costs of the City or charges required to be paid by it to comply with the terms of the Bonds or the Indenture or of any Parity Debt; but excluding depreciation, amortization, replacement and obsolescence charges or reserves therefor, interest expense and amortization of intangibles or other bookkeeping entries of a similar nature and costs and expenses attributable to Special Facilities. Anything contained in the Indenture to the contrary notwithstanding, “Operating Expenses” will include all amounts required to be paid by the City under contract with a joint powers agency for the purchase of capacity, energy, transmission capacity or any other commodity or service in connection with the foregoing, which contract requires payments by the City to be made thereunder to be treated as Operating Expenses. “Opinion of Bond Counsel” means a written opinion of counsel of recognized national standing in the field of law relating to municipal bonds, appointed and paid by the City and satisfactory to and approved by the Trustee (who will be under no liability by reason of such approval).
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“Outstanding,” when used as of any particular time with reference to Bonds, means (subject to the provisions of the Indenture) all Bonds theretofore, or thereupon being, authenticated and delivered by the Trustee under the Indenture except (1) Bonds theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation; (2) Bonds with respect to which all liability of the City shall have been discharged in accordance with the Indenture, including Bonds (or portions of Bonds) referred to under the provisions of the Indenture relating to moneys being held for the payment of particular Bonds ; and (3) Bonds for the transfer or exchange of or in lieu of or in substitution for which other Bonds shall have been authenticated and delivered by the Trustee pursuant to the Indenture. “Owner” or “ Bondholder” or “ Bondowner,” whenever used in the Indenture with respect to a Bond, means the person in whose name such Bond is registered. “Parity Debt ” means any indebtedness, installment sale obligation, lease obligation or other obligation of the City for borrowed money or interest rate swap agreement incurred in connection with the Enterprise having an equal lien and charge upon the Adjusted Net Revenues and therefore payable on a parity with the Bonds (whether or not any Bonds are Outstanding). “Principal Fund” means the fund by that name established pursuant to the Indenture. “Rate Stabilization Fund” means the fund by that name established pursuant to the Indenture. “Rating Agencies” means Moody’s, Standard & Poor’s & Fitch, as appropriate. “Rating Category” means (i) with respect to any long-term rating category, all ratings designated by a particular letter or combination of letters, without regard to any numerical modifier, plus or minus sign or other modifier and (ii) with respect to any short -term or commercial paper rating category, all ratings designated by a particular letter or combination of letters and taking into account any numerical modifier, but not any plus or minus sign or other modifier. “RBI” means the Bond Buyer Revenue Bond Index or comparable index of long -term municipal obligations chosen by the City, and, if no comparable index can be obtained, eighty percent (80%) of the interest rate on actively traded thirty (30) year United States Treasury obligations. “Rebate Fund” means the fund by that name established pursuant to the Indenture. “Redemption Fund” means the fund by that name established pursuant to the Indenture. “Redemption Price” means, with respect to any Bond (or portion thereof) the Bond Obligation thereof (or portion thereof) plus the applicable premium, if any, payable upon redemption thereof pursuant to the provisions of such Bond and the Indenture. “Resolution” means collectively, Resolution No. 4796, adopted by the City Council on May 8, 1984, as amended by Resolution No. 4804, adopted by the City Council on May 29, 1984, and as amended by Resolution No. 7313, adopted by the City Council on April 25, 2006, and, to the extent applicable to any Series, Resolution No. 4934, adopted by the City Council on April 30, 1985, as amended by Resolution No. 4966, adopted by the City Council on July 9, 1985, as supplemented by Resolution No. 4967, adopted by the City Council on July 9, 1985, and as amended by Resolution No. 7314, adopted by the City Council on April 25, 2006, each of which includes any supplemental procedural resolution adopted pursuant thereto.
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“Revenues” means all gross income and revenue received or receivable by the City from the ownership and operation of the Enterprise, calculated in accordance with Generally Accepted Accounting Principles Applicable to Governments, including all rates, fees and charges received by the City for electric energy service and all other income and revenue howsoever derived by the City from the Enterprise or arising from the Enterprise, and including any interest paid and other income derived from the investment of funds as provided in the Indenture, but excluding any gain or loss on the extinguishment of any debt of the City.
“Serial Bonds” means Bonds, maturing in specified years, for which no Mandatory Sinking Account Payments are provided.
“Series,” whenever used in the Indenture with respect to Bonds, means all of the Bonds designated as being of the same series, authenticated and delivered in a simultaneous transaction, regardless of variations in maturity, interest rate, redemption and other provisions, and any Bonds thereafter authenticated and delivered upon transfer or exchange or in lieu of or in substitution for (but not to refund) such Bonds as provided in the Indenture.
“Special Facility” means any facility hereinafter acquired by the City and designated by the City as such relating to or used in connection with the Enterprise, the cost of which is financed with the proceeds of Special Facility Bonds.
“Special Facility Bonds ” means bonds, notes or other evidences of indebtedness, including without limitation, certificates of participation in leases, installment sale agreements and other agreements issued or incurred by the City but excluding Bonds or Parity Debt, the proceeds of which were or are to be applied to the costs of any Special Facility (including the refinancing of such costs) and which are payable solely from all or a portion of the rentals, installment payments or other payments received in respect of the revenues derived from such Special Facility. “Standard & Poor’s” means Standard & Poor’s, a corporation duly organized and existing under and by virtue of the laws of the State of New York, and its successors and assigns, except that if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, then the term “Standard & Poor’s” shall be deemed to refer to any other nationally recognized securities rating agency selected by the City.
“Supplemental Indenture ” means any indenture hereafter duly executed and delivered, supplementing, modifying or amending the Indenture, but only if and to the extent that such Supplemental Indenture is specifically authorized under the Indenture. “Tax Certificate” means the Tax Certificate concerning certain matters pertaining to the use and investment of proceeds of a Series of Bonds executed and delivered by the City on the date of initial delivery of such Series of Bonds, including any and all exhibits attached thereto. “Term Bonds ” means Bonds payable at or before their specified maturity date or dates from Mandatory Sinking Account Payments established for that purpose and calculated to retire such Bonds on or before their specified maturity date or dates.
“Trustee” means The Bank of New York Trust Company, N.A. or any other association or corporation which may at any time be substituted in its place as provided in the Indenture.
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“Variable Rate Indebtedness” means any indebtedness the interest rate on which is not fixed at the time of incurrence of such indebtedness, and has not at some subsequent date been fixed, at a single numerical rate for the entire remaining term of the indebtedness.
Pledge of Adjusted Net Revenues
The Bonds are revenue obligations of the City and are payable as to both principal and interest, and any premium upon redemption thereof, exclusively from the Adjusted Net Revenues and other funds pledged under the Indenture. All Adjusted Net Revenues are pledged to secure the payment of the principal of and redemption premium, if any, and interest on the Bonds and any Parity Debt in accordance with their terms, subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth in the Indenture. There are pledged to secure the payment of the principal of and redemption premium, if any, and interest on the Bonds and Parity Debt in accordance with their terms all amounts (including proceeds of the Bonds) held by the Trustee under the Indenture (except for amounts held in the Rebate Fund), subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth in the Indenture. Said pledge will constitute a first lien on the Adjusted Net Revenues and amounts in such funds and shall be valid and binding from and after delivery by the Trustee of the Bonds or Parity Debt, without any physical delivery thereof or further act.
The Adjusted Net Revenues are pledged to the payment of Bonds and Parity Debt without priority or distinction of one over the other and the Adjusted Net Revenues constitute a trust fund for the security and payment of the Bonds and Parity Debt; but nevertheless out of Adjusted Net Revenues certain amounts may be applied for other purposes as provided in the Indenture.
Out of Adjusted Net Revenues there shall be applied as set forth in the Indenture all sums required for the payment of the principal of (including any premium thereon) and interest on the Bonds and all Parity Debt, together with any sinking fund payments of Bonds and Parity Debt and reserve fund requirements with respect thereto . All remaining Adjusted Net Revenues, after making the foregoing allocation, will be available to the City for all lawful City purposes, including the payment of all amounts required to be paid under any other resolution, indenture or other agreement of the City for principal, interest, reserve fund and any other debt service requirements on subordinate obligations of the City, to all of which the Bonds and Parity Debt are superior in right of payment . The pledge of Adjusted Net Revenues made in the Indenture will be irrevocable until all of the Bonds and all Parity Debt are no longer Outstanding.
In order to carry out and effectuate the obligations of the City contained in the Indenture to pay the Bonds, as long as any Bonds are Outstanding, the City agrees and covenants that all Adjusted Net Revenues received by it will be deposited when and as received in a special fund, separate and apart from other moneys of the City designated the “City of Santa Clara Electric Utility Net Revenue Fund” (the “Net Revenue Fund”) . If and to the extent the City has determined that amounts on deposit in the Rate Stabilization Fund or any Available Reserves of the Enterprise are to be included in Adjusted Net Revenues for any Fiscal Year for purposes of complying with the rate covenant in the Indenture in accordance with the definition of “Adjusted Net Revenues” contained in the Indenture, such amounts will be deposited by the City in the Net Revenue Fund at the time of such determination. Investment income on amounts held by the City under the Indenture (other than amounts held in the Rebate Fund or for which particular instructions are provided in a Supplemental Indenture) will also be deposited in the Net Revenue Fund. All moneys at any time held in the Net Revenue Fund shall be held in trust for the benefit of the Owners of the Bonds and Parity Debt and will be disbursed, allocated and applied solely for the uses and purposes set forth in the Indenture.
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Allocation of Adjusted Net Revenues
So long as any Bonds are Outstanding, the City will transfer the moneys in the Net Revenue Fund into the following respective funds (each of which the Trustee shall establish, maintain and hold in trust for the benefit of the Owners of the Bonds) in the following amounts, in the following order of priority, the requirements of each such fund (including the making up of any deficiencies in any such fund resulting from lack of Adjusted Net Revenues sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any deposit is made to any fund subsequent in priority; provided that on a parity with such deposits the Trustee may set aside or transfer amounts with respect to outstanding Parity Debt as provided in the proceedings for such Parity Debt (which will be proportionate in the event such amounts are insufficient to provide for all deposits required as of any date to be made with respect to the Bonds and such Parity Debt):
(1) Interest Fund. The City will transfer to the Trustee and the Trustee will set aside in the Interest Fund on or before the Business Day prior to each interest payment date therefor an amount equal to the interest becoming due and payable on the Outstanding Bonds which are Current Interest Indebtedness or Convertible Capital Appreciation Indebtedness after the expiration of the Accretion Period (excluding any interest for which there are moneys on deposit in the Interest Fund from the proceeds of any Series of Bonds or other source to pay such interest).
(2) Principal Fund; Sinking Accounts . The City will transfer to the Trustee and the Trustee will set aside in the Principal Fund on or before the Business Day prior to each principal or Sinking Account payment date therefor an amount equal to (a) the amount of Bond Obligation becoming due and payable on the Outstanding Serial Bonds, plus (b) the Mandatory Sinking Account Payments to be paid into the respective Sinking Accounts for the Term Bonds; provided that if the City certifies to the Trustee that any principal payments are expected to be refunded on or prior to their respective due dates or paid from excess amounts on deposit in a bond reserve fund upon such payment, no amounts need be set aside towards such principal to be so refunded or paid. All of the aforesaid Mandatory Sinking Account Payments will be made without priority of any payment into any one such Sinking Account over any other such payment.
Any Adjusted Net Revenues remaining in the Net Revenue Fund after the foregoing transfers, except as otherwise provided in a Supplemental Indenture, will be held free and clear of the Indenture by the City and it may use and apply such Adjusted Net Revenues for any lawful purpose of the City, including the replenishment of any reserve fund for any Series of Bonds and the redemption of Bonds upon the terms and conditions set forth in the Supplemental Indenture relating to such Bonds and the purchase of Bonds as and when and at such prices as it may determine.
If on any principal payment date, interest payment date or mandatory redemption date the amounts on deposit in the Interest Fund and Principal Fund, including the Sinking Accounts therein are insufficient to make such payments, the Trustee will immediately notify the City, by telephone or facsimile machine, of such deficiency and direct that the City transfer the amount of such deficiency to the Trustee on such payment date . The City covenants and agrees to transfer to the Trustee from any Adjusted Net Revenues in its possession the amount of such deficiency on the principal, interest or mandatory redemption date referenced in such notice.
All amounts in the Interest Fund will be used and withdrawn by the Trustee solely for the purpose of paying interest on the Bonds as it will become due and payable (including accrued interest on any Bonds purchased or redeemed prior to maturity pursuant to the Indenture) and making payments on interest rate swap agreements, as provided in the Indenture.
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All amounts in the Principal Fund will be used and withdrawn by the Trustee solely for the purposes of paying the Bond Obligation of the Bonds when due and payable, except that all amounts in the Sinking Accounts will be used and withdrawn by the Trustee solely to purchase or redeem or pay at maturity Term Bonds, as provided in the Indenture.
The Trustee will establish and maintain within the Principal Fund a separate sinking account for the Term Bonds of each Series and maturity. On or before the Business Day prior to any date upon which a Mandatory Sinking Account Payment is due, the Trustee will transfer the amount of such Mandatory Sinking Account Payment (being the principal thereof, in the case of Current Interest Bonds or Convertible Capital Appreciation Indebtedness after the expiration of the Accretion Period, and the Accreted Value, in the case of Capital Appreciation Bonds or Convertible Capital Appreciation Indebtedness at or prior to the expiration of the Accretion Period) from the Principal Fund to the applicable Sinking Account. With respect to each Sinking Account, on each Mandatory Sinking Account Payment date established for such Sinking Account, the Trustee will apply the Mandatory Sinking Account Payment required on that date to the redemption of Term Bonds of such Series and maturity for which such Sinking Account was established, in the manner provided in the Supplemental Indenture pursuant to which such Series of Bonds was created; provided that, at any time prior to giving such notice of such redemption, the Trustee will, upon receipt of a Request of the City, apply moneys in such Sinking Account to the purchase of Term Bonds of such Series and maturity at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Fund) as is directed by the City, except that the purchase price (excluding accrued interest, in the case of Current Interest Bonds) will not exceed the principal amount or Accreted Value thereof. If the Trustee has purchased Term Bonds of such Series and maturity with moneys in such Sinking Account, or purchased or redeemed Term Bonds of such Series and maturity at any time from the Redemption Fund and allocable to said Mandatory Sinking Account Payment, or if the City has purchased or otherwise acquired Term Bonds and deposited such Term Bonds with the Trustee, such Term Bonds so purchased or deposited or redeemed by the Trustee or the City will be applied, to the extent of the full principal amount thereof, to reduce said Mandatory Sinking Account Payment. All Term Bonds purchased or deposited pursuant to this provision will be cancelled and destroyed by the Trustee .
Any amounts remaining in a Sinking Account when all of the Term Bonds for which such account was established are no longer Outstanding shall be withdrawn by the Trustee and transferred to the City to be deposited in the Net Revenue Fund. All Term Bonds so purchased will be allocated first to the next succeeding Mandatory Sinking Account Payment for such Series and maturity of Term Bonds, then as a credit against such future Mandatory Sinking Account Payments for such Series and maturity of Term Bonds as may be specified in a Request of the City . All Term Bonds redeemed from the Redemption Fund shall be credited to such future Mandatory Sinking Account Payments for such Series and maturity of Term Bonds as may be specified in a Request of the City.
The Trustee shall establish, maintain and hold in trust a special fund designated as the “Redemption Fund” when required. All moneys deposited by the City with the Trustee for the purpose of optionally redeeming Bonds of any Series will, unless otherwise directed by the City, be deposited in the Redemption Fund. All amounts deposited in the Redemption Fund will be used and withdrawn by the Trustee solely for the purpose of redeeming Bonds of such Series, in the manner, at the times and upon the terms and conditions specified in the Supplemental Indenture pursuant to which such Series of Bonds was created; provided that, at any time prior to giving notice of such redemption, the Trustee shall, upon receipt of a Request of the City, apply such amounts to the purchase of Bonds of such Series at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding, in the case of Current Interest Bonds, accrued interest, which is payable from the Interest Account) as is directed by the City, except that the purchase price (exclusive of such accrued interest) may not exceed the Redemption Price then applicable to such Bonds . All Term Bonds purchased or redeemed from the
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Redemption Fund shall be allocated to Mandatory Sinking Account Payments applicable to such Series and maturity of Term Bonds as may be specified in a Request of the City.
Rate Stabilization Fund
There is established a City of Santa Clara Electric Utility Rate Stabilization Fund (the “Rate Stabilization Fund”), which fund is a continuation of the Rate Stabilization Fund Reserve Account established by the City pursuant to Resolution No. 6106 of the City Council adopted on January 16, 1996 and which fund the City agrees to maintain so long as any Bonds remain unpaid. The City may at any time deposit in the Rate Stabilization Fund from any available Adjusted Net Revenues and/or any other money available to be used therefor such amounts as the City may determine; provided, that notwithstanding the foregoing, no Adjusted Net Revenues shall be deposited in the Rate Stabilization Fund in any Fiscal Year to the extent that such amounts are required for purposes of making the transfers required for the payment of debt service described in the Indenture for such Fiscal Year. The City may at any time withdraw any or all of the money on deposit in the Rate Stabilization Fund for inclusion in Adjusted Net Revenues for purposes of the calculation set forth in the rate covenant in the Indenture for any Fiscal Year in such amount as approved by City Council. Any amounts withdrawn from the Rate Stabilization Fund for such purpose shall be transferred to the Net Revenue Fund in accordance with the Indenture. The City may also at any time withdraw or apply amounts on deposit in the Rate Stabilization Fund for any other legal purpose. All interest or other earnings upon deposits in the Rate Stabilization Fund will be accounted for as Adjusted Net Revenues.
Investments
All moneys in any of the funds and accounts held by the Trustee and established pursuant to the Indenture will be invested, as directed by the City, solely in Investment Securities . All Investment Securities will, as directed by the City in writing or by telephone, promptly confirmed in writing, be acquired subject to the limitations as to maturities set forth in the Indenture and such additional limitations or requirements consistent with the foregoing as may be established by Request of the City.
Unless otherwise provided in a Supplemental Indenture, all interest, profits and other income received from the investment of moneys in any fund or account, other than the Rebate Fund, shall be transferred to the Adjusted Net Revenue Fund when received. All interest, profits and other income received from the investment of moneys in the Rebate Fund shall be deposited in the Rebate Fund, except as provided in the Indenture . Notwithstanding anything to the contrary contained in this paragraph, an amount of interest received with respect to any Investment Security equal to the amount of accrued interest, if any, paid as part of the purchase price of such Investment Security shall be credited to the fund or account from which such accrued interest was paid.
The Trustee may commingle any of the funds or accounts established pursuant to the Indenture into a separate fund or funds for investment purposes only, provided that all funds or accounts held by the Trustee hereunder shall be accounted for separately as required by the Indenture. The Trustee may act as principal or agent in the making or disposing of any investment and, with the prior written consent of the City may impose its customary charge therefor . The Trustee may sell at the best price obtainable, or present for redemption, any Investment Securities so purchased whenever it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund or account to which such Investment Security is credited, and the Trustee shall not be liable or responsible for any loss resulting from such investment sale or redemption.
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The City may and the Trustee will, upon the Request of the City, enter into a financial futures or financial option contract with an entity the debt securities of which are rated in their respective highest short-term Rating Categories by Moody’s and/or Fitch and Standard & Poor’s.
The City may and the Trustee will, upon the Request of the City, and provided that the Trustee is supplied with an Opinion of Bond Counsel to the effect that such action is permitted under the laws of the State of California, enter into an interest rate swap agreement corresponding to the interest rate or rates payable on a Series of Bonds or any portion thereof and the amounts received by the City or the Trustee, if any, pursuant to such a swap agreement may be applied to the deposits required under the Indenture; in which case, the entity with which the City or the Trustee may contract for an interest rate swap is limited to entities the debt securities of which are rated in their respective highest short -term debt Rating Categories by Moody’s and/or Fitch and Standard & Poor’s . If the City so designates, amounts payable under the interest rate swap agreement will be secured by Adjusted Net Revenues and other assets pledged under the Indenture to the Bonds on a parity basis therewith and, in such event, the City will pay to the Trustee for deposit in the Interest Fund, at the times and in the manner provided in the Indenture, the amounts to be paid under such interest rate swap agreement, as if such amounts were additional interest due on the Bonds to which such interest rate swap agreement relates, and the Trustee will pay to the other party to the interest rate swap agreement, to the extent required thereunder, from amounts deposited in the Interest Fund for the payment of interest on the Bonds with respect to which such agreement was entered into.
Covenants
Pursuant to the Indenture, the City has covenanted as follows:
Punctual Payment. The City will punctually pay or cause to be paid the principal or Redemption Price of and interest on all the Bonds, in strict conformity with the terms of the Bonds and of the Indenture, according to the true intent and meaning thereof, and will punctually pay or cause to be paid all Mandatory Sinking Account Payments, but in each case only out of Adjusted Net Revenues as provided in the Indenture.
Extension of Payment of Bonds . The City will not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any Bonds or claims for interest by the purchase or funding of such Bonds or claims for interest or by any other arrangement and in case the maturity of any of the Bonds or the time of payment of any such claims for interest shall be extended, such Bonds or claims for interest will not be entitled, in case of any default under the Indenture, to the benefits of the Indenture, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest thereon which shall not have been so extended . Nothing in this Section will be deemed to limit the right of the City to issue bonds for the purpose of refunding any Outstanding Bonds, and such issuance will not be deemed to constitute an extension of maturity of Bonds.
Additional Bonds. The City may issue Bonds and/or Parity Debt so long as no Event of Default exists at the time of issuance thereof.
Further Assurances. The City will make, execute and deliver any and all such instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the Indenture and for the better assuring and confirming unto the owners of the Bonds of the rights and benefits provided in the Indenture.
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Against Encumbrances . The City will not create any pledge, lien or charge upon any of the Adjusted Net Revenues having priority over the lien of the Bonds; provided, however, that nothing in the Indenture will be construed to limit the ability of the City to issue or incur obligations secured by charges, not constituting Adjusted Net Revenues, collected by any person to amortize or otherwise relating to the payment of the “stranded costs” of the Electric Utility or of any joint powers agency in which the City participates which the City has dedicated to the payment of obligations other than the Bonds, the payments of which charges will be applied to or pledged to or otherwise set aside for the reduction or retirement of outstanding obligations of the City or any joint powers agency in which the City participates relating to such “stranded costs” of the City or of any such joint powers agency to the extent such “stranded costs” are attributable to, or the responsibility of, the City.
The City will pay or cause to be paid when due all sums of money that may become due or purporting to be due for any labor, services, materials, supplies or equipment furnished, or alleged to have been furnished, to or for the City in, upon, about or relating to the Electric Utility and will keep the Electric Utility free of any and all liens against any portion of the Electric Utility . In the event any such lien attaches to or is filed against any portion of the Electric Utility, the City will cause each such lien to be fully discharged and released at the time the performance of any obligation secured by any such lien matures or becomes due, except that if the City desires to contest any such lien it may do so if contesting such lien will not materially impair operation of the Electric Utility . If any such lien shall be reduced to final judgment and such judgment or any process as may be issued for the enforcement thereof is not promptly stayed, or if so stayed and such stay thereafter expires, the City will forthwith pay or cause to be paid and discharged such judgment.
Sale or Other Disposition of Property; Sale of Enterprise . The City will not sell, transfer or otherwise dispose of any of the works, plant, properties, facilities or other part of the Electric Utility owned by the City or any real or personal property comprising a part of the Electric Utility owned by the City if such sale, transfer or disposition would cause the City to be unable to satisfy the requirements of the rate covenant contained in the Indenture . Any such sale, transfer or disposition constituting the sale, transfer or disposition of in excess of 20% of the Book Value of the works, plant, properties, facilities or other part of the Electric Utility owned by the City or any real or personal property comprising a part of the Electric Utility owned by the City shall be accompanied by (i) projected results of operations of the Electric Utility prepared by the City for the term of the Outstanding Bonds (taking into account any defeasance, redemption, purchase or retirement of Bonds in accordance with the next succeeding sentence) which evidence the ability of the City to satisfy the requirements of the rate covenant contained in the Indenture for such period, and (ii) an Engineer’s Report concluding that the assumptions used by the City in preparing such projected results of operations of the Electric Utility as they relate to the future operation of the Electric Utility are reasonable . Any proceeds received from the sale of any of the works, plant, properties, facilities or other part of the Electric Utility or any real or personal property comprising a part of the Electric Utility which were financed with the proceeds of Bonds or Parity Debt will be applied by the City to the defeasance, redemption, purchase or retirement of Bonds or Parity Debt . The City may sell, transfer or otherwise dispose of the entire Electric Utility at any time provided that adequate provision is made for the payment of any Outstanding Bonds (including, if applicable, the imposition of any charges collected by any person to amortize or otherwise relating to the payment of “stranded costs” of the Electric Utility or of any joint powers agency in which the City participates which the City has dedicated to the payment of the Bonds the imposition of which will amortize the payment in full of such Outstanding Bonds through the maturity thereof).
Accounting Records and Financial Statements . The City will at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with Generally Accepted Accounting Principles Applicable to Governments, in which complete and accurate entries will be made of all
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transactions relating to the Adjusted Net Revenues. Such books of record and account will be available for inspection by the Trustee at reasonable hours and under reasonable circumstances.
Tax Covenants. The City covenants with the Owners of the Bonds that, notwithstanding any other provisions of the Indenture, it will not take any action, or fail to take any action, if any such action or failure to take action would adversely affect the exclusion from gross income of interest on the Bonds under Section 103 of the Code. The City will not, directly or indirectly, use or permit the use of proceeds of the Bonds or any of the property financed or refinanced with proceeds of the Bonds, or any portion thereof, by any person other than a governmental unit (as such term is used in Section 141 of the Code), in such manner or to such extent as would result in the loss of exclusion from gross income for federal income tax purposes of interest on the Bonds.
The City will not take any action, or fail to take any action, if any such action or failure to take action would cause the Bonds to be “private activity bonds” within the meaning of Section 141 of the Code, and in furtherance thereof, will not make any use of the proceeds of the Bonds or any of the property financed or refinanced with proceeds of the Bonds, or any portion thereof, or any other funds of the City, that would cause the Bonds to be “private activity bonds” within the meaning of Section 141 of the Code. To that end, so long as any Bonds are Outstanding, the City, with respect to such proceeds and property and such other funds, will comply with applicable requirements of the Code and all regulations of the United States Department of the Treasury issued thereunder, to the extent such requirements are, at the time, applicable and in effect . The City will establish reasonable procedures necessary to ensure continued compliance with Section 141 of the Code and the continued qualification of the Bonds as “governmental bonds.”
The City will not, directly or indirectly, use or permit the use of any proceeds of any Bonds, or of any property financed or refinanced thereby, or other funds of the City, or take or omit to take any action, that would cause the Bonds to be “arbitrage bonds” within the meaning of Section 148 of the Code . To that end, the City will comply with all requirements of Section 148 of the Code and all regulations of the United States Department of the Treasury issued thereunder to the extent such requirements are, at the time, in effect and applicable to the Bonds.
The City will not make any use of the proceeds of the Bonds or any other funds of the City, or take or omit to take any other action, that would cause the Bonds to be “federally guaranteed” within the meaning of Section 149(b) of the Code.
In furtherance of the foregoing tax covenants, the City covenants that it will comply with the provisions of the Tax Certificate, which is incorporated in the Indenture as if fully set forth in the Indenture. Such tax covenants will survive payment in full or defeasance of the Bonds.
Rates and Charges . The City will, at all times while any of the Bonds remain Outstanding, fix, prescribe and collect rates, fees and charges in connection with the services and facilities furnished by the Electric Utility so as to yield Revenues in each Fiscal Year sufficient so that Adjusted Net Revenues for such year will be at least equal to 1.0 times the amount of Debt Service on all Bonds and Parity Debt for such Fiscal Year.
The City will have in effect at all times rules and regulations requiring each consumer or customer located on any premises connected with the Enterprise to pay the rates and charges applicable to the Enterprise provided to such premises and providing for the billing thereof and for a due date and a delinquency date for each bill. The City will not permit any part of the Enterprise or any facility thereof to be used or taken advantage of free of charge by any corporation, firm or person, or by any public agency (including the United States of America, the State of California and any city, county, district, political
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subdivision, public corporation or agency of any thereof) . Nothing in the Indenture will prevent the City, in its sole and exclusive discretion, from permitting other parties from selling electricity to retail customers within the service area of the Enterprise; provided, however, that permitting such sales will not relieve the City of its obligations under the Indenture.
Maintenance and Operation of Electric Utility; Insurance . The City will maintain and preserve the Electric Utility in good repair and working order at all times, and will operate the Electric Utility in an efficient and economical manner. Subject in each case to the condition that insurance is obtainable at rates deemed reasonable by the City and upon terms and conditions deemed reasonable by the City, the City will procure and maintain at all times: (a) insurance on the Electric Utility against such risks as and in such amounts as the City deems prudent taking into account insurance coverage for similar utilities, and (b) public liability insurance, including self-insurance, as appropriate, in such amounts as the City deems prudent taking into account insurance coverage for similar utilities.
Events of Default; Remedies
Events of Default. The following events will be Events of Default under the Indenture:
(a) default in the due and punctual payment of the principal or Redemption Price of any Bond when and as the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption, by declaration or otherwise, or default in the redemption from any Sinking Account of any Bonds in the amounts and at the times provided therefor;
(b) default in the due and punctual payment of any installment of interest on any Bond when and as such interest installment shall become due and payable; (c) if the City shall fail to observe or perform any covenant, condition, agreement or provision in the Indenture on its part to be observed or performed, other than as referred to in subsection (a) or (b) of this Section, for a period of sixty (60) days after written notice, specifying such failure and requesting that it be remedied, has been given to the City by the Trustee; except that, if such failure can be remedied but not within such sixty (60) day period and if the City has taken all action reasonably possible to remedy such failure within such sixty (60) day period, such failure will not become an Event of Default for so long as the City will diligently proceed to remedy the same in accordance with and subject to any directions or limitations of time established by the Trustee;
(d) if any default shall exist under any agreement governing any Parity Debt and such default will continue beyond the therein stated grace period, if any, with respect to such default;
(e) [Reserved];
(f) if the City files a petition in voluntary bankruptcy, for the composition of its affairs or for its corporate reorganization under any state or federal bankruptcy or insolvency law, or makes an assignment for the benefit of creditors, or admits in writing to its insolvency or inability to pay debts as they mature, or consents in writing to the appointment of a trustee or receiver for itself;
(g) if a court of competent jurisdiction shall enter an order, judgment or decree declaring the City insolvent, or adjudging it bankrupt, or appointing a trustee or receiver of the
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City or the Enterprise or the Adjusted Net Revenues, or approving a petition filed against the City seeking reorganization of the City under any applicable law or statute of the United States of America or any state thereof, and such order, judgment or decree shall not be vacated or set aside or stayed within sixty (60) days from the date of the entry thereof; and (h) if, under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction shall assume custody or control of the City, the Enterprise or of the Adjusted Net Revenues, and such custody or control shall not be terminated within sixty (60) days from the date of assumption of such custody or control.
Application of Adjusted Net Revenues and Other Funds After Default; Acceleration. If an Event of Default shall occur and be continuing, the City will immediately transfer to the Trustee all Adjusted Net Revenues held by it and received thereafter and the Trustee will apply all Adjusted Net Revenues and any other funds then held or thereafter received by the Trustee under any of the provisions of the Indenture (except as otherwise provided in the Indenture) as follows and in the following order:
(1) To the payment of any expenses necessary in the opinion of the Trustee to protect the interests of the Owners of the Bonds and Parity Debt, including the fees, costs and expenses of the Trustee and the Bondholders in declaring such Event of Default, and payment of reasonable fees and expenses of the Trustee (including reasonable fees and disbursements of its counsel and other agents) incurred in and about the performance of its powers and duties under the Indenture;
(2) To the payment of the whole amount of Bond Obligation then due on the Bonds and Parity Debt (upon presentation of the Bonds and Parity Debt to be paid, and stamping thereon of the payment if only partially paid, or surrender thereof if fully paid) subject to the provisions of the Indenture, with interest on such Bond Obligation, at the rate or rates of interest borne by the respective Bonds and Parity Debt, to the payment to the persons entitled thereto of all installments of interest then due and the unpaid principal or Redemption Price of any Bonds and Parity Debt which shall have become due, whether at maturity or by call for redemption, in the order of their due dates, with interest on the overdue Bond Obligation and Parity Debt at the rate borne by the respective Bonds and Parity Debt, and, if the amount available will not be sufficient to pay in full all the Bonds and Parity Debt due on any date, together with such interest, then to the payment thereof ratably, according to the amounts of principal or, interest or Accreted Value due on such date to the persons entitled thereto, without any discrimination or preference.
In each and every such case during the continuance of such Event of Default, the Trustee or the Owners of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding will be entitled, upon notice in writing to the City, to declare the Bond Obligation of all of the Bonds then Outstanding, and the interest accrued thereon, to be due and payable immediately, and upon any such declaration the same will become and will be immediately due and payable.
This provision, however, is subject to the condition that if, at any time after the Bond Obligation of the Bonds shall have been so declared due and payable, the City will pay to or will deposit with the Trustee a sum sufficient to pay all the Bond Obligation on such Bonds matured prior to such declaration and all matured installments of interest (if any) upon all the Bonds, and the reasonable expenses of the Trustee, and any and all other defaults known to the Trustee (other than in the payment of principal of and interest on the Bonds due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee, or provision deemed by the Trustee to be adequate shall have been made therefor, then, and in every such case, the Owners of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding, by written notice to the City and to the Trustee, may, on
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behalf of the Owners of all the Bonds, rescind and annul such declaration and its consequences; but no such rescission and annulment will extend to or will affect any subsequent default, or will impair or exhaust any right or power consequent thereon.
Trustee to Represent Bondholders. The Trustee is irrevocably appointed (and the successive respective Owners of the Bonds, by taking and holding the same, will be conclusively deemed to have so appointed the Trustee) as trustee and true and lawful attorney -in-fact of the Owners of the Bonds for the purpose of exercising and prosecuting on their behalf such rights and remedies as may be available to such Owners under the provisions of the Bonds, the Indenture, the Bond Law and applicable provisions of any other law. Upon the occurrence and continuance of an Event of Default or other occasion giving rise to a right in the Trustee to represent the Bondholders, the Trustee in its discretion may, and upon the written request of the Owners of not less than twenty -five percent (25%) in aggregate amount of Bond Obligation of the Bonds then Outstanding, and upon being indemnified to its satisfaction therefor, will, proceed to protect or enforce its rights or the rights of such Owners by such appropriate action as it shall deem most effectual to protect and enforce any such right.
Bondholders’ Direction of Proceedings . Anything in the Indenture to the contrary notwithstanding, the Owners of a majority in aggregate amount of Bond Obligation of the Bonds then Outstanding will have the right, by an instrument or concurrent instruments in writing executed and delivered to the Trustee and upon furnishing the Trustee with indemnification satisfactory to it, to direct the method of conducting all remedial proceedings taken by the Trustee under the Indenture, provided that such direction will not be otherwise than in accordance with law and the provisions of the Indenture, that the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and that the Trustee will have the right to decline to follow any such direction which in the opinion of the Trustee would be unjustly prejudicial to Bondholders or holders of Parity Debt not parties to such direction.
Limitation on Bondholders’ Right to Sue . No Owner of any Bond will have the right to institute any suit, action or proceeding at law or in equity, for the protection or enforcement of any right or remedy under the Indenture, the Bond Law or any other applicable law with respect to such Bond, unless (1) such Owner shall have given to the Trustee written notice of the occurrence of an Event of Default; (2) the Owners of not less than twenty -five percent (25%) in aggregate amount of Bond Obligation of the Bonds then Outstanding shall have made written request upon the Trustee to exercise the powers granted under the Indenture or to institute such suit, action or proceeding in its own name; (3) such Owner or Owners shall have tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee shall have refused or omitted to comply with such request for a period of sixty (60) days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee; and (5) the Trustee shall not have received contrary directions from the Owners of a majority in aggregate amount of Bond Obligation of the Bonds then Outstanding.
Such notification, request, tender of indemnity and refusal or omission are, in every case, to be conditions precedent to the exercise by any Owner of Bonds of any remedy under the Indenture or under law; it being understood and intended that no one or more Owners of Bonds will have any right in any manner whatever by his or their action to affect, disturb or prejudice the security of the Indenture or the rights of any other Owners of Bonds, or to enforce any right under the Indenture, the Bond Law or other applicable law with respect to the Bonds, except in the manner in the Indenture provided, and that all proceedings at law or in equity to enforce any such right will be instituted, had and maintained in the manner provided in the Indenture and for the benefit and protection of all Owners of the Outstanding Bonds, subject to the provisions of the Indenture.
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Absolute Obligation of the City . Nothing in the Indenture, or in the Bonds, contained will affect or impair the obligation of the City, which is absolute and unconditional, to pay the principal or Redemption Price of and interest on the Bonds to the respective Owners of the Bonds at their respective dates of maturity, or upon call for redemption, as provided in the Indenture, but only out of the Adjusted Net Revenues, or affect or impair the right of such Owners, which is also absolute and unconditional, to enforce such payment by virtue of the contract embodied in the Bonds.
Termination of Proceedings . In case any proceedings taken by the Trustee or any one or more Bondholders on account of any Event of Default shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Trustee or the Bondholders, then in every such case the City, the Trustee and the Bondholders, subject to any determination in such proceedings, will be restored to their former positions and rights under the Indenture, severally and respectively, and all rights, remedies, powers and duties of the City, the Trustee and the Bondholders will continue as though no such proceedings had been taken.
Remedies Not Exclusive. No remedy in the Indenture conferred upon or reserved to the Trustee or to the Owners of the Bonds is intended to be exclusive of any other remedy or remedies, and each and every such remedy, to the extent permitted by law, will be cumulative and in addition to any other remedy given under the Indenture or now or hereafter existing at law or in equity or otherwise.
No Waiver of Default . No delay or omission of the Trustee or of any Owner of the Bonds to exercise any right or power arising upon the occurrence of any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein; and every power and remedy given by the Indenture to the Trustee or to the Owners of the Bonds may be exercised from time to time and as often as may be deemed expedient.
The Trustee
Appointment; Duties, Immunities and Liabilities of Trustee. The Bank of New York Mellon Trust Company, N.A. is appointed as Trustee under the Indenture and accepts the trust imposed upon it as Trustee under the Indenture and to perform all the functions and duties of the Trustee under the Indenture, subject to the terms and conditions set forth in the Indenture . The Trustee will, prior to an Event of Default, and after the curing of all Events of Default which may have occurred, perform such duties and only such duties as are specifically set forth in the Indenture and no implied covenants will be read into the Indenture against the Trustee. The Trustee will, during the existence of any Event of Default (which has not been cured), exercise such of the rights and powers vested in it by the Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs.
The City may remove the Trustee at any time unless an Event of Default shall have occurred and then be continuing, and shall remove the Trustee if at any time requested to do so by an instrument or concurrent instruments in writing signed by the Owners of not less than a majority in aggregate amount of Bond Obligation of the Bonds then Outstanding (or their attorneys duly authorized in writing) or if at any time the Trustee shall cease to be eligible in accordance with the Indenture, or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or its property shall be appointed, or any public officer shall take control or charge of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, in each case by giving written notice of such removal to the Trustee, and thereupon shall appoint a successor Trustee by an instrument in writing.
The Trustee may at any time resign by giving written notice of such resignation to the City and by giving the Bondholders notice of such resignation by mail at the addresses shown on the registration
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books maintained by the Trustee . Upon receiving such notice of resignation, the City shall promptly appoint a successor Trustee by an instrument in writing.
Any removal or resignation of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee . If no successor Trustee shall have been appointed and have accepted appointment within forty- five (45) days of giving notice of removal or notice of resignation as aforesaid, the resigning Trustee or any Bondholder (on behalf of himself and all other Bondholders) may petition any court of competent jurisdiction for the appointment of a successor Trustee, and such court may thereupon, after such notice (if any) as it may deem proper, appoint such successor Trustee.
Any Trustee appointed under the provisions of the Indenture in succession to the Trustee shall be a trust company or bank having the powers of a trust company having a corporate trust office in the State, having a combined capital and surplus of at least fifty million dollars ($50,000,000) and subject to supervision or examination by federal or state authority. If such bank or trust company publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purpose of the Indenture the combined capital and surplus of such bank or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published . In case at any time the Trustee shall cease to be eligible in accordance with the provisions of the Indenture, the Trustee shall resign immediately in the manner and with the effect specified in the Indenture.
If, by reason of the judgment of any court, the Trustee or any successor Trustee is rendered unable to perform its duties hereunder, and if no successor Trustee be then appointed, all such duties and all of the rights and powers of the Trustee hereunder shall be assumed by and vest in the Director of Finance of the City in trust for the benefit of the Bondholders.
Merger or Consolidation . Any company into which the Trustee may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion or consolidation to which it shall be a party or any company to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided such company shall be eligible under the Indenture, shall be the successor to such Trustee without the execution or filing of any paper or any further act, anything in the Indenture to the contrary notwithstanding.
Liability of Trustee. The recitals of facts in the Indenture and in the Bonds contained will be taken as statements of the City, and the Trustee assumes no responsibility for the correctness of the same (other than the certificate of authentication of the Trustee on each Bond), and makes no representations as to the validity or sufficiency of the Indenture or of the Bonds or of any Investment Security, as to the sufficiency of the Adjusted Net Revenues or the priority of the lien of the Indenture thereon, and will not incur any responsibility in respect of any such matter, other than in connection with the duties or obligations expressly in the Indenture or in the Bonds assigned to or imposed upon it . The Trustee will, however, be responsible for its representations contained in its certificate of authentication on the Bonds .
The Trustee will not be liable in connection with the performance of its duties under the Indenture, except for its own negligence, willful misconduct or breach of the express terms and conditions under the Indenture.
The Trustee will not be liable for any error of judgment made in good faith by a responsible officer unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts . The Trustee may execute any of the trusts or powers hereof and perform the duties required of it under the by or through attorneys, agents, or receivers, and will be entitled to advice of counsel concerning all matters of trust and its duty under the Indenture, but the Trustee will be answerable for the negligence or
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misconduct of any such attorney, agent, or receiver selected by it; provided that the Trustee will not be answerable for the negligence or misconduct of any attorney or certified public accountant selected by it with due care.
The Trustee will not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Owners of not less than twenty- five percent (25%) in aggregate principal amount of the Bonds at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under the Indenture.
The Trustee will be under no obligation to exercise any of the rights or powers vested in it by the Indenture at the request, order or direction of any of the Bondholders pursuant to the provisions of the Indenture unless such Bondholders shall have offered to the Trustee security or indemnity satisfactory to it against the costs, expenses and liabilities which may be incurred therein or thereby.
No provision of the Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance or exercise of any of its duties under the Indenture, or in the exercise of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.
The Trustee will not be deemed to have knowledge of and will not be required to take any action with respect to, any Event of Default (other than an Event of Default described in the Indenture or event which would, with the giving of notice, the passage of time or both, constitute an Event of Default, unless the Trustee shall have actual knowledge of such event or shall have been notified of such event by the City or the Owners of 25% of the Bond Obligation Outstanding. Without limiting the generality of the foregoing, the Trustee will not be required to ascertain, monitor or inquire as to the performance or observance by the City of the terms, conditions, covenants or agreements set forth in the Indenture, other than the covenants of the City to make payments with respect to the Bonds when due as set forth in the Indenture and to file with the Trustee when due, such reports and certifications as the City is required to file with the Trustee under the Indenture.
The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, coupon or other paper or document but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the City, personally or by agent or attorney.
The Trustee shall not be considered in breach of or in default in its obligations under the Indenture or progress in respect thereto in the event of enforced delay (“unavoidable delay”) in the performance of such obligations due to unforeseeable causes beyond its control and without its fault or negligence, including, but not limited to, Acts of God or of the public enemy or terrorists, acts of a government, acts of the other party, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, earthquakes, explosion, mob violence, riot, inability to procure or general sabotage or rationing of labor, equipment, facilities, sources of energy, material or supplies in the open market, litigation or arbitration involving a party or others relating to zoning or other governmental action or inaction pertaining to the Enterprise, malicious mischief, condemnation, and unusually severe weather or delays of suppliers or subcontractors due to such causes or any similar event and/or occurrences beyond the control of the Trustee.
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Amendments
Amendments Permitted. The Indenture and the rights and obligations of the City, the Owners of the Bonds and the Trustee may be modified or amended from time to time and at any time by a Supplemental Indenture, which the City and the Trustee may enter into with the written consent of the Owners of a majority in aggregate amount of Bond Obligation of the Bonds (or, if such Supplemental Indenture is only applicable to a Series of Bonds, such Series of Bonds) then Outstanding shall have been filed with the Trustee; provided that if such modification or amendment will, by its terms, not take effect so long as any Bonds of any particular maturity remain Outstanding, the consent of the Owners of such Bonds shall not be required and such Bonds shall not be deemed to be Outstanding for the purpose of any calculation of Bonds Outstanding under the Indenture.
In lieu of satisfying the requirements described in the preceding paragraph, t he Indenture and the rights and obligations of the City and of the Owners of the Bonds and of the Trustee may also be modified or amended at any time by a Supplemental Indenture entered into by the City and the Trustee which will become binding when the written consents of each provider of a letter of credit or a policy of bond insurance for the Bonds will have been filed with the Trustee, provided that at such time the payment of all the principal of and interest on all Outstanding Bonds will be insured by a policy or policies of municipal bond insurance or payable under a letter of credit the provider of which is not in default under any such policy of municipal bond insurance or letter of credit . A copy of each such Supplemental Indenture will be sent by the City to Moody’s and/or Fitch and Standard & Poor’s.
No such modification or amendment will (a) extend the fixed maturity of any Bond, or reduce the amount of principal thereof, or extend the time of payment or reduce the amount of any Mandatory Sinking Account Payment provided for the payment of any Bond, or reduce the rate of interest thereon, or extend the time of payment of interest thereon, or reduce any premium payable upon the redemption thereof, without the consent of the Owner of each Bond so affected, or (b) reduce the aforesaid percentage of Bond Obligation the consent of the Owners of which is required to effect any such modification or amendment, or permit the creation of any lien on the Adjusted Net Revenues prior to or on a parity with the lien created by the Indenture, or deprive the Owners of the Bonds of the lien created by the Indenture on such Adjusted Net Revenues (in each case, except as expressly provided in the Indenture), without the consent of the Owners of all of the Bonds then Outstanding. It will not be necessary for the consent of the Bondholders to approve the particular form of any Supplemental Indenture, but it will be sufficient if such consent shall approve the substance thereof. Promptly after the execution and delivery by the Trustee and the City of any Supplemental Indenture pursuant to such provision of the Indenture , the Trustee will mail a notice, setting forth in general terms the substance of such Supplemental Indenture to the Owners of the Bonds at the addresses shown on the registration books of the Trustee. Any failure to give such notice, or any defect therein, will not, however, in any way impair or affect the validity of any such Supplemental Indenture.
The Indenture and the rights and obligations of the City, of the Trustee and of the Owners of the Bonds may also be modified or amended from time to time and at any time by a Supplemental Indenture, which the City and the Trustee may enter into without the consent of any Bondholders or any providers of any letter of credit or policy of municipal bond insurance for the Bonds but only to the extent permitted by law and only for any one or more of the following purposes:
(1) to add to the covenants and agreements of the City in the Indenture contained other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Bonds (or any portion thereof), or to surrender any right or power reserved to or conferred upon the City;
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(2) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision, contained in the Indenture, or in regard to matters or questions arising under the Indenture, as the City may deem necessary or desirable, and which shall not materially and adversely affect the interests of the Owners of the Bonds;
(3) to modify, amend or supplement the Indenture in such manner as to permit the qualification under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, and to add such other terms, conditions and provisions as may be permitted by said act or similar federal statute, and which shall not materially and adversely affect the interests of the Owners of the Bonds;
(4) to make modifications or adjustments necessary, appropriate or desirable to provide for the issuance of Variable Rate Indebtedness, Capital Appreciation Indebtedness, Convertible Capital Appreciation Indebtedness or Parity Debt with such interest rate, payment, maturity and other terms as the City may deem desirable which does not adversely affect the interests of the Owners of any Series of Bonds then Outstanding; (5) to provide for the issuance of Bonds in book-entry form or bearer form, provided that no such provision shall materially and adversely affect the interests of the Owners of the Bonds;
(6) if the City agrees in a Supplemental Indenture to maintain the exclusion of interest on a Series of Bonds from gross income for purposes of federal income taxation, to make such provisions as are necessary or appropriate to ensure such exclusion; (7) to provide for the issuance of an additional Series of Bonds; and (8) for any other purpose that does not materially and adversely affect the interests of the Owners of the Bonds.
From and after the time any Supplemental Indenture becomes effective pursuant to the provisions of the Indenture, the Indenture will be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations under the Indenture of the City, the Trustee and all Owners of Bonds Outstanding will thereafter be determined, exercised and enforced under the Indenture subject in all respects to such modification and amendment, and all the terms and conditions of any such Supplemental Indenture will be deemed to be part of the terms and conditions of the Indenture for any and all purposes.
Defeasance
Discharge of Indenture. The Bonds may be paid by the City in any of the following ways:
(a) by paying or causing to be paid the Bond Obligations of and interest on such Outstanding Bonds, as and when the same become due and payable; (b) by depositing with the Trustee, an escrow agent or other fiduciary, in trust, at or before maturity, money or securities in the necessary amount to pay or redeem such Outstanding Bonds; or
(c) by delivering to the Trustee, for cancellation by it, such Outstanding Bonds.
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If the City shall pay all Series for which any Bonds are Outstanding and also pay or cause to be paid all other sums payable under the Indenture by the City, then and in that case, at the election of the City (evidenced by a Certificate of the City, filed with the Trustee, signifying the intention of the City to discharge all such indebtedness and the Indenture), and notwithstanding that any Bonds shall not have been surrendered for payment, the Indenture and the pledge of Adjusted Net Revenues made under the Indenture and all covenants, agreements and other obligations of the City under the Indenture will cease, terminate, become void and be completely discharged and satisfied. In such event, upon Request of the City, the Trustee will cause an accounting for such period or periods as may be requested by the City to be prepared and filed with the City and will execute and deliver to the City all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee will pay over, transfer, assign or deliver to the City all moneys or securities or other property held by it pursuant to the Indenture which, as evidenced by a verification report, upon which the Trustee may conclusively rely, from a firm of certified public accountants, or other firm acceptable to the Trustee, are not required for the payment or redemption of Bonds not theretofore surrendered for such payment or redemption.
Discharge of Liability on Bonds . Upon the deposit with the Trustee, escrow agent or other fiduciary, in trust, at or before maturity, of money or securities in the necessary amount to pay or redeem any Outstanding Bond (whether upon or prior to its maturity or the redemption date of such Bond), provided that if such Bond is to be redeemed prior to maturity, notice of such redemption ha s been given or provision satisfactory to the Trustee has been made for the giving of such notice, then all liability of the City in respect of such Bond will cease, terminate and be completely discharged, provided that the Owner thereof will thereafter be entitled to the payment of the principal of and premium, if any, and interest on the Bonds, and the City will remain liable for such payment, but only out of such money or securities deposited with the Trustee as aforesaid for their payment.
The City may at any time surrender to the Trustee for cancellation by it any Bonds previously issued and delivered, which the City may have acquired in any manner whatsoever, and such Bonds, upon such surrender and cancellation, will be deemed to be paid and retired.
Deposit of Money or Securities with Trustee. Whenever in the Indenture it is provided or permitted that there be deposited with or held in trust by the Trustee money or securities in the necessary amount to pay or redeem any Bonds, the money or securities so to be deposited or held may include money or securities held by the Trustee in the funds and accounts established pursuant to the Indenture and will be:
(a) lawful money of the United States of America in an amount equal to the Bond Obligation of such Bonds and all unpaid interest thereon to maturity, except that, in the case of Bonds which are to be redeemed prior to maturity and in respect of which notice of such redemption shall have been given or provision satisfactory to the Trustee shall have been made for the giving of such notice, the amount to be deposited or held will be the Redemption Price of such Bonds and all unpaid interest thereon to the redemption date; or (b) direct obligations of the United States of America (including obligations held or issued in book-entry form on the books of the Department of the Treasury of the United States of America) or obligations the timely payment of the principal of and interest on which are fully guaranteed by the United States of America, the principal of and interest on which when due will, in the opinion of an independent certified public accountant delivered to the Trustee (upon which opinion the Trustee may conclusively rely), provide money sufficient to pay the Bond Obligation or Redemption Price of and all unpaid interest to maturity, or to the redemption date, as the case may be, on the Bonds to be paid or redeemed, as such Bond Obligation or Redemption Price and interest become due, provided that, in the case of Bonds which are to be redeemed prior to the
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maturity thereof, notice of such redemption shall have been given or provision satisfactory to the Trustee shall have been made for the giving of such notice; provided, in each case, that the Trustee shall have been irrevocably instructed (by the terms of the Indenture or by Request of the City) to apply such money to the payment of such Redemption Price and interest with respect to such Bonds;
provided, in each case, that the Trustee shall have been irrevocably instructed (by the terms of the Indenture or by Request of the City) to apply such money to the payment of such Bond Obligation or Redemption Price and interest with respect to such Bonds.
Payment of Bonds After Discharge of Indenture . Any moneys held by the Trustee in trust for the payment of the principal or Redemption Price of, or interest on, any Bonds and remaining unclaimed for two years after the principal of all of the Bonds has become due and payable (whether at maturity or upon call for redemption as provided in the Indenture), if such moneys were so held at such date, or two years after the date of deposit of such moneys if deposited after said date when all of the Bonds became due and payable, shall, upon Request of the City, be repaid to the City free from the trusts created by the Indenture, and all liability of the Trustee with respect to such moneys shall thereupon cease; provided, however, that before the repayment of such moneys to the City as aforesaid, the Trustee shall (at the cost of the City) first mail to the Owners of any Bonds remaining unpaid at the addresses shown on the registration books maintained by the Trustee a notice, in such form as may be deemed appropriate by the Trustee, with respect to the Bonds so payable and not presented and with respect to the provisions relating to the repayment to the City of the moneys held for the payment thereof . All moneys held by or on behalf of the Trustee for the payment of principal or Accreted Value of or interest or premium on Bonds, whether at redemption or maturity, shall be held in trust for the account of the Owners thereof and the Trustee shall not be required to pay Owners any interest on, or be liable to the Owners or any other person (other than the City) for any interest earned on, moneys so held.
Miscellaneous
Liability of City Limited to Adjusted Net Revenues . Notwithstanding anything in the Indenture or in the Bonds contained, the City will not be required to advance any moneys derived from any source other than the Adjusted Net Revenues under the Indenture for any of the purposes in th e Indenture mentioned, whether for the payment of the principal or Redemption Price of or interest on the Bonds or for any other purpose of the Indenture.
Limitation of Rights to City, Trustee and Bondholders . Nothing in the Indenture or in the Bonds expressed or implied is intended or will be construed to give to any person other than the City, the Trustee, and the Owners of the Bonds and any Parity Debt, any legal or equitable right, remedy or claim under or in respect of the Indenture or any covenant, condition or provision therein contained; and all such covenants, conditions and provisions are and will be held to be for the sole and exclusive benefit of the City, the Trustee, and the Owners of the Bonds and any Parity Debt.
Waiver of Notice. Whenever in the Indenture the giving of notice by mail or otherwise is required, the giving of such notice may be waived in writing by the person entitled to receive such notice and in any such case the giving or receipt of such notice shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.
Disqualified Bonds . In determining whether the Owners of the requisite aggregate principal amount of Bonds have concurred in any demand, request, direction, consent or waiver under th e Indenture, Bonds which are owned or held by or for the account of the City, or by any other obligor on the Bonds, or by any person directly or indirectly controlling or controlled by, or under direct or indirect
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common control with, the City or any other obligor on the Bonds, shall be disregarded and deemed not to be Outstanding for the purpose of any such determination. Bonds so owned which have been pledged in good faith may be regarded as Outstanding for the purposes of the Indenture if the pledgee shall establish to the satisfaction of the Trustee the pledgee’s right to vote such Bonds and that the pledgee is not a person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the City or any other obligor on the Bonds. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee.
Money Held for Particular Bonds. The money held by the Trustee for the payment of the interest, principal or Redemption Price due on any date with respect to particular Bonds (or portions of Bonds in the case of registered Bonds redeemed in part only) will , on and after such date and pending such payment, be set aside on its books and held in trust by it for the Owners of the Bonds entitled thereto, subject, however, to the provisions of the Indenture.
Funds and Accounts. Any fund required by the Indenture to be established and maintained by the Trustee may be established and maintained in the accounting records of the Trustee, either as a fund or an account, and may, for the purposes of such records, any audits thereof and any reports or statements with respect thereto, be treated either as a fund or as an account; but all such records with respect to all such funds will at all times be maintained in accordance with customary standards of the corporate trust industry, to the extent practicable, and with due regard for the protection of the security of the Bonds and the rights of every holder thereof.
Waiver of Personal Liability. No City Councilmember, officer, agent or employee of the City or the Trustee will be individually or personally liable for the payment of the principal or Redemption Price of or interest on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof; but nothing contained in the Indenture will relieve any such City Councilmember, officer, agent or employee of the City or the Trustee from the performance of any official duty provided by law or by the Indenture.
Business Day . Except as specifically set forth in a Supplemental Indenture, any payments or transfers which would otherwise become due on any day which is not a Business Day will become due or will be made on the next succeeding Business Day (without additional interest).
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APPENDIX E
PROPOSED FORM OF OPINION OF BOND COUNSEL
[Closing Date]
City of Santa Clara
Santa Clara, California
$___________
City of Santa Clara, California
Electric Revenue Bonds, Series 2024 A
Ladies and Gentlemen:
We have acted as bond counsel to the City of Santa Clara, California (the “City”) in connection with the issuance by the City of its Electric Revenue Bonds, Series 2024 A in the aggregate principal amount of $_________ (the “Series 2024 A Bonds”). The Series 2024 A Bonds are being issued pursuant to Section 1321 of the City’s Charter, Resolution No. 4796, adopted by the City Council on May 8, 1984, as amended by Resolution No. 4804, adopted by the City Council on May 29, 1984, and as amended by Resolution No. 7313, adopted by the City Council on April 25, 2006, as supplemented by Resolution No. 4934, adopted by the City Council on April 30, 1985, as amended by Resolution No. 4966, adopted by the City Council on July 9, 1985, as supplemented by Resolution No. 4967, adopted by the City Council on July 9, 1985, and as amended by Resolution No. 7314, adopted by the City Council on April 25, 2006 (collectively, the “Procedural Resolution”), and the Revenue Bond Law of 1941 (being Chapter 6 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California) to the extent made applicable by the Procedural Resolution (collectively, the “Bond Law”), and an Amended and Restated Electric Revenue Bond Indenture, dated as of March 1, 2011, by and between the City and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”), as supplemented and amended, including as supplemented and amended by a Fourth Supplemental Electric Revenue Bond Indenture, dated as of October 1, 2024, by and between the City and the Trustee, providing for the issuance of the Series 2024 A Bonds (collectively, the “Indenture”). Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Indenture.
In our capacity as bond counsel, we have reviewed the Bond Law, the Indenture, the Tax Certificate executed and delivered by the City in connection with the issuance and delivery of the Series 2024 A Bonds (the “Tax Certificate”), certifications of the City, the Trustee, and others, opinions of counsel to the City and the Trustee, and such other documents, opinions and instruments as we deemed necessary to render the opinions set forth herein.
We have assumed the genuineness of all documents and signatures presented to us. We have not undertaken to verify independently, and have assumed, the accuracy of the factual matters represented, warranted or certified in the documents, and of the legal conclusions contained in the opinions referred to in the second paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreements in the Indenture and the Tax Certificate, including (without limitation) covenants and agreements compliance with which is necessary to assure that future actions, omissions or events will not cause the interest on the Series 2024 A Bonds to be included in gross income for federal income tax purposes. With respect to the opinions expressed herein, we call attention to the fact that the rights and obligations under the Series 2024 A Bonds and the Indenture are subject to bankruptcy, insolvency,
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reorganization, arrangement, fraudulent conveyance, moratorium and other similar laws affecting creditors’ rights, to the application of equitable principles, to the possible unavailability of specific performance or injunctive relief, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against public agencies in the State of California.
By delivering this letter, we are not expressing any opinion with respect to any indemnification, contribution, liquidated damages, penalty (including any remedy deemed to constitute a penalty), right of set-off, arbitration, judicial reference, choice of law, choice of forum, choice of venue, non- exclusivity of remedies, waiver or severability provisions contained in the Series 2024 A Bonds or the Indenture, nor are we expressing any opinion with respect to the state or quality of title to or interest in any assets described in or as subject to the lien of the Indenture or the accuracy or sufficiency of the description contained therein of, or the remedies available to enforce liens on any assets thereunder.
Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions:
1. The Series 2024 A Bonds constitute the valid and binding special limited obligations of the City.
2. The Indenture has been duly authorized, executed and delivered by, and constitutes the valid and binding obligation of, the City. The Indenture creates a valid pledge, to secure the payment of the principal of and interest on the Series 2024 A Bonds, of the Adjusted Net Revenues of the City’s Electric Utility, and certain other amounts held by the Trustee under the Indenture, as and to the extent set forth in the Indenture and subject to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein. The general fund of the City is not liable, and the credit or taxing power of the City is not pledged, for the payment of the Series 2024 A Bonds or the interest thereon.
3. Under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described in the Indenture and the Tax Certificate relating to the Series 2024 A Bonds, interest on the Series 2024 A Bonds is excluded from gross income for federal income tax purposes and is not be an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals; however, it should be noted that for tax years beginning after December 31, 2022, with respect to applicable corporations as defined in Section 59(k) of the Internal Revenue Code of 1986, as amended (the “Code”), interest with respect to the Series 2024 A Bonds might be taken into account in determining adjusted financial statement income for purposes of computing the alternative minimum tax imposed on such corporations.
4. Interest on the Series 2024 A Bonds is exempt from State of California personal income tax.
The opinions expressed herein as to the exclusion from gross income of interest on the Series 2024 A Bonds are based upon certain representations of fact and certifications made by the City and others and are subject to the condition that the City complies with all requirements of the Code, that must be satisfied subsequent to the issuance of the Series 2024 A Bonds to assure that such interest will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause the interest to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Series 2024 A Bonds. The City has covenanted to comply with all such requirements.
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The opinions expressed herein are based upon our analysis and interpretation of existing laws, regulations, rulings and judicial decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or events or do occur. The Indenture and the Tax Certificate relating to the Series 2024 A Bonds permit certain actions to be taken or to be omitted if a favorable opinion of Bond Counsel is provided with respect thereto. No opinion is expressed herein as to the effect on the exclusion from gross income for federal income tax purposes of interest on the Series 2024 A Bonds if any such action is taken or omitted based upon the opinion or advice of counsel other than Stradling Yocca Carlson & Rauth LLP. Other than expressly stated herein, we express no other opinion regarding tax consequences with respect to the Series 2024 A Bonds.
This opinion is limited to the laws of the State of California and the federal laws of the United States. We assume no responsibility with respect to the applicability or the effect of the laws of any other jurisdiction.
No opinion is expressed herein on the accuracy, completeness or sufficiency of the official statement relating to the Series 2024 A Bonds or other offering material relating to the Series 2024 A Bonds and we expressly disclaim any duty to advise the owners of the Series 2024 A Bonds with respect to matters contained in such official statement or other offering material.
Respectfully submitted,
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APPENDIX F
FORM OF CONTINUING DISCLOSURE AGREEMENT
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APPENDIX G
DEBT SERVICE REQUIREMENTS ON THE ELECTRIC REVENUE BONDS Fiscal Year
Ending
June 30
(accrual basis)
Outstanding
Senior Electric
Revenue Bonds Series 2024 A Bonds
Total Senior Electric
Revenue Bonds
Debt Service(1)
Outstanding
Subordinate Bonds
Debt Service
Total Electric
Revenue Bonds
Debt Service(1)
Principal Interest Principal Interest
2025 $ 6,005,000 $ 949,000 $6,954,000 $ 6,863,819 $ 13,817,819 2026 6,320,000 648,750 6,968,750 6,868,537 13,837,287 2027 6,655,000 332,750 6,987,750 6,882,592 13,870,342 2028 -- -- -- 12,255,882 12,255,882
2029 -- -- -- 13,376,448 13,376,448
2030 -- -- -- 13,368,116 13,368,116
2031 -- -- -- 13,447,540 13,447,540
2032 -- -- -- 7,713,496 7,713,496
2033 -- -- -- -- --
2034 -- -- -- -- --
2035 -- -- -- -- --
2036 -- -- -- -- --
2037 -- -- -- -- --
2038 -- -- -- -- --
2039 -- -- -- -- --
2040 -- -- -- -- --
2041 -- -- -- -- --
2042 -- -- -- -- --
2043 -- -- -- -- --
2044 -- -- -- -- --
2045 -- -- -- -- --
2046 -- -- -- -- --
2047 -- -- -- -- --
2044 -- -- -- -- --
2048 -- -- -- -- --
2049 -- -- -- -- --
2050 -- -- -- -- --
2051 -- -- -- -- --
2052 -- -- -- -- --
2053 -- -- -- -- --
2054 -- -- -- -- --
Total(1) $18,980,000 $1,930,500 $20,910,500 $80,776,430 $101,686,930 __________________
(1) Totals may not add due to rounding.
Draft of 08/20/24
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APPENDIX H
AMENDMENTS BEING MADE TO THE MASTER INDENTURE
The following is a summary of certain amendments being made to the Master Indenture as set forth in the Fourth Supplement being entered into by the City and the Trustee in connection with the issuance of the Series 2024 A Bonds. This summary does not purpor t to be comprehensive and reference should be made to the Fourth Supplement for a full and complete statement of the provisions thereof.
The amendments described in this Appendix H will become effective on the day next succeeding the date on which the consent of the Owners of a ma jority in aggregate amount of the Bond Obligation of the Bonds then Outstanding has been obtained and a written Certificate of the City to such effect shall have been delivered by the City to the Trustee, which Am endments Effective Date shall be specified in such Certificate of the City (the “Amendments E ffective Date”) as described under the caption “AMENDMENTS TO THE MASTER INDENTURE” in the Official Statement. By the purchase and acceptance of the Series 2024 A Bonds, the Owners a nd Beneficial Owners of the Series 2024 A Bonds will be deemed to have consented to the proposed am endments to the Indenture by their purchase of the Series 2024 A Bonds. As a result, the Amendments Effective Date is expected to be the day next succeeding the date of delivery of the Series 2024 A Bonds.
Capitalized terms used and not defined in this Appendix H or elsewhere in the Official Statement will have the meanings ascribed thereto in Append ix D to the Official St atement under the heading “Definitions.”
This Appendix H describes the definitions that will be added or deleted and the other modifications to the existing provisions of the Master Indenture (as heretofore amended and restated) that will be effected through the amendments being made in the Fourth Supplement. Set forth below is a comparison of the current provisions in the Master Indenture against the amendments to such provisions set forth in the Fourth Supplement that will become effective on the Ame ndments Effective Date. In this Appendix H, blue underlining indicates additions and red strikethrough indicates deletions.
AMENDED DEFINITIONS
The following definition is being added to the Master Indenture:
Available Reserves
“Available Reserves” means, as of any date of calculation, the amount of unrestricted funds of the Enterprise determined by the City to be then available to pay Opera ting Expenses and/or Debt Service, which may include transfers to the Net Revenue Fund fro m any fund which is legally available to be used for such purpose.
The following definition is being deleted from the Master Indenture:
Rating Confirmation Notice
“Rating Confirmation Notice” means a written no tice from the Rating Agencies then rating the Outstanding Bonds, confirming that the rating on th e Outstanding Bonds (without giving effect to any Credit Facility) will not be lowered or withdrawn (oth er than a withdrawal of a short-term rating upon a change to a Long-Term Mode (as de fined in any applicable Supplement al Indenture relating to Variable Rate Indebtedness) as a result of the action proposed to be taken.
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The following definition is being modified:
Adjusted Net Revenues
“Adjusted Net Revenues” for any period means the sum of (a) the Revenues for such period plus (b) for purposes of determining compliance with Section 5.10 and for any calculation made prior to the end of the transition period to an open access marketplace in the Electric Utility service area (or, if later, the last date on which any competition transition charge is imposed, but in no event later than December 31, 2010 and except for amounts on deposit inonly, (i) the amounts approved by City Council to be withdrawn from the Rate Stabilization Fund which may be included beyond such date) only, the amounts on deposit in the Rate Stabilization Fund and any other unrestrict ed funds of the Enterprise designated by the City Council by resolution and available for inclusion in Adjusted Net Reve nues for such period in accordance with Section 4.06, and (ii) the amount of Available Reserves budgeted by the City for the purposepayment of paying Operating Expenses and/or Debt Service for such period (which amounts, in either case, shall be deposited in the Net Revenue Fund in accordance with Section 4.01 (B) hereof to the extent such amounts are to be included in Adjusted Net Revenues for the purpose of determining compliance with Section 5.10), and (c) any interest paid and othe r income derived from the investment of funds as herein provided, less the sum of (d) all Operating Expenses for such period, (e) [reserved], (f) moneys received with respect to the sale of assets financed with th e proceeds of Bonds or Parity Debt , which amounts shall be applied in accordance with Section 5.06, ( gf) moneys received with respect to any Special Facility, and ( hg) any charges collected by any person to amortize or otherwise relating to the payment of the uneconomic portion of costs associated with assets a nd obligations (“stranded costs”) of the Electric Utility or of any joint powers agency in which the City participates which th e City has dedicated to the payment of obligations other than the Bonds or Parity Debt, the payments of which obligations will be applied to or pledged to or otherwise set aside for the reduction or retirement of outstanding obligations of the City or any joint powers agency in which the City participates relating to such “stranded costs” of the City or of any such joint powers agency to the extent such “stranded costs” are attributable to, or the responsibility of, the City.
OTHER AMENDED PROVISIONS
[SECTION 4.01.] Pledge of Adjusted Net Revenues; Net Revenue Fund. (A) The Bonds are revenue obligations of the City and are payable as to both principal and interest, and any premium upon redemption thereof, exclusively from the Adjusted Ne t Revenues and other funds pledged hereunder. All Adjusted Net Revenues are hereby pledged to secure the payment of the principal of and redemption premium, if any, and interest on the Bonds and any Parity Debt in accordance with their terms, subject only to the provisions of this Indenture permitting the application thereof for the purposes and on the terms and conditions set forth herein. There are hereby pledge d to secure the payment of the principal of and redemption premium, if any, and interest on the Bond s and Parity Debt in accordance with their terms all amounts (including proceeds of the Bonds) held by the Trustee hereunder (except for amounts held in the Rebate Fund), subject only to the provisions of this Indenture permitting the application thereof for the purposes and on the terms and conditions set forth herein . Said pledge shall constitute a first lien on the Adjusted Net Revenues and amounts in such funds and shall be valid and binding from and after delivery by the Trustee of the Bonds or Parity Debt, without any physical delivery thereof or further act.
The Adjusted Net Revenues are hereby pledged to the payment of Bonds and Parity Debt without priority or distinction of one over the other and th e Adjusted Net Revenues constitute a trust fund for the security and payment of the Bonds and Parity Debt; but nevertheless out of Adjusted Net Revenues certain amounts may be applied for other purposes as provided herein.
Out of Adjusted Net Revenues there shall be app lied as hereinafter set forth all sums required for the payment of the principal of (including any premium thereon) and interest on the Bonds and all Parity H-3
Debt, together with any sinking fu nd payments of Bonds and Parity Debt and reserve fund requirements with respect thereto. All remaining Adjusted Net Revenues, after making the foregoing allocation, shall be available to the City for all lawful City purposes, including the payment of all amounts required to be paid under any other resolution, indenture or other agreement of the City for principal, interest, reserve fund and any other debt service requirements on subordinate obligations of the City , to all of which the Bonds and Parity Debt are superior in right of payment. The pledge of Adjusted Net Reve nues herein made shall be irrevocable until all of the Bonds and all Parity Debt are no longer Outstanding. (B) In order to carry out and effectuate the oblig ations of the City contained herein to pay the Bonds, as long as any Bonds are Outstanding, the City agrees and covenants that all Adjusted Net Revenues received by it shall be deposited when and as receive d in a special fund, separate and apart from other moneys of the City designated the “City of Sant a Clara Electric Utility Net Revenue Fund” (the “Net Revenue Fund”). If and to the extent the C ity has determined that amounts on deposit in any unrestricted fundsthe Rate Stabilization Fund or any Available Reserves of the Enterprise are to be included in Adjusted Net Revenues for any Fiscal Year for purposes of complying with S ection 5.10 in accordance with the definition of “Adjusted Net Revenues” contained in S ection 1.02, such amounts shall be deposited by the City in the Net Revenue Fund at the time of such de termination. Investment income on amounts held by the City hereunder (other than amounts held in the Re bate Fund or for which particular instructions are provided in a Supplemental Indenture) shall also be deposited in the Net Revenue Fund. All moneys at any time held in the Net Revenue Fund shall be held in tr ust for the benefit of the Owners of the Bonds and Parity Debt and shall be disbursed, allocated and applied solely for the uses and purposes set forth in Section
4.02. [SECTION 4.06.] Rate Stabilization Fund. There is hereby established a City of Santa Clara Electric Utility Rate Stabilization Fund (the “Rate Stabilization Fund”), which fund shall be a continuation of the Rate Stabilization Fund Reserve Account established by the City pursuant to Resolution No. 6106 of the City Council adopted on January 16, 1996 and whic h fund the City hereby agrees to maintain so long as any Bonds remain unpaid. The City may at any time deposit in the Rate Stabilization Fund from any available Adjusted Net Revenues and /or any other money received and available to be used therefor , and the such amounts as the City may determine; provided, that notwithstanding the foregoing, no Adjusted Net Revenues shall be deposited in the Rate Stabilization Fund in any Fiscal Year to the extent that such amounts are required for purposes of making the transfer s described in Section 4.02(A) for such Fiscal Year. The City may at any time withdraw any or all of the money on deposit in the Rate Stabilization Fund for inclusion in Adjusted Net Revenues for purposes of the calculation set forth in Section 5.10 for any Fiscal Year in such amount as approved by City Council. Any amounts withdrawn from the Rate Stabilization Fund for anysuch purpose shall be transferred to th e Net Revenue Fund in accordance with Section 4.01(B). The City may also at any time withdraw or apply amounts on deposit in the Rate Stabilization Fund for any other legal purpose. All interest or ot her earnings upon deposits in the Rate Stabilization Fund shall be accounted for as Adjusted Net Revenues. Notwithstanding the foregoing, no Adjusted Net Revenues shall be deposited in the Rate Stabilization Fund in any Fiscal Year to the extent that such amount was included by the City in Adjusted Net Revenues for purposes of determining compliance with Section 5.10 and deduction of the amounts to be deposited in the Rate Stabilization Fund would have caused noncompliance with such section.
[SECTION 5.03.] Additional Bonds. The City may issue Bonds and/or Parity Debt so long as no Event of Default exists at the time of issuance thereof, and so long as the City shall have received a Rating Confirmation Notice for all Outstanding Bonds upon the issuance of such Bonds and/or Parity Debt. [SECTION 5.07.] Accounting Records and Financial Statements. (A) The City will at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with Generally H-4
Accepted Accounting Principles Applicable to Governments, in which complete and accurate entries shall be made of all transactions relating to the Adjusted Net Revenues. Such books of record and account shall be available for inspection by the Trustee at reasonable hours and under reasonable circumstances. (B) The City will furnish the Trustee, within two hundred and ten (210) days after the end of each Fiscal Year, the financial statements of the City for such Fiscal Year, together with the report and opinion of an independent certified public accountant stating that the financial statem ents have been prepared in accordance with Generally Accepted Accounting Principles App licable to Governments and that such accountant’s examination of the financial statements was performed in accordance with generally accepted auditing standards and a Certificate of the Director of Finance of the City stating that no event which constitutes an Event of Default or which with the giving of notice or the passage of time or both would constitute an Event of Default has occurred and is continuing as of the end of such Fiscal Year, or specifying the nature of such event and the actions taken and proposed to be taken by the City to cure such default. Thereafter, a copy of such financial statements will be furnished to any Owner of Bonds upon written request to the City. [SECTION 9.02.] Discharge of Liability on Bonds. Upon the deposit with the Trustee, escrow agent or other fiduciary, in trust, at or before ma turity, of money or securities in the necessary amount (as provided in Section 9.03) to pay or redeem any Outstanding Bond (whether upon or prior to its maturity or the redemption date of such Bond), provided that the City shall have received a Rating Confirmation Notice on any Bond which shall remain Outstanding following such redemption, and , if such Bond is to be redeemed prior to maturity, notice of such redemption shall have been given as in Article III provided or provision satisfactory to the Trustee shall have been made for the giving of such notice, then all liability of the City in respect of such Bond shall cease, terminat e and be completely discharged, provided that the Owner thereof shall thereafter be entitled to the payment of the principal of and premium, if any, and interest on the Bonds, and the City shall re main liable for such payment, but only out of such money or securities deposited with the Trustee as aforesaid for their paym ent, subject, however, to the provisions of Section
9.04 and the continuing duties of the Trustee hereunder.
The City may at any time surrender to the Trus tee for cancellation by it any Bonds previously issued and delivered, which the City may have acquired in any manner whatsoever, and such Bonds, upon such surrender and cancellation, shall be deemed to be paid and retired.