Board approves first-reading of 25-year solar PPA for Sunset Reservoir after contested amendments

San Francisco — The Board of Supervisors on Tuesday voted to pass on first reading an ordinance authorizing a 25-year power purchase and site lease agreement with Recurrent (developer referred to in the meeting as “Recurrent”) to build, own and operate a 5-megawatt solar photovoltaic system on the rooftop and adjacent land at the Sunset Reservoir.

The vote on the ordinance as amended was recorded as 7 ayes and 4 noes. The ordinance advances the contract to the City—6s next legislative step (first reading passed); additional procedural steps and final approvals remain.

Why it matters

The contract would nearly triple the city—6s solar capacity, create an estimated 71 construction and related jobs, and include a binding commitment to direct at least 30 percent of those jobs to disadvantaged San Francisco residents, supporters said. The agreement also relies on federal tax incentives that private-sector developers can use to lower project cost; opponents argued those financing terms limit the city—6s flexibility and could saddle ratepayers with above-market prices over the life of the contract.

Key facts

- Project: 5 MW solar photovoltaic array at Sunset Reservoir; package includes a 25-year power purchase agreement (PPA) and a site lease. - Jobs: Sponsor-stated estimate of 71 jobs, with a 30 percent minimum target for hiring from disadvantaged communities and commitments to union job classifications. - Cost language: The ordinance packet references a guaranteed maximum PPA cost of about $60,218,000 and specific buy-out pricing formulas that were central to the debate. - Oversight changes: The board adopted amendments adding regular PUC reporting and clarifying controller certification before payments, though other proposed changes were defeated.

What the board debated

Sponsor remarks and proponents

Supervisor Carmen Chu, the item sponsor, told the board the agreement would add 5 megawatts to the city—6s portfolio and deliver community benefits. "It's a 25 year contract that would add 5 megawatts of solar to our power portfolio, which represents ... three times as much solar energy as we currently have now," Chu said, and she thanked PUC staff and local environmental and labor groups that supported the project.

Supporters emphasized local hiring and union jobs. Supervisor Marr noted the deal commits "at least 30% of the jobs" to low-income San Francisco residents and said unions and community groups had pushed for those terms.

Concerns about pricing, buyouts and financing

Several supervisors asked for additional buyout options and for different formulas to set a purchase price in future years (for example, whether the city could buy the facility at the lower of a stated dollar amount or fair market value). Supervisor McRaevey (name per transcript) and others argued for extra buyout points at 7, 10 and 15 years to reduce long-term exposure. Those proposals would have changed the contract's pricing mechanics and the number of future purchase opportunities for the city.

Ed Harrington, general manager of the San Francisco Public Utilities Commission, warned that certain changes would jeopardize the federal tax treatment and thus financing for the project. "If you jeopardize the tax advantage, then you lose the deal," Harrington said. He told the board that lenders and the IRS expect the private partner to have sufficient long-term control and repayment certainty; he said repeatedly that provisions allowing multiple or too-flexible reopeners or sale-for-less-than-fair-market-value would "not be acceptable to the IRS" and could prevent Recurrent from obtaining project finance.

Contract compliance and enforcement

Supervisors also debated enforcement mechanisms for the local-hiring commitments and First Source hiring rules. Supervisor David Campos said "the devil is in the detail" on enforcement language and pushed for clearer liquidated-damages and reporting provisions so the city could hold the contractor accountable. The board adopted amendments strengthening reporting and requiring controller certification of fund sufficiency before payments are made.

Waiver of appropriation clause and lender concerns

The ordinance as drafted asked the board to waive a standard administrative-code provision that would normally permit the city to withhold appropriations in future years; some members sought to limit that waiver to the first seven years only. PUC staff and the general manager said lenders would be unlikely to finance a 25-year project unless they had long-term assurance on repayment; when asked, the PUC said it had not surveyed lending institutions about accepting a partial waiver limited to seven years.

Votes on amendments

- A package of amendments offered by Supervisor Chu (including reporting, controller certification and several contract "cleanup" changes) passed on a roll-call vote earlier in the debate (the motion to adopt that set of amendments passed with an 11-0 tally at the roll call that considered those specific changes).

- Additional amendment proposals to change buyout timing and to specify a purchase price formula that would allow the city to pay the "lower of" a specified dollar amount or fair market value were rejected after PUC staff warned they would undermine tax and financing assumptions.

Final outcome

After extended questioning and debate, the board passed the ordinance on first reading by a roll-call tally of 7 ayes and 4 noes. The ordinance now proceeds to the subsequent legislative steps required by city rules before the contract can become final. The ordinance as advanced includes: regular PUC reporting on PPA administration, stronger First Source hiring reporting and liquidated-damages language for hiring failures, and a controller certification requirement before payments are made.

What remains

The PPA and lease still require final review steps and likely additional staff-level negotiations to finalize buyout calculations and financing exhibits. PUC staff told the board they relied on outside tax and financing advice used in comparable public-private renewable projects; several supervisors requested written legal or financial opinions be obtained and shared if the board considers further changes. Supporters said the project is the most viable near-term way to scale the city's solar output and access federal tax incentives, while opponents said the long-term pricing and waiver terms should be renegotiated to reduce ratepayer risk.

Additional context

The measure was the subject of lengthy budget-subcommittee review before the full board hearing and drew written support from local environmental organizations and unions. The project sponsor and PUC emphasized that the private partner would assume construction and operational risk while accessing federal investment tax credits that the city itself could not use.

Ending

Board members who voted to advance the ordinance said it was the best available option to rapidly expand local solar capacity while securing job commitments and reporting safeguards; those who opposed said the financing structure and long-term purchase terms exposed the city to avoidable risk and warranted further negotiation.