PUC seeks $250M refunding and $420M new wastewater bonds; analysts flag long-term rate impact

Charles Pearl, deputy chief financial officer for the San Francisco Public Utilities Commission, told the Budget and Finance Committee on Dec. 11 that the PUC plans two bond sales in early 2013: a Series A refunding of up to $250 million and a Series B new-money sale of about $420 million to finance wastewater capital projects.

"We have about $915,000,000 of project appropriations that are in place for the past, over the past 4 years," Pearl said, summarizing the scale of the program the bonds would support. He said the refunding would take advantage of lower interest rates and is expected to cut the cost of older debt.

The committee's budget analyst projected net present value savings of about $30–31 million for the refunding. "The refunding bonds of $250,000,000 are expected to result in a net present value savings of $30,000,000," the analyst reported, and noted the PUC estimates the average single-family residential customer would see a reduction in the wastewater component of about $0.60 per month from the refunding alone.

But the budget analyst also warned that the $420 million in new borrowing would increase monthly sewer bills over the 30-year period. The report projected an increase of about $5.03 per month for the average wastewater customer over 30 years, and noted that the PUC intends to structure the new borrowing so it defers principal payments for the first 10 years. That approach produces smaller near-term bill changes but results in higher payments beginning in year 11.

Committee members pressed the PUC on the repayment structure. Supervisor Kim said the approach could appear counterintuitive to residents familiar with paying down principal. Pearl responded that the proposal smooths rate impacts over time and reduces the risk of a sharp rate spike tied to simultaneous principal repayments.

The PUC also described the Sewer System Improvement Program—a long-range, multi-billion dollar effort focused on pump stations, treatment facilities and system repairs—and said the new-money sale would fund early phases and R&R work. The commission estimated the enterprise faces a multi-year capital program on the order of billions of dollars.

The committee moved the bond transaction forward with recommendation; PUC staff said preliminary official statements and two sales are planned for January and February 2013. The PUC told the committee it will include the debt service projections in its long-term planning and the five-year rate-setting process that will inform future retail rate proposals.