The San Francisco Public Utility Commission's will invest over $1 billion to rebuild aging wastewater digesters, which currently sit 25 feet from residences.

PHOENIX – California is spending big on water and sewer infrastructure, with multiple large deals from state and local issuers aimed at revitalizing or expanding systems in the nation's most populous state.

Various issuers across the state have issued or will issue close to $1 billion of bonds for water and sewer projects in the span of just a few weeks.

Part of that spending influx comes from the San Francisco Public Utilities Commission, which is planning a competitive sale of $308 million of wastewater bonds Tuesday. The majority of the deal has been certified pursuant to a new international climate bonds standard for green bonds; SFPUC believes it will be the first to issue under that standard.

About $240 million of the issue is certified to match the new water standard rolled out by the Climate Bonds Initiative, an international organization that says its goal is to mobilize the bond market to produce positive action on climate change.

The water standard aims to provide investors with "verifiable, science-based criteria for evaluating bonds earmarked for financing sustainable water infrastructure projects," something SFPUC leadership said is important to them and, they believe, is increasingly important to investors.

"We're very pleased to be at the forefront of that," said Rich Morales, SFPUC's debt manager.

Eric Sandler, SFPUC's assistant general manager and chief financial officer, said the commission is "very committed" to deploying green infrastructure, and that investors are increasingly looking for such certifications when making decisions about what projects to invest in.

While the SFPUC does not believe that there will necessarily be a clear financial advantage through green bonds yet, such as a lower interest rate spurred by stronger demand, Morales and Sandler said they believe that will be the case eventually.

"Investors are definitely looking for this more and more," Sandler said. "Green bonds will ultimately provide an advantage."

In a release, the Climate Bonds Initiative and the SFPUC compared its forthcoming issuance to the 2014 issuance of the District of Columbia Water and Sewer Authority's 100-year green bonds, the first muni issuance to have an independent review, or "second opinion", on the green credentials of the bond. The Climate Bonds Initiative said in a release that the SFPUC's issuance is an important precedent for U.S. municipal issuers.

"San Francisco PUC is showing leadership by example to the US municipal bond market with the forthcoming issuance of a certified water bond," said Justine Leigh-Bell, global standards manager at Climate Bonds. "They are to be congratulated."

The bonds are part of the financing for the $2.9 billion first phase of a three-phase, $6.9 billion sewer system improvement program.

San Francisco spent the last decade doing an extensive rehab to its water delivery infrastructure that included tripling rates for customers, and is now pivoting to a wastewater refit.

The biggest improvements will be at the commission's southeast treatment plant to upgrade facilities designed and built in the 1940s and 1950s.

Ahead of the deal, Standard & Poor's upgraded the commission's wastewater enterprise revenue bonds to AA from AA-minus, citing revised wastewater criteria the agency published in January.

Moody's rates the bonds Aa3. Public Resources Advisory Group is financial advisor.

The commission intends to be very active in issuing more bonds in the near future, Morales said.

"There will be a lot more of this coming down the pike," he said.

The SFPUC is not the only California issuer active in the green bond space.

On April 12, the California Infrastructure and Economic Development Bank priced $410.7 million of triple-A-rated green bonds for the State Water Resources Control Board. Morgan Stanley ran the books; Public Financial Management was financial advisor.

Proceeds are deposited into a state revolving fund to enable the State Water Board to provide financial assistance to local agencies around California under terms the 1987 Federal Clean Water Act.

"Identifying the 2016 Bonds as Green Bonds will provide the opportunity to investors to invest directly in bonds that support environmentally beneficial projects," IBank officials said in a March staff report.

Among the pricier projects to get assistance from that bond issuance will be the second phase of a five-phase project to construct a new wastewater treatment system for the city of Modesto, a project to transition the town of Yucca Valley from its current septic tank-based sewage system to a community sewer system, and a new Los Angeles County pumping facility to replace a Long Beach pumping plant constructed in 1947.

On the non-green bond side, also pricing Tuesday is a more than $107.7 million issue of  Central Valley Project water system revenue bonds sold competitively by the Department of Water Resources. Montague DeRose is financial advisor.

Rated triple-A by S&P and Aa1 by Moody's Investors Service, those bonds will refund existing debt used for general facilities improvements.

As the statewide drought now enters its fifth year, California is in the process of tackling its water problems head-on. Last month the Metropolitan Water District of Southern California agreed to purchase islands in the Sacramento–San Joaquin River Delta for $175 million, a controversial decision that some opponents in Northern California view as a "water grab" by the more populous Los Angeles area.

Gov. Jerry Brown has backed a $15 billion plan that includes construction of two tunnels to bypass the Delta and divert water south, instead of the current practice of pumping water out of the south end of the Delta.

Brown also included $250 million in this year's budget proposal for California's share of the cost to remove four hydroelectric dams in northern California and Oregon. The money would come from issuing general obligation bonds through the $7.2 billion Proposition 1 water bond approved by voters in November 2014.

A report issued by California Treasurer John Chiang in February estimated that California's infrastructure "funding gap" for water is about $24 billion, and urged California policymakers to put in place a system for reducing its overall reliance on bond debt to fund the state's infrastructure needs.

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