- SFPUC wants to know what climate risk data and information the market wants disclosed.
- Commission rethinking third-party green bond verification.
- SFPUC wants to give investors and rating agencies a more complete picture of what its capital investments accomplish.
The San Francisco Public Utilities Commission outlined the value of its infrastructure investments and efforts to build climate risk resilience in an
This month SFPUC sold $401.4 million Series A wastewater revenue bonds priced by Morgan Stanley and $285 million Series B wastewater revenue refunding bonds priced by J.P. Morgan and Ramirez & Co.
The report was a collaboration of SFPUC's external affairs and communications partners with subject matter across its three enterprises, said Nikolai Sklaroff, capital finance director of the SFPUC.
Listening to the market
"We wanted to take a humble first step in approaching this work, with the hope of hearing more from the market about the data and information they would like to see added," Sklaroff said.
Investors and credit rating agencies look at how much SFPUC borrows and its ability to repay that debt, but, according to the report, those numbers only tell part of the story. The report, which expands on the utility's previously published green bond report, attempts to tell the rest of the story.
Where analysts miss
Credit analysts do a good job of measuring the debt metrics of PUC's investments in
The SFPUC report was an effort to give the rating agencies the information they need to take that analysis a step further, he said.
In late July, the bonds were rated AA by S&P Global Ratings and Aa2 by Moody's Ratings with a stable outlook from both.
No green label
SFPUC didn't label the recently issued bonds as green, because Morningstar Sustainalytics, its third-party verifier on green bond issues "withdrew abruptly from the marketplace earlier this year," and SFPUC decided it was not going to be able to issue green labeled bonds as part of those latest sales, he said.
They are the first SFPUC wastewater bonds that did not have a green series in years, Sklaroff said.
It's been a busy month for the utility between the two wastewater bond sales with separate finance teams, one taxable and one tax-exempt and a short-term water bond sold as a direct purchase, he said.
"We couldn't have been more pleased with the investor response on our transactions — and we were especially pleased to lock in ratepayer savings while we eliminated all of our wastewater enterprise Build America Bonds," he said.
The Series 2026A bonds were a single taxable maturity, but "our 2026B tax-exempt refunding had strong investor participation across the curve through final maturity in 2040," he said.
Oversubscribed
After offering $268.5 million of bonds during the retail order period SFPUC received nearly $1.1 billion in orders from both professional and individual retail accounts, Sklaroff said.
The utility held back 50% of maturities for institutions and was rewarded for that decision, which gave them multiple opportunities to tighten yields despite the unsettled conditions in the Middle East, he said.
Rethinking green label
"While we expect to return with labeled bonds, we are rethinking our labeled bond strategy in light of Sustainalytics abrupt departure and will need to go through a procurement process to replace them, which takes time in our city," Sklaroff said. "That was why we are especially excited to provide the market with information about the investments we are making — telling the story not just about what we are spending money on, but what those projects are adding out our climate reliance, adaptability and risk mitigation for the future."
Sklaroff adds the utility, as part of the city and county of San Francisco, has been developing and acting on formal climate action plans for decades and investing well ahead of the natural disasters that have been so frequent nationally in recent years.
The impact report provides a broad look at investments across the water, power and wastewater enterprises, including projects funded by bonds, rates and other sources.
The utility has "long been recognized as a leader in sustainability and was an early adopter of green bonds," but the report attempts to demonstrate how those investments strengthen essential services while reducing long-term risks.
"We wanted to give investors and rating agencies a more complete picture of what our capital investments accomplish," said Sklaroff, who led development of the impact report. "These projects may increase the total amount of money we borrow now, but our commitments also reduce risks, strengthen our infrastructure, and help avoid greater costs in the future."
