AgdaPkt 2015-04-13 Closed and Joint SA and PFA REVISED 04_10_2015

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8.A. - Page 66 charges sufficient to provide the required debt service coverage as well as pay for Operation and Maintenance Costs. Among other matters, drought, general and local economic conditions and changes in law and government regulations (including initiatives and moratoriums on growth) could adversely affect the amount of Net Revenues realized by the City. Limited Obligations The 2015 Installment Payments are limited obligations of the City and are not secured by a legal or equitable pledge or charge or lien upon any property of the City or any of its income or receipts, except the Net Revenues. The obligation of the City to pay debt service on the Bonds from Net Revenues does not constitute an obligation of the City to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. The City is obligated under the 2015 Installment Purchase Contract to make Installment Payments solely from Net Revenues. There is no assurance that the City can succeed in operating the Enterprise such that the Net Revenues in the future will be sufficient for that purpose. Risks Relating to Water Supplies As described above under "THE ENTERPRISE—Water Supply and Water Demand," the Enterprise currently receives virtually all of its water, and all of its potable water, from the Regional Water System pursuant to the WSA and its Water Sales Contract that provides Redwood City an ISG of 11.08 MGD or 12,243 AFY. Accordingly, an interruption in the delivery of water from San Francisco for any reason would severely impact the ability of the Enterprise to deliver water to its customers, thereby reducing the amount of Gross Revenues available to the Enterprise to pay its Maintenance and Operation Costs and its obligations under the Water Supply Agreement. The City estimates, for example, that a 20% water shortage of the Regional Enterprise would reduce water deliveries to the Enterprise by 28% (from 12,243 AFY to 8,861 AFY). Additionally, as the demands on the Regional Enterprise grow, the possibility of water shortages will increase. California is also facing a record drought, which may adversely impact Enterprise water revenues and the ability of the Enterprise to repay outstanding debts. On January 17, 2014 California Governor Edmund G. Brown Jr. declared a State of Emergency in California due to severe drought conditions. The State of California requested a voluntary 20% water usage reduction statewide, and SFPUC requested a voluntary 10% water usage reduction from its customers. In response to these requests, the City called for a 10% voluntary reduction in water use from the community. On August 25, 2014 the City Council passed an Emergency Drought Regulations resolution restricting outdoor water use. If the drought continues, SFPUC may implement mandatory rationing of the water supply and charge a drought surcharge. In this scenario, the City would receive a portion of the current ISG and be responsible for recuperating costs of the drought surcharge. BAWSCA and all wholesale water customers are currently preparing to address the possibility of mandatory drought rationing and associated surcharges. Wholesale Water Costs San Francisco is expected to substantially raise wholesale water rates for the Suburban Customers, including the Enterprise, due to the costs of San Francisco's capital improvement program, which is described above under "THE ENTERPRISE - Water Supply - San Francisco -42-