AgdaPkt 2017-01-23 Closed and Joint

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-43- Seismic Considerations The City, like much of California, is subject to seismic activity that could result in interference with the delivery of water from the Regional Water System or the City’s operation of the Enterprise. San Francisco’s Water System Improvement Plan for the SFPUC (see “THE ENTERPRISE – Water Supply – SFPUC Water System Improvement Plan”) is intended, in part, to make seismic upgrades to the Regional Water System. However, a major seismic event could result in water deliveries from the Regional Water System to the Enterprise being interrupted for a significant period of time. As a result, no assurance can be given that a future seismic event will not materially adversely affect the operation of the Enterprise. Additional details about how water is allocated during an emergency can be found in the Water Supply Agreement. The City does not, and does not expect to, maintain earthquake insurance on the Enterprise. Environmental Regulation The kind and degree of water treatment effected through the Enterprise is regulated, to a large extent, by the federal government and the State of California. Treatment standards set forth in federal and state law control the operations of the Enterprise and mandate the use of water treatment technology. In the event that the federal government, acting through the Environmental Protection Agency, or the State of California, acting through the Department of Health Services, or additional federal or state agencies, should impose stricter water quality standards upon the Enterprise, the City’s expenses could increase accordingly and rates and charges would have to be increased to offset those expenses. It is not possible to predict the direction federal or state regulation will take with respect to water quality standards, although it is likely that, over time, both will impose more stringent standards with attendant higher costs. Maintenance and Operation Costs There can be no assurance that the City’s expenses for the Enterprise will be consistent with the descriptions in this Official Statement. Changes in technology, changes in quality standards, loss of large customers, increased or decreased development, increases in the cost of operation, or other expenses could require increases in rates or charges in order to comply with the City’s rate covenant in the 2017 Installment Purchase Contract. Limited Recourse on Default Failure by the City to make 2017 Installment Payments constitutes an event of default under the 2017 Installment Purchase Contract and the Trustee is permitted to pursue remedies at law or in equity to enforce the City’s obligation to make such payments. Although the Trustee has the right to accelerate the total unpaid principal amount of the 2017 Installment Payments, there is no assurance that the City would have sufficient funds to pay the accelerated amounts. Limitations on Remedies The ability of the City to comply with its covenants under the 2017 Installment Purchase Contract and to generate Net Revenues sufficient to pay the 2017 Installment Payments and, therefore, of principal of and interest on the Bonds, may be adversely affected by actions and events outside of the control of the City and may be adversely affected by actions taken (or not taken) by voters, property owners, taxpayers or persons obligated to pay assessments, fees and charges. Furthermore, the remedies available to the owners of the Bonds upon the occurrence of an event of default under the 2017 Installment Purchase Contract are in many respects 8.C. - Page 68