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51 <br />the 2024 Installment Purchase Contract, the 2017 Installment Purchase Contract, and the 2015 <br />Installment Purchase Contract, subject to satisfaction of certain conditions, to incur future Parity <br />Obligations. In the event Net Revenues were insufficient to pay all of the City’s obligations with <br />respect to the 2024 Installment Payments and any Parity Obligations, when due, the City would <br />be obligated to make payments on the Parity Obligations and 2024 Installment Payments on a <br />pro rata basis. <br />Demand and Usage <br />There can be no assurance that the local demand for services provided by the Enterprise <br />will continue according to historical levels. In addition, drought conditions and voluntary or <br />mandatory conservation measures could decrease usage of the services of the Enterprise. See <br />“– California Drought Conditions.” <br />Reduction in the level of demand or usage could require an increase in rates or charges <br />in order to produce Net Revenues sufficient to comply with the City’s rate covenant. Such increase <br />in rates could include the approved temporary water shortage surcharge. See “THE <br />ENTERPRISE – Current Water Rates, Fees and Charges – Rate Adjustments During Water <br />Shortages.” Rate increases could increase the likelihood of nonpayment. <br />Statutory and Regulatory Impact <br />The kind and degree of water treatment is regulated, to a large extent, by the federal <br />government and the State of California. Treatment standards set forth in federal and state law <br />control the operations of the Enterprise and mandate its use of technology. If the federal <br />government, acting through the Environmental Protection Agency, or the State of California, <br />acting through the Department of Health Services, or additional federal or state legislation, should <br />impose stricter water quality standards upon SFPUC, SFPUC’s expenses could increase <br />accordingly, which could increase the costs to the Enterprise of obtaining water from the Regional <br />Water System, and rates and charges would have to be increased to offset those costs. <br />It is not possible to predict the direction which federal or state regulation will take with <br />respect to drinking water quality standards, although it is likely that both will impose more stringent <br />standards with attendant higher costs. <br />Although the City has covenanted in the 2024 Installment Purchase Contract to fix, <br />prescribe and collect rates, fees and charges during each Fiscal Year at specified levels, no <br />assurance can be given that the cost of compliance with such laws and regulations will not <br />materially adversely affect the ability of the City to generate Net Revenues in the amounts required <br />by the 2024 Installment Purchase Contract and to pay the 2024 Installment Payments. <br />Maintenance and Operation Costs <br />There can be no assurance that the City’s expenses for the Enterprise will be consistent <br />with the descriptions in this Official Statement. Changes in technology, changes in quality <br />standards, loss of large customers, increased or decreased development, increases in the cost <br />of operation, or other expenses could require increases in rates or charges in order to comply <br />with the City’s rate covenant in the 2024 Installment Purchase Contract. <br />8.A. - Page 65 of 255 <br />693