REPORT TO COUNCIL
SUBJECT
Title
Adoption of Resolution Approving the Execution, Delivery and Performance of a Revolving Credit Agreement with TD Public Finance, LLC for Capital Costs for the Electric System in the Amount Not-to-Exceed $350,000,000 and Authorizing the Execution, Delivery and Performance of Related Documents and Certain Other Actions in connection with this Financing
Report
BACKGROUND
The City of Santa Clara’s Electric Utility, Silicon Valley Power (SVP), has provided dependable electric service for over 128 years and is experiencing significant continued growth. SVP has developed a City Council-approved Capital Improvement Strategy to address near-term and long-term impacts from potential load growth and aged infrastructure to maintain system reliability. In 2025, SVP registered a peak load of nearly 745 Megawatt (MW), another new record, and delivered approximately 5,100 Gigawatt-hours (GWh) to customers, continuing its rapid pace of growth. This represents a 6-year compound annual growth rate of almost 5% in energy delivery, starting from 2020.
On September 28, 2021, the City Council accepted SVP’s Three-Year System Growth Strategy Plan (RTC #21-871). This plan identified $300 million of proposed projects to install new facilities and replace aged infrastructure with higher capacity infrastructure where needed. On November 15, 2022, the City Council accepted SVP’s System Expansion Plan report for the California Independent System Operator’s (CAISO) Transmission Planning Process (TPP) FY 2023/24 (RTC #22-1172). This report included a comprehensive list of $200 million of additional projects for SVP’s System Growth Strategy during the study period for a total of over $500 million of proposed projects required to serve an additional projected load of 1,306 MW by 2032. The main projects include the Kifer Receiving Station (KRS) Rebuild and Replacement, Scott Receiving Station (SRS) Rebuild and Replacement, and Northern Receiving Station (NRS) Upgrades and Expansion (collectively, “Receiving Station Projects”).
In the updated CAISO TPP FY 2024/25, to meet continued Greater Bay Area load growth, the CAISO Board approved modifications to the prior TPP-approved High Voltage Direct Current projects and a new San Jose B - NRS 230kV line project. To complement those scope changes and increase load serving capability, SVP requires improvements and upgrades at NRS (“New 230kV T-Line Improvements”). A project for the New 230kV T-Line Improvements was established in the FY 2026/27 5-Year Adopted Capital Improvement Program Budget under the title “CAISO 3rd 230kV T-Line into NRS.” The Receiving Station Projects and New 230kV T-Line Improvements project (altogether called the “Projects”) are enhancements needed to support both SVP’s future load growth and overall system reliability.
SVP issued $112.2 million in principal amount of tax-exempt bonds in October 2024 (2024 Electric Revenue Bonds per RTC 24-46), that produced, including bond premium, $130.6 million of proceeds (1st Tranche) to fund equipment and design costs for the Receiving Station Projects. Estimated construction costs of these three existing projects and the added New 230kV T-Line Improvements total approximately $350 million.
While a 2nd Tranche of bonds was always planned, staff worked in consultation with the City’s municipal advisor (PFM Financial Advisors LLC) and determined an interim credit facility financing instrument would be the best financing option at this time. This option provides SVP with maximum flexibility to fund the large and often unpredictable construction cashflow requirements of the Projects and, if funding is available, other Capital Improvement Plan projects. Similar to a commercial line of credit, this form of financing allows the City to draw funds as needed over time to pay project costs, with the expectation that long-term, fixed rate financing will be secured in the future to retire the interim credit facility. Given the current economic environment and uncertain construction cashflow needs, a revolving short-term financing instrument provides SVP with the most cost-effective financial flexibility. The proposed financing also provides the City flexibility to provide interim financing for other electric projects in the Capital Improvement Plan.
The attached Resolution authorizes actions related to the proposed revolving credit agreement (Credit Agreement) and the related Series 2026 Bond to finance, on a short-term basis, a portion of the costs of the Projects and any other electric projects in the Capital Improvement Plan. Staff will bring a future resolution for City Council consideration to refinance the Credit Agreement with long-term fixed rate debt.
DISCUSSION
Following the sale of 2024 Electric Revenue Bonds (RTC 24-46), SVP and Finance contemplated a second long-term fixed rate bond issuance (2nd Tranche) of $246 million in calendar year 2025, pending project deployment progress, to further fund the Receiving Station Projects. In June 2025, the issuance of the 2nd Tranche was postponed in order to evaluate other options that better align with the anticipated project cost milestones. The plan to issue a new short term financing instrument and/or long-term debt was factored into the FY 2025/26 and FY 2026/27 Adopted Operating Budget as described under Electric Debt Planned in the Debt Service section of the budget.
Due to further uncertainties and SVP project needs, Finance requested PFM Financial Advisors LLC to assist with the solicitation of offers for an interim short-term tax-exempt Credit Agreement financing in lieu of issuing the 2nd Tranche of long-term fixed rate bonds. The Credit Agreement will help to avoid higher carrying costs and debt service payments earlier than necessary.
On January 26, 2026, a request for proposals was sent to 17 banks, and five proposals were received on February 9, 2026. Each bank proposed rates for terms of 2 - 5 years, as requested. Best and final offer (BAFO) discussions ensued with three of the financial institutions. Following an analysis of the BAFO, Finance entered into contract negotiations with TD Public Finance, LLC (the “Lender”), as the proposer with the lowest financing cost and most advantageous financing terms.
Presented for the City Council’s review and adoption is a Resolution authorizing and approving the following documents and actions relating to the financing of the Projects and other Capital Improvement Plan projects.
Authorizing Resolution. Through its approval of the attached resolution, the City Council authorizes the City to:
1. Enter into a Credit Agreement in the aggregate principal amount of not to exceed $350,000,000 with TD Public Finance, LLC as Lender;
2. Authorize a Series 2026 Bond and approve Fifth Supplemental Indenture;
3. Engage professional services in connection with the financing; and
4. Authorize various officers of the City to execute all documents that may be necessary to close the transaction, make any changes necessary to finalize the documents in consultation with the City Attorney and the City’s Bond Counsel, and certain other related actions.
Revolving Credit Agreement and Fee Agreement. The agreements were created with input from Finance, its bond counsel, Stradling Yocca Carlson & Rauth LLP, and municipal advisor, as well as the Lender and its outside legal counsel. Key terms include a 5-year tenor with a final maturity date in 2031, applicable interest rate based on Secured Overnight Financing Rate (SOFR) when the credit facility is drawn, and an unutilized fee of 20 basis points (0.20%), all predicated on a credit rating of A+ or above.
Fifth Supplemental Electric Revenue Bond Indenture and Series 2026 Bond. In 2011, the City entered into its Electric Revenue Bond Indenture (Indenture) with the bond trustee that serves as trustee on behalf of the owners of bonds of the City’s Electric Enterprise. The Fifth Supplemental Electric Revenue Bond Indenture (Supplemental Indenture) relating to the Series 2026 Bond, which will evidence the City’s indebtedness created under the Credit Agreement, supplements the Indenture and provides the terms. Under the Indenture and Supplemental Indenture, the City is obligated to set rates to provide adjusted net revenues sufficient in each year to cover 1.0 times the annual debt service on the City’s outstanding electric revenue bonds, including the Series 2026 Bond, and any other debt of the Electric Enterprise payable from adjusted net revenues of the Electric Enterprise in accordance with the Indenture.
All documents have been presented for approval as to form and will contain certain blanks related to dates that will be completed when the Credit Agreement is executed.
Projects. Based on preliminary cash flow projections without contingencies, estimated funding needs and sources are detailed below. It is important to note that projections can vary materially due to various dynamics and factors during Project construction.
|
(in $ Millions) |
KRS |
SRS |
NRS |
New 230kV T-Line Improvements |
Total* |
|
Total Project Cost |
$113.8 |
$107.4 |
$148.5 |
$109.3 |
$479.0 |
|
Funding Sources: |
|
|
|
|
|
|
1st tranche Debt Issued |
$ 35.0 |
$ 35.0 |
$ 60.0 |
- |
$130.0 |
|
Load Development Fee |
$ 6.0 |
$ 9.0 |
$ 16.0 |
- |
$ 31.0 |
|
Customer Service Charges |
$ 2.2 |
$ 1.9 |
$ 2.9 |
$ 5.4 |
$ 12.4 |
|
Funded To-Date |
$ 43.2 |
$ 45.9 |
$ 78.9 |
$ 5.4 |
$173.4 |
|
Remaining Debt-Funded Costs |
$ 70.6 |
$ 61.5 |
$ 69.6 |
$103.9 |
$305.6 |
*Amounts are based on estimated preliminary project cash flow projections and do not include contingencies. These figures do not align to budget appropriation amounts which include contingencies that factor in potential tariffs and additional equipment options that can be exercised. The first tranche excludes the cost of issuance of $0.6 million.
Construction contracts for the Receiving Station Projects were all awarded in July 2025 with Notice to Proceed issued on or about August 2025. As of May 2026, approximately $42 million of the $130.6 million 1st Tranche has been spent. The majority of cash expenditures for these three projects are expected to occur in late 2026-early 2027. NRS construction is expected to be completed by June 2028, followed by SRS in March 2029, and KRS in June 2029. The New 230kV T-Line Improvements are at their preliminary stage with plans to award a design contract mid-2027 with the majority of cash expenditures expected in FY 2029/30.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines section 15378(b)(4) in that it is a government funding mechanism which does not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment.
FISCAL IMPACT
Over 90% of SVP’s retail rate revenues are attributable to industrial customers and less than 6% come from residential customers. Financing the costs of the Projects is consistent with SVP’s ongoing strategy to spread costs over the life of the assets in order to maintain reasonable and equitable electric utility rates and have current users who benefit from the capital projects pay for such improvements. Staff evaluated financing options to best meet SVP needs.
The original plan was to issue long-term debt to cover Electric Utility project costs. Based on preliminary project cash flow requirements, a 2nd and 3rd tranche (Initial Plan) of debt would be split and issued in July 2026 and July 2029. Using the preliminary cash flow projections, a 5% coupon, and a final maturity of July 1, 2046, annual debt service payments were estimated to be approximately $14.76 million. All payments, including costs of issuance, resulted in a Net Present Value (NPV) cost of approximately $290 million. When comparing debt service costs, NPV helps borrowers see the true cost of borrowing over time, accounting for the time value of money.
Given the continued uncertainty of project cash flows, a Credit Agreement provides SVP flexibility in terms of liquidity and timing since SVP can draw down and borrow amounts as needed to fund Electric Utility project costs. The Finance Department explored various financing alternatives to fund the Projects, including the two scenarios described below, to help identify the lowest cost financing option. The following scenarios assume that amounts borrowed under the Credit Agreement will ultimately be refinanced with proceeds of a future long-term, fixed rate issuance of electric revenue bonds (subject to future approval by Council).
• Scenario 1: The Credit Agreement would be in place to ensure available funding for the Projects. However, SVP cash would be used to fund the Projects on a short-term basis before the issuance of long-term debt. Under IRS regulations, Project costs during the 18-month period before the issuance of long-term debt can be reimbursed. SVP cash would be used on an interim basis during this reimbursement period and then long-term fixed rate bonds would be issued in January 2028. There would be administrative costs to maintain the credit facility as well as the loss of interest earnings on SVP cash during the 18-month period. Approximately $14.55 million of debt service and costs of issuance are avoided in FY 2026/27 and FY 2027/28 and SVP realizes NPV savings of $2.19 million over the life of the bonds.
• Scenario 2: The Credit Agreement would be used to fund Project costs between now and the issuance of long-term fixed rate bonds in July 2028, based on 50% of projected cash flows. The Credit Agreement is drawn down only when needed to cover actual Project costs, thus avoiding interest costs before funds are needed. Total cost avoidance amounts to approximately $24.86 million and SVP realizes NPV savings of $11.51 million over the life of the bonds.
The following table provides a summary of the scenarios, including assumptions and NPV savings:
|
Scenario (in $ Millions) |
Initial Plan (2nd Tranche) |
Scenario 1 |
Scenario 2 |
|
Assumptions |
LT Bonds issued 7/2026 & 7/2029 |
Credit Agreement + LT Bonds issued 1/2028 |
Credit Agreement + LT Bonds 7/2028 |
|
Bond True Interest Cost (TIC) |
3.59% |
3.47% |
3.48% |
|
Total Credit Agreement and Cash/Short Term Costs1 |
N/A |
$4.68 |
$4.67 |
|
Total Long Term (LT) Bond Debt Service |
$415.90 |
$413.0 |
$401.4 |
|
Net Present Value (NPV) at 3.50% |
$290.23 |
$288.04 |
$278.72 |
|
NPV Savings |
N/A |
$2.19 |
$11.51 |
|
Credit Agreement Termination Date |
N/A |
12/31/2027 |
6/30/2028 |
|
LT Bond Debt Service Payments until Termination Date |
N/A |
$19.23 |
$29.53 |
|
LT Bond Cost Avoidance |
N/A |
$14.55 |
$24.86 |
1). Includes cost of issuance, interest expense, unutilized fees, and lost cash interest earnings
Based on the analysis above, the use of the Credit Agreement under Scenarios 1 and 2 will result in overall cost savings to SVP and will provide more flexibility to address any changes in project schedules. While the financial analysis and budget are based on the assumption that these Projects will be funded by the Credit Agreement, given the preliminary nature of the New 230kV T-Line Improvements that will be more defined as the project is designed and possibility for changing infrastructure needs, the Credit Agreement can be used on other capital projects in the Electric Utility’s system.
After the Credit Agreement is executed, staff will return to the City Council with budget amendments as part of the FY 2025/26 Year End Close Report to reconcile the previously assumed 2nd Tranche issuance and the issued Credit Agreement.
The use of the Credit Agreement was factored into the FY 2026/27 and FY 2027/28 Adopted Biennial Capital Budget, and payments for future years will be incorporated into the Electric Utility budget as part of future budget cycles. Debt service payments will be made from adjusted net revenues of the Electric Utility and have been contemplated in the Electric Utility's long-range financial plan and rate structure.
Data Centers and Resiliency
Revenue to fund the Credit Agreement and future debt service are collected from all customers, including data centers. Non-residential customers, including data centers, pay for 95% of the costs of the credit agreement and this percentage will continue to grow as SVP goes from today’s 780 MW peak demand to 1300 MW in the next few years. The data centers located in Santa Clara serve diverse purposes, from cloud services to research and development and some AI. This diversification helps reduce financial risk to SVP. In addition, data centers and other large customers pay for the cost of building and connecting to SVP’s electrical system up front as part of the design and construction of the projects. Load Development Fees are charged to these customers separately to reflect the system-wide impact for increased load, with the fees intended to capture infrastructure investments to increase capacity.
SVP does not have Take or Pay provisions in its substation agreements, but a rate structure to capture stranded capacity is being evaluated by staff. Several ideas being explored include: a Capacity Reservation Charge to ensure large customers pay for the load they are requesting; a Minimal Annual Revenue Requirement, which is similar to the capacity reservation charge but is tied to the total revenue collected, not the load; or the large customers pay for their capacity up front and reimbursements are issued at key energy milestones. Impacts to new and current customers will be part of the discussions when evaluating these strategies.
SVP has weathered fluctuations of technology cycles in the past and maintains reserves to adapt to changing financial conditions. These reserves along with other financial mechanisms, like the line of credit being recommended in this memorandum, are in place to ensure there are funds available to cover unforeseen events such as a correction in the data center market. SVP’s non-residential customers, including data centers, contribute 95% of the revenues towards funding reserves and the increases that are in current projections.
COORDINATION
This report has been coordinated with the Electric Department and City Attorney’s Office.
PUBLIC CONTACT
Public contact was made by posting the meeting agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov or at the public information desk at any City of Santa Clara public library.
RECOMMENDATION
Recommendation
1. That the City Council by Resolution authorize and approving the execution, delivery and performance of Revolving Credit Agreement with TD Public Finance, LLC in an amount not to exceed $350,000,000 to provide interim financing for capital costs of the Electric Utility consistent with the Capital Improvement Plan, approving the execution of financing documents and authorizing certain other related actions consistent with the financing; and
2. Authorize the City Manager, Director of Finance, Director of Silicon Valley Power, City Attorney, and Assistant City Clerk to execute all required agreements necessary to consummate any of the transactions contemplated by the agreements and documents approved under the Resolution and to make any changes necessary to complete the financing transaction.
Staff
Reviewed by: Kenn Lee, Acting Assistant City Manager / Chief Financial Officer
Reviewed by: Nico Procos, Director of Silicon Valley Power
Approved by: Jovan D. Grogan, City Manager
ATTACHMENTS
1. Authorizing Resolution
2. Revolving Credit Agreement
3. Fee Agreement
4. Fifth Supplemental Electric Revenue Bond Indenture