WATERCRITERIAOFTHECLIMATEBONDSSTANDARDVERIFICATIONLETTERIssuingEntity:TheSanFranciscoPublicUtilitiesCommissionKindofengagement:AssuranceEngagementPeriodengagementwascarriedout:September1st2016toSeptember29th2016Approvedverifier:SustainalyticsUSInc.,Contactforengagement:24SchoolStreet,Suite803,Boston,MA,02108,U.S.A.Engagementteamleader:VikramPuppala,vikram.puppala@sustainalytics.com+16473173694Professionalteammember:AnkitaShukla,ankita.shukla@sustainalytics.com+14168610403Scope:TheSanFranciscoPublicUtilitiesCommission(“SFPUC”),hasengagedSustainalyticstoreviewandverifythatSFPUC’sgreenbondmeetstherequirementsfortheWaterCriteriaoftheClimateBondsStandard.The proceeds of the bond will finance the projects under theWater System Improvement Program(“WSIP”).TheWSIPprogramincludesatotalof87projectsofwhichthefollowing largeprojectswereprioritizedforassessmentastheycompriseasignificantportionoftheWSIPprogrambudget.

• 35201:AlamedaCreekRecaptureProject• 37401:CalaverasDamReplacement• 37402:CalaverasReservoirUpgrades• 35401:LowerCrystalSpringsDamImprovement• PWI-WSIPCloseout–PeninsulaRegion(newproject2016)• 38801:ProgrammaticEnvironmentalImpactReport(EIR)

Therestoftheprojectswereconcludedtohaveinsignificantsensitivitytocurrentandfutureclimateimpactsovertheiroperationallifetimes.CriteriaA.WaterCriteriaoftheClimateBondStandardB.AdaptationTheme

1. Allocation-allcriteria2. Governance-allcriteria3. DiagnosticAssessment-allcriteria4. AdaptationPlan-allcriteria

PleasefinddetailsofAllianceforGlobalWaterAdaptation’s(AGWA)AssessmentinSchedule2.

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IssuingEntity’sResponsibilitySFPUCisresponsibletoprovideinformationanddocumentsrelatingto:

• Thedetailsconcerningwaterallocationandavailability• Thegovernanceprocessforwaterentitlementsandallocation,managementsystems,andconflict

resolutionmechanisms• Thedetailsconcerningthediagnosticassessmentconducted• Thedetailsconcerningtheadaptationplanproduced

IndependenceandQualityControlSustainalytics,aleadingproviderofESGandcorporategovernanceresearchandratingstoinvestors,conductedtheverificationofSFPUC’sgreenbond,issuedtofinanceeligibleprojectsincludedinitsWaterSystemImprovementProgram(“WSIP”),andprovidedanindependentopinioninformingtheconformanceofthegreenbondwiththeWaterCriteriaoftheClimateBondsStandard.SustainalyticsreliedontheassessmentconductedbyAllianceforGlobalWaterAdaptationtoprovidethisopinion.SustainalyticsmakesalleffortstoensurethehighestqualityandrigorduringitsassessmentprocessandenlisteditsSustainabilityBondsReviewCommitteetoprovideoversightovertheassessmentofthebond.Verifier’sResponsibilityTheworkundertakenaspartofthisengagementincludedconversationswithrelevantSFPUCmanagementandstaffandthereviewofrelevantpublicandinternaldocumentstoassessthefollowing:

• ConformanceofSFPUC’sgreenbondwiththeWaterCriteriaoftheClimateBondsStandard;• ConformancewiththecriteriaundertheAdaptationTheme:Allocation,Governance,Diagnostic

Assessment,andAdaptationPlan;• ConformancewiththeInternalProcesses&Controlsrequirements;• ConformancewithReportingPriortoIssuancerequirements.

BasisoftheOpinionSustainalyticsconductedtheverificationinaccordancewiththeClimateBondStandardVersion2.0andwithInternationalStandardonAssuranceEngagements3000–AssuranceEngagementsotherthanAuditsorReviewsofHistoricalInformation.Sustainalyticshasreliedontheassessment,informationandthefactspresentedbyAllianceforGlobalWaterAdaptationwithregardstothebond’scompliancewithClimateBondStandards.PleasefinddetailsofAllianceforGlobalWaterAdaptation’s(AGWA)AssessmentinSchedule2.Sustainalyticsisnotresponsibleforanyaspectoftheprojectsreferredtointhisopinionandcannotbeheldliableifestimates,findings,opinions,orconclusionsareincorrect.Thus,SustainalyticsshallnotbeheldliableifanyoftheinformationordataprovidedbySFPUCand/orAGWAthatisnotcorrectorcomplete.

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RestrictiononDistributionandUseofReportThisreportalongwiththeinformationprovidedisfortheuseandpublicationofSFPUCandClimateBondStandardBoardonlyandnotfortheuseofanyotherexternalparties.OpinionBasedontheassessmentofSFPUC’sgreenbondundertheWaterCriteriaoftheClimateBondsStandard,nothinghascometoSustainalytics’attentionthatcausesustobelievethat,inallmaterialrespects,SFPUC’sgreenbond,issuedtofinanceeligibleprojectsincludedintheWaterSystemImprovementProgram,isnotinconformancewiththeWaterCriteriaoftheClimateBondsStandardPre-IssuanceRequirements.SustainalyticsbelievesthattheNominatedProjectsandAssetswilladdressvulnerabilitiesoftheSFPUC’swatersupplytoclimatechangeandotherfactorsandwillcontributetoensurethelong-termreliabilityoftheregionalwatersystem.

VikramPuppalaSeptember29th,2016215SpadinaAve,Suite300,TorontoONM5T2C7,Canada

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Schedule1A:WaterCriteriaoftheClimateBondsStandardSelectionofNominatedProjects:

1.1 Statementontheenvironmentalobjectivesofthebond

1.2 NominatedProjectsmeettheClimateBondscriteria

1.3 DocumentalistofNominatedProjectsandAssets

1.4 ConfirmationthatNominatedProjectsandAssetswillnotbenominatedtootherClimateBonds

1.5 ConfirmationthatNetProceedsoftheGreenPrivatePlacementshallnotbegreaterthanthevalueoftheNominatedProjectsandAssets

InternalProcessesandControls

2.1.1Trackingofproceeds

2.1.2Managingofunallocatedproceeds

2.1.3EarmarkingfundstoNominatedProjectsandAssets

ReportingPriortoIssuance 3.1.1InvestmentareaofNominatedProjectsandAssets

3.1.2Intendedtypesoftemporaryinvestmentsofunallocatedproceeds

3.1.3ApproachofVerifier

3.1.4Whetherperiodicassuranceengagementwillbeundertaken

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Schedule1B:ConformancetotheWaterCriteriaoftheClimateBondsStandardProcedurePerformed FactualFindings Erroror

ExceptionsIdentified

VerificationofrequirementsspecifiedunderSelectionofNominatedProjects

1.1 TheobjectiveofthebondistoprimarilyuseproceedstofinancetheprojectsundertheWaterSystemImprovementProgram(“WSIP”)

1.2 TheprojectsmeettheminimumscoringrequirementsoutlinedinthePhase1:EngineeredWaterInfrastructureundertheWaterCriteriaoftheClimateBondsStandard(Schedule2).• Allocation:17of17(100percent)• Governance:12of15(80percent)• Diagnosticassessment:23of24(96percent)• Adaptationplan:Highpass

1.3 TheNominatedProjectsincludeallprojects(87)undertheWSIPprogramfromthefollowingwereprioritizedforassessment.

• 35201:AlamedaCreekRecaptureProject• 37401:CalaverasDamReplacement• 37402:CalaverasReservoirUpgrades• 35401:LowerCrystalSpringsDam

Improvement• PWI-WSIPCloseout–PeninsulaRegion(new

project2016)• 38801:ProgrammaticEnvironmentalImpact

Report(EIR)1.4 SFPUC’smanagementconfirmsthattheprojects

shallnotbenominatedtootherClimateBonds.

1.5 SFPUC’smanagementconfirmsthatthenetproceedsofthebondshallnotbegreaterthanthevalueoftheprojects.

None

VerificationofrequirementsspecifiedunderInternalProcessesandControls

2.1.1SFPUC’smanagementconfirmsthatproceedswillbesegregatedandtrackedinasystematicmannerandwillbeexclusivelyusedtofinanceEligibleProjects.

None

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2.1.2SFPUC’smanagementconfirmsthatallnetproceedswillbeimmediatelyused(i.e.allocatedatissuance)tofinancetheEligibleProjects.TherewillnotbeanyunallocatedNetProceeds.

2.1.3SFPUC’smanagementhasconfirmedthattheproceedsfromthebondwillbeimmediatelyusedfortherepaymentofdebtoriginallyraisedfortheNominatedProjects.

VerificationofrequirementsspecifiedunderReportingPriortoIssuance

3.1.1Thebond’sofferletterconfirmsthattheproceedsofthetransactionwillprimarilybeusedtofinancetheprojectsunderWSIP.ThesefallundertheWaterCriteriaoftheClimateBondsTaxonomy.

3.1.2Thebond’sofferletterconfirmsthatallnetproceedswillbeimmediatelyused(i.e.allocatedatissuance)tofinancetheWSIPprojects.

3.1.3Thebond’sofferletterconfirmsthatanapprovedthirdpartyverifierhasbeenappointedtoconfirmthebond’sconformancewithpre-issuancerequirementsoftheWaterCriteriaoftheClimateBondsStandard.

3.1.4Thebond’sofferletterconfirmsthatanapprovedthirdpartyverifierwillconductpost-issuanceassuranceexercisewithinayear’stimetoreaffirmconformanceofthebondwiththeWaterCriteriaoftheClimateBondsStandard.

None

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Schedule2:AssessmentofSFPUCBondundertheWaterCriteriaoftheClimateBondStandardPleasefinddetailsofAllianceforGlobalWaterAdaptation’s(AGWA)Assessmentinattachedfile.

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DisclaimerAllrightsreserved.Nopartofthisverificationlettermaybereproduced,transmittedorpublishedinanyformorbyanymeanswithoutthepriorwrittenpermissionofSustainalytics.ThisverificationletterisforinformationpurposesonlyandSustainalyticswillnotacceptanyformofliabilityforthesubstanceoftheopinionand/oranyliabilityfordamagearisingfromtheuseofthisverificationletterand/ortheinformationprovidedinit.Astheverificationletterisbasedoninformationmadeavailablebytheclient,Sustainalyticsdoesnotwarrantthattheinformationpresentedinthisverificationletteriscomplete,accurateoruptodate.Nothingcontainedinthisverificationlettershallbeconstruedastomakearepresentationorwarranty,expressorimplied,regardingtheadvisabilitytoinvestinorincludecompaniesininvestableuniversesand/orportfolios.Furthermore,thisverificationlettershallinnoeventbeinterpretedandconstruedasanassessmentoftheeconomicperformanceandcreditworthinessofthebond.Theissuanceandtheoutcomeofthegreenbondisoutsidethescopeofthisengagement.Theclientisfullyresponsibleforensuringitscommitments`compliance,implementationandmonitoring.

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