NEW ISSUE FULL BOOK-ENTRY. $1,129,765,000 Salt Verde Financial Corporation. Senior Gas Revenue Bonds, Series 2007

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1 NEW ISSUE FULL BOOK-ENTRY In the opinion of Bond Counsel, under existing law and assuming compliance with the tax covenants described herein, and assuming the accuracy of certain representations and certifications made by SVFC and the District described herein, interest on the Bonds is excluded from gross income for Federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended (the Code ). Bond Counsel is also of the opinion that such interest is not treated as a preference item in calculating the alternative minimum tax imposed under the Code with respect to individuals and corporations. Interest on the Bonds is, however, included in the adjusted current earnings of certain corporations for purposes of computing the alternative minimum tax imposed on such corporations. Bond Counsel is further of the opinion that, under existing law, interest on the Bonds is exempt from income taxes imposed by the State of Arizona. See TAX MATTERS herein regarding certain other tax considerations. $1,129,765,000 Salt Verde Financial Corporation Senior Gas Revenue Bonds, Series 2007 Dated: Date of Delivery Due: December 1, as shown on the inside cover Salt Verde Financial Corporation, an Arizona nonprofit corporation ( SVFC ), is issuing its Senior Gas Revenue Bonds, Series 2007 (the Bonds ) under a Trust Indenture dated as of October 1, 2007 (the Indenture ), between SVFC and U.S. Bank National Association, as trustee (the Trustee ), to finance the cost of acquiring a thirty-year supply of natural gas pursuant to an Agreement for Purchase and Sale of Natural Gas dated October 12, 2007 (the Prepaid Gas Agreement ), between SVFC and Citigroup Energy Inc. (the Gas Supplier ). All of the natural gas purchased by SVFC will be sold to the Salt River Project Agricultural Improvement and Power District (the District ) pursuant to a Natural Gas Supply Agreement dated October 12, 2007 (the Supply Agreement ), between SVFC and the District and is expected to be used in the District s electrical power generating facilities. See THE GAS SUPPLY ACQUISITION herein. Interest on the Bonds is payable on December 1, 2007 and semiannually thereafter on each June 1 and December 1. The Bonds will be issued in book-entry form through the facilities of The Depository Trust Company ( DTC ). Payments of principal of, premium, if any, and interest on the Bonds will be made directly to DTC, and will subsequently be disbursed to DTC Participants and thereafter to Beneficial Owners of the Bonds, all as described herein. See TERMS OF THE BONDS-Book-Entry Only System herein. The Bonds are subject to optional and mandatory redemption prior to maturity as described herein. See TERMS OF THE BONDS herein. The proceeds of the Bonds will be used to (i) finance the Prepayment of the natural gas under the Prepaid Gas Agreement, (ii) fund capitalized interest on the Bonds and the Subordinate Lien Bond (defined herein) and (iii) pay the costs of issuance of the Bonds and the Subordinate Lien Bond. See SOURCES AND USES OF FUNDS herein. The Bonds will be special obligations of SVFC payable solely from, and secured as to the payment of the principal and Redemption Price (defined herein) thereof, and interest thereon, in accordance with their terms and the provisions of the Indenture solely by, the Trust Estate (defined herein) pledged under the Indenture. The Bonds are not payable from, or secured by a legal or equitable pledge of, or lien or charge upon, any property of SVFC or any of its income or receipts except the Revenues (defined herein) and the other funds pledged therefor pursuant to the Indenture (which pledge is subject to the application of the Revenues and such other funds for the purposes and on the terms and conditions set forth in the Indenture). Neither the faith and credit nor the taxing power of the State of Arizona, the District or any public or quasi-public agency is pledged to the payment of the principal or Redemption Price of, or the interest on, the Bonds. The issuance of the Bonds does not directly, indirectly or contingently obligate the State or any political subdivision thereof, including the District, to levy or pledge any form of taxation or to make any appropriation for the payment of the Bonds. SVFC has no taxing power and is not a political subdivision, public agency or quasi-public agency of the State. The payment of the principal or Redemption Price of, or interest on, the Bonds will be a special obligation of SVFC, as provided in the Indenture, and will not constitute a debt, liability or obligation of the State or any political subdivision thereof, including the District. The payment obligations of the District under the Supply Agreement are limited obligations payable solely from the District s electrical utility system revenues. See SOURCES OF PAYMENT AND SECURITY FOR THE BONDS herein. The Gas Supplier s payment obligations under the Prepaid Gas Agreement will be guaranteed by Citigroup Inc. (the Guarantor ) pursuant to a guarantee (the Guarantee ) in favor of SVFC and the Trustee. The Guarantee guarantees only the payments required to be made by the Gas Supplier under the Prepaid Gas Agreement and does not constitute a guarantee of SVFC s obligations with respect to the Bonds. See THE GAS SUPPLYACQUISITION and THE GAS SUPPLIER, THE GUARANTOR AND THE GUARANTEE herein. The Bonds are offered, when, as and if issued by SVFC and accepted by Citigroup Global Markets Inc. (the Underwriter ), subject to the approval of legality by Nixon Peabody LLP, New York, New York, Bond Counsel to SVFC, and certain other conditions. Certain legal matters will be passed upon for the Underwriter by Orrick, Herrington & Sutcliffe LLP, Los Angeles, California. Certain legal matters will be passed upon for SVFC by Jennings, Strouss & Salmon P.L.C., Phoenix, Arizona as SVFC s Counsel. Certain legal matters will be passed upon for the District by Winston & Strawn LLP, New York, New York and Jennings, Strouss & Salmon, P.L.C. It is expected that the Bonds will be available for delivery through DTC on or about October 25, This cover page contains information for quick reference only. It is not a summary of this issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. Citi October 12, 2007

2 $1,129,765,000 Salt Verde Financial Corporation Senior Gas Revenue Bonds, Series 2007 MATURITY PRINCIPAL AMOUNT INTEREST RATE YIELD CUSIP December $3,990, % 4.260% 79575EAA $2,100, % 4.350% 79575EAB $4,115, % 4.440% 79575EAC $5,720, % 4.540% 79575EAD $8,585, % 4.630% 79575EAE $11,655, % 4.700% 79575EAF $15,105, % 4.750% 79575EAG $18,790, % 4.790% 79575EAH $22,835, % 4.830% 79575EAJ $26,985, % 4.860% 79575EAK $31,365, % 4.910% 79575EAL $37,645, % 4.930% 79575EAM $44,200, % 4.950% 79575EAN $51,110, % 4.980% 79575EAP $58,475, % 5.010% 79575EAQ1 $222,580, % Term Bond Due December 1, 2032 Yield 5.060% CUSIP 79575EAR9 $564,510, % Term Bond Due December 1, 2037 Yield 5.100% CUSIP 79575EAS7 CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by Standard & Poor s, CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Service. CUSIP numbers are provided for convenience of reference only. SVFC and the Underwriter do not assume responsibility for the accuracy of such numbers.

3 The information set forth herein has been furnished by SVFC, the Gas Supplier, the Guarantor, the Swap Counterparty, the Credit Facility Provider and the District and other sources which are believed to be reliable. The information and expressions of opinion contained herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of SVFC, the Gas Supplier, the Guarantor, the Swap Counterparty, the Credit Facility Provider or the District since the date hereof. No broker, dealer, salesman or other person has been authorized to give any information or to make any representations other than those contained in this Official Statement in connection with the offering made hereby and, if given or made, such information or representations must not be relied upon as having been authorized by SVFC, the District, the Gas Supplier, Guarantor or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there, be any sale of the Bonds, in any jurisdiction to any person to whom it is unlawful to make such offer, solicitation or sale. CERTAIN STATEMENTS CONTAINED IN THIS OFFICIAL STATEMENT REFLECT NOT HISTORICAL FACTS BUT FORECASTS AND "FORWARD-LOOKING STATEMENTS." IN THIS RESPECT, THE WORDS "ESTIMATE," "PROJECT," "ANTICIPATE," "EXPECT," "INTEND," "BELIEVE" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD- LOOKING STATEMENTS. ALL PROJECTIONS, FORECASTS, ASSUMPTIONS, EXPRESSIONS OF OPINIONS, ESTIMATES AND OTHER FORWARD-LOOKING STATEMENTS ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT. THE BONDS HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR WITH ANY STATE SECURITIES COMMISSION. IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. The CUSIP numbers are included in this Official Statement for the convenience of the owners and potential owners of the Bonds. No assurance can be given that the CUSIP numbers for a particular maturity of the Bonds will remain the same after the date of issuance and delivery of the Bonds. None of SVFC, the Trustee or the Underwriter assumes any responsibility for the accuracy of such numbers. THE UNDERWRITER HAS PROVIDED THE FOLLOWING SENTENCE FOR INCLUSION IN THIS OFFICIAL STATEMENT: THE UNDERWRITER HAS REVIEWED THE INFORMATION IN THIS OFFICIAL STATEMENT IN ACCORDANCE WITH, AND AS PART OF, ITS RESPONSIBILITIES TO INVESTORS UNDER THE FEDERAL SECURITIES LAWS AS APPLIED TO THE FACTS AND CIRCUMSTANCES OF THIS TRANSACTION, BUT THE UNDERWRITER DOES NOT GUARANTEE THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION.

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5 TABLE OF CONTENTS Page INTRODUCTION... 1 THE GAS SUPPLY ACQUISITION... 4 General... 4 The Prepaid Gas Agreement... 4 The Supply Agreement... 8 The Commodity Price Hedge SOURCES OF PAYMENT AND SECURITY FOR THE BONDS Special Obligations; Limitations on Liability The Trust Estate Revenues and Flow of Funds Payments Under the Guarantee INVESTMENT CONSIDERATIONS...19 Limited Obligations of SVFC Early Redemption of Bonds Financial Position of the District Decline in the District's Natural Gas Requirements Financial Position of Gas Supplier and Guarantor Financial Position of Swap Counterparty Structured Financing Enforcement of Contracts SOURCES AND USES OF FUNDS TERMS OF THE BONDS General Book-Entry Only System Mandatory Redemption Optional Redemption Sinking Fund Redemption Notice of Redemption Bonds Redeemed in Part Selection of Bonds to be Redeemed Refunding Bonds Registration and Exchange of Bonds; Persons Treated as Owners Debt Service Requirements THE ISSUER Relationship to the District SVFC s Limited Liability Restriction on Additional Obligations THE DISTRICT THE GAS SUPPLIER, THE GUARANTOR AND THE GUARANTEE The Gas Supplier and the Guarantor The Guarantee i

6 TABLE OF CONTENTS (continued) CERTAIN INFORMATION REGARDING THE SWAP COUNTERPARTY CERTAIN INFORMATION REGARDING THE CREDIT FACILITY PROVIDER LITIGATION SVFC The District APPROVAL OF LEGAL MATTERS TAX MATTERS Federal Income Taxes State Taxes Original Issue Discount Original Issue Premium Ancillary Tax Matters Changes in Law and Post Issuance Events CONTINUING DISCLOSURE FINANCIAL STATEMENTS FINANCIAL ADVISOR UNDERWRITING CERTAIN RELATIONSHIPS RATINGS MISCELLANEOUS Page APPENDIX A - APPENDIX B - APPENDIX C - APPENDIX D- APPENDIX E - APPENDIX F - INFORMATION RELATING TO THE SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT AND ITS ELECTRIC SYSTEM AUDITED FINANCIAL STATEMENTS OF THE SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT, ITS SUBSIDIARIES AND THE SALT RIVER VALLEY WATER USERS ASSOCIATION FOR YEARS ENDED APRIL 30, 2007 AND APRIL 30, 2006 SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE SUMMARY OF CERTAIN PROVISIONS OF THE PREPAID GAS AGREEMENT SUMMARY OF CERTAIN PROVISIONS OF THE SUPPLY AGREEMENT FORM OF OPINION OF BOND COUNSEL ii

7 TABLE OF CONTENTS APPENDIX G - APPENDIX H - APPENDIX I - FORM OF CONTINUING DISCLOSURE AGREEMENT SCHEDULE OF AMORTIZED VALUE OF THE BONDS SCHEDULE OF TERMINATION PAYMENTS i

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9 OFFICIAL STATEMENT $1,129,765,000 Salt Verde Financial Corporation Senior Gas Revenue Bonds, Series 2007 INTRODUCTION This introduction is only a brief review of, and is qualified by more complete information contained elsewhere in, this Official Statement, including the cover page and the appendices hereto, and the documents summarized or described herein. A full review should be made of the entire Official Statement. The offering of the Bonds to potential investors is made only by means of the entire Official Statement. This Official Statement, including its appendices, is furnished to provide certain information in connection with the issuance and sale of $1,129,765,000 aggregate principal amount of Senior Gas Revenue Bonds, Series 2007 (the "Bonds") of the Salt Verde Financial Corporation ("SVFC"). SVFC is a nonprofit corporation of the State of Arizona that has been organized for the purpose of acquiring, financing, and selling natural gas to the Salt River Project Agricultural Improvement and Power District (the "District") at a discount. See "THE ISSUER" and "THE GAS SUPPLY ACQUISITION." Certain capitalized terms used in this Official Statement are used with the meanings assigned to such terms in "APPENDIX C- SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE", "APPENDIX D- SUMMARY OF CERTAIN PROVISIONS OF THE PREPAID GAS AGREEMENT" and "APPENDIX E - SUMMARY OF CERTAIN PROVISIONS OF THE SUPPLY AGREEMENT". The Bonds will be issued under a Trust Indenture, dated as of October 1, 2007 (the "Indenture"), between SVFC and U.S. Bank National Association, as trustee (the "Trustee"). The net proceeds from the sale of the Bonds will be used to make a lump sum prepayment (the "Prepayment") to Citigroup Energy, Inc. (the "Gas Supplier") to acquire a supply of natural gas (the "Gas Supply") for delivery over a thirtyyear period. The Gas Supply is being purchased by SVFC from the Gas Supplier pursuant to an Agreement for Purchase and Sale of Natural Gas, dated as of October 12, 2007 (the "Prepaid Gas Agreement"), between SVFC and Gas Supplier. The Gas Supply will be sold by SVFC to the District pursuant to a Natural Gas Supply Agreement, dated as of October 12, 2007 (the "Supply Agreement"), between SVFC and the District. The annual quantity of natural gas to be delivered represents approximately 20% of the natural gas purchased by the District for use by its electric system in the year SVFC is entering into the Prepaid Gas Agreement and the District and SVFC are entering into the Supply Agreement in order to secure for the District a fixed quantity of natural gas. The District will pay SVFC a variable price based on a specified discount to the monthly market index for the District s delivery point, the El Paso Natural Gas Co., San Juan Non-Bondad (the "Delivery Point"), for all natural gas delivered or deemed delivered under the Supply Agreement (the "Contract Price"). Failure by the District to pay for natural gas delivered within two (2) Business Days of when such payment is due will result in an immediate termination of the Supply Agreement and upon such termination all obligations of SVFC to deliver Gas to District shall cease; provided, however, that if the District has paid the defaulted amount together with any interest accrued thereon within fifteen (15) days of the date of such termination, no notice of redemption of Bonds has at the time of such payment been issued by the Trustee and no Early Termination Date for the Prepaid Gas Agreement has occurred, the Supply Agreement (including the obligations of SVFC to deliver natural gas to the District thereunder) will immediately be reinstated. See "THE GAS SUPPLY ACQUISITION-The Supply Agreement."

10 The purchase by SVFC from the Gas Supplier of natural gas at a fixed price and the sale by SVFC to the District of natural gas at a floating index based price leaves SVFC exposed to the risk of market movements in the price of natural gas. To hedge this risk, SVFC will enter into a commodity price swap agreement (the "Commodity Swap Agreement") with the Royal Bank of Canada (the "Swap Counterparty"), under terms that are expected to enable SVFC to receive a revenue stream with respect to the sale of such natural gas that is substantially fixed for the life of the Prepaid Gas Agreement. See "THE GAS SUPPLY ACQUISITION-The Commodity Price Hedge-The Commodity Swap Agreement." In order to hedge its price exposure under the Prepaid Gas Agreement, the Gas Supplier will enter into a separate commodity price swap agreement (the "Supplier Swap Agreement") with the Swap Counterparty under which the Gas Supplier will pay a fixed natural gas price to the Swap Counterparty in return for the Swap Counterparty s payment to the Gas Supplier of a variable natural gas price. Nothing in the Supplier Swap Agreement relieves the Gas Supplier of its obligation to perform under the Prepaid Gas Agreement. See "THE GAS SUPPLY ACQUISITION-The Commodity Price Hedge-The Supplier Swap Agreement." The obligations of the District under the Supply Agreement are generally limited to the payment of the Contract Price for natural gas delivered or deemed delivered to the Delivery Point. The District is obligated to make Contract Price payments to SVFC under the Supply Agreement if and only if natural gas is actually delivered (or deemed delivered) to the Delivery Point. The District s payment obligations under the Supply Agreement are payable as operating expenses from the revenues of the District s electric system. The obligations of the District under the Supply Agreement do not constitute a guarantee of SVFC s obligations with respect to the Bonds. Upon the occurrence of any of certain "Termination Events" under the Prepaid Gas Agreement, the Prepaid Gas Agreement may be terminated and, upon such termination, amounts due by a party to the other party, including the Termination Amount (as defined in the Prepaid Gas Agreement) to be paid by the Gas Supplier, are required to be paid in accordance with the Prepaid Gas Agreement. See "THE GAS SUPPLY ACQUISITION." The Termination Amount is anticipated to be sufficient to pay the Redemption Price of the Bonds upon the mandatory redemption of the Bonds on the termination of the Prepaid Gas Agreement. The Gas Supplier s payment obligations under the Prepaid Gas Agreement will be guaranteed by Citigroup Inc. (the "Guarantor") pursuant to a guarantee (the "Guarantee") in favor of SVFC and the Trustee. The Guarantee guarantees only the payments required to be made by the Gas Supplier under the Prepaid Gas Agreement and does not constitute a guarantee of SVFC s obligations with respect to the Bonds. See "THE GAS SUPPLY ACQUISITION" and "THE GAS SUPPLIER, THE GUARANTOR AND THE GUARANTEE." The Indenture establishes a Senior Lien Bonds Debt Service Reserve Account held by the Trustee, and a Senior Lien Bond Debt Service Reserve Requirement of $92,210,216. The Senior Lien Debt Service Reserve Requirement will be funded in part with the proceeds of the Subordinate Lien Bond (as defined below) and in part by the Senior Lien Reserve Account Credit Facility issued by MBIA Insurance Corporation ("MBIA" and, from time to time, the "Senior Lien Reserve Account Credit Facility Provider"), with initial coverage equal to the difference between the Senior Lien Debt Service Reserve Requirement and the amount of the initial cash deposit. Amounts in the Senior Lien Bonds Debt Service Reserve Account will be applied as provided in the Indenture to the payment of the Bonds first by the application of any cash and thereafter by a draw on the Senior Lien Reserve Account Credit Facility. See "SOURCES AND USES OF FUNDS" and "SOURCES OF PAYMENT AND SECURITY FOR THE BONDS Senior Lien Bonds Debt Service Fund and Senior Lien Bonds Capitalized Interest Account." The Indenture establishes a Working Capital Reserve Fund held by the Trustee, and a Working Capital Reserve Requirement of $23,175,900. There will be deposited in the Working Capital Reserve 2

11 Fund a surety bond (the "Working Capital Reserve Account Credit Facility") issued by MBIA (the "Working Capital Reserve Account Credit Facility Provider"), with initial coverage equal to the Working Capital Reserve Requirement. See "SOURCES OF PAYMENT AND SECURITY FOR THE BONDS Working Capital Reserve Fund." MBIA, in its capacity as both Senior Lien Reserve Account Credit Facility Provider and Working Capital Reserve Account Credit Facility Provider, is sometimes referred to herein as the "Credit Facility Provider". The Senior Lien Reserve Account Credit Facility and the Working Capital Reserve Account Credit Facility are referred to collectively herein from time to time as the "Surety Bonds". Simultaneously with the issuance of the Bonds, SVFC will issue its $29,030,000 Subordinate Gas Revenue Bond, Series 2007 (the "Subordinate Lien Bond") under the Indenture. A condition to the issuance of the Bonds will be the issuance of the Subordinate Lien Bond. The Subordinate Lien Bond is not offered hereby. Information relating to the Subordinate Lien Bond included herein is for contextual purposes only and is presented to assist investors in understanding the terms of the transaction. The pledge of the Trust Estate in respect of (i) the Bonds, (ii) the Commodity Swap Agreement and (iii) the principal portion of any Reimbursement Obligation (but such pledge is limited to Make-up Payments received) is senior and superior to the pledge of the Trust Estate to secure the payment of the interest on the Subordinate Lien Bond. See "SOURCES OF PAYMENT AND SECURITY FOR THE BONDS The Trust Estate." The principal of the Subordinate Lien Bond is secured by and payable only from moneys remaining in the Senior Lien Bonds Debt Service Reserve Account upon the repayment or defeasance of the Bonds. The Bonds will be special obligations of SVFC payable solely from, and secured as to the payment of the principal and Redemption Price thereof, and interest thereon, in accordance with their terms and the provisions of the Indenture solely by, the Trust Estate. The Trust Estate is pledged and assigned for the payment of the principal and Redemption Price of and interest on the Bonds in accordance with their terms, subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth in the Indenture. Neither the faith and credit nor the taxing power of the State, the District or any other political subdivision or public or quasipublic agency is pledged to the payment of the principal or Redemption Price of, or the interest on, the Bonds. The issuance of the Bonds does not directly, indirectly or contingently obligate the State or any political subdivision thereof, including the District, to levy or pledge any form of taxation or to make any appropriation for the payment of the Bonds. SVFC has no taxing power and is not a political subdivision, public agency or quasi-public agency of the State. The payment of the principal or Redemption Price of, or interest on, the Bonds will be a special obligation of SVFC, as provided in the Indenture and will not constitute a debt, liability or obligation of the State, any political subdivision of the State or any public or quasi-public agency, including the District. See "SOURCES OF PAYMENT AND SECURITY FOR THE BONDS." The Indenture, the Prepaid Gas Agreement, the Supply Agreement and the Commodity Swap Agreement have been structured so that the Revenues available to SVFC, together with the amounts on deposit in certain of the Funds held by the Trustee under the Indenture, are expected to be sufficient at all times to provide for the timely payment of the scheduled debt service requirements on the Bonds and SVFC s payment obligations to the Swap Counterparty under the Commodity Swap Agreement. SVFC s ability to meet its obligations with respect to the Bonds and the Commodity Swap Agreement will depend primarily upon the performance by the Gas Supplier of its natural gas delivery and other obligations under the Prepaid Gas Agreement (or the Guarantor under the Guarantee), timely payment by the District under the Supply Agreement and timely payment by the Swap Counterparty under the Commodity Swap Agreement. 3

12 This Official Statement and the Appendices hereto include and incorporate by reference financial and other information about SVFC, the District, the Gas Supplier, the Guarantor, the Swap Counterparty and the Credit Facility Provider that may be relevant to a potential purchaser of the Bonds in considering the District s ability to make the payments required to be made by it under the Supply Agreement, the Gas Supplier s ability to meet its natural gas delivery and payment obligations under the Prepaid Gas Agreement, the Guarantor s ability to meet its obligations under the Guarantee, the Swap Counterparty s ability to make payments under the Commodity Swap Agreement and the Credit Facility Provider s ability to pay on its Senior Lien Reserve Account Credit Facility. This Official Statement speaks only as of its date, and the information contained herein is subject to change. This Official Statement and the Appendices hereto contain brief descriptions of, among other matters, SVFC, the District, the Gas Supplier, the Guarantor, the Swap Counterparty, the Credit Facility Provider, the Bonds, the Indenture, the Supply Agreement, the Prepaid Gas Agreement, the Commodity Swap Agreement, the Supplier Swap Agreement, the Swap Counterparty, and the security and sources of payment for the Bonds. Such descriptions and information do not purport to be comprehensive or definitive. The summaries contained herein and in the Appendices hereto of the Indenture and of other documents are intended as summaries only and are qualified in their entirety by reference to such documents; additionally, references herein to the Bonds are qualified in their entirety to the form thereof included in the Indenture. Copies of the Indenture, the Prepaid Gas Agreement and the Supply Agreement are available upon request provided to the Underwriter. General THE GAS SUPPLY ACQUISITION The purchase of a portion of the District s natural gas requirements from SVFC for a thirty-year period will enable the District to acquire a fixed supply of that portion of its natural gas requirements at a discount from the Index Price. Deliveries of the natural gas to be purchased by the District are scheduled to commence on May 1, 2008 and are scheduled to continue through October 31, The daily quantity of natural gas (the "Daily Contract Quantity") to be purchased by the District during this period will vary from month to month, and year to year. The annual quantity of natural gas to be delivered represents approximately 20% of the natural gas purchased by the District for use by its electric system in the year The Supply Agreement does not prohibit or restrict the District from entering into other gas supply agreements in the future, including agreements with the Gas Supplier or SVFC, for all or any portion of its natural gas requirements (each, an "Additional Supply Agreement"). The Prepaid Gas Agreement The information contained below includes descriptions of certain provisions of the Prepaid Gas Agreement. Reference is made to Appendix D for a more complete summary of certain provisions of the Prepaid Gas Agreement. Consideration for Delivery of Prepaid Gas; Security for Performance of Obligations In consideration of Gas Supplier s agreement to deliver the natural gas under the Prepaid Gas Agreement, SVFC will pay to the Gas Supplier the Prepayment from the proceeds of the Bonds. 4

13 Non-performance by Gas Supplier If the Gas Supplier fails on any day, for any reason other than Force Majeure (as defined in the Prepaid Gas Agreement), to deliver to the applicable Delivery Point the quantity of natural gas required to be delivered to such Delivery Point on such day pursuant to the Prepaid Gas Agreement (a "Delivery Default"), the Gas Supplier is to pay SVFC for each day an amount calculated in accordance with the terms of the Prepaid Gas Agreement. SVFC Failure to Receive Natural Gas; Remarketing of Natural Gas by the Gas Supplier SVFC s failure on any day, for any reason other than Force Majeure, to meet its obligation to take delivery at the applicable Delivery Point of the quantity of natural gas required to be received at such Delivery Point on such day from the Gas Supplier, is a "Receipt Default" under the Prepaid Gas Agreement. In such event, the Gas Supplier is required to attempt to remarket such natural gas in accordance with the terms of the Prepaid Gas Agreement. Remarketing of Natural Gas The Prepaid Gas Agreement authorizes the District, while the Supply Agreement is in effect, on SVFC s behalf, to request the Gas Supplier to remarket natural gas purchased under the Prepaid Gas Agreement. Under the Prepaid Gas Agreement, remarket means any commercially reasonable effort to sell natural gas. Upon receipt of such request, the Gas Supplier is to remarket such natural gas in accordance with the Remarketing Protocols (as set forth in the Prepaid Gas Agreement), including remarketing such natural gas for the Highest Price (as defined in the Prepaid Gas Agreement). The Remarketing Protocols generally provide for the remarketing of such natural gas for a Qualifying Use unless a remarketing for a Non-Qualifying Use results in a higher price and that price is higher than the Minimum Price. Such remarketed natural gas is considered delivered under both the Prepaid Gas Agreement and the Supply Agreement so that the District is liable for the Contract Price of such natural gas, subject to a credit for the net Remarketing Proceeds. The Prepaid Gas Agreement also provides that, while the Supply Agreement is in effect, the Gas Supplier is to remarket Anticipatory Tax Event Gas and Tax Event Gas subject to the right of the District to use any of such natural gas for a Qualifying Use. Anticipatory Tax Event Gas and Tax Event Gas consist generally of the natural gas delivered under the Prepaid Gas Agreement during periods when the proceeds of prior sales of natural gas for a Non-Qualifying Use which have not been applied to a Remediation Use reach certain levels. The Gas Supplier is to remarket the Anticipatory Tax Event Gas and Tax Event Gas not retained by the District in accordance with the Remarketing Protocols, except that Tax Event Gas may be remarketed for a Non-Qualifying Use only if approved by an Opinion of Tax Counsel. Such remarketed Anticipatory Tax Event Gas and Tax Event Gas is considered delivered under both the Prepaid Gas Agreement and the Supply Agreement so that the District is liable for the Contract Price of such natural gas, subject to a credit for the net Remarketing Proceeds. If the Supply Agreement is terminated, the Prepaid Gas Agreement provides that the Gas Supplier is to remarket the Termination Gas. Termination Gas is all the natural gas to be delivered after the termination of the Supply Agreement. The Gas Supplier is to remarket the Termination Gas in accordance with the Remarketing Protocols with the following two exceptions: (1) if any of the Termination Gas cannot be remarketed for at least the Minimum Price, the Gas Supplier is to purchase such Termination Gas at the Minimum Price (the Minimum Price for Termination Gas is the Contract Price) and (2) if any Termination Gas is also Tax Event Gas, such Termination Gas may be remarketed for a Non-Qualifying Use only if approved by an Opinion of Tax Counsel; except that, if such Tax Event Gas cannot be remarketed for a Qualifying Use for at least the Minimum Price, the Gas Supplier is to purchase such Tax 5

14 Event Gas at the Minimum Price. Purchases of sufficient amounts of Termination Gas which is also Tax Event Gas by the Gas Supplier will evidence an Excess Gas Event, which is one of the Termination Events that could result in a termination of the Prepaid Gas Agreement prior to its Scheduled Termination Date and a mandatory redemption of the Bonds. See "TERMS OF THE BONDS - Mandatory Redemption - Redemption on Early Termination of the Prepaid Gas Agreement." For further information on remarketing by the Gas Supplier, see "Appendix D - SUMMARY OF CERTAIN PROVISIONS OF THE PREPAID GAS AGREEMENT - Gas Supplier Remarketing Provisions" and the related definitions. Remediation The Prepaid Gas Agreement provides that, during each Gas Supplier Remediation Period while the Supply Agreement is in effect, the Gas Supplier is to use commercially reasonable efforts to cause amounts in the Remediation Fund to be applied for a Remediation Use. A "Gas Supplier Remediation Period" generally means each period when there is Anticipatory Tax Event Gas or Tax Event Gas or when amounts have been on deposit in the Remediation Fund for at least twelve months. Amounts on deposit in the Remediation Fund consist of the Remarketing Proceeds of natural gas sold for a Non-Qualifying Use and the interest thereon. Remediation Use means generally the purchase of natural gas or electricity with amounts in the Remediation Fund and the sale or use of such natural gas or electricity for a Qualifying Use. For further information on the remediation of the Remarking Proceeds of natural gas sold for a Non- Qualifying Use, see "Appendix D - SUMMARY OF CERTAIN PROVISIONS OF THE PREPAID GAS AGREEMENT - Remediation Provisions" and "Appendix E - SUMMARY OF CERTAIN PROVISIONS OF THE SUPPLY AGREEMENT." Force Majeure Except with regard to a party s obligation to make payment(s) due under the Prepaid Gas Agreement, neither party will be liable to the other for failure to perform an obligation under the Prepaid Gas Agreement to the extent such failure was caused by Force Majeure. During any Delivery Month in which all or a portion of the Monthly Contract Quantity is not delivered or received due to Force Majeure, the Gas Supplier is to pay SVFC an amount equal to the product of (i) the quantity of the Monthly Contract Quantity not taken because of the Force Majeure and (ii) the Index Price. Payment of such amount will satisfy Gas Supplier s obligation to deliver, and SVFC s obligation to receive, the Prepaid Gas that was not delivered or received due to Force Majeure. Termination Events; Termination of the Prepaid Gas Agreement Termination Event at the Option of SVFC. Under the Prepaid Gas Agreement, a Termination Event is to be deemed to have occurred at the option of SVFC upon the occurrence of any of the following events: (a) The Gas Supplier, and the Guarantor on the Gas Supplier s behalf, fail to pay either: (1) any Gas Payment as invoiced or (2) any undisputed amount due under the Prepaid Gas Agreement other than a Gas Payment, in each case by 11:00 a.m. on the second Business Day following receipt by Gas Supplier of notice of such failure. (b) A Bankruptcy Event occurs with respect to the Gas Supplier or the Guarantor. 6

15 (c) Failure of the Gas Supplier to provide an alternative guaranty or collateral as provided in the Prepaid Gas Agreement by the fifth (5th) Business Day following receipt by Gas Supplier of notice of such failure. (d) Any representation or warranty given by the Gas Supplier in the Prepaid Gas Agreement proves to have been false or misleading when made and such misrepresentation or warranty has had or could reasonably be expected to have a material adverse effect on the Gas Supplier s ability to perform its obligations under the Prepaid Gas Agreement related to the delivery of natural gas or the making of payments under the Prepaid Gas Agreement. (e) Any representation or warranty given by the Guarantor in the Guarantee proves to have been false or misleading when made and such misrepresentation or warranty has had or could reasonably be expected to have a material adverse effect on the Guarantor s ability to make payments under the Guarantee. (f) For reasons other than Force Majeure or a Receipt Default, the Gas Supplier delivers (a) no natural gas (other than replacement natural gas) for a period of five (5) consecutive days for which natural gas is required to be delivered, or (b) less than fifty percent (50%) of the natural gas (other than replacement natural gas) required to be delivered on any particular day for ten (10) cumulative days during any contract year during the Term of the Prepaid Gas Agreement. (g) The termination of the Supplier Swap Agreement due to Gas Supplier s default together with the failure to replace the Supplier Swap Agreement in accordance with the Prepaid Gas Agreement. (h) The occurrence of an Excess Gas Event. An "Excess Gas Event" means that subsequent to the issue date of the Bonds and after a Tax Event has occurred, due to events that occurred (or did not occur) or other changes in expectations, the remaining natural gas to be delivered under the Prepaid Gas Agreement is no longer required for Qualifying Uses as evidenced exclusively by the following: (i) SVFC or (while the Supply Agreement is in effect) the District is unable to apply the natural gas then remaining to be delivered under the Prepaid Gas Agreement for a Qualifying Use; and (ii) the Gas Supplier does not remarket natural gas as set forth in the Prepaid Gas Agreement, excluding, during a Tax Event Period, the Gas Supplier's purchases of the Termination Gas at the Minimum Price in accordance with the Prepaid Gas Agreement. (i) The termination of the Commodity Swap Agreement for reasons other than SVFC s nonpayment together with the failure to replace the Commodity Swap Agreement in accordance with the Prepaid Gas Agreement. Termination Event at the Option of the Gas Supplier. Under the Prepaid Gas Agreement, a Termination Event is to be deemed to have occurred at the option of the Gas Supplier upon the occurrence of any of the following events: (a) the termination of the Supplier Swap Agreement for reasons other than Gas Supplier s default together with the failure to replace the Supplier Swap Agreement in accordance with the Prepaid Gas Agreement, or (b) the termination of the Commodity Swap Agreement due to SVFC s default together with the failure to replace the Commodity Swap Agreement in accordance with the Prepaid Gas Agreement. 7

16 Right to Establish Early Termination Date. Upon a Termination Event at the option of SVFC, SVFC may, but is not obligated to, establish a date that is the Early Termination Date and immediately provide notice to the Gas Supplier and the Trustee specifying the relevant Termination Event and the Early Termination Date. Upon a Termination Event at the option of Gas Supplier, the Gas Supplier may, but is not obligated to, establish a date that is the Early Termination Date and immediately provide notice to SVFC, the District and the Trustee specifying the relevant Termination Event and the Early Termination Date. In any case, the termination date so established is to be referred to as the "Early Termination Date" and the Term of the Prepaid Gas Agreement shall cease on the Early Termination Date; provided, however, the obligations of both the Gas Supplier and SVFC to make payments on an early termination pursuant to the Prepaid Gas Agreement will continue after an Early Termination Date. An Early Termination Date is to be the last day of the calendar month in which notice is given. Payment of Termination Amount; Redemption of Bonds Within three (3) Business Days following the Early Termination Date, Gas Supplier is to deposit the Termination Amount with the Trustee for deposit in the Termination Fund. Amounts in the Termination Fund are to be applied to the mandatory redemption of the Bonds on the fifteenth day of the following month. See "TERMS OF THE BONDS Mandatory Redemption Redemption Upon Early Termination." The Supply Agreement The information contained below includes descriptions of certain provisions of the Supply Agreement. Reference is made to Appendix E for a more complete summary of certain provisions of the Supply Agreement. The Supply Agreement will be effective commencing on the date of its execution and continue in effect until October 31, 2037, unless terminated earlier due to certain defaults, as set forth therein, or the termination of the Prepaid Gas Agreement. Delivery and Receipt Obligations; Payment by the District SVFC is to deliver and the District is to receive, on a firm basis, the Contract Gas on each Gas Day of each Delivery Month in the applicable Daily Contract Quantity pursuant to the terms and conditions of the Supply Agreement. Notwithstanding anything to the contrary contained in the Supply Agreement: (i) the obligation of SVFC to deliver natural gas under the Supply Agreement is limited to the delivery of natural gas which SVFC receives under the Prepaid Gas Agreement on such Gas Day; (ii) the obligation of SVFC to pay any amount under the Supply Agreement or to give credits against amounts due from the District under the Supply Agreement is limited to amounts SVFC receives under the Prepaid Gas Agreement or otherwise available to SVFC in connection with the transaction for which such payment or credit relates and which are on deposit in the Operating Fund; (iii) any imbalance, transportation, tax, or indemnification charges for which SVFC is responsible under the Prepaid Gas Agreement are to be considered imbalance, transportation, tax, indemnification charges incurred by SVFC under the Supply Agreement; and (iv) any event of Force Majeure affecting the delivery of natural gas by the Gas Supplier under the Prepaid Gas Agreement will be considered an event of Force Majeure affecting SVFC with respect to the delivery of natural gas under the Supply Agreement. 8

17 Consideration For each MMBtu of Contract Gas delivered or deemed delivered to the District by SVFC at the applicable Delivery Point, the District is to pay SVFC the Contract Price for such natural gas for deposit in the Revenue Fund and the Administrative Fee for such Contract Gas for deposit in the Operating Fund. SVFC Delivery Default If an SVFC Delivery Default is anticipated or upon the occurrence of a SVFC Delivery Default, the party that first learns of such anticipated SVFC Delivery Default or SVFC Delivery Default is to notify the other party and the Gas Supplier of such default promptly; provided, that any failure to give such notice, or any delay in giving such notice, will not affect the District s rights under the Supply Agreement. The District will have no obligation to pay for any of the Contract Gas that was not delivered as a result of a SVFC Delivery Default. Due to the interplay of the Prepaid Gas Agreement and the Supply Agreement, a SVFC Delivery Default under the Supply Agreement will result from a Gas Supplier Delivery Default under the Prepaid Gas Agreement. District Receipt Failure The District s failure on any day, for any reason other than Force Majeure, to meet its obligation to take delivery at the Delivery Point of the quantity of natural gas required to be received at such Delivery Point is a "District Receipt Failure" under the Supply Agreement. The District will be liable for the Contract Price for all natural gas as to which there is a District Receipt Failure. Pursuant to the Prepaid Gas Agreement, upon the failure of SVFC to receive any natural gas to be delivered thereunder for any reason other than Force Majeure, the Gas Supplier is obligated to remarket such natural gas in accordance with the Prepaid Gas Agreement. Due to the interplay of the Prepaid Gas Agreement and the Supply Agreement, a District Receipt Failure under the Supply Agreement will result in an SVFC Receipt Failure under the Prepaid Gas Agreement. SVFC will agree in the Supply Agreement to credit against the Contract Price payments due from the District in any month with respect to District Receipt Failures the amount paid by the Gas Supplier in such month (other than amounts deposited or to be deposited in the Remediation Fund) with respect to SVFC s failures to receive any natural gas to be delivered thereunder in such month for any reason other than Force Majeure, up to the amount of such Contract Price payments due from the District. Notwithstanding a payment by Gas Supplier and any related remarketing of natural gas pursuant to the Prepaid Gas Agreement with respect to any portion of the Contract Gas, such Contract Gas will be deemed to have been delivered by SVFC to the District under the Supply Agreement and remarketed on the District s behalf. The District will be liable for the Contract Price for all natural gas so remarketed. The Gas Supplier and SVFC may agree, in lieu of remarketing natural gas and making payments as provided the Prepaid Gas Agreement to a Postponed Delivery Schedule for the natural gas relating to the Receipt Default. Billing The payment of the monthly net amount payable by the District for natural gas delivered or deemed delivered under the Supply Agreement is to be made by the District by 11:00 a.m. on the 25th day of the next succeeding month; provided, that if such payment date is not a Business Day, payment is due on the next succeeding Business Day. Source of District s Payments The District will agree in the Supply Agreement to make the payments it is required to make thereunder from the revenues of its electric system, and only from such revenues, and as a charge against 9

18 such revenues, as an operating expense of its electric system and as a cost of fuel for its electric generating units; provided, that the District, in its discretion, may apply any legally available moneys to the payment of amounts due under the Supply Agreement. The District will covenant and agree in the Supply Agreement that it will establish, maintain, and collect rates and charges for its electric system so as to provide revenues sufficient, together with all available electric system revenues, to enable the District to pay to SVFC all amounts payable under the Supply Agreement and to pay all other amounts payable from the revenues of the District s electric utility system, and to maintain any required reserves. Termination of Supply Agreement upon Termination of the Prepaid Gas Agreement Notwithstanding anything in the Supply Agreement to the contrary, the Supply Agreement will terminate automatically, without the necessity of any action by, or notice to, either party, upon the termination of the Prepaid Gas Agreement. Covenants of the Parties Regarding Federal Tax Issues The parties agree to comply with any certifications made to, or procedures required by, Tax Counsel to protect the Tax-Exempt Status of the Bonds regarding the sale, delivery, purchase or receipt of natural gas pursuant to the terms of the Supply Agreement, the application of any Proceeds Subject to Remediation or any other proceeds in connection with the natural gas, and any other matters affecting the Tax-Exempt Status of the Bonds. The Commodity Price Hedge The Commodity Swap Agreement The Commodity Swap Agreement between SVFC and the Swap Counterparty will be governed by an ISDA Master Agreement (including the Schedule thereto) and Confirmation thereof. Pursuant to the terms of the Commodity Swap Agreement, SVFC is obligated to make monthly payments calculated by reference to a floating price index and the Swap Counterparty is obligated to make monthly payments calculated by reference to a fixed price. The monthly floating and fixed payments that are to be made by SVFC and the Swap Counterparty, respectively, under the Commodity Swap Agreement will be netted pursuant to the terms of the Commodity Swap Agreement. Net payments required to be made by the Swap Counterparty under the Commodity Swap Agreement (i.e., "Commodity Swap Receipts") will be deposited to the Revenue Fund created by the Indenture. Pursuant to the Indenture, net payments required to be made by SVFC under the Commodity Swap Agreement (i.e., "Commodity Swap Payments") are payable from the Commodity Swap Payment Fund. See "TERMS OF THE BONDS-Revenues and Flow of Funds." The Commodity Swap Agreement includes termination events relating to bankruptcy, nonpayment and the termination of the Prepaid Gas Agreement, the occurrence of any of which will automatically trigger an Early Termination Date (collectively, the "Automatic Early Termination Events") which will apply to both SVFC and the Swap Counterparty. In addition to the Automatic Early Termination Events, the Commodity Swap Agreement includes the standard ISDA form agreement events of default and termination events that permit the designation of an Early Termination Date (the "Early Termination Events") which will only apply to the Swap Counterparty. These Early Termination Events permit (but do not require) the designation of an Early Termination Date and can only be exercised by SVFC and not the Swap Counterparty. In addition to such events, SVFC may designate an Early Termination Date if the rating of the long term unsecured debt (without credit or structural enhancement) of the Swap Counterparty is below "A2" and "A" by Moody s, and S&P, respectively. 10

19 The Supplier Swap Agreement Concurrently with SVFC s execution and delivery of the Commodity Swap Agreement, the Gas Supplier will enter into the Supplier Swap Agreement pursuant to which Gas Supplier will be required to make monthly payments calculated by reference to a fixed price and will be entitled to receive monthly payments calculated by reference to a floating price index. Replacement of Swap Counterparty Pursuant to the Prepaid Gas Agreement Pursuant to the terms of the Prepaid Gas Agreement, if any Automatic Early Termination Event occurs under the Commodity Swap Agreement or the Supplier Swap Agreement whereby the Swap Counterparty is the Defaulting Party or Affected Party, SVFC and the Gas Supplier shall immediately and in good faith endeavor to identify a substitute counterparty (i) willing to execute a replacement swap agreement for each of the Commodity Swap Agreement and the Supplier Swap Agreement with such Defaulting Party or Affected Party, and (ii) that is not subject to any event, default or event of default, law, rule, order, judgment, agreement or any other circumstance that would cause it to be the "Defaulting Party" or the "Affected Party" under the Commodity Swap Agreement or the Supplier Swap Agreement upon its execution of such replacement swap agreement (such a substitute counterparty, a "Qualified Substitute Counterparty"). Upon identification of such a Qualified Substitute Counterparty by either SVFC or Gas Supplier, neither party shall unreasonably withhold its consent to entering into a replacement swap agreement with respect to the Commodity Swap Agreement or the Supplier Swap Agreement, as applicable, with such Qualified Substitute Counterparty, and, after obtaining such consent, each of SVFC and Gas Supplier shall execute a replacement swap agreement with respect to the Commodity Swap Agreement or Supplier Swap Agreement, as applicable, with the Qualified Substitute Counterparty; provided, however, that no such replacement swap agreement shall become effective unless (i) the effective date of the new Commodity Swap Agreement represented by such replacement shall be executed and effective within thirty (30) Days of the Early Termination Date established for the prior Commodity Swap Agreement; (ii) the Commodity Swap Agreement and the Supplier Swap Agreement in effect after such replacement shall have substantially the same terms as the Commodity Swap Agreement and the Supplier Swap Agreement in effect prior to such replacement; and (iii) the Gas Supplier, SVFC and the Trustee shall have received written confirmation from both Moody s and S&P that such replacement shall not result in any reduction in or withdrawal of the then outstanding ratings on the Bonds. Pursuant to the terms of the Prepaid Gas Agreement, if any Early Termination Event other than a Automatic Early Termination Event occurs (a) under the Commodity Swap Agreement or the Supplier Swap Agreement whereby the Swap Counterparty is the Defaulting Party or Affected Party, (b) under the Commodity Swap Agreement where SVFC is the Defaulting Party or Affected Party, or (c) under the Supplier Swap Agreement where the Gas Supplier is the Defaulting Party or Affected Party, SVFC and the Gas Supplier shall immediately and in good faith endeavor to identify a Qualified Substitute Counterparty. Upon identification of such a Qualified Substitute Counterparty by either SVFC or the Gas Supplier, neither party shall unreasonably withhold its consent to entering into a replacement swap agreement with respect to the Commodity Swap Agreement or the Supplier Swap Agreement, as applicable, with such Qualified Substitute Counterparty, and, after obtaining such consent, each of SVFC and the Gas Supplier shall execute a replacement swap agreement with respect to the Commodity Swap Agreement or Supplier Swap Agreement, as applicable, with the Qualified Substitute Counterparty; provided, however, that no such replacement swap agreement shall become effective unless (i) the new Commodity Swap Agreement represented by such replacement shall be in place and effective on the day that SVFC has established as the Early Termination Date (as defined in the Commodity Swap Agreement) for the prior Commodity Swap Agreement; (ii) on the effective date of the new Commodity Swap Agreement all amounts required to have been paid to the Trustee under the prior Commodity Swap 11

20 Agreement on or prior to the termination of the prior Commodity Swap Agreement and all amounts required to be paid to the Trustee under the new Commodity Swap Agreement on such date shall have been paid to the Trustee without regard to the source of such payment; (iii) the replacement Commodity Swap Agreement and the Supplier Swap Agreement shall have substantially the same terms as the Commodity Swap Agreement and the Supplier Swap Agreement in effect prior to such replacement; and (iv) the Gas Supplier, SVFC and the Trustee shall have received written confirmation from both Moody s and S&P that such replacement shall not result in any reduction in or withdrawal of the then outstanding ratings on the Bonds. Notwithstanding anything to the contrary in the Prepaid Gas Agreement, neither SVFC nor the Gas Supplier will have any obligation to enter into a replacement swap agreement with a Qualified Swap Counterparty unless the party is able to terminate the existing Commodity Swap Agreement or Supplier Swap Agreement, as applicable, without liability for any payment other than payment of any Unpaid Amount (as defined in the Commodity Swap Agreement or the Supplier Swap Agreement, as applicable). SOURCES OF PAYMENT AND SECURITY FOR THE BONDS This Section describes the security and sources of payment for the Bonds. The information contained below includes descriptions of certain provisions of the Indenture. Reference is made to Appendix C for a more complete summary of certain provisions of the Indenture. Special Obligations; Limitations on Liability The Bonds shall be special obligations of SVFC payable solely from, and secured as to the payment of the principal and Redemption Price thereof, and interest thereon, in accordance with their terms and the provisions of the Indenture solely by, the Trust Estate pledged under the Indenture. The Bonds shall not be payable from, or secured by a legal or equitable pledge of, or lien or charge upon, any property of SVFC or any of its income or receipts except the Revenues and the other funds pledged therefor pursuant to the Indenture (which pledge is subject to the application of the Revenues and such other funds for the purposes and on the terms and conditions set forth in the Indenture). Neither the faith and credit nor the taxing power of the State, the District or any other political subdivision or any public or quasi-public agency is pledged to the payment of the principal or Redemption Price of, or the interest on, the Bonds. The issuance of the Bonds does not directly, indirectly or contingently obligate the State or any political subdivision thereof, including the District, to levy or pledge any form of taxation or to make any appropriation for the payment of the Bonds. SVFC has no taxing power and is not a political subdivision, public agency or quasi-public agency of the State. The payment of the principal or Redemption Price of, or interest on, the Bonds is a special obligation of SVFC, as provided in the Indenture, and does not constitute a debt, liability or obligation of the State or any political subdivision thereof, including the District. The payment obligations of the District under the Supply Agreement, including the District s obligation to pay the Contract Price to SVFC for natural gas delivered or deemed delivered under the Supply Agreement, are limited obligations payable solely from the District s electrical utility system revenues. The District has no obligation to make any payment to SVFC for natural gas not delivered or deemed delivered to the District in accordance with the Supply Agreement. The District s obligation to pay the Contract Price for natural gas delivered or deemed delivered pursuant to the Supply Agreement will be classified as an operating expense of its electric system. Operating expenses are payable prior to debt service on the outstanding bonds and notes of the District (which are currently outstanding in the principal amount of approximately $3.2 billion) which are payable from net revenues of the District s electric system. 12

21 Certain financial and operating data with respect to the District, which may be relevant to an evaluation of the District s ability to meet its payment obligations under the Supply Agreement, is included in Appendix A hereto. The audited financial statements of the District for the fiscal years ended April 30, 2007 and April 30, 2006 are included as Appendix B to this Official Statement. See "FINANCIAL STATEMENTS." The Trust Estate As security for payment of the principal and Redemption Price of and interest on the Bonds, SVFC has pledged and assigned to, and granted a security interest to the Trustee in, the following described property (the "Trust Estate"): (a) the proceeds of the sale of the Bonds (subject to the application of funds for the purposes and on the terms and conditions set forth in the Indenture); (b) all right, title and interest of SVFC in, to and under the Prepaid Gas Agreement, the Guarantee, the Supply Agreement and the Commodity Swap Agreement; (c) (d) the Revenues (including any portions thereof constituting Make-up Payments); any Termination Amount; and (e) all Funds and Accounts established by the Indenture and held by the Trustee (other than the Rebate Fund); subject in all cases to the application thereof for the purposes and on the terms and conditions set forth in the Indenture. The Trust Estate is also pledged to (i) the payment of amounts due from SVFC under the Commodity Swap Agreement and (ii) the principal portion of any Reimbursement Obligation incurred in connection with a draw on a Surety Bond (but such pledge is limited to Make-up Payments received) on parity with the pledge of the Trust Estate securing the Bonds. "Revenues" as defined in the Indenture means: (i) all revenues, income, rents, user fees or charges, and receipts derived or to be derived by SVFC from or attributable or relating to the ownership of the Gas Supply, including all revenues attributable or relating to the Gas Supply or to the payment of the costs thereof received or to be received by SVFC under the Supply Agreement, the Prepaid Gas Agreement, the Guarantee or otherwise payable to it for the sale and/or transportation of natural gas or otherwise with respect to the Gas Supply; (ii) interest received or to be received on any moneys or securities (other than moneys or securities held in the Rebate Fund, the Operating Fund or the Termination Fund) held pursuant to the Indenture and paid or required to be paid into the Revenue Fund; and (iii) any Commodity Swap Receipts received by SVFC; but excluding from subsection (i) above the following items: (A) any Termination Amount; (B) any Required Replacement Amount; (C) amounts paid by or on behalf of SVFC for the mandatory redemption of Bonds; (D) the Issuer Administrative Fee and (E) the Administrative Fee. Subsection (i) of Revenues includes each "Make-up Payment", which means, generally, each payment that has been received by SVFC or the Trustee from the District under the Supply Agreement to make up for a prior payment default thereunder, or from the Commodity Swap Counterparty under the Commodity Swap to make up for a prior payment default thereunder, in each case when the receipt of such Make-up Payment occurs after a draw on the Senior Lien Bonds Debt Service Reserve Account has been made to pay debt service on the 2007 Senior Lien Bonds or after a draw on the Working Capital Reserve Fund has been made to pay a Commodity Swap Payment. See "APPENDIX C SUMMARY OF 13

22 CERTAIN PROVISIONS OF THE INDENTURE DEFINITIONS." To the extent that a Make-up Payment is not received or is deficient, the Indenture provides that a Reimbursement Obligation may be repaid from moneys that become available therefor in the Operating Fund (which Fund is to be held by SVFC and is not part of the Trust Estate). However, the cash portion of the Senior Lien Bonds Debt Service Reserve Account may not be fully restored. See "SOURCES OF PAYMENT AND SECURITY FOR THE BONDS Revenues and Flow of Funds Operating Fund." Revenues and Flow of Funds Pursuant to the Indenture, SVFC has established the following Funds and Accounts to be held by the Trustee (with the exception only of the Rebate Fund and Operating Fund, which shall be held by SVFC): (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) the Project Fund; the Cost of Issuance Fund; the Revenue Fund; the Senior Lien Bonds Debt Service Fund, and within such Fund, a Senior Lien Bonds Debt Service Account (which will include both a Senior Lien Bonds Restricted Debt Service Subaccount and a Senior Lien Bonds Unrestricted Debt Service Subaccount), Senior Lien Bonds Capitalized Interest Account and a Senior Lien Bonds Debt Service Reserve Account; the Commodity Swap Payment Fund; the Subordinate Lien Bond Debt Service Fund, and within such Fund, a Subordinate Lien Bond Debt Service Account (which will include both a Subordinate Lien Bond Restricted Debt Service Subaccount and a Subordinate Lien Bond Unrestricted Debt Service Subaccount) and a Subordinate Lien Bond Capitalized Interest Account; the Rebate Fund; the Redemption Fund; the Termination Fund; the Operating Fund; and the Working Capital Reserve Fund. Within the Funds held by the Trustee, the Trustee may create one or more accounts or subaccounts as may facilitate the administration of the Indenture. Project Fund There will be paid into the Project Fund, from the proceeds of the Bonds, the amount as specified in the Indenture (and set forth hereinabove under "SOURCES AND USES OF FUNDS"). Amounts in the Project Fund will be used to make the Prepayment to the Gas Supplier in accordance with the Prepaid Gas Agreement. 14

23 Cost of Issuance Fund Moneys deposited in the Cost of Issuance Fund will be used by the Trustee to pay Costs of Issuance as provided in the Indenture. Revenue Fund All Revenues except for the Issuer Administrative Fee, the Administrative Fee and Make-up Payments are to be deposited promptly by the Trustee upon receipt thereof into the Revenue Fund. In each month during which there is a deposit of Revenues into the Revenue Fund (but in no case later than the respective dates set forth below), the Trustee is to credit to the following Funds and Accounts, in the following order of priority (except as provided in (iii) below, with the full amount to be transferred to any Fund or Account in a month, which amounts shall include any amounts needed to eliminate any existing shortfall in deposits in prior months and any accrued interest, to be transferred to such Fund before any transfer is made to a Fund with a lower priority), the amounts set forth below (such transfers to be made in such a manner so as to assure good funds in such Funds on the respective dates set forth below): (i) (ii) (iii) (iv) (v) To the Senior Lien Bonds Debt Service Account: not later than the 25th of such Month, or if such day is not a Business Day, the next succeeding Business Day, the Scheduled Debt Service Deposit for the Bonds for such Month, with the amounts so transferred being divided between the Senior Lien Bonds Restricted Debt Service Subaccount and the Senior Lien Bonds Unrestricted Debt Service Subaccount in accordance with the provisions of the Tax Certificate; If SVFC has issued obligations to refund Bonds that are payable from Revenues on a parity with the Bonds ("Senior Lien Refunding Bonds"), to the debt service fund or funds (or account or accounts) for such Senior Lien Refunding Bonds, not later than the 25th of such Month, or if such day is not a Business Day, the next succeeding Business Day, the amounts required to be deposited in such funds pursuant to the proceedings and documents pursuant to which such Senior Lien Refunding Bonds were issued; To the Commodity Swap Payment Fund: not later than the 25th of such Month, or if such day is not a Business Day, the next succeeding Business Day, the amount, if any, required for the Commodity Swap Payment, if any, coming due in such Month as set forth in a Written Direction to the Trustee (and if no such Commodity Swap Payment shall be due in such Month, no deposit to the Commodity Swap Payment Fund shall be made in such Month); provided, that if there are insufficient moneys in the Revenue Fund to make the full transfers required by this clause (iii) and clauses (i) and (ii) above, such transfers are to be made pro rata based on the respective amounts due; To the Subordinate Lien Bond Debt Service Account: not later than the 25th of such Month, or if such day is not a Business Day, the next succeeding Business Day, the Scheduled Debt Service Deposit for the Subordinate Lien Bond for such Month, with the amounts so transferred being divided between the Subordinate Lien Bond Restricted Debt Service Subaccount and the Subordinate Lien Bond Unrestricted Debt Service Subaccount in accordance with the provisions of the Tax Certificate; To SVFC for deposit to the Rebate Fund: not later than the last day of such Month, the amount required to be on deposit in the Rebate Fund as set forth in a written direction of SVFC to the Trustee to promptly pay to the United States of America the amount of any 15

24 rebate due pursuant to the Tax Certificate (and if no such rebate amount shall be due in such Month, no deposit to the Rebate Fund shall be made in such Month); (vi) (vii) To the Redemption Fund: not later than the 25th of such Month, or if such day is not a Business Day on the next succeeding Business Day, the amount specified in a Written Direction of SVFC for the redemption of Bonds at the option of SVFC pursuant to the Indenture; To SVFC for deposit to the Operating Fund: not later than the last day of such Month, all remaining amounts in the Revenue Fund. The Scheduled Debt Service Deposits are to be adjusted as directed by SVFC in a written direction to the Trustee to reflect the optional redemption of Bonds and the redemption of Bonds and Subordinate Lien Bond for remediation purposes. Senior Lien Bonds Debt Service Fund, Senior Lien Bonds Capitalized Interest Account and Senior Lien Bonds Debt Service Reserve Account The amounts credited to the Senior Lien Bonds Debt Service Account and amounts available in the Senior Lien Bonds Capitalized Interest Account are to be applied on each Bond Payment Date to the payment of debt service payable on such Bond Payment Date with respect to the Bonds. To the extent that such amounts are insufficient to pay 100% of the debt service payable on such Bond Payment Date with respect to such Bonds, amounts may be drawn from the Senior Lien Bonds Debt Service Reserve Account (to the extent that there are moneys (or amounts available under the Senior Lien Reserve Account Credit Facility) on deposit therein) and deposited to the Senior Lien Bonds Debt Service Account to cover such deficiency. While any Bond remains Outstanding, amounts on deposit in the Senior Lien Bonds Debt Service Reserve Account shall secure only the Bonds. Except as otherwise required by the Indenture, after all Bonds have been repaid or defeased, any moneys remaining on deposit in the Senior Lien Bonds Debt Service Reserve Account shall be used, to the extent necessary, first, to pay or defease the Subordinate Lien Bond; second, to pay or defease other obligations of SVFC; and third, to make a transfer to SVFC to be deposited to the Operating Fund. Commodity Swap Payment Fund Amounts credited to the Commodity Swap Payment Fund will be applied from time to time by the Trustee to the payment of the Commodity Swap Payments. To the extent that such amounts are insufficient to pay 100% of a Commodity Swap Payment payable on a particular date as specified by the Commodity Swap Agreement, amounts are required to be drawn from the Working Capital Reserve Fund (to the extent that there are amounts available under the Working Capital Reserve Account Credit Facility) to cover such deficiency. Subordinate Lien Bond Debt Service Fund Amounts credited to the Subordinate Lien Bond Debt Service Account and amounts available in the Subordinate Lien Bond Capitalized Interest Account will be applied on each Bond Payment Date to the payment of debt service payable on such Bond Payment Date with respect to the Subordinate Lien Bond. The Trustee will pay out of the Subordinate Lien Bond Debt Service Fund the accrued interest on Subordinate Lien Bond to be redeemed from moneys in the Redemption Fund and the accrued interest included in the purchase price of Subordinate Lien Bond purchased for retirement. The amount, if any, deposited in the Subordinate Lien Bond Capitalized Interest Account from the proceeds of the Bonds will be set aside and applied to the payment of interest on the Subordinate Lien Bond. Except as otherwise 16

25 required by the Indenture, any amount remaining in the Subordinate Lien Bond Debt Service Fund after each date for payment of maturing principal of the Subordinate Lien Bond, other than Bond proceeds to be retained therein for purposes of making future payments, shall be transferred to the Revenue Fund. Rebate Fund SVFC is to apply amounts in the Rebate Fund to the payment when due of the Rebate Requirements. Within the Rebate Fund, SVFC will maintain such accounts as necessary in order for SVFC and the District to comply with the terms and requirements of the Tax Certificate. Subject to the transfer provisions described herein, all moneys at any time deposited in the Rebate Fund will be held by SVFC in trust, to the extent required to satisfy the Rebate Requirements, for payment to the United States of America, and none of SVFC, the District, the Trustee or the Owners has any rights in or claim to such moneys. Redemption Fund In addition to those amounts to be deposited into the Redemption Fund pursuant to a written direction of SVFC, the Trustee is to deposit all amounts which are not Revenues received from SVFC (or the Termination Amount) for deposit into the Redemption Fund, including amounts deposited in connection with a mandatory redemption of Bonds for remediation and any optional transfers from the Operating Fund upon a Written Direction of SVFC. Amounts on deposit in the Redemption Fund in respect of a mandatory redemption of Bonds for remediation and transfers from the Operating Fund for the redemption of Bonds at the option of SVFC are to be applied by the Trustee to the mandatory redemption of outstanding Bonds and/or the Subordinate Lien Bond for remediation and/or for the optional redemption of Bonds, as applicable, and in each case as directed in a Written Direction of SVFC. Termination Fund The Prepaid Gas Agreement provides that SVFC is to direct the Gas Supplier is to pay the Termination Amount directly to the Trustee for the account of SVFC in the event an Early Termination Date is established for the Prepaid Gas Agreement. The Trustee is to deposit the Termination Amount into the Termination Fund, and such amount is to be applied on the Early Redemption Date to the mandatory redemption of the Bonds. Any amounts remaining on deposit in the Termination Fund following such redemption and payment of all Bonds are to be withdrawn by the Trustee and paid to the Gas Supplier. If the Termination Amount deposited in the Termination Fund is insufficient to redeem all of the Bonds on the Early Redemption Date, the Trustee is to transfer amounts from the following Funds and Accounts in the following order of priority to the Termination Fund to the extent needed to redeem, together with the Termination Amount, all Bonds on the Early Redemption Date (and the Trustee is to apply such moneys for such purpose): From the Senior Lien Bonds Capitalized Interest Account, until no moneys remain on deposit therein and then, from the Subordinate Lien Bond Capitalized Interest Account, until no moneys remain on deposit therein; and if all amounts in such Accounts have been withdrawn and there remains a deficiency; then Immediately after making any payments to be made from the Commodity Swap Payment Fund during the month in which the Early Redemption Date occurs, from the following Accounts and Funds, in the following order of priority: first, from the Revenue Fund, until no moneys remain on deposit therein; second, from the Senior Lien Debt Service Account, until no moneys remain on deposit therein; third, 17

26 from the Commodity Swap Payment Fund, until no moneys remain on deposit therein; and fourth, from the Subordinate Lien Bond Debt Service Account, until no moneys remain therein; and if all amounts in such Fund and Accounts have been withdrawn and there remains a deficiency; then From the Senior Lien Bonds Debt Service Reserve Account, until no moneys remain therein. Immediately after the making by the Trustee of all required transfers set forth in the three preceding paragraphs, to the extent and only to the extent necessary to redeem the Subordinate Lien Bond, if moneys remain on deposit in any of the Subordinate Lien Bond Capitalized Interest Account, the Senior Lien Bonds Debt Service Reserve Account, and the Subordinate Lien Bond Debt Service Account, the Trustee is to apply such moneys to the mandatory redemption of the Subordinate Lien Bond in accordance with the Indenture, in the following order of priority: first, from the Subordinate Lien Bond Capitalized Interest Account until no moneys remain therein; second, from the Senior Lien Bonds Debt Service Reserve Account, until no moneys remain therein; and third, from the Subordinate Lien Bond Debt Service Account, until no moneys remain therein. Immediately after the Trustee has applied moneys deposited to the Termination Fund to the extent required in accordance with the Indenture, if any moneys remain on deposit in the Revenue Fund, the Senior Lien Bond Debt Service Fund, the Commodity Swap Payment Fund, or the Subordinate Lien Bond Debt Service Fund, the Trustee is to withdraw all moneys in each such Fund and Account and pay such moneys to the Gas Supplier. Working Capital Reserve Fund The Working Capital Reserve Requirement will be funded through the deposit to the Working Capital Reserve Fund of the Working Capital Reserve Fund Credit Facility. The Working Capital Reserve Fund Credit Facility will be payable (upon the giving of such notice as may be required thereby) on any date on which moneys are required to be withdrawn from the Working Capital Reserve Fund to pay in whole or in part a Commodity Swap Payment. Operating Fund SVFC shall apply amounts credited to the Operating Fund first to the payment of administrative and other expenses of SVFC and then to satisfy any Reimbursement Obligation of SVFC under any Reimbursement Agreement that is still owed after the application of Make-Up Payments in accordance with the Indenture. Thereafter, amounts credited to the Operating Fund shall be available to SVFC, from time to time, for the following purposes (as determined by SVFC and without any order of priority): (i) (ii) (iii) rebates to the District; the purchase or redemption of Bonds and expenses in connection therewith; and any other lawful purpose of SVFC. Any purchase of Bonds (or portions thereof) by or at the direction of SVFC pursuant to the Indenture may be made with or without tenders of Bonds and at either public or private sale, in such manner as SVFC may determine. 18

27 Payments Under the Guarantee If at any time a payment is due to SVFC by the Gas Supplier under the Prepaid Gas Agreement and the Trustee has not received the full amount of such payment, the Trustee will immediately make a demand for payment under the Guarantee for the amount unpaid. Pursuant to the Prepaid Gas Agreement, SVFC or the Gas Supplier is to provide notice to the Trustee if either party establishes an Early Termination Date for the Prepaid Gas Agreement. In connection with the establishment of an Early Termination Date, SVFC and the Gas Supplier are required by the Prepaid Gas Agreement to prepare and deliver to the Trustee invoices specifying amounts payable in connection with the termination of the Prepaid Gas Agreement. If any of such invoices specifies that amounts are payable by the Gas Supplier and the Trustee has not received the full amount of such payment by the end of the third Business Day following the Early Termination Date, the Trustee will make a demand for payment from the Guarantor under the Guarantee for the amount unpaid. See "THE GAS SUPPLIER, THE GUARANTOR AND THE GUARANTEE -The Guarantee." INVESTMENT CONSIDERATIONS Investment in the Bonds is subject to certain risks. Particular attention should be given to the risk factors described under this caption. Any one of these factors, among others, could affect the payment of principal, Redemption Price and interest due on the Bonds and the market price of the Bonds. The extent of any such effect cannot be determined at this time. The order in which the risk factors are listed is not an indication of the relative importance of the various risk factors. For additional information relevant to an investment decision, see "APPENDIX A-INFORMATION RELATING TO THE SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT AND ITS ELECTRICAL SYSTEM." Limited Obligations of SVFC The Bonds shall be special obligations of SVFC payable solely from, and secured as to the payment of the principal and Redemption Price thereof, and interest thereon, in accordance with their terms and the provisions of the Indenture solely by, the Trust Estate pledged under the Indenture. The Bonds shall not be payable from, or secured by a legal or equitable pledge of, or lien or charge upon, any property of SVFC or any of its income or receipts, except the Revenues and the other funds pledged therefor pursuant to the Indenture (which pledge is subject to the application of the Revenues and such other funds for the purposes and on the terms and conditions set forth in the Indenture). The transaction represented by the Prepaid Gas Agreement, the Supply Agreement, and the Commodity Swap Agreement represent the only significant business of SVFC, and SVFC has no substantial assets or revenues other than those that are pledged to the payment of the Bonds. Accordingly, no financial or operating information with respect to SVFC is included in this Official Statement. See "SOURCES OF PAYMENT AND SECURITY FOR THE BONDS-Special Obligations; Limitations on Liability" and "THE ISSUER." Early Redemption of Bonds Upon the occurrence of an early termination of the Prepaid Gas Agreement, the Gas Supplier will be obligated to deposit the Termination Amount with the Trustee, for the account of SVFC. The Termination Amount is to be used to redeem the outstanding Bonds prior to their scheduled maturity as described under the caption "TERMS OF THE BONDS-Mandatory Redemption - Redemption Upon Early Termination of the Prepaid Gas Agreement." 19

28 The Bonds are also subject to mandatory redemption prior to maturity if the Trustee receives notice to the effect that redemption of all or a portion of the Bonds is necessary to preserve the Tax- Exempt Status of interest on the Bonds as a result of the remarketing of a portion of the Gas Supply for a Non-Qualifying Use. The Prepaid Gas Agreement and the Supply Agreement contain certain provisions regarding Remediation Use which are designed to minimize the likelihood of such a mandatory redemption. Such provisions apply while the Supply Agreement is in effect. See "THE GAS SUPPLY ACQUISITION -The Prepaid Gas Agreement Remediation" and "Appendix E - SUMMARY OF CERTAIN PROVISIONS OF THE SUPPLY AGREEMENT - Remediation Provisions." Financial Position of the District The District s obligations under the Supply Agreement are limited obligations payable solely as operating expenses of the District s electric system. See "SOURCES OF PAYMENT AND SECURITY FOR THE BONDS-Special Obligations; Limitations on Liability." The District s electric utility system currently has outstanding ratings of "Aa1" and "AA" by Moody s Investors Service Inc. ("Moody s") and Standard & Poor s Ratings Services, a division of The McGraw-Hill Companies, Inc. ("S&P"), respectively. There can be no assurance that the ratings on the District s outstanding long-term indebtedness secured by net revenues of the District s electric system will not be reduced or withdrawn. See "APPENDIX A - INFORMATION RELATING TO THE SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT AND ITS ELECTRIC SYSTEM". Decline in the District's Natural Gas Requirements The annual quantity of natural gas to be delivered to the District under the Supply Agreement represents approximately 20% of the natural gas purchased by the District for use by its electric system in the year Although the District is required to pay for all natural gas delivered or deemed delivered to it pursuant to the Supply Agreement, it is possible that such deliveries in any month will exceed its natural gas requirements for that month. If the District cannot use natural gas delivered under the Supply Agreement, the District will resell the natural gas, either directly or in certain circumstances through remarketing by the Gas Supplier, and will bear all risk that the price received for their sale of surplus natural gas delivered under the Supply Agreement will be below the Contract Price. Financial Position of Gas Supplier and Guarantor The Gas Supplier will be obligated to make certain payments to the Trustee, for the account of SVFC, upon a failure of the Gas Supplier to deliver or SVFC to take natural gas under the Prepaid Gas Agreement, whether or not such failure is caused by Force Majeure. In addition, upon termination of the Supply Agreement due to a default by the District, the Gas Supplier is obligated under the Prepaid Gas Agreement to remarket the Gas Supply, including purchases by the Gas Supplier, and remit all Remarketing Proceeds to the Trustee. The Gas Supplier s payment obligations under the Prepaid Gas Agreement are guaranteed by the Guarantor pursuant to the Guarantee. The ability of SVFC to pay principal of and interest on the Bonds when due will depend, among other things, upon the timely payment by the Gas Supplier or the Guarantor of such Gas Payments (as defined in the Prepaid Gas Agreement) including, in the event of the termination of the Supply Agreement, Remarketing Proceeds, to the Trustee. In the event of an early termination of the Prepaid Gas Agreement, the Gas Supplier will be obligated to pay the Termination Amount to the Trustee on behalf of SVFC, and all of the outstanding Bonds will be subject to mandatory redemption prior to maturity. The ability of SVFC to pay the Redemption Price of the Bonds (and accrued interest to the Early Redemption Date, if any) will depend upon the payment by the Gas Supplier or Guarantor of the Termination Amount to the Trustee. 20

29 No assurance can be given that the future financial position of the Gas Supplier or the Guarantor will enable either to make such payments in a timely manner. Any delay in payment by the Gas Supplier or the Guarantor could cause a delay or default in payments of the principal, Redemption Price and interest due on the Bonds. Potential purchasers of the Bonds should study the information set forth and incorporated by reference under the heading "THE GAS SUPPLIER, THE GUARANTOR AND THE GUARANTEE" in this Official Statement in assessing the capability of the Gas Supplier and the Guarantor to make the payments required to be made under the Prepaid Gas Agreement and the Guarantee. Financial Position of Swap Counterparty The ability of SVFC to make full payment of the principal and interest due on the Bonds may depend upon the timely payment by the Swap Counterparty of amounts payable by it pursuant to the Commodity Swap Agreement. In the event that the Swap Counterparty fails to make a payment pursuant to the Commodity Swap Agreement, a bankruptcy event occurs with respect to the Swap Counterparty under the Commodity Swap Agreement, or the Prepaid Gas Agreement is terminated, the Commodity Swap Agreement will automatically terminate. Potential purchasers of the Bonds should study the information set forth and incorporated by reference under the heading "THE GAS SUPPLY ACQUISITION-The Commodity Price Hedge" in this Official Statement in assessing the capacity of the Swap Counterparty to make the payments required to be made or to post collateral as required under the Commodity Swap Agreement. Structured Financing The Indenture, the Prepaid Gas Agreement, the Supply Agreement and the Commodity Swap Agreement have been structured so that the Revenues available to SVFC, together with the amounts on deposit in certain of the Funds and Accounts held by the Trustee under the Indenture, on a cumulative basis, are expected to be sufficient at all times to provide for the timely payment of the scheduled debt service requirements on the Bonds, SVFC s payment obligations to the Swap Counterparty under the Commodity Swap Agreement and, on a subordinate basis, interest on the Subordinate Lien Bond. There is no contingency amount in any of the payments required to be paid to SVFC under the Prepaid Gas Agreement, the Supply Agreement or the Commodity Swap Agreement such that a failure of a party under one such agreement can be covered by the payments of the other parties under the other agreements. SVFC s ability to meet its obligations on the Bonds, the Commodity Swap Agreement and interest on the Subordinate Lien Bond will depend primarily upon the performance by the Gas Supplier of its natural gas delivery and other obligations under the Prepaid Gas Agreement (or the Guarantor under the Guarantee), timely payment by the District under the Supply Agreement and timely payment by the Swap Counterparty under the Commodity Swap Agreement. The principal sources of the Revenues pledged to the payment of interest on the Bonds are the amounts to be received by SVFC from the sale of the natural gas to the District under the Supply Agreement, payments received by SVFC under the Commodity Swap Agreement, and the amounts to be received by SVFC from the Gas Supplier under the Prepaid Gas Agreement (or the Guarantor under the Guarantee). Whether those Revenues will be sufficient to enable SVFC to meet all of its obligations on the Bonds over the entire term of such agreement will depend upon various factors, including but not limited to: The prospects and financial and operational performance of the Gas Supplier, or the Guarantor, and the continuing ability of each to timely meet its obligations under the Prepaid Gas Agreement and the Guarantee, for the term of the Bonds; 21

30 Enforcement of Contracts The prospects and financial and operational performance of the District and its continuing ability to timely meet its obligations under the Supply Agreement for the term of the Bonds; and The prospects and financial and operational performance of the Swap Counterparty, or any replacement swap counterparty, and its continuing ability to timely meet its obligations under the Commodity Swap Agreement. The ability of SVFC or the Trustee to enforce the Prepaid Gas Agreement, the Guarantee, the Supply Agreement, and the Commodity Swap Agreement, and the remedies available to the Trustee and the owners of the Bonds upon an event of default under the Indenture, are in many respects dependent upon judicial actions which are often subject to discretion and delay. Under existing law and jurisdiction decisions, the remedies provided for under such agreements may not be readily available or may be limited. The enforceability of the various legal agreements may also be limited by bankruptcy, reorganization, insolvency, moratorium or other similar laws affecting the rights of creditors or secured parties generally and by the exercise of judicial discretion in accordance with general principles of equity. The Prepaid Gas Agreement, the Guarantee, the Supply Agreement and the Commodity Swap Agreement are all executory contracts. If any of the parties with which SVFC has contracted under such agreements is involved in a bankruptcy proceeding, subject to then relevant bankruptcy laws, SVFC s interest in the contract would be unsecured and the relevant agreement could be discharged in return for a claim for damages against its estate with uncertain value. In such event, SVFC s Revenues could be materially adversely affected. 22

31 SOURCES AND USES OF FUNDS The estimated sources and uses of funds in connection with the issuance of the Bonds and the Subordinate Lien Bond are set forth in the following table. SOURCES: Par Amount of the Bonds $1,129,765, Original Issue Net Bond Premium $ 5,224, Par Amount of the Subordinate Lien Bond $ 29,030, TOTAL $1,164,019, USES: Prepayment under Prepaid Gas Agreement $1,009,761, Deposit to the Senior Lien Bonds Debt Service Reserve Account 1 $ 29,030, Deposit to the Senior Lien Bonds Capitalized Interest Account 2 $ 113,315, Deposit to the Subordinate Lien Bonds Capitalized Interest Account 2 $ 3,149, Costs of Issuance 3 $ 8,763, TOTAL $1,164,019, The Senior Lien Bonds Debt Service Reserve Account Requirement will be $92,210, of which $29,030, is expected to be funded with proceeds of the Subordinate Lien Bond and $63,180, is expected to be funded through the delivery of the Senior Lien Reserve Account Credit Facility. 2 3 Capitalized Interest is funded through December 1, Includes underwriter s discount, rating agency fees, Credit Facility Provider fees and legal fees and other expenses (including the premiums in respect of the Senior Lien Reserve Account Credit Facility and the Working Capital Reserve Account Credit Facility). TERMS OF THE BONDS The Bonds are authorized pursuant to a resolution of SVFC adopted on October 12, 2007 (the "Resolution") and under and subject to the terms and conditions of the Indenture. Appendix C hereto contains a summary of certain provisions of the Indenture. Prospective purchasers of the Bonds should read Appendix C for a more complete understanding of the terms of the Bonds. General The Bonds will be issued in the principal amount of $1,129,765,000 and will be dated and bear interest from the date of delivery. The Bonds will mature on the dates and in the principal amounts, and bear interest, payable on December 1, 2007 and semiannually thereafter on each June 1 and December 1 (each, an "Interest Payment Date"), at the respective rates shown on the inside cover page of this Official Statement. The principal of, Redemption Price of, if any, and interest on the Bonds are payable by the Trustee, and interest thereon will be payable by check mailed by the Trustee to the registered owner of each Bond as of the immediately preceding May 15 or November 15. Book-Entry Only System Information concerning The Depository Trust Company, New York, New York ("DTC") and the book-entry system has been obtained from DTC and is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation by, SVFC, the Underwriter, or the Trustee. 23

32 The Bonds will be available only in book-entry form in Authorized Denominations. DTC will act as the initial securities depository for the Bonds. The Bonds will be issued as fully registered securities in the name of Cede & Co. (DTC s partnership nominee), or such other name as may be requested by an authorized representative of DTC. One fully registered bond certificate will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC is a limited-purpose trust company organized under the New York Bank Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC holds and provides asset servicing for over 2.2 million issues of U.S. and non-u.s. equity, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC s Participants (the "Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions, in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Fixed Income Clearing Corporation, and Emerging Markets Clearing Corporation, (the "NSCC," "FICC," and "EMCC," also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc. (the "NYSE"), the American Stock Exchange LLC and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others, such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (the "Indirect Participants" and, together with the Direct Participants, the "DTC Participants"). DTC has S&P s highest rating: AAA. The rules applicable to DTC and DTC Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at and Purchases of the Bonds under the DTC system must be made by or through Direct Participants, who will receive a credit for such Bonds on DTC s records. The ownership interest of each actual purchaser of each Bond (a "Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participant s records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which such Beneficial Owners entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of DTC Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interest in the Bonds, except in the event that use of the book-entry only system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC s records reflect only the identity of the Direct Participants to whose account such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. 24

33 Conveyances of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices will be sent to DTC. If less than all of the Bonds within a maturity are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC s procedures. Under its usual procedures, DTC mails an Omnibus Proxy to SVFC as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from the Trustee, on a payment date in accordance with their respective holdings shown on DTC s records. Payments by DTC Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such DTC Participants and not of DTC, the Trustee or SVFC, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Trustee; disbursement of such payments to Direct Participants will be the responsibility of DTC; and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving notice to SVFC or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, bond certificates are required to be prepared and delivered as described in the Indenture. SVFC may decide to discontinue use of the system of book-entry only transfers through DTC (or a successor securities depository). In that event, bond certificates will be required to be prepared and delivered to DTC. NEITHER SVFC NOR THE TRUSTEE WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO DTC PARTICIPANTS, BENEFICIAL OWNERS OR OTHER NOMINEES OF SUCH BENEFICIAL OWNERS FOR (1) SENDING TRANSACTION STATEMENTS; (2) MAINTAINING, SUPERVISING OR REVIEWING, OR THE ACCURACY OF, ANY RECORDS MAINTAINED BY DTC OR ANY DTC PARTICIPANT OR OTHER NOMINEES OF SUCH BENEFICIAL OWNERS; (3) PAYMENT OR THE TIMELINESS OF PAYMENT BY DTC TO ANY DTC PARTICIPANT, OR BY ANY DTC PARTICIPANT OR OTHER NOMINEES OF BENEFICIAL OWNERS TO ANY BENEFICIAL OWNER, OF ANY AMOUNT DUE IN RESPECT OF THE PRINCIPAL OF OR REDEMPTION PREMIUM, IF ANY, OR INTEREST ON BONDS; (4) DELIVERY OR TIMELY DELIVERY BY DTC TO ANY DTC PARTICIPANT, OR BY ANY DTC PARTICIPANTS OR OTHER NOMINEES OF BENEFICIAL OWNERS TO ANY BENEFICIAL OWNERS, OR ANY NOTICE (INCLUDING NOTICE OF REDEMPTION) OR OTHER COMMUNICATION WHICH IS REQUIRED OR PERMITTED UNDER THE TERMS OF THE INDENTURE TO BE GIVEN TO OWNERS OF BONDS; (5) THE SELECTION OF THE 25

34 BENEFICIAL OWNERS TO RECEIVE PAYMENT IN THE EVENT OF ANY PARTIAL REDEMPTION OF BONDS; OR (6) ANY ACTION TAKEN BY DTC OR ITS NOMINEE AS THE REGISTERED OWNER OF BONDS. Mandatory Redemption Redemption Upon Early Termination of the Prepaid Gas Agreement. The Bonds are subject to mandatory redemption prior to maturity in whole, and not in part, on the Early Redemption Date at a Redemption Price equal to the Amortized Value thereof as of the Early Redemption Date, plus unpaid accrued interest to the Early Redemption Date. SVFC is to provide the Trustee with Written Notice of the Early Termination Date established for the Prepaid Gas Agreement, and, immediately upon receipt of such notice, the Trustee is to establish the Early Redemption Date and take all action necessary to redeem the outstanding Bonds on the Early Redemption Date with the moneys in the Termination Fund. The Early Redemption Date will be the fifteenth day of the month following the month in which the Early Termination Date of the Prepaid Gas Agreement occurs. "Amortized Value" means, with respect to any Bond to be redeemed, the principal amount of such Bond multiplied by the price of such Bond expressed as a percentage, calculated based on the industry standard method of calculating bond prices (as such industry standard prevails on the date of delivery of the Bonds), with a delivery date equal to the date of redemption, a maturity date equal to the stated maturity date of such Bond and a yield equal to such Bond s initial reoffering yield as stated on the inside cover of this Official Statement, which, in the case of certain dates, produces the amounts for all of the Bonds set forth in Appendix H hereto. See "APPENDIX H-SCHEDULE OF AMORTIZED VALUE OF THE BONDS." Redemption for Remediation. The Bonds are subject to mandatory redemption prior to maturity, in whole or in part, on any date, at a Redemption Price equal to the Amortized Value thereof, plus unpaid accrued interest to the redemption date, if required under certain circumstances to maintain the Tax- Exempt Status of the bonds issued under the Indenture. In general, those circumstances relate to the failure to apply the Gas Supply for a Qualifying Use (as such term is defined in the Prepaid Gas Agreement). Optional Redemption The Bonds are subject to redemption at the option of SVFC, in whole or in part (in such amounts and by such maturities as may be specified by SVFC and by lot within a maturity), on any date, at a Redemption Price equal to the greater of (a) the Amortized Value thereof, plus unpaid, accrued interest to the date of redemption; or (b) the sum of the present values of the remaining unpaid payments of principal and interest to be paid on the Bonds to be redeemed from and including the date of redemption to the stated maturity date of such Bonds, discounted to the date of redemption on a semiannual basis at a discount rate equal to the Applicable Tax-Exempt Municipal Bond Rate (described below) for such Bonds minus 0.25 percent. The "Applicable Tax-Exempt Municipal Bond Rate" for a Bond is the "Comparable AAA General Obligations" yield curve rate for the stated maturity date as published by Municipal Market Data five Business Days prior to the date of redemption. This rate is made available daily by Municipal Market Data and is available to its subscribers through its internet address: If no such yield curve rate is established for the applicable year, the "Comparable AAA General Obligations" yield curve rate for the two published maturities most closely corresponding to the applicable year will be determined, and the "Applicable Tax-Exempt Municipal Bond Rate" will be interpolated or extrapolated from those yield curve rates on a straight-line basis. In calculating the Applicable Tax-Exempt Municipal Bond Rate, 26

35 should Municipal Market Data no longer publish the "Comparable AAA General Obligations" yield curve rate, then the Applicable Tax-Exempt Municipal Bond Rate will equal the Consensus Scale yield curve rate for the applicable year. The Consensus Scale yield curve rate is made available daily by Municipal Market Advisors and is available to its subscribers through its internet address: In the further event that Municipal Market Advisors no longer publishes the Consensus Scale, the Applicable Tax-Exempt Municipal Bond Rate for a Bond will be determined by a major market maker in municipal securities, as the quotation agent, based upon the rate per annum equal to the annual yield to maturity, calculated using semi-annual compounding, of those tax-exempt general obligation bonds rated in the highest Rating Category by Moody s and S&P with a maturity date equal to the stated maturity date of such Bond. The quotation agent s determination of the Applicable Tax-Exempt Municipal Bond Rate is final and binding in the absence of manifest error. Sinking Fund Redemption The Bonds maturing December 1, 2032 are subject to sinking fund redemption on December 1 of each of the years and in the principal amounts set forth below. Redemption Date Principal Amount 2030 $66,145, $74,055, * $82,380,000 The Bonds maturing December 1, 2037 are subject to sinking fund redemption on December 1 of each of the years and in the principal amounts set forth below. * final maturity Notice of Redemption Redemption Date Principal Amount 2033 $91,130, $101,395, $112,185, $123,525, * $136,275,000 When the Trustee receives notice from SVFC of SVFC s decision to optionally redeem Bonds, or when redemption of Bonds by the Trustee is required due to early termination of the Prepaid Gas Agreement or for remediation, or in connection with a sinking fund redemption, each as described above, the Trustee is to give notice, in the name of SVFC, of the redemption of such Bonds by first-class mail, postage prepaid, not less than 30 days (10 days in the case of any mandatory redemption under the Indenture, other than scheduled sinking fund redemption) and not more than 45 days (30 days in the case of any mandatory redemption under the Indenture, other than scheduled sinking fund redemption) prior to the redemption date to the Owner of each Bond being redeemed, at its address as it appears on the Bond Register or at such address as such Owner may have filed with the Trustee for that purpose, as of the 15 th day of the month preceding such redemption date. The notice will identify the Bonds to be redeemed and state (i) the redemption date, (ii) the Redemption Price or the manner in which it will be calculated, (iii) that the Bonds called for redemption must be surrendered to collect the Redemption Price, (iv) the address 27

36 at which the Bonds must be surrendered, and (v) that interest on the Bonds called for redemption ceases to accrue on the redemption date. The Trustee is not to give any notice of redemption with respect to a redemption of Bonds at the option of SVFC, unless upon the giving of such notice, the Trustee holds funds sufficient to pay the Redemption Price of the Bonds to be optionally redeemed determined as if the date of giving such notice of redemption was the redemption date. So long as the book-entry system is in effect, the Trustee will send each notice of redemption to Cede & Co., as nominee of DTC, and not to the Beneficial Owners. So long as DTC or its nominee is the sole registered owner of the Bonds under the book-entry system, any failure on the part of DTC or a Direct Participant or Indirect Participant to notify the Beneficial Owner so affected will not affect the validity of the redemption. See "Book-Entry Only System" above. Bonds Redeemed in Part Upon surrender of a Bond redeemed in part, SVFC will execute and the Trustee will authenticate and deliver to the Owner thereof a new Bond or Bonds in Authorized Denominations equal in principal amount to the unredeemed portion of the Bond surrendered. Notwithstanding anything in the Indenture to the contrary, so long as the Bonds are held in the Book-Entry System, the Bonds will not be delivered as set forth above; rather, changes in the principal amount of such Bonds will be affected on the registration books of the Securities Depository pursuant to its rules and procedures. See "Book-Entry Only System" above. Selection of Bonds to be Redeemed If less than all of the Bonds of like maturity are called for redemption, the particular Bonds or portions of Bonds to be redeemed are to be selected at random by the Trustee in such manner as the Trustee in its discretion may deem fair and appropriate, from Bonds not previously called for redemption; provided, that the portion of any Bond of a denomination of more than the minimum Authorized Denomination to be redeemed will be in the principal amount of such minimum Authorized Denomination or a multiple thereof. In selecting Bonds for redemption, the Trustee will treat each Bond of a denomination of more than the minimum Authorized Denomination as representing that number of Bonds of the minimum Authorized Denomination which is obtained by dividing the principal amount of such Bond by such minimum Authorized Denomination. Refunding Bonds Subject to the provisions of the Indenture, and receipt by SVFC and the Trustee of written confirmation from both Moody s and S&P that such issuance shall not result in any reduction in or withdrawal of the then outstanding ratings on the Bonds, one or more series of Bonds on a parity with the outstanding Bonds may be issued from time to time under the Indenture, pursuant to the provisions of a Supplemental Indenture, to refund, repay or otherwise refinance any Senior Lien Bonds previously issued and outstanding. Registration and Exchange of Bonds; Persons Treated as Owners So long as the Bonds are maintained in book-entry form, the Beneficial Owners thereof will have no right to receive physical possession of the Bonds, and transfers of ownership interests in the Bonds will be made through book entries by The Depository Trust Company and its Participants, as described above under the subcaption "Book-Entry Only System." 28

37 The Trustee will maintain registration books for the registration and the registration of transfer of the Bonds. The transfer of any Bond may be registered only upon the books kept for the registration and registration of transfer of Bonds upon surrender thereof to the Trustee together with an assignment duly executed by the registered owner in person or by his duly authorized attorney or legal representative in such form as shall be satisfactory to the Trustee. Upon any such transfer, SVFC will execute and the Trustee will authenticate and deliver in exchange for such Bond a new registered Bond or Bonds, registered in the name of the transferee, of any denomination or denominations authorized by this agreement. The Trustee will not be required to make any such registration or registration of transfer of a Bond during the 15 days immediately preceding an Interest Payment Date. Prior to due presentment for registration of transfer of any Bond, the Trustee will treat the registered owner as the person exclusively entitled to payment of principal and interest and the exercise of all other rights and powers of the owner. Upon surrender thereof at the principal corporate trust office of the Trustee, together with an assignment duly executed by the registered owner or his duly authorized attorney or legal representative in such form as shall be satisfactory to the Trustee, Bonds may, at the option of the owner thereof, be exchanged for Bonds of the same maturity, of authorized denominations and bearing interest at the same rate. Every such exchange will be at the expense of SVFC, except that the Trustee will, if requested by SVFC, make a charge to any owner of a Bond requesting such registration in the amount of any tax or other governmental charge required to be paid with respect thereto. 29

38 Debt Service Requirements year. Set forth in the following table are the scheduled debt service requirements on the Bonds in each Year Ending December 31 Principal Amount Interest 1 Total 2007 $ $ $ ,451, ,451, ,451, ,451, ,451, ,451, ,451, ,451, ,451, ,451, ,990, ,451, ,441, ,100, ,251, ,351, ,115, ,146, ,261, ,720, ,941, ,661, ,585, ,655, ,240, ,655, ,204, ,859, ,105, ,592, ,697, ,790, ,799, ,589, ,835, ,812, ,647, ,985, ,614, ,599, ,365, ,197, ,562, ,645, ,550, ,195, ,200, ,574, ,774, ,110, ,253, ,363, ,475, ,570, ,045, ,145, ,354, ,499, ,055, ,047, ,102, ,380, ,344, ,724, ,130, ,225, ,355, ,395, ,669, ,064, ,185, ,599, ,784, ,525, ,990, ,515, ,275, ,813, ,088, Total 1,129,765, ,279,916, ,409,681, Net of capitalized interest on the Bonds. See "SOURCES AND USES OF FUNDS." 30

39 THE ISSUER Relationship to the District SVFC is a nonprofit corporation duly formed and validly existing under the laws of the State of Arizona and was incorporated on March 8, 2007 for the purpose of acquiring, financing, and selling natural gas to the District. The District s President and Vice President and the Chairman of the Audit Committee of the District s Board of Directors serve on the Board of Directors of SVFC. SVFC s Limited Liability SVFC will enter into the Supply Agreement with the District solely to facilitate the financing of the purchase of the Gas Supply. Under the Indenture, SVFC assigns its rights and interests under the Supply Agreement, the Prepaid Gas Agreement, the Commodity Swap Agreement and the Guarantee to the Trustee for the benefit of the owners of the Bonds. The owners of the Bonds will have no right to look to SVFC, or any of its non-pledged assets, for any payment due on the Bonds. Furthermore, none of the Supply Agreement, the Prepaid Gas Agreement, the Commodity Swap Agreement, the Guarantee and the Indenture creates a pecuniary liability on the part of any directors or officers of SVFC. As of the date of this Official Statement, the transaction represented by the Bonds and the Subordinate Lien Bond, the Prepaid Gas Agreement, the Supply Agreement and the Commodity Swap Agreement represent the only significant business of SVFC. However, SVFC is permitted to enter into similar transactions with the District in the future. Restriction on Additional Obligations SVFC currently has no substantial assets or revenues other than those that are pledged to the payment of the Bonds. SVFC has covenanted in the Indenture that it will not issue any bonds, notes, debentures or other evidences of indebtedness of a similar nature, other than the Bonds and the Subordinate Lien Bond and bonds, notes or other obligations issued to refund outstanding bonds, or otherwise incur obligations other than in respect of the Commodity Swap Agreement, payable out of or secured by a security interest in or pledge or assignment of the Trust Estate. In connection with such covenant, SVFC will not create or cause to be created any lien or charge on the Trust Estate, other than the lien and charge created by the Indenture to secure the Bonds and the Subordinate Lien Bond, and the lien and charge securing (i) such refunding obligations, (ii) the Commodity Swap Agreement and (iii) the principal amount of any Reimbursement Obligation incurred in connection with either of the Surety Bonds (which may remain limited to Make-up Payments received). THE DISTRICT The District is an agricultural improvement district organized in 1937 under the laws of the State of Arizona. It operates the Salt River Project (the "Project"), a federal reclamation project, under contracts with the Salt River Valley Water Users Association (the "Association"), by which it has assumed the obligations and assets of the Association, including its obligations to the United States of America for the care, operation and maintenance of the Project. The District owns and operates an electric system (as described further in Appendix A to this Official Statement) which generates, purchases, transmits and distributes electric power and energy, and provides electric service to residential, commercial, industrial and agricultural power users in a 2,900 square mile service territory in parts of Maricopa, Gila and Pinal Counties, plus mine loads in an adjacent 2,400 square mile area of Gila and Pinal Counties. The Association operates an irrigation system as the District s agent which is not part of 31

40 the District s electric system. For further information regarding the District see Appendix A and Appendix B to this Official Statement. THE GAS SUPPLIER, THE GUARANTOR AND THE GUARANTEE The Gas Supplier and the Guarantor Set forth below is certain publicly available information with respect to the Gas Supplier and the Guarantor. The obligations of the Gas Supplier are limited to those set forth in the Prepaid Gas Agreement and the obligations of the Guarantor are limited to those set forth in the Guarantee. Neither the Gas Supplier nor the Guarantor has guaranteed, nor is either responsible for the payment of, the Bonds. The Gas Supplier, Citigroup Energy Inc., is wholly-owned subsidiary of the Guarantor, Citigroup Inc. The payment obligations of the Gas Supplier under the Prepaid Gas Agreement are guaranteed by the Guarantor. The Guarantor is a diversified financial services holding company, which is subject to the information requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports and other information with the Securities and Exchange Commission (the "SEC"). For further information concerning the Gas Supplier and the Guarantor, see the consolidated financial statements of the Guarantor and its subsidiaries included in the Annual Report on Form 10-K of Citigroup Inc. for the fiscal year ended December 30, 2006, subsequently filed quarterly reports, and any other documents which are publicly available, including any financial statements of the Guarantor and its subsidiaries, that are included therein or attached as exhibits thereto, filed by Citigroup Inc. pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of the most recent Annual Report on Form 10-K, and prior to the termination of the offering of the Bonds. Citigroup Inc. files annual, quarterly and special reports, information statements and other information with the SEC under File No Copies of Citigroup Inc. s SEC filings (including Citigroup Inc. s Annual Report on Form 10-K for the fiscal year ended December 30, 2006 and subsequently filed quarterly reports) are available (i) over the Internet at the SEC s web site at and (ii) at the SEC s public reference room in Washington D.C. The Guarantee Pursuant to the Guarantee, the Guarantor will unconditionally guarantee to SVFC the due and punctual payment of any and all amounts payable by the Gas Supplier, its successors and permitted assigns, to the extent such successors or permitted assigns are direct or indirect subsidiaries of the Guarantor. The Guarantor, pursuant to the Guarantee, covenants that the Guarantee will not be discharged except by complete payment of the amounts payable under the Prepaid Gas Agreement and the Guarantee. CERTAIN INFORMATION REGARDING THE SWAP COUNTERPARTY Set forth below is certain information regarding the Swap Counterparty that has been obtained from the Swap Counterparty. SVFC assumes no responsibility for such information and cannot guarantee the accuracy thereof. Royal Bank of Canada (referred to in this section only as the "Bank") is a Schedule I bank under the Bank Act (Canada), which constitutes its charter. The Bank s corporate headquarters are located at Royal Bank Plaza, 200 Bay Street, Toronto, Ontario, Canada M5J 2J5, and its head office is located at 1 Place Ville Marie, Montreal, Quebec, Canada H3C 3A9. 32

41 The Bank and its subsidiaries operate under the master brand name of RBC. The Bank is Canada s largest bank as measured by assets and market capitalization and is one of North America s leading diversified financial services companies. It provides personal and commercial banking, wealth management services, insurance, corporate and investment banking, and transaction processing services on a global basis. The Bank and its subsidiaries employ approximately 70,000 full- and part-time employees who serve more than 15 million personal, business, public sector and institutional clients through offices in North America and 34 countries around the world. The Bank had, on a consolidated basis, as at July 31, 2007, total assets of C$604.6 billion (approximately US$566.5 billion * ), shareholders equity of C$24.5 billion (approximately US$23 billion*), and total deposits of C$376.3 billion (approximately US$352.6 billion*). The foregoing figures were prepared in accordance with Canadian generally accepted accounting principles and have been extracted and derived from, and are qualified by reference to, the Bank s unaudited Interim Consolidated Financial Statements included in the Bank s Report to Shareholders for the period ended July 31, The long-term senior unsecured debt of the Bank has been assigned ratings of "AA-" (positive outlook) by Standard & Poor s Ratings Services, "Aaa" (stable outlook) by Moody s Investors Service and "AA" (stable outlook) by Fitch Ratings. The Bank s common shares are listed on the Toronto Stock Exchange, the New York Stock Exchange and the Swiss Exchange under the trading symbol "RY." Its preferred shares are listed on the Toronto Stock Exchange. Upon written request, and without charge, the Bank will provide a copy of its most recent publicly filed Annual Report on Form 40-F, which includes audited Consolidated Financial Statements, to any person to whom this Official Statement is delivered. Written requests should be directed to: Investor Relations, Royal Bank of Canada, 200 Bay Street West, 14 th Floor, South Tower, Toronto, Ontario, Canada M5J 2J5. The delivery of this Official Statement shall not create any implication that there has been no change in the affairs of the Bank since the date hereof or that the information contained or referred to herein is correct as at any time subsequent to such date. CERTAIN INFORMATION REGARDING THE CREDIT FACILITY PROVIDER MBIA Insurance Corporation ("MBIA") is the principal operating subsidiary of MBIA Inc., a New York Stock Exchange listed company (the "Company"). The Company is not obligated to pay the debts of or claims against MBIA. MBIA is domiciled in the State of New York and licensed to do business in and subject to regulation under the laws of all 50 states, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, the Virgin Islands of the United States and the Territory of Guam. MBIA, either directly or through subsidiaries, is licensed to do business in the Republic of France, the United Kingdom and the Kingdom of Spain and is subject to regulation under the laws of those jurisdictions. In February 2007, MBIA incorporated a new subsidiary, MBIA México, S.A. de C.V. ("MBIA Mexico"), through which it intends to write financial guarantee insurance in Mexico beginning in To date, MBIA Mexico has had no operating activity. The principal executive offices of MBIA are located at 113 King Street, Armonk, New York and the main telephone number at that address is (914) Regulation. As a financial guaranty insurance company licensed to do business in the State of * As at July 31, 2007: C$1:00 =US$

42 New York, MBIA is subject to the New York Insurance Law which, among other things, prescribes minimum capital requirements and contingency reserves against liabilities for MBIA, limits the classes and concentrations of investments that are made by MBIA and requires the approval of policy rates and forms that are employed by MBIA. State law also regulates the amount of both the aggregate and individual risks that may be insured by MBIA, the payment of dividends by MBIA, changes in control with respect to MBIA and transactions among MBIA and its affiliates. The Surety Bonds are not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. Financial Strength Ratings of MBIA. Moody s Investors Service, Inc. rates the financial strength of MBIA "Aaa." Standard & Poor s, a division of The McGraw-Hill Companies, Inc. rates the financial strength of MBIA "AAA." Fitch Ratings rates the financial strength of MBIA "AAA." Each rating of MBIA should be evaluated independently. The ratings reflect the respective rating agency s current assessment of the creditworthiness of MBIA and its ability to pay claims on its policies of insurance. Any further explanation as to the significance of the above ratings may be obtained only from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold the Bonds, and such ratings may be subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of the Bonds. MBIA does not guaranty the market price of the Bonds nor does it guaranty that the ratings on the Bonds will not be revised or withdrawn. MBIA Financial Information. As of December 31, 2006, MBIA had admitted assets of $10.9 billion (audited), total liabilities of $6.9 billion (audited), and total capital and surplus of $4.0 billion (audited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. As of March 31, 2007, MBIA had admitted assets of $11.2 billion (unaudited), total liabilities of $7.0 billion (unaudited), and total capital and surplus of $4.2 billion (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. For further information concerning MBIA, see the consolidated financial statements of MBIA Inc. and its subsidiaries as of December 31, 2006 and December 31, 2005 and for each of the three years in the period ended December 31, 2006, prepared in accordance with generally accepted accounting principles, included in the Annual Report on Form 10-K of the Company for the year ended December 31, 2006 and the consolidated financial statements of MBIA Inc. and its subsidiaries as of March 31, 2007 and for the three month period ended March 31, 2007 and March 31, 2006 included in the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2007, which are hereby incorporated by reference into this Official Statement and shall be deemed to be a part hereof. Copies of the statutory financial statements filed by MBIA Inc. with the State of New York Insurance Department are available over the Internet at the Company s web site at and at no cost, upon request to MBIA at its principal executive offices. 34

43 Incorporation of Certain Documents by Reference. The following documents filed by the Company with the Securities and Exchange Commission (the "SEC") are incorporated by reference into this Official Statement: and (1) The Company s Annual Report on Form 10-K for the year ended December 31, 2006; (2) The Company s Quarterly Report on Form 10-Q for the quarter ended March 31, Any documents, including any financial statements of MBIA Inc. and its subsidiaries that are included therein or attached as exhibits thereto, filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of the Company s most recent Quarterly Report on Form 10-Q or Annual Report on Form 10-K, and prior to the termination of the offering of the Bonds offered hereby shall be deemed to be incorporated by reference in this Official Statement and to be a part hereof from the respective dates of filing such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein, or contained in this Official Statement, shall be deemed to be modified or superseded for purposes of this Official Statement to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Official Statement. The Company files annual, quarterly and special reports, information statements and other information with the SEC under File No Copies of the Company s SEC filings (including (1) the Company s Annual Report on Form 10-K for the year ended December 31, 2006, and (2) the Company s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007) are available (i) over the Internet at the SEC s web site at (ii) at the SEC s public reference room in Washington D.C.; (iii) over the Internet at the Company s web site at and (iv) at no cost, upon request to MBIA at its principal executive offices. In the event MBIA were to become insolvent, any claims arising under a policy of financial guaranty insurance are excluded from coverage by the California Insurance Guaranty Association, established pursuant to Article 14.2 (commencing with Section 1063) of Chapter 1 of Part 2 of Division 1 of the California Insurance Code. SVFC LITIGATION There is no litigation pending against, or to the knowledge of SVFC, threatened against or affecting, SVFC in any way questioning or in any manner affecting any proceeding or transaction relating to the issuance of the Bonds, including the commitments to deliver the Surety Bonds, the sale or delivery of the Bonds or the validity or enforceability of the Bonds, the Prepaid Gas Agreement, the Supply Agreement or the Commodity Swap Agreement. The District The District reports that there is no litigation pending against or, to its knowledge, threatened against it questioning or in any manner affecting the validity or enforceability of the Supply Agreement. 35

44 In the normal course of business the District is a defendant in various legal actions. In District management s opinion, except as otherwise set forth in Appendix A to this Official Statement, the ultimate resolution of these matters will not have a significant adverse affect on the District s ability to maintain operations. APPROVAL OF LEGAL MATTERS Legal matters incidental to the authorization and issuance of the Bonds are subject to receipt of the opinion of Nixon Peabody LLP, as Bond Counsel, in substantially the form set forth in Appendix F to this Official Statement, which will be delivered with the Bonds. Certain legal matters will be passed upon for the Underwriter by Orrick, Herrington & Sutcliffe LLP, for SVFC by Jennings, Strouss & Salmon, P.L.C. and the District by Winston & Strawn LLP and Jennings, Strouss & Salmon, P.L.C. Federal Income Taxes TAX MATTERS The Internal Revenue Code of 1986, as amended (the "Code"), imposes certain requirements that must be met subsequent to the issuance and delivery of the Bonds for interest thereon to be and remain excluded from gross income for Federal income tax purposes. Noncompliance with such requirements could cause the interest on the Bonds to be included in gross income for Federal income tax purposes retroactive to the date of issuance of the Bonds. Pursuant to the Indenture, the Prepaid Gas Agreement, the Supply Agreement and the Tax Certificate, SVFC and the District have covenanted to comply with the applicable requirements of the Code in order to maintain the exclusion of the interest on the Bonds from gross income for Federal income tax purposes pursuant to Section 103 of the Code. In addition, SVFC and the District have made certain representations and certifications in the Tax Certificate. Bond Counsel will not independently verify the accuracy of those representations and certifications. In the opinion of Nixon Peabody LLP, Bond Counsel, under existing law and assuming compliance with the aforementioned covenants, and assuming the accuracy of certain representations and certifications made by SVFC and the District described above, interest on the Bonds is excluded from gross income for Federal income tax purposes under Section 103 of the Code. Bond Counsel is also of the opinion that such interest is not treated as a preference item in calculating the alternative minimum tax imposed under the Code with respect to individuals and corporations. Interest on the Bonds is, however, included in the adjusted current earnings of certain corporations for purposes of computing the alternative minimum tax imposed on such corporations. State Taxes Bond Counsel is also of the opinion that interest on the Bonds is exempt from income taxes imposed by the State of Arizona. Bond counsel expresses no opinion as to other Arizona or local tax consequences arising with respect to the Bonds nor as to the taxability of the Bonds or the income therefrom under the laws of any state other than Arizona. Original Issue Discount Bond Counsel is further of the opinion that the difference between the principal amount of the Bonds maturing December 1, 2032 and December 1, 2037; (collectively the "Discount Bonds") and the initial offering price to the public (excluding bond houses, brokers or similar persons or organizations acting in the capacity of underwriters or wholesalers) at which price a substantial amount of such Discount Bonds of the same maturity was sold constitutes original issue discount which is excluded from 36

45 gross income for federal income tax purposes to the same extent as interest on the Bonds. Further, such original issue discount accrues actuarially on a constant interest rate basis over the term of each Discount Bond, and the basis of each Discount Bond acquired at such initial offering price by an initial purchaser thereof will be increased by the amount of such accrued original issue discount. The accrual of original issue discount may be taken into account as an increase in the amount of tax-exempt income for purposes of determining various other tax consequences of owning the Discount Bonds, even though there will not be a corresponding cash payment. Owners of the Discount Bonds are advised that they should consult with their own advisors with respect to the state and local tax consequences of owning such Discount Bonds. Original Issue Premium The Bonds maturing on December 1, 2015 through December 1, 2029 (collectively, the "Premium Bonds") are being offered at prices in excess of their principal amounts. An initial purchaser with an initial adjusted basis in a Premium Bond in excess of its principal amount will have amortizable bond premium which is not deductible from gross income for federal income tax purposes. The amount of amortizable bond premium for a taxable year is determined actuarially on a constant interest rate basis over the term of each Premium Bond based on the purchaser s yield to maturity (or, in the case of Premium Bonds callable prior to their maturity, over the period to the call date, based on the purchaser s yield to the call date and giving effect to any call premium). For purposes of determining gain or loss on the sale or other disposition of a Premium Bond, an initial purchaser who acquires such obligation with an amortizable bond premium is required to decrease such purchaser s adjusted basis in such Premium Bond annually by the amount of amortizable bond premium for the taxable year. The amortization of bond premium may be taken into account as a reduction in the amount of tax-exempt income for purposes of determining various other tax consequences of owning such Bonds. Owners of the Premium Bonds are advised that they should consult with their own advisors with respect to the state and local tax consequences of owning such Premium Bonds. Ancillary Tax Matters Ownership of the Bonds may result in other federal tax consequences to certain taxpayers, including, without limitation, certain S corporations, foreign corporations with branches in the United States, property and casualty insurance companies, individuals receiving Social Security or Railroad Retirement benefits, individuals seeking to claim the earned income credit, and taxpayers (including banks, thrift institutions and other financial institutions) who may be deemed to have incurred or continued indebtedness to purchase or to carry the Bonds. Commencing with interest paid in 2006, interest paid on tax-exempt obligations such as the Bonds is subject to information reporting to the Internal Revenue Service (the "IRS") in a manner similar to interest paid on taxable obligations. In addition, interest on the Bonds may be subject to backup withholding if such interest is paid to a registered owner that (a) fails to provide certain identifying information (such as the registered owner s taxpayer identification number) in the manner required by the IRS, or (b) has been identified by the IRS as being subject to backup withholding. Bond Counsel is not rendering any opinion as to any Federal tax matters other than those described in this Section. Prospective investors, particularly those who may be subject to special rules described above, are advised to consult their own tax advisors regarding the federal tax consequences of owning and disposing of the Bonds, as well as any tax consequences arising under the laws of any state or other taxing jurisdiction. 37

46 Changes in Law and Post Issuance Events Legislative or administrative actions and court decisions, at either the federal or state level, could have an adverse impact on the potential benefits of the exclusion from gross income of the interest on the Bonds for Federal or state income tax purposes, and thus on the value or marketability of the Bonds. This could result from changes to Federal or state income tax rates, changes in the structure of Federal or state income taxes (including replacement with another type of tax), repeal of the exclusion of the interest on the Bonds from gross income for Federal or state income tax purposes, or otherwise. It is not possible to predict whether any legislative or administrative actions or court decisions having an adverse impact on the Federal or state income tax treatment of owners of the Bonds may occur. Prospective purchasers of the Bonds should consult their own tax advisers regarding such matters. On May 21, 2007, the U.S. Supreme Court agreed to hear Davis v. Kentucky Dep t of Revenue of the Finance and Admin. Cabinet, 197 S.W.3d 557 (2006), a case that has questioned the permissibility under the U.S. Constitution of the Commonwealth of Kentucky providing for a state income tax exemption for interest on obligations issued by Kentucky or its subdivisions while taxing interest on obligations of other states or their subdivisions. The laws of the state of Arizona currently result in such differing treatment, by exempting interest on obligations of Arizona and its subdivisions and instrumentalities while taxing the interest on obligations issued by other states or their subdivisions or instrumentalities. Bond Counsel has not undertaken to advise in the future whether any events after the date of issuance and delivery of the Bonds may affect the tax status of interest on the Bonds. Bond Counsel expresses no opinion as to any Federal, state or local tax law consequences with respect to the Bonds, or the interest thereon, if any action is taken with respect to the Bonds or the proceeds thereof upon the advice or approval of other counsel. CONTINUING DISCLOSURE Pursuant to a Continuing Disclosure Agreement, SVFC will covenant for the benefit of the Owners and Beneficial Owners of the Bonds to provide certain financial information and operating data relating to SVFC by not later than 180 days after the end of SVFC s fiscal years (presently, each April 30), commencing with the first fiscal year ending April 30, 2008 (the "Annual Report"), and to provide notices of the occurrence of certain enumerated events with respect to the Bonds, if material. The Continuing Disclosure Agreement provides that the Annual Report and any notices of such material events will be filed by or on behalf of SVFC with each nationally recognized municipal securities information repository and with the State information repository, if any, established by the State of Arizona. Under the Continuing Disclosure Agreement, the sole remedy for any Owner of a Bond upon an event of default is a lawsuit for specific performance in a court of competent jurisdiction. See "Appendix G FORM OF CONTINUING DISCLOSURE AGREEMENT." SVFC s covenant is being made in order to assist the Underwriter in complying with the secondary market disclosure requirements of Rule 15c2-12 of the Securities and Exchange Commission. FINANCIAL STATEMENTS No financial statements for SVFC are included herein. The combined financial statements of the District, its subsidiaries and the Association as of and for the fiscal years ended April 30, 2007 and April 30, 2006 attached hereto as Appendix B have been audited by PricewaterhouseCoopers LLP, independent auditors, as stated in their report attached hereto as Appendix B. 38

47 FINANCIAL ADVISOR The District has retained Public Financial Management ("PFM") as its financial advisor. Although PFM has assisted in the preparation of this Official Statement, PFM is not obligated to undertake and has not undertaken to make, an independent verification or to assume responsibility for the accuracy, completeness or fairness of the information contained in this Official Statement. UNDERWRITING Citigroup Global Markets Inc. (the "Underwriter") has agreed, subject to certain conditions, to purchase all, but not less than all, of the Bonds from SVFC at an aggregate purchase price, of $1,130,471,578.11, reflecting a net original issue premium of $5,224, and an underwriter s discount of $4,517, from the initial public offering price set forth on the inside cover page of this Official Statement. The obligation of the Underwriter to purchase the Bonds is subject to certain terms and conditions set forth in the purchase contract entered into between the Underwriter and SVFC. The Underwriter is obligated to purchase all of the Bonds. The issuance of the Bonds in contingent on the issuance of the Subordinate Lien Bond. CERTAIN RELATIONSHIPS The Gas Supplier, Citigroup Energy Inc., is a wholly-owned subsidiary of Citigroup Inc. The Underwriter, Citigroup Global Markets Inc., is also a wholly-owned subsidiary of Citigroup Inc. The financial obligations of the Gas Supplier are guaranteed by Citigroup Inc., to the extent set forth in the Guarantee. Neither the Gas Supplier nor Citigroup Inc. has guaranteed or is responsible for the payment of the Bonds. The obligations of the Gas Supplier and, by virtue of the Guarantee, Citigroup Inc., are limited to those set forth in the Prepaid Gas Agreement and the Guarantee, respectively. Neither Citigroup Inc. nor the Gas Supplier takes any responsibility for the information set forth herein other than the information set forth under the caption "THE GAS SUPPLIER, THE GUARANTOR AND THE GUARANTEE." RATINGS Moody s and S&P have given the ratings "Aa1" and "AA", respectively, to the Bonds. Such ratings reflect only the view of such organizations, and an explanation of the significance of such rating may be obtained only from the respective rating agency. There is no assurance that such ratings will be maintained for any given period of time, or that they will not be revised, downward, or be withdrawn entirely by the respective rating agency if, in its judgment, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have adverse effect on the market price of the Bonds. MISCELLANEOUS References herein to the Indenture and certain other documents are brief discussions of certain provisions thereof. Such discussions do not purport to be complete, and reference is made to such documents for full and complete statements of such provisions. Any statements made in this Official Statement involving matters of opinion or of projections, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the projections will be realized. 39

48 The execution and delivery of this Official Statement has been duly authorized by SVFC. SALT VERDE FINANCIAL CORPORATION By: /s/ John M. Williams, Jr. Title: President By: /s/ David Rousseau Title: Vice President Attest: By: /s/ Terrill A. Lonon Title: Corporate Secretary 40

49 APPENDIX A INFORMATION RELATING TO THE SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT AND ITS ELECTRIC SYSTEM

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51 Delivering More Than Power Gas Prepay Disclosure Appendix A THE DISTRICT The Salt River Project Agricultural Improvement and Power District (the District ) is an agricultural improvement district organized in 1937 under the laws of the State of Arizona. It operates the Salt River Project (the Project ), a federal reclamation project, under contracts with the Salt River Valley Water Users' Association (the Association ), by which it assumed the obligations and assets of the Association, including its obligations to the United States of America for the care, operation and maintenance of the Project. The District owns and operates an electric system (hereinafter described, the Electric System ) which generates, purchases, transmits and distributes electric power and energy, and provides electric service to residential, commercial, industrial and agricultural power users in a 2,900 square mile service territory in parts of Maricopa, Gila and Pinal Counties, plus mine loads in an adjacent 2,400 square mile area in Gila and Pinal Counties. The Association, incorporated under the laws of the Territory of Arizona in 1903, operates an irrigation system as agent of the District. The United States retains a paramount right or claim in the Project that arises from the original construction and operation of certain of the Project's electric and water facilities as a federal reclamation project. Although title to a substantial portion of the District's property resides in the United States, the District possesses contractual rights to the use, possession and revenues of the property. Generation and sale of electrical power and energy represent the major portion of the District's investment and revenues. Following a long-standing reclamation principle, a portion of electric revenues available after the payment of required operating expenses and debt service is used to provide partial support for water and irrigation operations, thereby keeping water storage, distribution and delivery charges at reasonable levels. The District and the Association are each governed by a public Board elected from among the shareholders (landowners). The respective Boards establish the policies for management and conduct of the business affairs of the District and the Association. The General Manager of the District has management responsibilities for both the District and the Association. As of April 30, 2007, District and Association full-time employees (full-time equivalent) totaled approximately 4,388, including approximately 1,858 hourly employees represented by the International Brotherhood of Electrical Workers, Local 266. The present labor contracts expire November 15, 2009.

52 SUBSIDIARIES The District has three wholly-owned taxable subsidiaries: SRP Captive Risk Solutions, Limited ( CRS ), Papago Park Center, Inc. ( PPC ), and New West Energy Corporation ( NWE ). CRS is a domestic captive insurer incorporated in January 2004 primarily to access property/boiler and machinery insurance coverage under the Federal Terrorism Risk Insurance Act of 2002 for certified acts of terrorism. PPC is a real estate management company. NWE was used at one time to market, at retail, energy available to the District that was surplus to the needs of its retail customers, and energy that might have been rendered surplus in Arizona by retail competition in the supply of generation, but is now inactive. ITS ELECTRIC SYSTEM The District provides electrical service to major populated sections of Maricopa County, as well as portions of Pinal and Gila Counties. Except the City of Mesa, which operates its own system, all of the cities within the District's service areas are served in part by the District and in part by Arizona Public Service Company ( APS ). By agreement between the District and APS, the urban areas and the adjacent suburban areas now served by the District's distribution system will continue to be so served even though the latter may be annexed to a city in the future. The District also provides power directly for mining load requirements, principally in Pinal and Gila Counties. The District obtains power and energy from its wholly owned hydroelectric, renewable and thermal generating facilities, participation in jointly owned thermal plants and power purchases. The District owns transmission and distribution facilities, shares in certain other facilities under joint ownership arrangements, and purchases a small amount of transmission service. The District plans the addition of new generation based on a 12% reserve target. Because of the restructuring of the electric utility industry and the significant financial exposure associated with carrying excess reserves, the District has decided that a 12% reserve target represents an optimal planning target that balances both economics and reliability. The District s largest source of energy during the fiscal year ended April 30, 2007, was thermal generating facilities, which supplied 69.9% of the District s total production. Hydroelectric generation provided 2.6% of production, with 1.2% coming from the District s own hydroelectric plants and 1.4% coming from purchases from the Arizona Power Authority ( APA ) and the United States Department of Energy, Western Area Power Administration ( WAPA ). The remaining 27.5% came from various purchases and renewable resources. The following table provides more detail on District power sources. A-2

53 Fiscal Year Ending April 30, 2007 District Power Sources Capability (MW) 1 % of Total Amount (MWh) 2 Net Production District Generation: One Hundred Percent Entitlement Hydroelectric: Roosevelt Dam % 94, % Mormon Flat Dam , Horse Mesa Dam , Stewart Mountain Dam , Canal Plant (Crosscut) , Canal Plant (South Consolidated) , Arizona Falls , Subtotal , One Hundred Percent Entitlement Thermal: Kyrene (Steam) , Kyrene (Gas Turbine) , Kyrene (Combined Cycle) , Agua Fria (Steam) , Agua Fria (Gas Turbine) , Santan Combined Cycle... 1, ,049, Desert Basin Combined Cycle ,274, Coronado Generating Station ,219, Subtotal... 3, ,360, One Hundred Percent Entitlement Renewable: Solar , Fuel Cells , Alternative Fuels Tri-Cities Landfill , Subtotal , Participation Plants: Navajo Generating Station ,828, Four Corners Generating Station Units 4& ,094, Mohave Generating Station , Hayden Generating Station ,123, Craig Generating Station ,001, Palo Verde Nuclear Generating Station ,795, Subtotal... 1, ,836, Purchases and Receipts 5 : APA Arizona Power Authority , WAPA Colorado River Storage Project , WAPA Parker-Davis Dams , WAPA CAWCD/Navajo Surplus ,125, AEPCO Arizona Electric Power Cooperative , TEP Tucson Electric Power Company , TSGT Tri-State Generation & Transmission , Renewables - Wind Power , Renewables - Geothermal Power , Renewables Other , Others... 1, ,232, Subtotal 2, ,407, TOTAL 13 8, ,039, % of Total 1 Load capability during summer system peak. Winter capability may be greater. 2 Actual net production during the fiscal year ended April 30, Energy for pumped storage is not deducted. 3 Fuel cell capacity is 250 kw. 4 Mohave suspended operations at the end of 2005, and it is unknown whether the plant will return to operation. 5 Purchase and receipt capabilities vary month to month. Listed are the capabilities for the peak month. 6 Includes 38 MW wheeled for certain electrical/irrigation districts. 7 Includes 43 MW wheeled for certain electrical/irrigation districts. 8 Includes 17 MW wheeled for SCIP. 9 Net of CAWCD pumping load and losses totaling 58 MW that occurred coincident with system peak. 10 These resources became available after the summer system peak. Future capability is expected to be 100MW. 11 These resources became available after the summer system peak. 12 Short term purchases excluding 200 MW and 2,634,191 MWh of bookouts. 13 Totals may not add correctly due to rounding. A-3

54 The following table shows trends over the past five years ending April 30, 2007, for customers, peak load and energy sales as supplied by the District. Electric System Customers, Peak Load and Energy Requirements Fiscal Year Ending April CUSTOMERS (1) Residential 830, , , , ,425 Commercial and Small Industrial 79,435 74,649 71,542 69,102 66,259 Large Industrial Mines Agricultural Pumps Public/Private Lighting 8,980 8,716 8,278 7,921 8,057 Interdepartmental System Customers 919, , , , ,117 Sales for Resale (2) Total Customers 919, , , , ,171 PEAK DEMAND (MW) (3) Net System Requirement 6,590 6,044 5,665 5,673 5,296 Total Load (4) 7,649 7,297 6,669 6,771 6,343 SALES (GWH) Residential 12,919 12,077 11,218 11,402 10,273 Commercial and Small Industrial 10,570 9,944 9,357 9,265 8,802 Large Industrial 1,620 1,584 1,526 1,694 1,782 Mines 1,227 1,140 1,184 1,170 1,264 Agricultural Pumps Public/Private Lighting Interdepartmental System Sales 26,675 25,052 23,649 23,935 22,529 Sales for Resale (5) 9,831 11,824 11,867 9,871 12,637 Total Sales 36,506 36,876 35,516 33,806 35,166 Interchange Delivered Wheeling Delivered System Losses 1,459 1,422 1,444 1,389 1,280 Energy for Pumped Storage Total Requirements 38,674 39,026 37,855 36,019 37,160 (1) At fiscal year end. (2) The number of sales varies depending on availability and market conditions. (3) Net system requirement includes remote losses. (4) Total load includes interruptible load transactions for historical years and sales for resale. A-4

55 ENVIRONMENTAL Electric utilities are subject to a variety of federal, state and local environmental statutes and regulations relative to air quality, water quality, hazardous waste disposal and other environmental matters. Such requirements have resulted, and will continue to result, in increased costs associated with operation of existing facilities. Further, these requirements are subject to change from continuing legislative, regulatory and judicial actions. The District recognizes the growing importance of these issues, particularly climate change, and the implications they could have on its operations. The District closely monitors related developments at the federal, state and regional levels. Federal legislation has been proposed which, among other things, would cap or tax emissions of carbon dioxide from fossil fueled power plants. There have also been several regional initiatives aimed at curbing greenhouse gas emissions. The District is assessing the risk of these policy initiatives on its generation assets and is developing contingency plans to comply with future laws and regulations restricting greenhouse gas emissions. Further, the District is aware of the ongoing investigations into the financial reporting of several large energy companies and the potential financial liabilities they may face due to the impact of carbon dioxide emissions. The District is also following these developments. There is no way to predict the impact of such initiatives or investigations on the District at this time. Consequently, there is no assurance that facilities owned by the District will remain subject to the regulations currently in effect, will always be in compliance with future regulations, or will always be able to obtain all required operating permits. An inability to comply with environmental standards could result in additional capital expenditures to comply, reduced operating levels, penalties, or the complete shutdown of individual electric generating units not in compliance. LITIGATION In the normal course of business the District is a defendant in various legal actions. In management s opinion, except as otherwise noted below, the ultimate resolution of these matters will not have a significant adverse effect on the District s ability to maintain operations. Coal Supply Litigation Navajo Nation v. Peabody (US Dist. Court, D.C. District) - In June 1999, the Navajo Nation filed a lawsuit in the United States District Court in Washington D.C., alleging that Peabody Western Coal Company ( Peabody ) (the coal supplier for NGS and Mohave), Southern California Edison Company ( SCE ) (operating agent for Mohave), the District (operating agent for NGS) and certain other (5) Includes surplus sales that vary depending on availability and market conditions. A-5

56 defendants, induced the United States to breach its fiduciary duty to the Navajo Nation, and violated federal racketeering statutes. The lawsuit arises out of negotiations culminating in 1987 with amendments to the coal leases and related agreements. The suit alleges $600,000,000 in damages. The plaintiffs also seek treble damages against the defendants, measured by amounts awarded under the racketeering statutes. In addition, the plaintiffs claim punitive damages of not less than $1,000,000,000. In March 2001, the Hopi Tribe intervened in the suit. The claims of both the Navajo Nation and the Hopi Tribe were dismissed in their entirety with respect to the District, but the dismissal is appealable. On February 9, 2005, the U.S. District Court granted a motion to stay the litigation until further order of the court while the parties were in mediation with respect to this litigation and related business issues. On June 1, 2007, the parties jointly filed a status report in the District Court, noting that at the suggestion of the mediator, they intend to continue to engage in further mediation for the purpose of exploring whether alternative development proposals could provide a basis for resolving this lawsuit and related issues. Another status report must be filed with the District Court by October 7, In an earlier case filed against the United States Government and based on similar allegations, the U.S. Court of Appeals for the Federal Circuit has held that the Navajo Nation has a cognizable moneymandating claim against the United States for breach of trust and that the government breached its duties. The Federal Circuit remanded the case to the Court of Federal Claims for proceedings consistent with the ruling. Peabody Legal Fees Cases - Peabody claims it is entitled to reimbursement under both the NGS Coal Supply Agreement and the Mohave Coal Supply Agreement for its costs associated with the defense of the challenges by the Navajo Nation and Hopi Tribe to these coal leases (see above matters). Peabody has filed two separate lawsuits against the NGS and Mohave Participants, respectively, seeking recovery of these fees. The Mohave and NGS Participants dispute Peabody s attempt to recover its legal costs under the coal leases. As for the Mohave fees, the District has been dismissed from the litigation and awarded its attorney s fees. On appeal, however, the case was remanded to determine whether the District should remain in the lawsuit. The Mohave Participants and Peabody executed a settlement agreement pursuant to which Peabody granted the Mohave Participants a waiver for fees incurred prior to January However, as described above, the lawsuit for fees arising after December 2005 continues. In the NGS legal fees case, Peabody s claims against the NGS Participants were dismissed. Peabody appealed this ruling. On appeal, the trial court s dismissal of the case was affirmed by the Arizona Court of Appeals and review has been denied by the Arizona Supreme Court. A-6

57 Peabody v. SRP (the St. Louis Case) - Peabody has also filed suit in St. Louis, Missouri against the District and the other owners of NGS asserting claims against both the Participants and the District relating to liability issues associated with the Navajo Nation v. Peabody case; alleged breach of the NGS Coal Supply Agreement; alleged breach of indemnity obligations owed to Peabody as the alleged agent of the NGS Participants; and claims of tortious interference with contracts and tortious interference with business expectancies against the District. The claim seeks $500,000,000 and unspecified compensatory damages, prejudgment interest, attorneys' fees and costs. District v. Peabody (the RHCC/FRC case) The NGS Participants are contesting their alleged liability for mine closing, final reclamation, mine decommissioning and environmental monitoring costs, and certain post-retirement health care and life insurance benefits that Peabody will pay or provide to its employees after termination of the NGS Coal Supply Agreement and associated closure of the Kayenta Mine. Neither the District s responsibility nor the ultimate amount of liability, if any, can be determined at this time. The District has determined there is a range of possible outcomes and has recorded losses at the lower end of the range. Additional exposure to the District could occur if the outcome is in the higher end of the range The District is unable to predict the likely outcome of these coal supply litigation matters at this time but does not believe that the final resolution of these matters will have material adverse effects on its operations or financial condition. U.S. Supreme Court Tax Case In May 2007, the U.S. Supreme Court agreed to hear a case on the constitutionality of a state exempting from its income tax interest on bonds issued by it or one of its political subdivisions, but not interest on bonds issued by other states or their political subdivisions. Although this case involves the Commonwealth of Kentucky, the State of Arizona has similar exemptions, so the decision by the Supreme Court likely would affect Arizona and other states as well. It is too early to evaluate the effect of the decision on the District or the holders of its outstanding tax-exempt obligations. ELECTRIC PRICES Under Arizona law, the District s publicly elected Board has the authority to establish electric prices. The District is required to follow certain procedures for public notice and a special Board meeting before implementing any changes in the standard electric price plans. The District is a summer peaking utility and for many years has made an effort to balance the summer-winter load relationships through seasonal price differentials. In addition, the District prices on a time-of-day basis for large commercial and industrial, and certain residential and small commercial, users. A-7

58 The District historically operated in a highly regulated environment in which it had an obligation to deliver electric service to customers within its service area. In 1998 the Arizona Electric Power Competition Act (the Competition Act ) authorized competition in the retail sales of electric generation, recovery of stranded costs, and competition in billing, metering and meter reading. While retail competition was available to all customers by 2001, there were only a few customers who chose an alternative energy provider. Those customers have since returned to their incumbent utilities. At this time, there is no active retail competition within the District s service territory or, to the knowledge of the District, within the State of Arizona. However, during the past year, two retail energy service providers and one meter service provider have reapplied to the Arizona Corporation Commission for authorization to sell energy in Arizona. These cases are pending. The District has a Fuel and Purchased Power Adjustment Mechanism ( FPPAM ) to allow for semi-annual rate adjustments to recover increases in actual fuel costs and a Transmission Cost Adjustment Factor ( TCAF ) to recover costs the District would incur if the District were required to participate in regional transmission organizations. The District Board, on October 1, 2007, approved an FPPAM increase, which will result in a 4.7% system average increase in prices, effective November 1, To date, no costs have been incurred or recovered through the TCAF. In April 2005 the District Board authorized the creation of a Rate Stabilization Fund ( RSF ) to be used in concert with the FPPAM to cover fuel related expenses and to stabilize future prices related to fuel. Since the time of initial authorization, the District has funded the RSF three times, and transferred $135,000,000, plus interest, from the RSF to the District s General Fund to address a portion of fuel and purchased power expenses for fiscal years 2007 and On October 1, 2007, the District Board approved the transfer of an additional $30 million from the RSF to the General Fund effective November 1, A-8

59 FINANCIAL OPERATIONS Below are presented selected financial statistics of the District for the five fiscal years ended April 30 (in thousands): Item April 30, April 30, April 30, April 30, April 30, Electric Revenues $2,736,831 $2,794,025 $2,400,410 $2,156,754 $1,967,576 Operating Expenses (1) 1,900,035 1,948,830 1,559,973 1,437,865 1,304,043 Revenues from Operations 836, , , , ,533 Interest and Other Income (Net) 77,051 55,459 29,443 18,803 10,096 Less: Rate Stabilization Fund 25,599 1,892 55, Revenues Available for Debt Service 888, , , , ,629 Debt Service Requirements: Revenue Bonds Debt Service Requirements: Subordinated Debt 241, , , , ,846 46,378 33,844 18,733 8,278 7,265 Total Debt Service 287, , , , ,111 Coverage of Total Revenue Bond Debt Service by Revenues Available for Debt Service Coverage of Total Debt Service by Revenues Available for Debt Service Balance after Debt Services 600, , , , ,518 Plus: Interest on Construction Fund 11,705 3, ,793 Less: Contribution in Lieu of Taxes 61,636 69,220 72,100 64,818 59,847 Less: Contributions to Water Operations 34,792 34,161 56,672 62,925 44,222 Less: Falling Water Charges 21,192 18,273 6,870 2,747 4,101 Balance Available for Corporate Purposes $494,409 $408,672 $338,229 $239,208 $261,141 Management s Discussion of Operations Fiscal Year 2008 For the three months ended July 31, 2007 and 2006, the District s total operating revenues were $758 million and $699 million, respectively. This represents an 8.4% increase between the two periods, due primarily to increased retail and other revenues. The increase in retail revenues is the result of many factors, including continued A-9

60 growth in the District s customer base. The increase in other revenues is driven by the increase in wholesale revenues. Total wholesale revenues are 101% greater than first quarter last year. However, this result reflects the volatility with mark-to-market contracts and the netting of certain purchases and sale of energy as required accounting adjustments per Generally Accepted Accounting Principles ("GAAP"). Without these accounting adjustments, wholesale revenues were down 13% compared to the first quarter last year. The decreased revenues resulted from a 22% decrease in wholesale sales volume compared to the same quarter last year, which was partially offset by a 12% increase in the average wholesale energy sales price, which is affected by natural gas prices. The growth in total operating revenues for the period was offset by a significant increase in total operating expenses. Total operating expenses for the quarter increased nearly 20 percent from the same period last year. Fuel and purchased power expenses were the primary contributors with increases of 55.4% and 11.8%, respectively, compared to the same period last year and reflect required accounting adjustments per GAAP. Without these adjustments, actual fuel expenses only increased by 12.7% and purchased power increased by 8.3%. Interest income experienced an increase of nearly 35% this quarter versus the same quarter last year. Higher interest rates, better investment performance, and increased fund balances resulting from reinvestment of prior gains have contributed to the increase. The effects of the above activities contributed to net revenues for the quarter of nearly $47 million, 52.2% less than the same quarter last year. For additional interim financial data, see "Summary Combined Financial Data" and "Summary Condensed Combined Balance Sheet" herein. A-10

61 Summary Combined Financial Data (1) ($000's Unaudited) Condensed Combined Statements of Net Revenues Three Months Ended July 31, Operating Revenues: Electric... $ 655,729 $ 640,033 Water... 4,117 2,733 Other... 98,146 56,595 Total Operating Revenues(2) 757, ,361 Operating Expenses: Fuel , ,096 Purchased Power , ,006 Operations(2) , ,110 Maintenance... 58,537 53,807 Depreciation... 90,735 84,057 Taxes and Tax Equivalents... 26,552 26,394 Total Operating Expenses , ,470 Net Operating Revenues... 57, ,891 Other Income Interest Income... 22,686 16,867 Other Income (deductions), net (1,860) (34) Total Other Income... 20,826 16,833 Net Financing Costs... 31,918 34,105 NET REVENUES... $ 46,666 $ 97,619 (1) The unaudited combined financial data reflects the combined net revenues of the District and the Association and should be read in conjunction with the Notes to the Combined Financial Statements attached hereto as Appendix B. (2) Inter-company transactions eliminated. A-11

62 Condensed Combined Balance Sheet (1) ($000's Unaudited) July 31 July ASSETS Utility Plant, at Original Cost... $ 10,109,205 $ 9,467,521 Less: Accumulated Depreciation... 4,494,541 4,232,641 5,614,664 5,234,880 Other Property and Investments ,269 1,023,256 Current Assets Cash and Cash Equivalents , ,725 Rate Stabilization Fund... 30,000 0 Temporary Investments , ,435 Current Portion, Segregated Funds... 86,000 78,790 Receivables, Net , ,019 Fuel Stocks... 32,326 33,057 Materials and Supplies ,870 98,456 Other... 49,620 74,954 1,054,071 1,194,436 Deferred Charges , ,882 TOTAL ASSETS... $ 8,134,489 $ 7,738,454 CAPITALIZATION AND LIABILITIES Capitalization Accumulated Net Revenues, beginning of year... $ 3,606,896 $ 3,140,862 Net Revenues year-to-date... 46,666 97,619 Other Comprehensive Income (13,361) Accumulated Net Revenues... $ 3,653,689 $ 3,225,120 Long-Term Debt... 3,040,046 3,193,333 TOTAL CAPITALIZATION... 6,693,735 6,418,453 Current Liabilities Current Portion, Long-Term Debt , ,346 Accounts Payable , ,203 Accrued Taxes and Tax Equivalents... 76,075 75,330 Accrued Interest... 15,475 15,560 Customer Deposits... 73,814 69,628 Other , , , ,592 Deferred Credits , ,409 TOTAL CAPITALIZATION AND LIABILITIES... $ 8,134,489 $ 7,738,454 (1) The unaudited combined financial data reflects the combined balance sheet of the District and the Association and should be read in conjunction with the Notes to the Combined Financial Statements attached hereto as Appendix B. RATINGS Commercial Paper Electric System Revenue Bonds P-1 (Moody's Investors Service) Aa1 (Moody's Investors Service) A-1+ (Standard & Poor's Ratings Group) AA (Standard & Poor's Ratings Group) A-12

63 APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT, ITS SUBSIDIARIES AND THE SALT RIVER VALLEY WATER USERS ASSOCIATION FOR YEARS ENDED APRIL 30, 2007 AND APRIL 30, 2006

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65 SALT RIVER PROJECT COMBINED FINANCIAL STATEMENTS AS OF APRIL 30, 2007 AND 2006 TOGETHER WITH REPORT OF INDEPENDENT AUDITORS B-1

66 Report of Independent Auditors To the Board of Directors of the Salt River Project Agricultural Improvement and Power District and the Board of Governors of the Salt River Valley Water Users Association In our opinion, the accompanying combined balance sheets and the related combined statements of net revenues and comprehensive income (loss), and cash flows present fairly, in all material respects, the financial position of Salt River Project Agricultural Improvement and Power District and its subsidiaries and the Salt River Valley Water Users Association (collectively, SRP ) at April 30, 2007 and 2006, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of SRP s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. June 15, 2007 B-2