$46,550,000 CITY OF TACOMA, WASHINGTON Water System Revenue and Refunding Bonds, 2005

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1 NEW ISSUE FULL BOOK-ENTRY RATINGS: See Description of Ratings herein. In the opinion of Preston Gates & Ellis LLP, Bond Counsel, assuming compliance with certain covenants of the City, interest on the Bonds is excluded from the gross income of the owners of the Bonds for federal income tax purposes under existing law. Interest on the Bonds is not an item of tax preference for purposes of either individual or corporate alternative minimum tax. Interest on the Bonds may be indirectly subject to corporate alternative minimum tax and certain other taxes imposed on certain corporations. See TAX EXEMPTION herein for a discussion of the opinion of Bond Counsel. $46,550,000 CITY OF TACOMA, WASHINGTON Water System Revenue and Refunding Bonds, 2005 DATED: Date of Delivery DUE: December 1, as shown below The City of Tacoma, Washington, Water System Revenue and Refunding Bonds, 2005 (the Bonds ) will be issued only as fully registered bonds under a book-entry system, initially registered in the name of Cede & Co., as nominee for The Depository Trust Company ( DTC ), New York, New York, which will act as securities depository for the Bonds. Individual purchases of the Bonds will be made in the principal amount of $5,000 each or any integral multiple thereof within a single maturity. Purchasers of the Bonds will not receive certificates representing their interest in the Bonds. Both principal of and interest on the Bonds shall be payable in lawful money of the United States of America. Interest on the Bonds, payable each June 1 and December 1, commencing December 1, 2005, and principal of the Bonds are payable by the Bond Registrar (currently The Bank of New York, New York, New York) to DTC, which is obligated to remit such principal and interest to its broker-dealer Participants for subsequent disbursement to Beneficial Owners of the Bonds. See Appendix B BOOK-ENTRY SYSTEM. Payment of the principal of and interest on the Bonds when due will be insured by a bond insurance policy to be issued by Financial Guaranty Insurance Company simultaneously with the delivery of the Bonds. See BOND INSURANCE herein. Amounts, Maturities, Interest Rates and Yields Due Interest Yield or CUSIP Due Interest Yield or CUSIP December 1 Amount Rates Price Numbers December 1 Amount Rates Price Numbers 2006 $1,020, % 2.93 % GA $4,525, % 3.99*% GL ,055, GB ,760, * GM ,665, GC ,695, GN ,730, GD ,765, GP ,795, GE ,835, GQ ,865, GF ,910, GR ,935, GG ,990, * GS ,035, GH ,090, * GT ,085, GJ ,195, * GU ,295, GK ,305, * GV9 * Priced to the par call date of December 1, The Bonds are subject to redemption by the City prior to their stated maturities as described herein under DESCRIPTION OF THE BONDS Optional Redemption. The Bonds are being issued to refund the $15,540,000 callable portion of the City s outstanding Water System Revenue Bonds, 1997 (the Refunded Bonds ), to finance capital improvements to the Water System, to provide a debt service reserve fund for the Bonds, and to pay costs of issuance. See PURPOSE AND APPLICATION OF BOND PROCEEDS. The Bonds are payable solely from a special fund of the City known as the Water Revenue Bond Fund, and from the Net Revenue of the Water System pledged thereto on a parity with $82,205,000 outstanding Water System revenue bonds (excluding the Refunded Bonds) and bonds hereafter issued on a parity therewith. See SECURITY FOR THE BONDS herein. The City has outstanding $82,700,000 principal amount of Regional Water Supply System Revenue Bonds, 2002 (the Regional System Bonds ), of which Tacoma Water is responsible for paying approximately 55% of the debt service as a Contract Resource Obligation payable from Gross Revenue of the Water System as an Operation and Maintenance Expense of the Water System. See WATER SYSTEM The Second Supply Project and SECURITY FOR THE BONDS. The Bonds are not general obligations of the City, and neither the full faith and credit nor the taxing power of the City or of the State of Washington, nor any revenues of the City derived from sources other than the Water System, are pledged to the payment thereof. This cover page includes certain information for reference only and is not a summary of matters set forth herein. Investors should read the entire Official Statement to obtain information essential to the making of an informed investment decision. The Bonds are offered for delivery when, as and if issued, subject to the approval of legality by Preston Gates & Ellis LLP, Bond Counsel, Seattle, Washington. It is expected that the Bonds will be available for delivery at the facilities of The Depository Trust Company in New York, New York, by Fast Automated Securities Transfer (FAST) on or about October 12, Dated: September 27, 2005

2 No dealer, broker, salesperson 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 of the Bonds and, if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. 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 by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. Any statement made in this Official Statement involving any forecast or matter of estimates or opinion, whether or not expressly so stated, is intended solely as such and not as a representation of fact. The achievement of certain results or other expectations contained in such forward-looking statements involves known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forwardlooking statements. The City does not plan to issue any updates or revisions to those forward-looking statements if and when its expectations or events, conditions or circumstances on which such statements are based occur.

3 TACOMA PUBLIC UTILITIES 3628 South 35 th Street Tacoma, Washington (253) MAYOR AND TACOMA CITY COUNCIL Bill Baarsma, Mayor Connie Ladenburg, Deputy Mayor Julie Anderson Bill Evans Mike Lonergan Spiro Manthou Jonathan Phillips Thomas Stenger Rick Talbert PUBLIC UTILITY BOARD Laura Fox, Chair David Curry Robert Casey Jake Fey Tom Hilyard DEPARTMENT OF PUBLIC UTILITIES Mark Crisson, Director of Utilities John Kirner, Superintendent of Water Division Jane Evancho, Water Resource Planning Manager Linda McCrea, Water Distribution Manager Chris McMeen, Water Quality Manager Dave Sherman, Water Supply Manager Anne Spangler, Chief Assistant City Attorney CERTAIN CITY ADMINISTRATIVE STAFF Eric Anderson, City Manager Steven A. Marcotte, Director of Finance Morgan D. Jacobson, City Treasurer Elizabeth Pauli, City Attorney BOND COUNSEL Preston Gates & Ellis LLP Seattle, Washington FINANCIAL ADVISORS Leora Consulting Group LLC Seattle, Washington Regional Financial Advisors, Inc. Portland, Oregon INDEPENDENT AUDITORS Moss Adams LLP Vancouver, Washington -i-

4 TABLE OF CONTENTS Page INTRODUCTION...1 DESCRIPTION OF THE BONDS...2 General... 2 Optional Redemption... 2 Notice of Redemption... 2 Purchase for Cancellation... 2 Procedure in the Event of Revisions of Book- Entry Transfer System... 3 PURPOSE AND APPLICATION OF BOND PROCEEDS...3 Plan of Refunding... 3 SECURITY FOR THE BONDS...4 Pledge of Revenues... 4 Flow of Funds... 4 Rate Covenant... 5 Reserve Account... 6 Rate Stabilization Fund... 6 Additional Obligations... 6 Additional Covenants... 7 Permitted Investments... 8 No Acceleration... 8 BOND INSURANCE...8 Payments Under the Policy... 8 The Reserve Policies... 9 Financial Guaranty Insurance Company... 9 Financial Guaranty s Credit Ratings DEBT SERVICE REQUIREMENTS AND ADDITIONAL BORROWING...11 Additional Borrowing THE CITY...12 THE DEPARTMENT OF PUBLIC UTILITIES TACOMA WATER...12 Department of Public Utilities Tacoma Water General Service Area and Map Management Budgetary Policies Auditing Retirement System Taxation Program of Insurance Financial Policies Labor Relations Investments Page Business Information Systems Replacement THE WATER SYSTEM...18 Sources of Supply The Second Supply Project Water Rights Endangered Species Act Compliance Water Quality and Treatment Water System Security Water System Operations Customers, Water Sales and Rates Special Contract Water Rates CAPITAL IMPROVEMENT PROGRAM...28 HISTORICAL OPERATING RESULTS...29 Historical Revenue and Expenses PROJECTED OPERATING RESULTS...31 Projected Number of Customers and Water Sales Projected Revenues and Expenses GENERAL AND ECONOMIC INFORMATION.33 INITIATIVE AND REFERENDUM...37 LITIGATION CONCERNING THE BONDS...37 TAX EXEMPTION...37 DESCRIPTION OF RATINGS...38 UNDERWRITING...38 FINANCIAL ADVISOR...38 APPROVAL OF COUNSEL...38 LIMITATIONS ON REMEDIES...38 CONTINUING DISCLOSURE UNDERTAKING39 Prior Compliance with Continuing Disclosure Undertakings MISCELLANEOUS...40 SUMMARY OF THE BOND ORDINANCE... Appendix A BOOK-ENTRY SYSTEM...Appendix B 2004 AND 2003 FINANCIAL STATEMENTS...Appendix C FORM OF OPINION OF BOND COUNSEL... Appendix D SPECIMEN BOND INSURANCE POLICY...Appendix E -ii-

5 OFFICIAL STATEMENT $46,550,000 CITY OF TACOMA, WASHINGTON Water System Revenue and Refunding Bonds, 2005 INTRODUCTION The City of Tacoma, Washington (the City or Tacoma ), a municipal corporation duly organized and existing under the laws of the State of Washington, furnishes this Official Statement in connection with the offering of $46,550,000 principal amount of its Water System Revenue and Refunding Bonds, 2005 (the Bonds ). This Official Statement, which includes the cover page and appendices, provides information concerning the City, the Bonds, the City s Water System (the Water System ), and the City s obligations with respect to the Second Supply Project. The City is a municipal corporation under the constitution and laws of the State of Washington. The Water Division, doing business as Tacoma Water ( Tacoma Water ), of the City s Department of Public Utilities (the Department ) operates the Water System. Tacoma Water is one of the largest publicly-owned water utilities in the Pacific Northwest and had 93,906 customers in See THE WATER SYSTEM. The Bonds are issued pursuant to Ordinance No of the City, passed August 30, 2005 authorizing the issuance of the Bonds, and Substitute Resolution No adopted by the Council on September 27, 2005 (collectively, the Bond Ordinance ), under the authority of chapters 35.41, and of the Revised Code of Washington. ( RCW ). Certain provisions of the Bond Ordinance are summarized in Appendix A. The Water System has outstanding $17,040,000 principal amount of Water System Revenue Bonds, 1997 (the 1997 Bonds ) (of which $15,540,000 will be refunded by the Bonds), $31,915,000 principal amount of Water System Revenue Bonds, 2001 and $48,790,000 principal amount of Water System Revenue and Refunding Bonds, 2003 (the 2003 Bonds ) (collectively the Outstanding Parity Bonds ). The Bonds are issued on a parity with the Outstanding Parity Bonds. The Bonds, the Outstanding Parity Bonds and any Future Parity Bonds are referred to as the Parity Bonds. The City has outstanding $82,700,000 principal amount of Regional Water Supply System Revenue Bonds, 2002 (the Second Supply System Bonds ) of which Tacoma Water is responsible for paying approximately 55% of the debt service as a Contract Resource Obligation, payable as an Operation and Maintenance Expense from Gross Revenue of the Water System senior to the payment of debt service on the Parity Bonds. See WATER SYSTEM The Second Supply Project and SECURITY FOR THE BONDS Additional Obligations Contract Resource Obligations. The City has pledged in the Bond Ordinance that it will not issue any indebtedness which is secured by a lien on the Net Revenues of the Water System that is superior to the lien of the Parity Bonds. However, the City reserves the right under certain conditions to enter into additional Contract Resource Obligations, or issue additional debt of the Second Supply Project, under which amounts due are payable as Operation and Maintenance Expenses of the Water System. See SECURITY FOR THE BONDS Additional Obligations Contract Resource Obligations. The City reserves the right in the Bond Ordinance to issue additional bonds on a parity with the Parity Bonds ( Future Parity Bonds ). See SECURITY FOR THE BONDS Additional Obligation Future Parity Bonds. The Bonds are being issued to provide funds to refund the Refunded Bonds, to pay for certain capital improvements to the Water System, to provide a debt service reserve for the Bonds, and to pay the costs of issuance of the Bonds, as more fully described under PURPOSE AND APPLICATION OF BOND PROCEEDS herein.

6 In the preparation of the projections in this Official Statement, the City has made certain assumptions with respect to conditions that may occur in the future. While the City believes these assumptions are reasonable for the purpose of the projections, they are dependent upon future events, and actual conditions may differ from those assumed. To the extent actual future factors differ from those assumed or provided to the City by others, the actual results will vary from those forecast. Certain capitalized words and phrases used in this Official Statement not defined herein have the meanings given in the Bond Ordinance, unless the context shall clearly indicate that another meaning is intended. See Appendix A for certain definitions. General DESCRIPTION OF THE BONDS The Bonds will be dated the date of their delivery, will be issued in the principal amount of $46,550,000 and will bear interest at the rates and mature on the dates set forth on the cover page of this Official Statement. Interest on the Bonds shall be calculated on the basis of a 360-day year consisting of twelve 30-day months, and shall be payable each June 1 and December 1, commencing December 1, The Bonds will be issued only as fully registered bonds under a book-entry system, initially registered in the name of Cede & Co., as nominee for DTC, which will act as securities depository for the Bonds. Individual purchases of the Bonds will be made in the principal amount of $5,000 each or any integral multiple thereof within a single maturity. Both principal of and interest on the Bonds shall be payable in lawful money of the United States of America. The fiscal agency of the State of Washington in New York, New York (currently The Bank of New York) will act as Bond Registrar for the Bonds. Purchasers will not receive certificates representing their interest in the Bonds. See Appendix B BOOK-ENTRY SYSTEM. Optional Redemption The Bonds maturing in years 2006 through 2015, inclusive, are not subject to redemption prior to maturity. The Bonds maturing on and after December 1, 2016, are subject to redemption at the option of the City on and after December 1, 2015, in whole or in part at any time within one or more maturities selected by the City (and randomly within a maturity in such manner as the Bond Registrar shall determine) at a price of par plus accrued interest, if any, to the date of redemption. Notwithstanding the foregoing, for so long as the Bonds are registered in the name of DTC or its nominee, selection of the Bonds for redemption shall be in accordance with the operational procedures of DTC then in effect. Notice of Redemption The City shall cause notice of any intended redemption of Bonds to be given not less than 30 nor more than 60 days prior to the date fixed for redemption by first-class mail, postage prepaid, to the registered owner of any Bond to be redeemed at the address appearing on the Bond Register at the time the Bond Registrar prepares the notice, and this requirement shall be deemed to have been fulfilled when notice has been mailed, whether or not it is actually received by the owner of any Bond. Interest on Bonds called for redemption shall cease to accrue on the date fixed for redemption unless the Bond or Bonds called are not redeemed when presented pursuant to the call. Notwithstanding the foregoing, for so long as the Bonds are registered in the name of Cede & Co., as nominee of DTC, notice of redemption shall be given in accordance with the Letter of Representations (as it may be changed). Purchase for Cancellation The City reserves the right to purchase any of the Bonds for cancellation at any time at any price acceptable to the City. -2-

7 Procedure in the Event of Revisions of Book-Entry Transfer System If the City is unable to retain a qualified successor to DTC or the City has determined that it is in the best interest of the City not to continue the book-entry system of transfer or that interests of Beneficial Owners of the Bonds might be adversely affected if the book-entry system of transfer is continued, the City shall execute, authenticate and deliver at no cost to the Beneficial Owners of the Bonds or their nominees, Bonds in fully registered form, in the denomination of $5,000 or any integral multiple thereof. Thereafter, the principal of the Bonds shall be payable upon due presentment and surrender thereof at the principal office of the Registrar, currently The Bank of New York in New York; interest on the Bonds will be payable by check or draft mailed to the persons in whose names such Bonds are registered, at the address appearing upon the registration books on the 15th day of the month preceding an interest payment date, or, at the request of an owner of $1,000,000 or more in aggregate principal amount of Bonds, by wire transfer to an account in the United States designated in writing by such owner prior to the record date; and the Bonds will be transferable as provided in the Bond Ordinance. PURPOSE AND APPLICATION OF BOND PROCEEDS The Bonds are being issued to provide funds to pay for certain capital improvements to the Water System, to refund the Refunded Bonds, to fund a debt service reserve for the Bonds, and to pay the costs of issuance of the Bonds. For a description of the Water System s capital improvement program, see CAPITAL IMPROVEMENT PROGRAM herein. The following table shows the estimated sources and uses of the Bond proceeds: Sources of Funds Principal Amount of the Bonds $ 46,550,000 Net Premium/Discount 2,364,450 Total $ 48,914,450 Use of Funds Deposit to Construction Fund (1) $ 31,914,387 Deposit to Refunding Escrow 16,475,275 Issuance Costs (2) 524,788 Total $ 48,914,450 (1) In addition, $5,285, of available funds from the City will be used for the Construction Fund projects. (2) Issuance costs include underwriter s discount, legal fees, financial advisor s fees, insurance premium, Reserve Account surety premium and other costs incurred in connection with the issuance of the Bonds. Plan of Refunding A portion of the proceeds of the Bonds will be used to advance refund the Refunded Bonds, which are the $15,540,000 principal amount of 1997 Bonds maturing on December 1, 2008 through December 1, From the proceeds of the Bonds, and with other money available, the City will purchase certain direct non-callable United States government obligations (referred to herein as Government Obligations ). These Government Obligations will be deposited in the custody of JP Morgan Chase Bank, National Association ( Escrow Agent ). The maturing principal of the Government Obligations, interest earned thereon, and necessary cash balance, if any, will be used to (i) provide payment of the interest on the Refunded Bonds when due up to and including December 1, 2007, and (ii) to call, pay and redeem on December 1, 2007, all of the Refunded Bonds at a price of 102% of par. -3-

8 The Government Obligations, interest earned thereon, and necessary cash balance, if any, will irrevocably be pledged to and held in trust for the benefit of the owners of the Refunded Bonds by the Escrow Agent, pursuant to a refunding trust agreement to be executed by the City and the Escrow Agent. McGladrey & Pullen, LLP has verified the accuracy of the mathematical computations concerning the adequacy of the maturing principal amounts of and interest earned on the government obligations, to be placed together with other escrowed moneys in the escrow account to pay when due, pursuant to stated call for redemption, the principal of, premium, and interest on the Refunded Bonds. Pledge of Revenues SECURITY FOR THE BONDS Under the Bond Ordinance and subject to its terms and conditions, the Bonds are special limited obligations of the City payable from and secured solely by Net Revenue of the Water System and all money and investments held in the Bond Fund, the Rate Stabilization Fund (which currently is not funded), and the Construction Fund (except for money for investments held for the purpose of compliance with rebate requirements under the Code). The payment of principal of and interest on the Bonds when due also will be insured by a bond insurance policy to be issued by Financial Guaranty Insurance Company simultaneously with the issuance of the Bonds. See BOND INSURANCE. THE BONDS ARE NOT GENERAL OBLIGATIONS OF THE CITY, AND NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY OR OF THE STATE OF WASHINGTON, NOR ANY REVENUES OF THE CITY DERIVED FROM SOURCES OTHER THAN THE WATER SYSTEM OF THE CITY, ARE PLEDGED TO THE PAYMENT THEREOF. The Bonds are being issued on a parity of lien with the $82,205,000 Outstanding Parity Bonds (excluding the Refunded Bonds). The City has obligated itself to set aside and pay into the Bond Fund certain amounts out of the Net Revenue of the Water System sufficient to pay the principal of and interest on the Bonds, the Outstanding Parity Bonds, and any revenue bonds or other obligations issued on a parity therewith ( Future Parity Bonds ). The City has outstanding $82,700,000 principal amount of Second Supply System Bonds, of which Tacoma Water is responsible for paying approximately 55% of the debt service as a Contract Resource Obligation. The City also has certain step up obligations in the event of a default by any other Participant in the project. See Additional Obligations - Contract Resource Obligations and WATER SUPPLY SYSTEM The Second Supply Project. As a Contract Resource Obligation, the debt service on the Second Supply System Bonds is payable as an Operation and Maintenance Expense of the Water System with a lien on Gross Revenue of the Water System prior to the lien thereon of the Bonds, Outstanding Parity Bonds and Future Parity Bonds. Washington State law provides that the owner of a bond, such as the Bonds, the payment of which is pledged from a special fund, such as the Bond Fund, has a claim only against that fund and proportionate amounts of revenue pledged to that fund. Under Washington State law, any bondowner may bring an action to compel a city to set aside and pay into the special fund the amount which a city is obligated to set aside and pay therein. See Appendix A SUMMARY OF THE BOND ORDINANCE DEFAULTS AND REMEDIES. See Appendix A - SUMMARY OF THE BOND ORDINANCE - PAYMENT OF AND SECURITY FOR THE BONDS. Flow of Funds The Gross Revenue of the Water System shall be used for the following purposes only, and shall be applied in the following order of priority: -4-

9 (a) (b) (c) (d) (e) (f) To pay the Operation and Maintenance Expenses, including payments for Contract Resource Obligations; To pay interest on Parity Bonds and net payments on Parity Payment Agreements when due; To pay the principal of Parity Bonds as it comes due at maturity or as the principal is required to be paid pursuant to mandatory redemption requirements applicable to Term Bonds, and to make payments due under any reimbursement agreement with a Bond Insurer, which agreement requires those payments to be treated on a parity of lien with the Parity Bonds; To make all payments required to be made into the Reserve Account, all payments required to be made under any agreement relating to the provision of Reserve Insurance, and payments due under any reimbursement agreement with a Bond Insurer, which agreement requires those payments to be treated on a parity of lien with the payments required to be made into the Reserve Account; To make all payments required to be made into any revenue bond, note, warrant or other revenue obligation redemption fund, debt service account or reserve account created to pay or secure the payment of the principal of and interest on any revenue bonds, notes, warrants or other obligations of the City having a lien upon the revenue of the Water System junior and inferior to the lien thereon for the payment of the principal of and interest on the Parity Bonds, including the Public Works Trust Fund Loans; and To retire by redemption or purchase in the open market any outstanding revenue bonds or other revenue obligations of the Water System, to make necessary additional betterments, improvements and repairs to or extensions and replacements of the Water System, to make deposits into the Rate Stabilization fund, or for any other lawful Water System purposes. The City may transfer any money from any funds or accounts of the Water System legally available therefor, except bond redemption funds, refunding escrow funds or defeasance funds, to meet the required payments to be made into the Bond Fund. Rate Covenant The City has pledged in the Bond Ordinance that it will establish, maintain and collect rates and charges for services and facilities provided by the Water System which will be fair and equitable, and will adjust those rates and charges from time to time so that: (1) The Gross Revenue will be sufficient to (i) pay all Operation and Maintenance Expenses, (ii) pay when due all amounts that the City is obligated to pay into the Bond Fund and the accounts therein, and (iii) pay all taxes, assessments or other governmental charges lawfully imposed on the Water System or the revenue therefrom or payments in lieu thereof and any and all other amounts which the City may now or hereafter become obligated to pay from the Gross Revenue by law or contract; and (2) The Net Revenue of the Water System in each fiscal year will be at least equal to 1.25 times the Annual Debt Service that year on all Parity Bonds (the Coverage Requirement ). For purposes of the rate covenants, Tacoma Water s share of costs of the Second Supply Project are operation and maintenance costs and are not part of Annual Debt Service. The failure of the City to comply with paragraphs (1) and (2) above will not be an Event of Default as defined in the Bond Ordinance if the City promptly retains an Independent Consulting Engineer to recommend to the City Council adjustments in the rates of the Water System necessary to meet the requirements of those subparagraphs and if the City Council adopts the recommended modifications within 180 days of the date the failure became known to the City Council. -5-

10 Reserve Account The Bond Ordinance obligates the City to fund the Reserve Account. The Reserve Requirement, as of any date, is an amount equal to the lesser of Maximum Annual Debt Service or 125% of Average Annual Debt Service on all outstanding Parity Bonds. Once the 1997 Bonds and 2001 Bonds are no longer outstanding, the Reserve Requirement for a series of Parity Bonds shall not exceed 10% of the net proceeds of such Parity Bonds. Upon the issuance of the Bonds, the City will utilize Reserve Insurance in an amount that, together with the approximately $2,778,352 of Reserve Surety obtained for the 2003 Bonds, will satisfy the Reserve Requirement for the Bonds, 1997 Bonds and 2001 Bonds. See BOND INSURANCE The Reserve Policies. See Appendix A SUMMARY OF THE BOND ORDINANCE PAYMENT OF AND SECURITY FOR THE BONDS for a description of the 2003 Reserve Surety. Any deficiency created in the Reserve Account by reason of any withdrawal therefrom for payment into the Principal and Interest Account must be made up within 12 months from money in the Water Division Fund after payment of Operation and Maintenance Expenses and deposits to the Principal and Interest Account. The City has retained the right under the Bond Ordinance to obtain Reserve Insurance in lieu of specific amounts required to be on deposit in the Reserve Account, which Reserve Insurance may not be subject to cancellation on less than three years notice. Upon notice of cancellation, the City is obligated to fund the Reserve Account over a 36-month period from transfers from the Water Division Fund after making provision for payment of Operation and Maintenance Expenses and for required payments into the Bond Fund. See Appendix A SUMMARY OF THE BOND ORDINANCE PAYMENT OF AND SECURITY FOR THE BONDS. Rate Stabilization Fund The Bond Ordinance authorizes a Rate Stabilization Fund in the Water Division Fund. The City has not made any deposit into the Rate Stabilization Fund and currently has no plans to do so. See Appendix A SUMMARY OF THE BOND ORDINANCE PAYMENT OF AND SECURITY FOR THE BONDS. Additional Obligations Future Parity Bonds. Pursuant to the Bond Ordinance, the City has reserved the right to issue Future Parity Bonds or to enter into Parity Payment Agreements for purposes related to the Water System or to refund a portion of the Parity Bonds upon satisfaction of certain conditions set forth in the Bond Ordinance. Among other things, there must be on file with the City either: (1) a certificate of the Director of Finance demonstrating that during any 12 consecutive calendar months out of the immediately preceding 24 calendar months Net Revenue was at least equal to 1.25 times the projected Maximum Annual Debt Service for all Parity Bonds plus the Future Parity Bonds proposed to be issued; or (2) a certificate of an Independent Consulting Engineer that in his or her opinion the Net Revenue will be at least equal to 1.25 times the projected Average Annual Debt Service for all Parity Bonds plus the Future Parity Bonds proposed to be issued. In providing that certificate, the Independent Consulting Engineer may take into account certain adjustments to Net Revenue as permitted by the Bond Ordinance. If the Future Parity Bonds proposed to be issued are for the sole purpose of refunding outstanding bonds payable from the Bond Fund, no such coverage certification shall be required if the Annual Debt Service on the Parity Bonds after the issuance of the Future Parity Bonds is not, for any year in which Parity Bonds are outstanding, more than $5,000 over the Annual Debt Service on the Parity Bonds prior to the issuance of those Future Parity Bonds. -6-

11 See Appendix A SUMMARY OF THE BOND ORDINANCE PROVISIONS FOR FUTURE PARITY BONDS. Parity Payment Agreements and Reimbursement Obligations. The Bond Ordinance permits the City to enter into a Payment Agreement for the purpose of managing the City s exposure to fluctuations or levels of interest rates, currencies or commodities or other interest rate, investment, asset or liability management purposes. Upon satisfaction of the requirements for the issuance of Future Parity Bonds, a Payment Agreement may constitute a charge and lien on the Net Revenue of the Water System equal in rank with the charge and the lien of Parity Bonds. The City has not entered into any such Parity Payment Agreements and has no plans to do so at this time. See Appendix A SUMMARY OF THE BOND ORDINANCE PAYMENT AGREEMENT AND PARITY PAYMENT AGREEMENTS. If the City elects to meet the Reserve Requirement or any portion thereof through the use of Reserve Insurance, the City may contract that payments to reimburse the provider of the Reserve Insurance shall be on a parity of lien with the payments required to be made into the Reserve Account. Contract Resource Obligations. Pursuant to the Bond Ordinance, the City may at any time enter into one or more obligations for the acquisition, from facilities to be constructed, of water supply, transmission, treatment or other commodity or service relating to the Water System. Upon compliance with certain requirements of the Bond Ordinance, the City may determine that such contract or obligation is a Contract Resource Obligation and may provide that all payments under that Contract Resource Obligation (including payments prior to the time that water supply, transmission, treatment or other commodity or service is being provided, or during a suspension or after termination of supply or service) shall be Operation and Maintenance Expenses. Among other things, there must be on file a certificate of an Independent Consulting Engineer stating that (i) the payments to be made by the City in connection with the Contract Resource Obligation are reasonable for the supply, transmission, treatment or other service rendered; (ii) the source of any new supply, and any facilities to be constructed to provide the supply, transmission, treatment or other service, are sound from a water or other commodity supply or transmission planning standpoint, are technically and economically feasible in accordance with prudent utility practice, and are likely to provide supply or transmission no later than a date set forth in the Independent Consulting Engineer s Certification; and (iii) the Net Revenue (further adjusted by the Independent Consulting Engineer s estimate of the payments to be made in accordance with the Contract Resource Obligation) for the five fiscal years following the year in which the Contract Resource Obligation is incurred, as such Net Revenue is estimated by the Independent Consulting Engineer (with such estimate based on such factors as he or she considers reasonable), will be at least equal to the Coverage Requirement. Payments required to be made under Contract Resource Obligations shall not be subject to acceleration. See Appendix A SUMMARY OF THE BOND ORDINANCE SEPARATE UTILITY SYSTEMS; CONTRACT RESOURCE OBLIGATIONS. Junior Lien Obligations. Nothing in the Bond Ordinance prohibits the issuance of obligations of the Water System junior to the lien of the Parity Bonds. Tacoma Water currently has outstanding five low interest loans from the State of Washington Public Works Trust Fund totaling $18,958,979 and one low interest loan from the State Revolving Fund totaling $2,737,895, which are junior to the Bonds in their lien on the revenues and funds of the Water System. Additional Covenants The Bond Ordinance also contains covenants regarding operation and maintenance of the Water System, sale, transfer or disposition of the Water System, no free service, liens upon the Water System, books and accounts, collection of delinquent accounts, maintenance of insurance and condemnation awards and insurance proceeds. See Appendix A SUMMARY OF THE BOND ORDINANCE COVENANTS WITH BONDOWNERS. -7-

12 Permitted Investments Money held in the Bond Fund (and the accounts therein) and the 2005 Water Division Construction Fund may be invested in legal investments and any earnings may be retained in such fund or account for the purpose of that fund or transferred to the Bond Fund. For a description of the funds and accounts created by the Bond Ordinance, see Appendix A SUMMARY OF THE BOND ORDINANCE PAYMENT OF AND SECURITY FOR THE BONDS. No Acceleration Neither a bondowner nor any bondowners trustee has the right under the Bond Ordinance to accelerate the payment of debt service on the Bonds upon the occurrence of an Event of Default. BOND INSURANCE Financial Guaranty has supplied the following information for inclusion in this Official Statement. No representation is made by the City or the underwriter as to the accuracy or completeness of this information. Payments Under the Policy Concurrently with the issuance of the Bonds, Financial Guaranty Insurance Company ( Financial Guaranty ) will issue its Municipal Bond New Issue Insurance Policy for the Bonds (the Policy ). The Policy unconditionally guarantees the payment of that portion of the principal or accreted value (if applicable) of and interest on the Bonds which has become due for payment, but shall be unpaid by reason of nonpayment by the issuer of the Bonds (the Issuer ). Financial Guaranty will make such payments to U.S. Bank Trust National Association, or its successor as its agent (the Insurance Fiscal Agent ), on the later of the date on which such principal, accreted value or interest (as applicable) is due or on the business day next following the day on which Financial Guaranty shall have received notice (in accordance with the terms of the Policy) from an owner of Bonds or the trustee or paying agent (if any) of the nonpayment of such amount by the Issuer. The Insurance Fiscal Agent will disburse such amount due on any Bond to its owner upon receipt by the Insurance Fiscal Agent of evidence satisfactory to the Insurance Fiscal Agent of the owner s right to receive payment of the principal, accreted value or interest (as applicable) due for payment and evidence, including any appropriate instruments of assignment, that all of such owner s rights to payment of such principal, accreted value or interest (as applicable) shall be vested in Financial Guaranty. The term nonpayment in respect of a Bond includes any payment of principal, accreted value or interest (as applicable) made to an owner of a Bond which has been recovered from such owner pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final, nonappealable order of a court having competent jurisdiction. Once issued, the Policy is non-cancellable by Financial Guaranty. The Policy covers failure to pay principal (or accreted value, if applicable) of the Bonds on their stated maturity dates and their mandatory sinking fund redemption dates, and not on any other date on which the Bonds may have been otherwise called for redemption, accelerated or advanced in maturity. The Policy also covers the failure to pay interest on the stated date for its payment. In the event that payment of the Bonds is accelerated, Financial Guaranty will only be obligated to pay principal (or accreted value, if applicable) and interest in the originally scheduled amounts on the originally scheduled payment dates. Upon such payment, Financial Guaranty will become the owner of the Bond, appurtenant coupon or right to payment of principal or interest on such Bond and will be fully subrogated to all of the Bondholder s rights thereunder. The Policy does not insure any risk other than Nonpayment by the Issuer, as defined in the Policy. Specifically, the Policy does not cover: (i) payment on acceleration, as a result of a call for redemption (other than mandatory sinking fund redemption) or as a result of any other advancement of maturity; (ii) payment of any redemption, prepayment or acceleration premium; or (iii) nonpayment of principal (or accreted value, if applicable) or interest caused by the insolvency or negligence or any other act or omission of the trustee or paying agent, if any. -8-

13 As a condition of its commitment to insure Bonds, Financial Guaranty may be granted certain rights under the Bond documentation. The specific rights, if any, granted to Financial Guaranty in connection with its insurance of the Bonds may be set forth in the description of the principal legal documents appearing elsewhere in this Official Statement, and reference should be made thereto. The Reserve Policies Concurrently with the issuance of the Bonds, Financial Guaranty Insurance Company ( Financial Guaranty ) will issue its Municipal Bond Debt Service Reserve Fund Policy relating to the Bonds and another Municipal Bond Debt Service Reserve Fund Policy relating to the 1997 and 2001 Bonds (together, the Reserve Policies ). The Reserve Policies unconditionally guarantee the payment of that portion of the principal or accreted value (if applicable) of and interest on the Bonds which has become due for payment, but shall be unpaid by reason of nonpayment by the Issuer, provided that the aggregate amount paid under the Reserve Policies may not exceed the maximum amount set forth in the Reserve Policies, $3,675,596 for the Bonds and $4,030,821 for the 1997 and 2001 Bonds. Financial Guaranty will make such payments to the paying agent (the Paying Agent ) for the Bonds on the later of the date on which such principal or accreted value (if applicable) and interest is due or on the business day next following the day on which Financial Guaranty shall have received telephonic or telegraphic notice subsequently confirmed in writing or written notice by registered or certified mail from the Paying Agent of the nonpayment of such amount by the Issuer. The term nonpayment in respect of a Bond includes any payment of principal, accreted value or interest (as applicable) made to an owner of a Bond which has been recovered from such owner pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final nonappealable order of a court having competent jurisdiction. The Reserve Policies are non-cancellable and the premium will be fully paid at the time of delivery of the Bonds. The Reserve Policies cover failure to pay principal or accreted value (if applicable) of the Bonds on their respective stated maturity dates, or dates on which the same shall have been called for mandatory sinking fund redemption, and not on any other date on which the Bonds may have been accelerated, and covers the failure to pay an installment of interest on the stated date for its payment. The Reserve Policy relating to the Bonds shall terminate on the earlier of the scheduled maturity date of the Bonds or the date on which no Bonds are outstanding under the Bond Ordinance. The Reserve Policy relating to the 1997 and 2001 Bonds shall terminate on the earlier of the scheduled maturity date of the 1997 and 2001 Bonds or the date on which no 1997 or 2001 Bonds are outstanding under their respective ordinances. Generally, in connection with its issuance of the Reserve Policies, Financial Guaranty requires, among other things, (i) that, so long as it has not failed to comply with its payment obligations under the Reserve Policies, it be granted the power to exercise any remedies available at law or under the authorizing document other than (A) acceleration of the Bonds or (B) remedies which would adversely affect holders in the event that the issuer fails to reimburse Financial Guaranty for any draws on the Reserve Policies; and (ii) that any amendment or supplement to or other modification of the principal legal documents be subject to Financial Guaranty s consent. The specific rights, if any, granted to Financial Guaranty in connection with its issuance of the Reserve Policies are set forth in the description of the principal legal documents appearing elsewhere in this Official Statement. Reference should be made as well to such description for a discussion of the circumstances, if any, under which the issuer of the Bonds is required to provide additional or substitute credit enhancement, and related matters. The Policy and Reserve Policies are not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. Financial Guaranty Insurance Company Financial Guaranty, a New York stock insurance corporation, is a direct, wholly-owned subsidiary of FGIC Corporation, a Delaware corporation, and provides financial guaranty insurance for public finance and structured finance obligations. Financial Guaranty is licensed to engage in financial guaranty insurance in all 50 states, the District of Columbia, the U.S. Virgin Islands, the Commonwealth of Puerto Rico and, through a branch, in the United Kingdom. -9-

14 On December 18, 2003, an investor group consisting of The PMI Group, Inc. ( PMI ), affiliates of The Blackstone Group L.P. ( Blackstone ), affiliates of The Cypress Group L.L.C. ( Cypress ) and affiliates of CIVC Partners L.P. ( CIVC ) acquired FGIC Corporation (the FGIC Acquisition ) from a subsidiary of General Electric Capital Corporation ( GE Capital ). PMI, Blackstone, Cypress and CIVC acquired approximately 42%, 23%, 23% and 7%, respectively, of FGIC Corporation s common stock. FGIC Corporation paid GE Capital approximately $284.3 million in pre-closing dividends from the proceeds of dividends it, in turn, had received from Financial Guaranty, and GE Capital retained approximately $234.6 million in liquidation preference of FGIC Corporation s convertible participating preferred stock and approximately 5% of FGIC Corporation s common stock. Neither FGIC Corporation nor any of its shareholders is obligated to pay any debts of Financial Guaranty or any claims under any insurance policy, including the Policy, issued by Financial Guaranty. Financial Guaranty is subject to the insurance laws and regulations of the State of New York, where it is domiciled, including Article 69 of the New York Insurance Law ( Article 69 ), a comprehensive financial guaranty insurance statute. Financial Guaranty is also subject to the insurance laws and regulations of all other jurisdictions in which it is licensed to transact insurance business. The insurance laws and regulations, as well as the level of supervisory authority that may be exercised by the various insurance regulators, vary by jurisdiction, but generally require insurance companies to maintain minimum standards of business conduct and solvency, to meet certain financial tests, to comply with requirements concerning permitted investments and the use of policy forms and premium rates and to file quarterly and annual financial statements on the basis of statutory accounting principles ( SAP ) and other reports. In addition, Article 69, among other things, limits the business of each financial guaranty insurer, including Financial Guaranty, to financial guaranty insurance and certain related lines. For the six months ended June 30, 2005, and the years ended December 31, 2004, and December 31, 2003, Financial Guaranty had written directly or assumed through reinsurance, guaranties of approximately $35.3 billion, $59.5 billion and $42.4 billion par value of securities, respectively (of which approximately 61%, 56% and 79%, respectively, constituted guaranties of municipal bonds), for which it had collected gross premiums of approximately $131.3 million, $323.6 million and $260.3 million, respectively. For the six months ended June 30, 2005, Financial Guaranty had reinsured, through facultative and excess of loss arrangements, approximately 4.2% of the risks it had written. As of June 30, 2005, Financial Guaranty had net admitted assets of approximately $3.327 billion, total liabilities of approximately $2.152 billion, and total capital and policyholders surplus of approximately $1.175 billion, determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. The unaudited financial statements of Financial Guaranty as of June 30, 2005, the audited financial statements of Financial Guaranty as of December 31, 2004, and the audited financial statements of Financial Guaranty as of December 31, 2003, which have been filed with the Nationally Recognized Municipal Securities Information Repositories ( NRMSIRs ), are hereby included by specific reference in this Official Statement. Any statement contained herein under the heading BOND INSURANCE, or in any documents included by specific reference herein, shall be modified or superseded to the extent required by any statement in any document subsequently filed by Financial Guaranty with such NRMSIRs, and shall not be deemed, except as so modified or superseded, to constitute a part of this Official Statement. All financial statements of Financial Guaranty (if any) included in documents filed by Financial Guaranty with the NRMSIRs subsequent to the date of this Official Statement and prior to the termination of the offering of the Bonds shall be deemed to be included by specific reference into this Official Statement and to be a part hereof from the respective dates of filing of such documents. Financial Guaranty also prepares quarterly and annual financial statements on the basis of generally accepted accounting principles. Copies of Financial Guaranty s most recent GAAP and SAP financial statements are available upon request to: Financial Guaranty Insurance Company, 125 Park Avenue, New York, NY 10017, Attention: Corporate Communications Department. Financial Guaranty s telephone number is (212)

15 Financial Guaranty s Credit Ratings The financial strength of Financial Guaranty is rated AAA by Standard & Poor s, a Division of The McGraw-Hill Companies, Inc., Aaa by Moody s Investors Service, and AAA by Fitch Ratings. Each rating of Financial Guaranty should be evaluated independently. The ratings reflect the respective ratings agencies current assessments of the insurance financial strength of Financial Guaranty. Any further explanation of any rating may be obtained only from the applicable rating agency. These ratings are not recommendations to buy, sell or hold the Bonds, and are 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. Financial Guaranty does not guarantee the market price or investment value of the Bonds nor does it guarantee that the ratings on the Bonds will not be revised or withdrawn. Neither Financial Guaranty nor any of its affiliates accepts any responsibility for the accuracy or completeness of the Official Statement or any information or disclosure that is provided to potential purchasers of the Bonds, or omitted from such disclosure, other than with respect to the accuracy of information with respect to Financial Guaranty or the Policy under the heading BOND INSURANCE. In addition, Financial Guaranty makes no representation regarding the Bonds or the advisability of investing in the Bonds. DEBT SERVICE REQUIREMENTS AND ADDITIONAL BORROWING The following table shows Tacoma Water s Contract Resource Obligation payments for its share of debt service on the Regional System Bonds, debt service on Tacoma Water s Outstanding Parity Bonds, the Bonds, and junior lien obligations. Summary of Contract Resource Obligations and Debt Service Requirements Contract Resource Outstanding The Bonds Total Junior Lien Total Year Obligation (1) Parity Bonds (2) Principal Interest Parity Bonds (3) Bonds (4) Debt Service (3) 2005 $ 2,670,160 $ 7,219,089 $ -- $ 293,914 $ 7,513,003 $ 1,386,934 $ 8,899, ,711,268 7,253,901 1,020,000 2,159,369 10,433,270 1,407,448 11,840, ,831,250 7,255,301 1,055,000 2,123,669 10,433,970 1,397,960 11,831, ,887,492 6,697,014 1,665,000 2,076,194 10,438,208 1,388,474 11,826, ,660,648 6,700,864 1,730,000 2,001,269 10,432,133 1,378,987 11,811, ,666,768 6,696,864 1,795,000 1,940,719 10,432,583 1,369,489 11,802, ,657,940 6,692,664 1,865,000 1,877,894 10,435,558 1,360,013 11,795, ,650,476 6,691,214 1,935,000 1,807,956 10,434,170 1,350,526 11,784, ,655,890 6,686,164 2,035,000 1,711,206 10,432,370 1,341,039 11,773, ,659,528 4,742,314 4,085,000 1,609,456 10,436,770 1,334,553 11,771, ,688,888 4,735,368 4,295,000 1,405,206 10,435,574 1,322,066 11,757, ,713,402 4,717,150 4,525,000 1,190,456 10,432,606 1,312,580 11,745, ,717,276 4,712,806 4,760, ,206 10,437,013 1,303,092 11,740, ,726,766 8,061,231 1,695, ,206 10,482,438 1,293,605 11,776, ,197,170 8,063,481 1,765, ,288 10,484,769 1,284,119 11,768, ,211,010 8,059,713 1,835, ,481 10,478,194 1,274,628 11,752, ,220,920 8,059,000 1,910, ,788 10,476,788 1,267,629 11,744, ,226,894 8,061,113 1,990, ,000 10,480, ,000 10,985, ,246,986 8,059,625 2,090, ,500 10,479, ,479, ,195, ,000 2,420, ,420, ,305, ,250 2,420, ,420,250 TOTAL $54,000,732 $ 129,164,876 $ 46,550,000 $ 24,734,027 $ 200,448,901 $ 23,278,142 $ 223,727,045 (1) Payable as an Operation and Maintenance Expense. See THE WATER SYSTEM The Second Supply Project herein. (2) Excludes the Refunded Bonds. (3) Total does not include Contract Resource Obligation payments. (4) Low interest loans from the State of Washington Public Works Trust Fund totaling $18,958,979 and a $2,737,895 State Revolving Fund loan, junior in lien to the Parity Bonds. -11-

16 Additional Borrowing Tacoma Water currently does not plan to issue additional Parity Bonds within the next year. THE CITY The City of Tacoma was incorporated in 1884 and utilizes the Council-Manager form of government, which is administered by a City Council under the Constitution and laws of the State of Washington and the City Charter. The Council is composed of a Mayor and eight Council members, five of whom are elected from districts which have been apportioned according to population. The three remaining positions are at-large positions, nominated and elected City-wide. The Councilmember positions are four-year terms with overlapping terms to allow for the election of four new Councilmembers every two years. The Mayor is elected City-wide for a four-year term and is the presiding officer of the Council. Councilmembers, including the Mayor, can serve no more than ten consecutive years as a member of the Council, Mayor or combination thereof. The City Council appoints a City Manager who is the chief executive officer of the City and who serves at the pleasure of the City Council. The City Manager is responsible to the Council for the administration of all departments of the City with the exception of the Department. The City Manager has the power to appoint department heads. The City Manager appoints a Director of Finance who supervises the financial affairs of the City. The Director of Finance is responsible for operating a general accounting system for the City in conformity with generally accepted accounting principles and practices, supervising the purchasing activities of all departments and the receipt, custody and disbursement of all City funds and money. Under the operating procedures of the City, the Director of Finance is responsible for the payment of principal and interest on all bonds issued by the City. The City Manager appoints a City Treasurer who is responsible for the custody of all City funds, including funds of Tacoma Water. The City Treasurer receives all money due and belonging to the City, and keeps an accurate, detailed account of the same in the manner prescribed by the Director of Finance. A Finance Committee composed of the Mayor, Director of Finance and City Treasurer controls the investment of City funds. Department of Public Utilities THE DEPARTMENT OF PUBLIC UTILITIES TACOMA WATER The City Charter provides for a Department of Public Utilities governed by a five-member Public Utility Board (the Board ). The Board is responsible for general utility policy, and its members are appointed by the Mayor and confirmed by the City Council. The Department s budget is presented to the Board for review and approval and then forwarded to the City Council for approval and inclusion in the City s budget. The Department consists of the Light Division ( Tacoma Power ), Water Division ( Tacoma Water ), and Belt Line Railroad Division ( Tacoma Rail ). The Public Utility Board serves as the sole policy board for the approval of most Department business. In the case of budgets, rates, bond issues, real property transactions, and system expansions, actions approved by the Board must also be approved by the City Council. The Board appoints the Director of Utilities who is chief executive officer of the Department and serves at the pleasure of the Board. The Director, with the concurrence of the Board, has the power to appoint division superintendents. Utility rates and charges initiated by the Board and adopted by the City Council are not subject to review or approval by any other governmental agency. The City Charter provides that, except for a reasonable gross earnings tax imposed by the City Council for the benefit of the City s general fund, the revenues of utilities owned and operated by the City may not be used for any -12-

17 purposes other than the ongoing operations of the utilities and payment of debt service on utility debt. The funds of any utility may not be used to make loans to or purchase the bonds of any other utility, department or agency of the City. Tacoma Water General Tacoma Water was formed in 1893 when the City purchased the water and light utility properties of the former Tacoma Water and Light Company. The City acquired rights for up to 73 million gallons per day ( MGD ) of water from the Green River and in 1912 began construction of the Green River gravity system, which includes the headworks dam facilities, 43 miles of pipeline and 210 million gallons ( MG ) of storage at McMillin Reservoir. Water was first delivered to the City in The present gravity system has a capacity of 73 MGD and delivers water to most of the City without the need for any pumping equipment. As the City grew, a system of wells was developed in south Tacoma and on the North Fork of the Green River to meet summer peak-use periods as well as the City s needs during periods of turbidity in the Green River. Today, the wells system has a capacity of approximately 59 MGD and on an annual basis supplies approximately 10 to 15 percent of the City s water needs. Tacoma Water is one of the largest publicly owned water utilities in the State of Washington. The following table displays selected operating and financial data regarding Tacoma Water as of December 31, 2004 and Selected Operating and Financial Data Calendar Years 2004 and Average Number of Metered Customers 93,906 92,740 Operating Revenue $ 39,844,915 $ 38,006,361 Net Operating Expenses(1) $ 37,005,934 $ 33,422,026 Debt Service Coverage Ratio Total Water Billed (Million Gallons) 20,353 20,141 Average Daily Use (Million Gallons) Maximum Daily Use (Million Gallons) (1) Excludes City gross earnings tax and depreciation. Source: Water Division, 2004 and 2003 Financial Reports. -13-

18 Service Area and Map -14-