IMPERIAL IRRIGATION DISTRICT ELECTRIC SYSTEM REFUNDING REVENUE BONDS

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1 Rating: S & P: AA- (See RATING herein) NEW ISSUE FULL BOOK-ENTRY ONLY In the opinion of Norton Rose Fulbright US LLP, Los Angeles, California, Bond Counsel, under existing law interest on the Series 2015 Bonds is exempt from personal income taxes of the State of California and, assuming compliance with the tax covenants described herein, interest on the Series 2015C Bonds is excluded pursuant to section 103(a) of the Internal Revenue Code of 1986 (the Code ) from the gross income of the owners thereof for federal income tax purposes. In the further opinion of Bond Counsel, interest on the Series 2015C Bonds is not an item of tax preference for purposes of the federal alternative minimum tax. Interest on the Series 2015D Bonds will be included in gross income for federal income tax purposes. See TAX MATTERS. IMPERIAL IRRIGATION DISTRICT ELECTRIC SYSTEM REFUNDING REVENUE BONDS $161,175,000 Series 2015C (Tax-Exempt) Dated: Date of Delivery $8,875,000 Series 2015D (Federally Taxable New Clean Renewable Energy Bonds Direct Payment) Due: November 1, as shown on inside cover This cover page contains certain information for general reference only. It is not intended to be a summary of the security or terms of this issue. Investors are advised to read the entire Official Statement to obtain information essential to the making of an informed investment decision. The Imperial Irrigation District Electric System Refunding Revenue Bonds, Series 2015C (Tax-Exempt) (the Series 2015C Bonds ) and the Imperial Irrigation District Electric System Refunding Revenue Bonds, Series 2015D (Federally Taxable New Clean Renewable Energy Bonds Direct Payment) (the Series 2015D Bonds, and together with the Series 2015C Bonds, the Series 2015 Bonds ) are issuable as fully registered bonds in denominations of $5,000 or any integral multiple thereof. Principal of, and premium, if any, and interest on the Series 2015 Bonds will be payable by the Trustee, initially The Bank of New York Mellon Trust Company, N.A. (the Trustee ), to the registered owners of the Series 2015 Bonds, as described herein. Interest on the Series 2015 Bonds will accrue from and including their date of delivery and will be payable each May 1 and November 1, commencing May 1, The Series 2015 Bonds will be prepared as fully registered bonds and, when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ). DTC will act as securities depository of the Series 2015 Bonds. Beneficial owners of Series 2015 Bonds will not receive physical bonds representing the Series 2015 Bonds purchased, but will receive a credit balance on the books of the nominees of such purchasers. Principal of and interest on the Series 2015 Bonds will be paid directly to DTC, which is obligated in turn to remit such principal and interest to the DTC participants for subsequent disbursement to the beneficial owners of the Series 2015 Bonds, as described herein. The Series 2015 Bonds are subject to redemption prior to maturity as described herein. See THE SERIES 2015 BONDS Redemption herein. The Series 2015C Bonds are being delivered to provide funds to (i) advance refund a portion of the District s currently outstanding Electric System Refunding Revenue Bonds, Series 2008A, and (ii) pay costs of issuance of the Series 2015C Bonds, as more fully described herein. The Series 2015D Bonds are being delivered to provide funds to (i) refund certain taxable Revenue Commercial Paper Warrants, and (ii) pay costs of issuance of the Series 2015D Bonds, as more fully described herein. The Series 2015 Bonds are being issued and delivered pursuant to Resolution No (the Master Resolution ), adopted by the Imperial Irrigation District (the District ) on July 8, 2008, as amended and supplemented, including as amended and supplemented by Resolution No (the Seventh Supplemental Resolution ) and Resolution No (the Eighth Supplemental Resolution ) (the Master Resolution as so amended and supplemented, the Resolution ). The Series 2015 Bonds are special limited obligations of the District payable from, and secured by, a pledge of and charge and lien on the Revenues of the Electric System, subject to the prior payment of Operation and Maintenance Expenses of the Electric System including the payment of the District s outstanding Pension Bonds, on a parity with the Existing Parity Obligations (as defined herein). The District has covenanted and agreed that it will not issue any obligations senior in priority to the Series 2015 Bonds including any additional pension obligation revenue bonds on a parity with the Pension Bonds. The Series 2015 Bonds are not a debt of the State of California or any of its political subdivisions, and neither the State of California nor any of its political subdivisions is liable thereon, nor in any event shall the Series 2015 Bonds or any interest with respect thereto be payable out of any funds or properties other than those of the District. The Series 2015 Bonds do not constitute an indebtedness of the District in contravention of any constitutional or statutory limitation or restriction, and no persons executing the Series 2015 Bonds are liable on the Series 2015 Bonds personally by reason of their issuance or incurrence. Neither the full faith and credit nor the taxing power of the District, of the State of California, or of any political subdivision of the State of California, are pledged to the payment of the Series 2015 Bonds. The Series 2015 Bonds are offered when, as and if delivered and received by the Underwriter, subject to the approval of legality by Norton Rose Fulbright US LLP, Los Angeles, California, Bond Counsel, and subject to certain other conditions. Certain legal matters will be passed upon for the District by Ross G. Simmons, General Counsel, and Norton Rose Fulbright US LLP, Disclosure Counsel, and for the Underwriters by Stradling Yocca Carlson & Rauth, a Professional Corporation, Sacramento, California, Underwriters Counsel. The Series 2015 Bonds will be available for delivery through the facilities of the DTC book-entry system on or about January 21, Citigroup Dated: December 29, Goldman, Sachs & Co.

2 MATURITY SCHEDULE (Base CUSIP Number ) Series 2015C Bonds (Tax-Exempt) Payment Date (November 1) Principal Amount Interest Rate Yield CUSIP Number 2019 $2,585, % 1.120% FN ,715, FP ,855, FQ ,995, FR ,150, FS ,310, FT ,485, FU ,795, * FV ,760, * FW ,000, * FX ,060, * FY ,910, * FZ ,500, * GA ,270, GB ,385, GC ,210, * GD ,120, * GE ,070, * GF5 Series 2015D Bonds (Federally Taxable New Clean Renewable Energy Bonds Direct Payment) Payment Date (November 1) Principal Amount Interest Rate Yield CUSIP Number 2040 $8,875, % 4.50% FM1 CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, managed by Standard & Poor s Financial Services LLC on behalf of The American Bankers Association. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services. Neither the Underwriters, the District nor the Financial Advisor is responsible for the selection or correctness of the CUSIP numbers set forth herein. * Yield to first par call date of May 1, 2026.

3 IMPERIAL IRRIGATION DISTRICT 333 East Barioni Boulevard Imperial, California (760) BOARD OF DIRECTORS* Stephen W. Benson President Division 4 Matt Dessert Division 1 James C. Hanks Division 3 Bruce Kuhn Division 2 Norma Sierra Galindo Vice President Division 5 Belen Valenzuela Chief Financial Officer Vicken Kasarjian Energy Manager (Transmission & Planning) Michael A. Pacheco Water Department Manager (Operations) William D. DeVoy Manager Human Resources Department BOND AND DISCLOSURE COUNSEL Norton Rose Fulbright US LLP Los Angeles, California TRUSTEE The Bank of New York Mellon Trust Company, N.A. Los Angeles, California DISTRICT STAFF* Kevin Kelley General Manager Ross G. Simmons General Counsel Carl Stills Energy Manager (Operations) Tina Anderholt Shields Water Manager FINANCIAL ADVISOR Public Financial Management, Inc. San Francisco, California VERIFICATION AGENT Grant Thornton LLP Minneapolis, Minnesota * Effective January 1, 2016, Director Galindo will serve as the President of the Board and Director Dessert will serve as Vice President. Effective January 4, 2016, Vicken Kasarjian will assume the role of Energy Manager (Operations) and Carl Stills will head the Portfolio Management Office.

4 No dealer, broker, salesperson or other person has been authorized by the District or the Underwriter to give any information or to make any representations other than those contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized by 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 Series 2015 Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers of the Series 2015 Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact. The information set forth herein has been furnished by the District and other sources which are believed to be reliable, but it is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation by, the Underwriter. The information and expressions of opinions herein are subject to change without notice and neither 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 the District since the date hereof. This Official Statement, including any supplement or amendment hereto, is intended to be deposited with the Municipal Securities Rulemaking Board through the Electronic Municipal Marketplace Access (EMMA) website. 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. IN CONNECTION WITH THE OFFERING OF THE SERIES 2015 BONDS, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES 2015 BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS IN THIS OFFICIAL STATEMENT Certain statements included or incorporated by reference in this Official Statement constitute forward-looking statements. Such statements are generally identifiable by the terminology used such as plan, project, expect, anticipate, intend, believe, estimate, budget or other similar words. The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Except as specifically set forth herein, the District does not plan to issue any updates or revisions to those forward-looking statements if or when its expectations or events, conditions or circumstances on which such statements are based occur.

5 TABLE OF CONTENTS INTRODUCTION... 1 i Page The District... 1 The Electric System... 1 Purpose... 2 Security and Sources of Payment for the Series 2015 Bonds... 2 Commercial Paper Program... 3 PLAN OF REFUNDING... 3 SOURCES AND USES OF FUNDS... 4 THE SERIES 2015 BONDS... 4 General... 4 Designation of the Series 2015D Bonds as New Clean Renewable Energy Bonds... 5 Redemption... 5 Selection of Series 2015 Bonds for Redemption... 8 Notice of Redemption... 8 Transfer and Exchange... 8 Debt Service Requirements... 8 SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2015 BONDS Security for the Series 2015 Bonds Pension Bonds Existing Obligations Rate Covenant No Reserve Account Flow of Funds Balloon Sinking Fund Rate Stabilization Fund Additional Obligations Payment Agreement Payments Other Obligations Gas Price Swap and Electricity Price Option Agreements Separate System Take or Pay Power Sales Contracts IMPERIAL IRRIGATION DISTRICT General Governance Management Employees Pension Benefits Other Post-Employment Benefits Insurance Investment Policies Interdepartmental Transactions District s Coachella Service Area... 28

6 TABLE OF CONTENTS (continued) Page THE ELECTRIC SYSTEM Power Supply Future Power Supply Resources Wholesale Power/Real-Time Trading Renewables Reserves and Reliability Demand Side Management Fuel Supply and Energy Risk Management Energy Transmission and Distribution Rates and Billings Customers, Energy Sales, Revenues and Demand Major Customers Electric System Capital Plan Historical Operating Results Constitutional Limitations on Appropriations and Fees Liquidity DEVELOPMENTS IN THE CALIFORNIA ENERGY MARKETS State Legislation Future Regulation Impact of Developments on the District OTHER FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY Federal Legislation and Regulatory Actions CAISO FERC Filings Environmental Issues Other Factors Federal Rate Regulation CONSTITUTIONAL LIMITATIONS ON GOVERNMENTAL SPENDING Proposition Proposition Other Initiatives TAX MATTERS Series 2015C Bonds Series 2015D Bonds CONTINUING DISCLOSURE LITIGATION FERC/NERC Joint Inquiry RATING INDEPENDENT ACCOUNTANTS ii

7 TABLE OF CONTENTS (continued) Page UNDERWRITING FINANCIAL ADVISOR APPROVAL OF LEGALITY MISCELLANEOUS APPENDIX A FINANCIAL STATEMENTS OF THE DISTRICT APPENDIX B GENERAL INFORMATION: IMPERIAL COUNTY AND RIVERSIDE COUNTY APPENDIX C DTC AND BOOK-ENTRY ONLY SYSTEM APPENDIX D SUMMARY OF PRINCIPAL LEGAL DOCUMENTS APPENDIX E PROPOSED FORM OF CONTINUING DISCLOSURE CERTIFICATE APPENDIX F PROPOSED FORM OF OPINION OF BOND COUNSEL iii

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9 OFFICIAL STATEMENT IMPERIAL IRRIGATION DISTRICT ELECTRIC SYSTEM REFUNDING REVENUE BONDS $161,175,000 Series 2015C (Tax-Exempt) $8,875,000 Series 2015D (Federally Taxable New Clean Renewable Energy Bonds Direct Payment) INTRODUCTION This Introduction is subject in all respects to the more complete information included and referred to elsewhere in this Official Statement. The offering of the Series 2015 Bonds to potential investors is made only by means of the entire Official Statement. Capitalized terms used in this Introduction and not otherwise defined shall have the respective meanings assigned to them elsewhere in this Official Statement. See APPENDIX D SUMMARY OF PRINCIPAL LEGAL DOCUMENTS MASTER RESOLUTION AND SEVENTH/EIGHTH SUPPLEMENTAL RESOLUTION Definitions. Unless otherwise indicated, all financial and statistical information herein has been provided by the District. This Official Statement, which includes the cover page and appendices hereto, sets forth certain information concerning the issuance by the Imperial Irrigation District (the District ) of its $156,745,000* Electric System Refunding Revenue Bonds, Series 2015C (Tax-Exempt) (the Series 2015C Bonds ) and $8,875,000* Electric System Refunding Revenue Bonds, Series 2015D (Federally Taxable New Clean Renewable Energy Bonds Direct Payment) (the Series 2015D Bonds, and together with the Series 2015C Bonds, the Series 2015 Bonds ) pursuant to Resolution No (the Master Resolution ), adopted by the District s Board of Directors (the Board ) on July 8, 2008, as amended and supplemented, including as amended and supplemented by Resolution No (the Seventh Supplemental Resolution ) adopted by the Board on June 17, 2015 and Resolution No (the Eighth Supplemental Resolution ) (as so amended and supplemented, the Resolution ), adopted by the Board on November 17, The District The District is an irrigation district duly organized and existing under the Irrigation District Law (codified at Division 11 of the California Water Code) (the Law ) and with the power to, among other things, provide irrigation and electric service within its geographic boundaries. For a description of the District, see IMPERIAL IRRIGATION DISTRICT herein. The Electric System The District operates an Electric System consisting of generation, transmission and distribution assets. For a description of the District s Electric System, see THE ELECTRIC SYSTEM. The District also operates a Water System the revenues of which are not pledged to the payment of the Obligations (as defined herein). See IMPERIAL IRRIGATION DISTRICT Interdepartmental Transactions. The District is currently undertaking significant improvements to its generation, transmission and distribution facilities. For a description of the District s capital improvement program, see THE ELECTRIC SYSTEM Electric System Capital Plan. 1

10 Purpose The Series 2015C Bonds are being delivered to advance refund a portion of the District s currently outstanding Electric System Refunding Revenue Bonds, Series 2008A and pay costs of issuance of the Series 2015C Bonds. The Series 2015D Bonds are being delivered to refund certain taxable Revenue Commercial Paper Warrants expected to be issued by the District in early January 2016 and to be outstanding at the time of delivery of the 2015D Bonds and pay costs of issuance of the Series 2015D Bonds. See PLAN OF REFUNDING and SOURCES AND USES OF FUNDS herein. Security and Sources of Payment for the Series 2015 Bonds The District has previously issued its Taxable Pension Obligation Revenue Bonds, Series 2001 (the Pension Bonds ) pursuant to an Indenture, dated as of June 1, 2001 (the Pension Bonds Indenture ), between the District and BNY Western Trust Company, and has entered into certain power sales contracts. The Pension Bonds and power sales contracts constitute payment obligations that are Operation and Maintenance Expenses of the Electric System. For a description of obligations of the District payable as Operation and Maintenance Expenses of the Electric System prior to the Obligations, see SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2015 BONDS Take or Pay Power Sales Contracts and Pension Bonds. The District has previously issued the following Electric System Refunding Revenue Bonds (the Existing Parity Obligations ): Series Designation Original Principal Amount Principal Amount Outstanding Series 2008A $250,000,000 $51,780,000* Series 2011A 78,065,000 73,240,000 Series 2011B 75,485,000 70,510,000 Series 2011C 75,745,000 70,795,000 Series 2011D 22,865,000 22,865,000 Series 2012A 32,560,000 24,525,000 Series 2015A 19,275,000 19,275,000 Series 2015B 19,990,000 19,990,000 * Exclusive of $167,350,000 expected to be defeased by the Series 2015C Bonds. The Existing Parity Obligations, the Series 2015 Bonds and any obligations hereafter issued on a parity therewith (collectively, the Obligations ) are special obligations of the District payable from and secured by the Revenues of the Electric System, after payment of Operation and Maintenance Expenses of the Electric System, including payments on the Pension Bonds. The District has pledged and placed a lien and charge upon the Revenues of the Electric System, subject to the prior payment of Operation and Maintenance Expenses of the Electric System, including the payment on the Pension Bonds, to secure the payment of the Obligations. The Master Resolution closes off the prior liens of the Pension Bonds. See SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2015 BONDS Pension Bonds. 2

11 Commercial Paper Program On April 24, 2007, the District adopted Resolution No authorizing its Revenue Commercial Paper Warrants, Series A (the Series A Notes ) and Revenue Commercial Paper Warrants, Series B (the Series B Notes, and together with the Series A Notes, the Series A/B Notes ). On May 8, 2012, the District approved the authorization of Revenue Commercial Paper Warrants, Series C (the Series C Notes, and collectively with the Series A/B Notes, the Commercial Paper Notes ). The Series A Notes are authorized in an amount not to exceed $200 million, less the aggregate principal amount of any Series B Notes outstanding, to finance and refinance capital improvements to the Electric and Water System, on a tax-exempt basis. The Series B Notes are authorized in an amount not to exceed $50 million to finance and refinance capital improvements to the Electric and Water System, on a taxexempt or taxable basis. The Series C Notes are authorized in an amount not to exceed $200 million to finance and refinance improvements to the Electric and Water System, on a tax-exempt or taxable basis. The aggregate amount of Series A/B Notes issued in connection with the Electric System may not exceed $175 million. The aggregate amount of Commercial Paper Notes outstanding may not exceed $200 million. The portions of Commercial Paper Notes issued in connection with the Electric System are secured by a pledge of Net Electric System Revenues subject and subordinate to the prior lien and pledge for the benefit of the Pension Bonds, the Series 2015 Bonds, the Existing Parity Obligations and any additional Obligations. However, the aggregate principal amount of and aggregate stated interest to maturity on the Commercial Paper Notes may not exceed the Stated Amount then available under the Letter of Credit. An irrevocable, direct pay letter of credit in the amount of $109 million has been issued by MUFG Union Bank, N.A. (the Union Bank LOC ) pursuant to a Reimbursement Agreement dated as of August 1, 2010 (as amended from time to time, the Reimbursement Agreement ) with the District to pay and secure principal and interest on the Series A/B Notes. The Union Bank LOC is scheduled to expire on October 30, Accordingly, at this time the District is only able to issue up to $100 million of Series A/B Notes. The obligations of the District under the Reimbursement Agreement are secured by a pledge of Net Electric System Revenues and Net Water System Revenues on a parity with the Commercial Paper Notes but on a subordinate basis to the Obligations. PLAN OF REFUNDING The District previously issued its Electric System Refunding Revenue Bonds, Series 2008A currently outstanding in the aggregate principal amount of $219,130,000 (the 2008 Bonds ). Proceeds from the sale of the Series 2015C Bonds will be used, along with other available moneys, to advance refund $167,350,000 of the currently outstanding 2008 Bonds (the Defeased 2008 Bonds ). Pursuant to an Escrow Agreement, dated as of December 1, 2015, the District will cause to be deposited into a separate escrow fund securing the Defeased 2008 Bonds, moneys and certain noncallable federal securities, which, together with interest and earnings thereon, shall be sufficient to pay the principal of and interest on, and the redemption price of, the Defeased 2008 Bonds coming due through and including the redemption date of November 1, In connection with the refunding and defeasance of the 2008 Bonds, Grant Thornton LLP, Minneapolis, Minnesota will examine the arithmetical accuracy of computations provided by the Financial Advisor on behalf of the District relating to (a) computation of forecasted receipts of principal 3

12 and interest on the non-callable federal securities (the Escrow Securities ) and the forecasted payments of principal and interest to defease the Defeased 2008 Bonds, and (b) computation of the yields on the Series 2015C Bonds and the Escrow Securities. Such computations were based solely upon assumptions and information supplied by the Financial Advisor on behalf of the District. Grant Thornton LLP has restricted its procedures to examining the arithmetical accuracy of certain computations and has not made any study or evaluation of the assumptions and information upon which the computations are based and, accordingly, will not express an opinion on the data used, the reasonableness of the assumptions, or the achievability of the forecasted outcome. The District will also have issued $8,875,000 aggregate principal amount of the taxable Series B Notes to finance two separate hydroelectric projects along the Westside Main Canal. See THE ELECTRIC SYSTEM Power Supply Owned Generating Facilities - Hydroelectric herein for a description of the such hydroelectric projects. The District will use proceeds of the Series 2015D Bonds to pay the principal amount of the taxable Series B Notes, all of which will mature on the date of delivery of the Series 2015D Bonds. SOURCES AND USES OF FUNDS The sources and uses of funds are as follows: Series 2015C Bonds Series 2015D Bonds Sources: Principal Amount $161,175, $8,875, Net Original Issue Premium 24,368, District Contribution 1,425, Total Sources $186,968, $8,875, Uses: Payment of Series Notes $ -- $8,839, Escrow Fund 186,483, Costs of Issuance (1) 484, , Total Uses $186,968, $8,875, (1) Includes underwriters discount, legal, financing and consulting fees, fees of the District, the Trustee, rating agencies fees, printing costs and certain miscellaneous expenses. General THE SERIES 2015 BONDS The Series 2015 Bonds shall be issued in the form of fully registered bonds only in Authorized Denominations of $5,000 and any integral multiple thereof. The Series 2015 Bonds will be dated the date of delivery and will bear interest at the rates per annum and will mature on the dates and in the principal amounts, all as set forth on the inside cover page hereof. Interest on the Series 2015 Bonds will be payable on May 1 and November 1 of each year, commencing May 1, Interest shall be computed on the basis of a 360-day year consisting of twelve (12) 30-day months and the actual number of days elapsed. 4

13 The Series 2015 Bonds will be in the form of fully registered bonds and will be registered in the name of Cede & Co., as initial nominee of The Depository Trust Company, New York, New York ( DTC ). DTC will act as Securities Depository for the Series 2015 Bonds. Ownership interests in the Series 2015 Bonds may be purchased in book-entry form only, in the denominations hereinafter set forth. In the event (i) DTC determines not to continue to act as securities depository for the Series 2015 Bonds, or (ii) the District determines that DTC shall no longer so act and delivers a written certificate to the Registrar to that effect, then the District will discontinue the book-entry system with respect to such Series 2015 Bonds with DTC. The District may replace DTC with another qualified securities depository. If the District fails to identify another qualified securities depository to replace DTC, then the Series 2015 Bonds shall be registered in whatever name or names the Owners transferring or exchanging Series 2015 Bonds shall designate, in accordance with the provisions of the Supplemental Resolution. See APPENDIX C DTC AND BOOK-ENTRY ONLY SYSTEM. The principal of any Series 2015 Bond will be payable to the Owner thereof at the corporate office of the Trustee. Interest on the Series 2015 Bonds will be payable by the Trustee on each Interest Payment Date by check or draft mailed to each Owner as of the Record Date, at the most recent address shown on the Bond Register; provided, however, that payment of interest to each Owner who owns of record $1,000,000 or more in aggregate principal amount of Series 2015 Bonds may be made to such Owner by wire transfer to such wire address within the United States as that Owner may request in writing prior to the Record Date. Designation of the Series 2015D Bonds as New Clean Renewable Energy Bonds The District intends to issue the Series 2015D Bonds as New Clean Renewable Energy Bonds as defined in Section 54C of the Internal Revenue Code of 1986 (the Code ) and will irrevocably elect under Section 6431(f)(3) of the Code to receive a direct interest subsidy payment from the United States Treasury equal to the lesser of (i) the amount of interest payable on the Series 2015D Bonds, or (ii) seventy percent (70%) of the amount of interest which would have been payable on the Series 2015D Bonds if interest were determined at the applicable credit rate determined under Section 54A(b)(3) of the Code. To receive a direct subsidy payment, the District is required to make certain filings (currently Form 8038-CP) with the Internal Revenue Service not less than 45 days nor more than 90 days before each interest payment date that the District expects to receive a direct subsidy payment. Failure to timely file the required form could result in the delay or denial of receipt of the direct subsidy payment. The District is obligated to make all payments of principal of and interest on the Series 2015D Bonds whether or not direct subsidy payments are received. Payment of the subsidy may be offset against amounts that may be owed to the United States or its agencies by the District. Also, it is possible that subsidy payments could be reduced or discontinued or the timing of the receipt could be changed as a result of changes in the federal law. The owners of the Series 2015D Bonds are not entitled to receive a credit against tax imposed by the Code with respect to the Series 2015D Bonds. Redemption Optional Redemption Series 2015C Bonds The Series 2015C Bonds maturing on or after November 1, 2026, shall be subject to redemption prior to maturity at the option of the District, in whole or in part, on any date on or after May 1, 2026, at a 5

14 redemption price equal to 100% of the principal amount Outstanding, plus interest, if any, accrued to the date of redemption, without premium. Series 2015D Bonds The Series 2015D Bonds are subject to redemption prior to their respective maturities at the option of the District, in whole or in part, on any Business Day, at the Make-Whole Redemption Price for the Series 2015D Bonds (as defined herein) determined by the Designated Investment Banker (as defined herein). The Make-Whole Redemption Price for the Series 2015D Bonds is the greater of (i) the issue price as shown on the inside cover pages of this Official Statement (but not less than 100% of the principal amount of the Series 2015D Bonds to be redeemed), or (ii) the sum of the present values of the remaining scheduled payments of principal and interest on the Series 2015D Bonds to be redeemed (taking into account any mandatory sinking fund redemptions on a pro rata basis), not including any portion of those payments of interest accrued and unpaid as of the date on which the Series 2015D Bonds are to be redeemed, discounted to the date on which such Series 2015D Bonds are to be redeemed on a semi-annual basis, assuming a 360-day year consisting of twelve 30-day months, at the Treasury Rate (defined below) plus 25 basis points, plus accrued and unpaid interest on the Series 2015D Bonds to be redeemed on the redemption date. Treasury Rate means, with respect to any redemption date for a particular Series 2015D Bond, the rate per annum, expressed as a percentage of the principal amount, equal to the semi-annual equivalent yield to maturity or interpolated maturity of the Comparable Treasury Issue (defined below), assuming that the Comparable Treasury Issue is purchased on the redemption date for a price equal to the Comparable Treasury Price (defined below), as calculated by the Designated Investment Banker (defined below). Comparable Treasury Issue means, with respect to any redemption date for a particular Series 2015D Bond, the U.S. Treasury security or securities selected by the Designated Investment Banker with an actual or interpolated maturity comparable to the remaining average life of the Series 2015D Bonds to be redeemed and that would be utilized in accordance with customary financial practice in pricing new issues of debt securities of comparable maturity to the remaining average life of such Series 2015D Bonds to be redeemed. Comparable Treasury Price means, with respect to any redemption date for a particular Series 2015D Bond, (i) if the Designated Investment Banker receives at least five Reference Treasury Dealer Quotations (defined below), the average of such quotations for such redemption date, after excluding the highest and lowest such Reference Treasury Dealer Quotations, or (ii) if the Designated Investment Banker obtains fewer than five Reference Treasury Dealer Quotations, the average of all such quotations. Designated Investment Banker means one of the Reference Treasury Dealers appointed by the District. Reference Treasury Dealer means each of five firms, specified by the District from time to time, that are primary U.S. Government securities dealers in the City of New York (each, a Primary Treasury Dealer ); provided, however, that if any of them ceases to be a Primary Treasury Dealer, the District will substitute another Primary Treasury Dealer. Reference Treasury Dealer Quotations means, with respect to each Reference Treasury Dealer and any redemption date for a particular Series 2015D Bond, the average, as determined by the Designated Investment Banker, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the District by such Reference 6

15 Treasury Dealer at 3:30 p.m. (New York City time) on a date that is no earlier than four days prior to the date the redemption notice is mailed. Extraordinary Optional Redemption The Series 2015D Bonds are subject to extraordinary optional redemption at any time prior to their maturity at the option of the District, in whole or in part, upon the occurrence of an Extraordinary Event, at a redemption price (the Extraordinary Optional Redemption Price ) equal to the greater of (i) 100% of the principal amount of the Series 2015D Bonds to be redeemed or (ii) the sum of the present values of the remaining scheduled payments of principal of and interest on the Series 2015D Bonds to be redeemed (taking into account any mandatory sinking fund redemptions on a pro rata basis), not including any portion of those payments of interest accrued and unpaid as of the date on which the Series 2015D Bonds are to be redeemed, discounted to the date on which the Series 2015D Bonds are to be redeemed on a semi-annual basis, assuming a 360-day year consisting of twelve 30-day months, at the Treasury Rate (defined above) plus 100 basis points, plus, in each case, accrued and unpaid interest on the Series 2015D Bonds to be redeemed to the redemption date. An Extraordinary Event will have occurred if (a) Section 6431 of the Code (as such Section was amended by Section 301 of the Hiring Incentives to Restore Employment Act pertaining to New Clean Renewable Energy Bonds ) is modified or amended in a manner pursuant to which the District s applicable cash subsidy payments from the United States Treasury are reduced, modified or eliminated, (b) guidance published by the Internal Revenue Service or the United States Treasury with respect to such sections places one or more substantive new conditions on the receipt by the District of such applicable cash subsidy payments, or (c) for any other reason, including sequestration, the cash subsidy payment to the District is reduced by more than 25% for one or more interest payments. Extraordinary Mandatory Redemption The Series 2015D Bonds or portions of the Series 2015D Bonds, in multiples of $5,000, are subject to extraordinary mandatory redemption within 90 days after the later of: (a) the third anniversary of the delivery date of the Series 2015D Bonds; or (b) the Extension Period Expiration Date (as defined below), at par, plus accrued interest to the date of redemption, in the total amount required to preserve the status of the Series 2015D Bonds as New Clean Renewable Energy Bonds, which would be computed by reference to the unexpended Available Project Proceeds (as defined below) of the Series 2015D Bonds plus such amount as shall be necessary to permit the Series 2015D Bonds to be redeemed in multiples of $5,000 within a single maturity, but only to the extent Available Project Proceeds of the Series 2015D Bonds are not expended by the later of: (i) the third anniversary of the delivery date of the Series 2015D Bonds; or (ii) the Extension Period Expiration Date. Extension Period Expiration Date means the last day of any extension of time approved by the Internal Revenue Service (the IRS ), as evidenced in writing from the IRS, that extends the date by which the Available Project Proceeds of the Series 2015D Bonds must be expended. Available Project Proceeds means the sum of (i) the excess of the proceeds of sale of the Series 2015D Bonds over costs of issuance with respect to the Series 2015D Bonds paid out of such proceeds (to the extent such costs do not exceed two percent of such proceeds), and (ii) any investment earnings on such proceeds. 7

16 Selection of Series 2015 Bonds for Redemption Upon any redemption of Series 2015 Bonds, the Trustee shall, at the written direction of the District, or in the absence of such written direction, by random drawing conducted by the Trustee, select the Series 2015 Bonds which shall be subject to redemption. Notice of Redemption When Series 2015 Bonds (or portions thereof) are to be redeemed, the District shall give or cause to be given notice of the redemption of such Series 2015 Bonds to the Trustee no later than 45 days prior to the redemption date or such shorter time as may be acceptable to the Trustee. In the case of an optional redemption, the notice may state that such redemption is a Conditional Redemption, and such notice and optional redemption shall be of no effect if such money is not so deposited or if the notice is rescinded as described in the Resolution. The Trustee, at the expense of the District, shall send notice of any redemption, identifying the Bonds to be redeemed, the redemption date and the method and place of payment and the information required by the Resolution, by first class mail to each Owner of a Series 2015 Bond called for redemption to the Owner s address set forth on the Bond Register. Such notice shall be sent by the Trustee by first class mail between 30 and 60 days prior to the scheduled redemption date. With respect to Book-Entry Bonds, if the Trustee sends notice of redemption to the Securities Depository pursuant to the Letter of Representations, the Trustee shall not be required to give the notice set forth in the immediately preceding sentence. If notice is given as stated in this paragraph, failure of any Owner to receive such notice, or any defect in the notice, shall not affect the redemption or the validity of the proceedings for the redemption of the Series 2015 Bonds. Transfer and Exchange The Series 2015 Bonds are transferable by the Owner in person or by his or her attorney duly authorized in writing at the corporate office of the Registrar but only in the manner, subject to the limitations of and upon payment of the charges provided in the Resolution and upon surrender and cancellation of the Series 2015 Bond. Upon such transfer, a new registered bond or bonds in Authorized Denominations in the same aggregate principal amount will be issued to the transferee in exchange therefor. Debt Service Requirements The following tables include the annualized debt service schedule for the Series 2015 Bonds and the Existing Parity Obligations assuming no redemption other than mandatory sinking fund redemption. Debt service on the Pension Bonds is excluded as it is payable as Operation and Maintenance Expense of the Electric System prior to the Obligations. [Remainder of This Page Intentionally Left Blank] 8

17 Series 2015C Bonds Series 2015D Bonds Bond Year Ending November 1 Principal Interest Total 2015C Bonds Debt Service Principal Interest Total 2015D Bonds Debt Service $5,761,297 $5,761, $310,625 $310, ,407,381 7,407, , , ,407,381 7,407, , , $2,585,000 7,407,381 9,992, , , ,715,000 7,278,131 9,993, , , ,855,000 7,142,381 9,997, , , ,995,000 6,999,631 9,994, , , ,150,000 6,849,881 9,999, , , ,310,000 6,692,381 10,002, , , ,485,000 6,526,881 10,011, , , ,795,000 6,352,631 8,147, , , ,760,000 6,262,881 11,022, , , ,000,000 6,024,881 11,024, , , ,774,881 5,774, , , ,060,000 5,774,881 15,834, , , ,910,000 5,271,881 17,181, , , ,500,000 4,676,381 20,176, , , ,270,000 3,901,381 20,171, , , ,413,281 3,413, , , ,385,000 3,413,281 20,798, , , ,210,000 2,870,000 21,080, , , ,120,000 1,959,500 21,079, , , ,070,000 1,003,500 21,073, , , , , $8,875, ,375 9,274,375 Total $161,175,000 $126,172,090 $287,347,090 $8,875,000 $9,895,625 $18,770,625 9

18 Bond Year Ending November 1 Existing Parity Obligations 2015 Bonds Debt Service Total Obligations Debt Service 2016 $29,873,574 $6,071,922 $35,945, ,782,038 7,806,756 37,588, ,786,031 7,806,756 37,592, ,165,799 10,391,756 35,557, ,174,729 10,392,506 35,567, ,168,771 10,396,756 35,565, ,167,806 10,394,006 35,561, ,165,149 10,399,256 35,564, ,423,882 10,401,756 35,825, ,421,325 10,411,256 35,832, ,278,790 8,547,006 35,825, ,412,264 11,422,256 35,834, ,997,078 11,424,256 34,421, ,205,441 6,174,256 36,379, ,917,382 16,234,256 36,151, ,580,289 17,581,256 36,161, ,582,884 20,575,756 39,158, ,577,689 20,570,756 39,148, ,955,719 3,812,656 39,768, ,959,781 21,197,656 39,157, ,677,625 21,479,375 39,157, ,680,300 21,478,875 39,159, ,678,900 21,472,875 39,151, ,681, ,375 18,081, ,677,100 9,274,375 26,951, ,678, ,678, ,437, ,437, ,437, ,437, ,442, ,442, ,441, ,441,250 Total $ 616,428,296 $306,117,715 $922,546,011 10

19 SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2015 BONDS Security for the Series 2015 Bonds The Existing Parity Obligations, the Series 2015 Bonds and any additional Obligations hereafter issued or executed and delivered are special limited obligations of the District payable from and secured by the Revenues of the Electric System, after payment of Operation and Maintenance Expenses of the Electric System including payments on the Pension Bonds, and the District has pledged and placed a lien and charge upon the Revenues of the Electric System, subject to the prior payment of Operation and Maintenance Expenses of the Electric System including payments on the Pension Bonds, to secure the payment of the Obligations and any Payment Agreement Payments. Currently, no Payment Agreement Payments exist. The District has obligated itself irrevocably to set aside and to pay to the Trustee (to the extent not otherwise provided) out of the Revenues of the Electric System, after payment of Operation and Maintenance Expenses of the Electric System and any deposits with respect to the Pension Bonds, in trust for the account of the Obligation Fund, sufficient to pay the Obligations of the related Series issued pursuant to the Master Resolution and the Supplemental Document authorizing the issuance thereof and from time to time Outstanding as the same respectively become due and payable. Such amounts to be paid to the Trustee and deposited into the related Obligation Fund shall be a pledge and charge and lien on Revenues of the Electric System and moneys in the Revenue Fund and payable therefrom as set forth in the Master Resolution. Revenues of the Electric System means all revenues, rates and charges received or accrued by the District for electric power and energy and other services, facilities and commodities sold, furnished or supplied by the Electric System, together with income, earnings and profits therefrom (including interest earnings on the proceeds of any Obligations pending application thereof), all as determined in accordance with GAAP as applied to governmental entities. Revenues of the Electric System include principal and interest payments to the Electric System on or with respect to loans made by the Electric System to any other separate system of the District that is not part of the Electric System. Revenues of the Electric System do not include (a) proceeds from the issuance of any obligations for borrowed money, (b) amounts loaned to the Electric System, (c) Payment Agreement Receipts, (d) proceeds from taxes, (e) customer deposits while retained as such, (f) contributions in aid of construction, (g) gifts, (h) grants, (i) insurance or condemnation proceeds that are properly allocable to a capital account, (j) unrealized markto-market gains with respect to any property, investment or financial or other agreement, or (k) money received by the District as the proceeds of the sale of any portion of the properties of the Electric System. On such date none of the 2008 Bonds are outstanding, Revenues shall also exclude any amounts reimbursed to the District by the United States of America pursuant to Section 54AA of the Code, or any future similar program. The District may affect such an amendment earlier upon receipt of consent of Owners of a majority of the principal amount of Obligations. Operation and Maintenance Expenses of the Electric System means the costs paid or accrued for the proper operation, maintenance and repair of the Electric System and taxes, assessments or other governmental charges lawfully imposed on the Electric System or the Revenue of the Electric System, or payments in lieu thereof, all as determined in accordance with GAAP as applied to governmental entities. Operation and Maintenance Expenses of the Electric System do not include depreciation or amortization expense or unrealized mark-to-market losses with respect to any property, investment, financial instrument or other agreement. 11

20 Electric System means all electric generation, transmission and distribution facilities and all general plant facilities related thereto now owned by the District and all other properties, structures or works for the generation, transmission and distribution of electricity hereafter acquired and constructed by the District and determined to be a part of the Electric System, including all contractual rights for electricity; together with all additions, betterments, extensions or improvements to such facilities, properties, structures or works or any part thereof hereafter acquired and constructed. The Series 2015 Bonds are not a debt of the State of California or any of its political subdivisions, and neither the State of California nor any of its political subdivisions is liable thereon, nor in any event shall the Series 2015 Bonds or any interest with respect thereto be payable out of any funds or properties other than those of the District. The Series 2015 Bonds do not constitute an indebtedness of the District in contravention of any constitutional or statutory limitation or restriction, and no persons executing the Series 2015 Bonds are liable on the Series 2015 Bonds personally by reason of their issuance or incurrence. Neither the full faith and credit nor the taxing power of the District, of the State of California, or of any political subdivision of the State of California, are pledged to the payment of the Series 2015 Bonds. Pension Bonds In 2001, the District issued its Pension Bonds, which are currently outstanding in the aggregate principal amount of $56,820,000 (of which $29,262,300 is allocable to the Electric System), for the purpose of financing its obligation to make certain payments to its employee pension plan for certain amounts arising as a result of retirement benefits accruing to members of the pension plan and for certain expenses incurred by the District to terminate and replace the then-existing pension plan. Obligations of the District for the payment of the Pension Bonds constitute Operation and Maintenance Expenses of the Electric System and operation and maintenance expenses of the Water System. Based on an allocation established at the time of the issuance of the Pension Bonds, approximately 51.5% of such obligations are expected to be paid from revenues allocated to the Electric System, although payment of debt service with respect to such Pension Bonds is not limited as to amounts to be paid from either the Electric System or the Water System. The annual debt service on the Pension Bonds allocable to the Electric System declines gradually from $3,058,233 in 2015 to $2,990,270 in 2031 (final maturity). Under the Pension Bonds Indenture, all Utility System Revenues (as defined in the Pension Bonds Indenture) are irrevocably pledged to the payment of the Pension Bonds as a Maintenance and Operation Cost (as defined in the Pension Bonds Indenture), which pledge constitutes a lien on the Utility System Revenues for the payment of the Pension Bonds. The District will be required to comply with certain covenants set forth in the Pension Bonds Indenture so long as any Pension Bonds remain outstanding. See APPENDIX D SUMMARY OF PRINCIPAL LEGAL DOCUMENTS PENSION BONDS INDENTURE. Pursuant to the Master Resolution, the District has covenanted and agreed that it shall not issue any obligations senior in priority to the Series 2015 Bonds including any additional pension obligation revenue bonds on a parity with the Pension Bonds. The District, however, will retain the right to enter into contracts the obligations under which are payable as Operation and Maintenance Expenses of the Electric System prior to the Obligations. See SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2015 BONDS Take or Pay Power Sales Contracts and APPENDIX D SUMMARY OF PRINCIPAL LEGAL DOCUMENTS PENSION BONDS INDENTURE. 12

21 Existing Obligations The District has previously issued the following Electric System Refunding Revenue Bonds (the Existing Parity Obligations ): Series Designation Original Principal Amount Principal Amount Outstanding Series 2008A $250,000,000 $51,780,000* Series 2011A 78,065,000 73,240,000 Series 2011B 75,485,000 70,510,000 Series 2011C 75,745,000 70,795,000 Series 2011D 22,865,000 22,865,000 Series 2012A 32,560,000 24,525,000 Series 2015A 19,275,000 19,275,000 Series 2015B 19,990,000 19,990,000 * Exclusive of $167,350,000 expected to be defeased by the Series 2015C Bonds. Rate Covenant Pursuant to the Master Resolution, the District is required to fix, establish, maintain and collect rates and charges for electric power and other services, facilities and commodities sold, furnished or supplied by or through the Electric System which are adequate to provide the District with Revenues of the Electric System, for purposes of (i) below, and Adjusted Net Revenues, for purposes of (ii) and (iii) below, in each Fiscal Year sufficient: (i) (ii) (iii) To pay, to the extent not paid from the balance in the Rate Stabilization Fund or other moneys of the Electric System, (A) the Operation and Maintenance Expenses of the Electric System due and payable during such Fiscal Year, (B) Annual Debt Service on the Obligations due and payable in such Fiscal Year, (C) the amounts, if any, required to be deposited into the Reserve Fund during such Fiscal Year, and (D) any and all other amounts the District is obligated to pay or set aside from the Revenues of the Electric System by law or contract in such Fiscal Year; Together with the balance in the Rate Stabilization Fund, to provide an Obligation Coverage Ratio of at least Excluding the balance in the Rate Stabilization Fund, to provide an Obligation Coverage Ratio of at least Obligation Coverage Ratio for any Fiscal Year means the ratio of (a) Adjusted Net Revenues in such Fiscal Year (plus the balance in the Rate Stabilization Fund, to the extent provided herein), to (b) Annual Debt Service on the Outstanding Obligations in such Fiscal Year. Adjusted Net Revenues for any Fiscal Year means Net Revenues in such Fiscal Year (as adjusted for any deferred revenues), plus withdrawals, if any, from the Rate Stabilization Fund that have been allocated to such Fiscal Year pursuant to the Master Resolution, less deposits, if any, into the Rate Stabilization Fund that have been allocated to such Fiscal Year pursuant to the Master Resolution. On such date none of the 2008 Bonds are outstanding, Adjusted Net Revenues for any Fiscal Year means Net Revenues in such Fiscal Year (as adjusted for any deferred revenues), plus withdrawals, if any, from 13

22 the Rate Stabilization Fund that have been allocated to such Fiscal Year pursuant to the Master Resolution (other than withdrawals constituting deferred revenues), less deposits, if any, into the Rate Stabilization Fund that have been allocated to such Fiscal Year pursuant to the Master Resolution (other than deposits constituting deferred revenues). On such date none of the 2008 Bonds are outstanding, for purposes of calculating Annual Debt Service, if interest on any Obligations is reasonably anticipated to be reimbursed to the District by the United States of America pursuant to Section 54AA of the Code, or any future similar program, then interest payments with respect to such Obligation shall be reduced by the amount of such interest reasonably anticipated to be paid or reimbursed by the United States of America. The District may affect such an amendment earlier upon receipt of consent of Owners of a majority of the principal amount of Obligations. The failure of the District to comply with paragraph (ii) or (iii) above in any Fiscal Year does not constitute an Event of Default if, within 60 days after the District first determines such non-compliance, but in any event not more than 60 days after the District s receipt of its annual audited financial statements, the District engages a Consulting Engineer to deliver a report to the District within 60 days after such engagement and if (i) within 60 days after receipt of the Consulting Engineer s report the District implements the recommendations set forth in such report, or (ii) the report states that any action that would enable the District to comply with such covenant is impracticable at that time, or (iii) the report states that the Electric System cannot generate Revenues of the Electric System sufficient to enable the District to comply with such covenant and the District maintains revenue-maximizing rates and charges for electric power and energy and other services, facilities and commodities sold, furnished or supplied through the facilities of the Electric System, or (iv) the District has been prevented from taking such action by law or by order of any court or governmental agency. Notwithstanding the foregoing, failure for two (2) consecutive Fiscal Years to comply with such covenant in all events does constitute an Event of Default, regardless of whether an event described in clauses (i) through (iv) has occurred. No Reserve Account The Master Resolution provides that the District may establish one or more accounts in the Reserve Fund (each, a Reserve Account ), each of which may secure one or more Obligations or portion or portions thereof pursuant to the Supplemental Document or Resolutions authorizing the issuance thereof. No Reserve Account will be established for the Series 2015 Bonds. Flow of Funds The District is required to deposit all Revenues into a Revenue Fund. Revenues deposited in the Revenue Fund will be disbursed in the following order of priority: First, for the payment of Operation and Maintenance Expenses of the Electric System, including principal and interest on the Pension Bonds; Second, for deposit in the Interest Account of each Obligation Fund; Third, for deposit in the Obligation Retirement Account of each Obligation Fund; Fourth, for deposit in the Reserve Fund; Fifth, (i) for the payment of the principal of and interest and redemption premium, if any, on any Subordinate Obligations; (ii) for deposit into a reserve fund securing any Subordinate 14

23 Obligations; (iii) for regularly scheduled net amounts required to be paid by the District to counterparties pursuant to swap agreements entered into by the District with respect to any Subordinate Obligations; and (iv) for payment to any financial institution or insurance company providing any letter of credit, line of credit, or other credit or liquidity facility, including municipal bond insurance and guarantees, that secures the payment of principal of or interest on any Subordinate Obligations; in each case in any order of priority within this clause Sixth which may be hereafter established by the District by resolution; Sixth, for any payment due under a Payment Agreement that does not constitute a Payment Agreement Payment; and Seventh, for any other lawful purpose of the Electric System, in any order of priority which may be hereafter established by the District by resolution. The District may not withdraw moneys from the Revenue Fund in accordance with clauses Fourth through Seventh above unless the District first shall have determined that the amounts to be withdrawn are not expected to be required thereafter for the purposes of clauses First through Third above. Notwithstanding the foregoing, so long as the Pension Bonds are Outstanding, the obligation of the District to deposit Revenues of the Electric System into the funds established under the Pension Bonds Indenture will have priority over the foregoing obligation of the District to deposit Revenues of the Electric System into the Obligation Funds and the Reserve Fund. Balloon Sinking Fund Pursuant to the Master Resolution, the District is required to establish and maintain a Balloon Sinking Fund, to be held by the District, with respect to each Balloon Obligation at least three (3) years prior to the maturity date in order to secure the payment of the maturing principal of such Obligations. The District is required to fund such Balloon Sinking Fund in four equal annual installments of one-fourth of such maturing principal commencing not less than three (3) years prior to such payment date, either (i) by deposits from Revenues or other available funds, or (ii) by obtaining one or more Credit Facilities that provide for the payment of such maturing principal. Amounts in each such Balloon Sinking Fund are pledged and are required to be applied to the payment of such Obligations on their maturity date, and are required to be subject to the lien and charge of the Resolution for the benefit of such Obligations. The Series 2015D Bonds constitute a Balloon Obligation. Rate Stabilization Fund The Master Resolution establishes a Rate Stabilization Fund to be held and administered by the District. The District will transfer from the Revenue Fund into the Rate Stabilization Fund or from the Rate Stabilization Fund into the Revenue Fund such amounts, if any, as the District determines from time to time. If such transfer is made within 120 days after the end of a Fiscal Year, the District may allocate such transfer to the prior Fiscal Year rather than to the current Fiscal Year for purposes described under Additional Obligations and Rate Covenant. The District may withdraw amounts from the Rate Stabilization Fund for any lawful purpose of the District; provided, that the Board has found and determined by resolution that it is necessary and in the best interests of the District to do so either (i) to maintain the credit ratings of the District; (ii) to avoid a rate covenant default under the Resolution; (iii) to cover unanticipated and unbudgeted shortfalls in Revenues; or (iv) to pay unanticipated and unbudgeted additional Operation and Maintenance Expenses of the Electric System. In October 2009, the Board adopted a Reserve Fund Policy which set various reserve levels. The policy set the rate stabilization fund level for the Energy Department at up to $100 million. On May 25, 15

24 2010, the Board approved the deferral of $53.5 million of Electric System revenues, which were deposited into the Rate Stabilization Fund. On April 19, 2011, the Board approved a second deferral of $46.5 million of Electric System revenues, which were also deposited into the Rate Stabilization Fund bringing the balance to $100 million. In 2013 and 2014, the District recognized $12.2 million and $4.9 million, respectively, of deferred revenues by making a transfer from the Rate Stabilization Fund into the Revenue Fund. In November 2014, the Board set a minimum balance of $15 million to be maintained in the Rate Stabilization Fund to mitigate or partially offset unexpected fuel and purchased power costs. In addition, the District approved the utilization of up to a maximum of $16 million annually from the Rate Stabilization Fund to offset increases to the energy cost adjustment billing factor until the minimum amount is reached. As of August 31, 2015, the Rate Stabilization Fund had a balance of $72,147,734. Additional Obligations An additional Series of Obligations may be issued under the Master Resolution upon compliance with certain requirements set forth therein, including delivery of either: (i) A Certificate of the District stating that, in each of the first three (3) full Fiscal Years following the last Fiscal Year during which any proceeds of the Obligations are scheduled to be used for the purpose of paying interest on such Obligations, Adjusted Net Revenues as projected: A. Plus the balance in the Rate Stabilization Fund, will be at least 1.30 times the projected Annual Debt Service on the Outstanding Obligations, after giving effect to the issuance of such Obligations, and B. Excluding the balance in the Rate Stabilization Fund, will be at least 1.10 times the projected Annual Debt Service on the Outstanding Obligations, plus required deposits, if any, into the Reserve Fund, after giving effect to the issuance of such Obligations; or (ii) A Certificate of the District stating that Adjusted Net Revenues for any twelve (12) consecutive months of the 24 months prior to the date of calculation: A. Plus the balance in the Rate Stabilization Fund, were at least 1.30 times the projected Annual Debt Service on the Outstanding Obligations, after giving effect to the issuance of such Obligations, and B. Excluding the balance in the Rate Stabilization Fund, were at least 1.10 times the projected Annual Debt Service on the Outstanding Obligations, plus required deposits, if any, into the Reserve Fund, after giving effect to the issuance of such Obligations. For purposes of paragraph (ii), the following adjustments may be made to Net Revenues for the latest Fiscal Year for which audited financial statements of the District are available, if so stated in the Certificate of the District: 1. An allowance for additional Revenues anticipated from any additions, extensions and improvements to the Electric System to be acquired or constructed from proceeds of such Obligations, and for any changes in Operation and Maintenance Expenses resulting therefrom, 16

25 that are not reflected in Net Revenues for such Fiscal Year, but only if such additional Revenues and changes in Operation and Maintenance Expenses represent a full twelve (12) months change in Net Revenues attributable to such additions, extensions and improvements; and 2. An allowance for additional Revenues attributable to any increase in the rates and charges imposed by the District that (A) was in effect prior to the issuance of such Obligations but which, during all or part of such Fiscal Year, was not in effect, or (B) was adopted by the Board prior to the issuance of such Obligations and will be in effect within 90 days after such issuance, but in either case only if such additional Revenues represent a full twelve (12) months change in Net Revenues attributable to such increase in rates and charges. A Series of Refunding Obligations may be issued under the Master Resolution upon compliance with certain requirements set forth therein, including delivery of either (A) one of the certificates referred to above, or (B) a Certificate of the District stating that the issuance of such Refunding Obligations (1) will not result in an increase in maximum Annual Debt Service on the Obligations, and (2) is reasonably expected to result in net present value savings to the District calculated using a discount rate equal to the yield to maturity on the Refunding Obligations. On such date none of the 2008 Bonds are outstanding, for purposes of calculating Annual Debt Service, if interest on any Obligations is reasonably anticipated to be reimbursed to the District by the United States of America pursuant to Section 54AA of the Code, or any future similar program, then interest payments with respect to such Obligation shall be reduced by the amount of such interest reasonably anticipated to be paid or reimbursed by the United States of America. The District may affect such an amendment earlier upon receipt of consent of Owners of a majority of the principal amount of Obligations. The Reimbursement Agreement pursuant to which the Union Bank LOC was issued includes further restrictions on the District s ability to issue additional Series of Obligations under the Master Resolution. Generally, the coverage requirements set forth in paragraph (i) above are required to be 1.40 and 1.20, respectively, adding to the Annual Debt Service the annual debt service with respect to any Commercial Paper Notes then outstanding. Payment Agreement Payments Payment Agreement Payments, defined as the regularly scheduled net amounts required to be paid by the District to the Qualified Counterparty pursuant to a Payment Agreement, are secured by a pledge, lien and charge upon the Revenues of the Electric System, subject to the prior payment of Operation and Maintenance Expenses of the Electric System, on parity with the Obligations. Currently, the District is not a party to any such Payment Agreement. See APPENDIX D SUMMARY OF PRINCIPAL LEGAL DOCUMENTS MASTER RESOLUTION AND SEVENTH SUPPLEMENTAL RESOLUTION Definitions. Other Obligations Nothing in the Master Resolution prohibits the issuance by the District of bonds, notes or other obligations of the District for borrowed money payable from and secured by a pledge of and lien and charge on Revenues of the Electric System junior and subordinate to the Obligations and the payments required to be made into the Obligation Funds and the Reserve Fund. The District may in the future enter into contracts and agreements in the course of its business that include an obligation on the part of the District to make payments or post collateral contingent upon 17

26 the occurrence or nonoccurrence of certain future events, including events that are beyond the direct control of the District. The amount of any such contingent payments or collateral requirements may be substantial. To the extent that the District did not have sufficient funds on hand to make any such payment, it is likely that the District would seek to borrow such amounts through the issuance of additional Obligations or otherwise. These contracts and agreements may include interest rate swap and other similar agreements, power purchase agreements, including those with mark to market collateral requirements, commodities futures contracts with respect to the delivery of electric energy or capacity, investment agreements, including for the future delivery of specified securities, energy price swap and similar agreements, other financial and energy hedging transactions, and other such contracts and agreements. Any such payments, or portions thereof, which are subject to characterization as Operation and Maintenance Expenses of the Electric System, would be payable from Revenues of the Electric System prior to the payment of debt service on the Obligations. Other such payments may be payable on a parity with debt service on the Series 2015 Bonds, including any Payment Agreement Payment to a Qualified Counterparty, as such term is defined in the Master Resolution. The purposes for such contracts and agreements may include management of the District s exposure to future changes in interest rates and energy prices, management of the District s load/resource balance, and other purposes. Such contingent payments or the required posting of collateral may be conditioned upon the future credit ratings of the District and/or other parties to the agreements, maintenance by the District of specified financial ratios, future changes in electric energy or related prices, and other factors. Gas Price Swap and Electricity Price Option Agreements The District uses future and option contracts to hedge the impact of market volatility from natural gas and energy commodity prices that it is exposed to from its natural gas fired generators and energy purchases used to meet the District s retail load. The District is exposed to risk of nonperformance if the counterparties default or if the agreements are terminated. Expenses associated with the future and option contracts are reported net of the payments received, as a component of fuel expense for fuel-related contracts and as purchased power expense for electricity contracts, in the period in which the underlying power delivery occurs. The District records derivative financial instruments, including its gas price swap and electricity option agreements, at actual costs net of sales on its statements of revenues, expenses and changes in net assets. The District does not enter into agreements for trading purposes, therefore, it does not designate the contracts as hedging activities for financial reporting purposes. Expenses associated with future and option contracts are reported net of sales as a component of purchased power and fuel expense. Governmental Accounting Standard 53 (GASB 53), Accounting and Financial Reporting for Derivative Instruments came into effect for financial periods beginning after June 15, 2009 and therefore are implemented in the District s 2014 financial statements. All of the District s purchased power and natural gas transactions outstanding at year end of 2014 were made as normal purchases to serve operational load. Therefore, it is anticipated that they will continue to be reported at their actual cost versus fair market value. Separate System Nothing in the Master Resolution prohibits, shall prohibit or prevent, or be deemed, or construed, to prohibit or prevent the District from authorizing and issuing bonds, notes, certificates, warrants or other evidences of indebtedness other than Obligations to acquire and construct electric power facilities or 18

27 interests therein or the electric power and energy or the capacity or output thereof, or transmission, transformation of distribution facilities, which the District has elected to acquire, construct and operate as separate utility systems, and which bonds, notes, certificates, warrants or other evidences of indebtedness are payable solely from the revenues or other income derived from the ownership or operation of such separate utility systems; provided that the District shall certify that in its opinion the acquisition or construction or operation of such separate utility systems will not result in a reduction of the Revenues of the Electric System or Adjusted Net Revenues below the amounts covenanted under Rate Covenant to be produced. The District does not currently have any such separate utility system. Take or Pay Power Sales Contracts The District has entered into certain power sales contracts for the purchase of energy and certain other agreements for the payment of its share of the costs of certain projects in which it participates. See THE ELECTRIC SYSTEM Power Supply Joint Powers Agency Resources herein. The District s obligations under such contracts constitute a portion of the Operation and Maintenance Expenses of the Electric System and thus are payable prior to the payment of the Obligations. The District could enter into additional contracts the obligations under which constitute Operation and Maintenance Expenses of the Electric System, subject to the rate covenant described above. General IMPERIAL IRRIGATION DISTRICT The District is a public entity organized in 1911 pursuant to the Irrigation District Law (California Water Code sections et. seq.). The petition was submitted in 1911 for the formation of the District as an irrigation district to serve an area situated in the County of Imperial. The District has the powers under the Law to, among other things, provide irrigation and electric service within its geographic boundaries (an area of 1,658 square miles for irrigation and 6,471 square miles for electric). In connection therewith, the District has the powers of eminent domain, to contract, to construct works, to fix rates and charges for commodities or services furnished and to incur indebtedness. The District entered the power business in 1936 to utilize the hydroelectric generation potential on the All-American Canal. In 1943, the District acquired the electric system and certain properties of the California Electric Company in Imperial County and parts of Riverside County. As a consequence, the District became the source of electric energy for a 6,471 square-mile service area, including substantially all of the Imperial Valley and of the Coachella Valley in Riverside County and a small portion of San Diego County. These areas comprise one of the major agricultural areas in the State of California. For general information concerning Imperial County and Riverside County, see Appendix B. To provide electric service within its service area, the District owns and operates the Electric System, which includes generation, transmission and distribution facilities. The District also purchases capacity and energy from others and participates in other utility arrangements. See THE ELECTRIC SYSTEM Power Supply Purchased Power herein. The District is also the only wholesale water irrigation supplier of water for the region and provides raw, untreated water supplies for its local cities and towns. The District holds senior presentperfected water rights to the Colorado River with an annual right to use 3,100,000 acre-feet. This entitlement comprises over 70 percent of California s 4.4 million acre-feet annual apportionment, and serves the year-round demands of a billion-dollar agricultural economy within Imperial County. The District diverts its water from the Colorado River at Imperial Dam, and these flows are transported to the District s service area via the 82-mile long All-American Canal. The District s Water Department 19

28 manages an extensive network of irrigation and drainage facilities including over 3,000 miles of open channel canals and drains in order to provide water delivery service to over 520,000 acres (approximately 815 square miles) of prime agricultural farmland. The District has segregated its operations into two departments, the Energy Department and the Water Department. The production, transmission and distribution of power are functions of the Energy Department. The diversion and delivery of Colorado River water for irrigation and domestic uses and the operation and maintenance of canals and drainage facilities are performed by the Water Department. Separate accounting records are maintained for each of the two departments. Governance The District is governed by a Board of Directors (the Board ) composed of five persons who are elected at large from geographic districts within the water service area in which they reside. Pursuant to California Water Code Section 21554, the method of electing directors of the Board was changed from the district at large to by division at the general election of November 4, 2014, applicable to director elections beginning in The Board has held public workshops to review proposed new division boundaries which, if changed, will affect the 2016 election for Divisions 2 and 4 and the 2018 elections for Divisions 1, 3 and 5. The following are the members of the District s Board of Directors and their background. Effective January 1, 2016, Director Galindo will serve as the President of the Board and Director Dessert will serve as the Vice President. STEPHEN W. BENSON, President. Mr. Benson is the District Director representing Division 4, which includes the City of Brawley. Mr. Benson was elected to the Board in November 2012 and has been appointed as an alternate on the state s Colorado River Board. Born in Brawley, Mr. Benson is a fourth generation Imperial Valley resident. He farms in the Imperial Valley and operates a hay press business, serving as president of Planters Hay Inc., of Brawley. He also manages Benson Farms, LLC. Before working in farming, he was employed in real estate development and also worked as a civil engineer. His educational background includes a Master s degree in Business Administration from the University of Southern California and Bachelor degrees in both Civil Engineering and International Relations from Bucknell University. Before joining the District board, Mr. Benson served on the Water Conservation Advisory Board, including a term as chairman. He is a member of the Imperial County Farm Bureau and serves as president of the Boys & Girls Clubs of Imperial Valley. In 2011, Mr. Benson was named Ag Businessman of the Year by the Imperial Valley Economic Development Corporation. Mr. Benson s term concludes December, NORMA SIERRA GALINDO, Vice President. Ms. Galindo is the District Director representing Division 5, which includes the City of Calexico, the community of Heber and the majority of the City of Holtville. Ms. Galindo was elected to the Board in November Ms. Galindo was appointed to the District s Energy Consumer Advisory Committee where she served for eight years. In 2005, Ms. Galindo was elected to the Imperial Community College District Board of Trustees and served on its bond oversight committee before joining the District board. Ms. Galindo works as an instructor for Calexico High School s Allied Health Professions program and as an educator for Imperial Valley Regional Occupational Program s Medical Assistant and Business Departments. She also operates a private interpretation and translation business. A graduate of Calexico High School, Ms. Galindo was awarded a Bachelor degree in History and Anthropology from the University of California and holds a state teaching credential. Ms. Galindo s services include being a board of director for the U. S. Navy League of Imperial Valley and Cancer Resource Center of the Desert, founding board member of Habitat for Humanity Imperial Valley Affiliate and a member of the CONDORSOURL Medical Missions Team in Peru and the lower Amazon. She was honored in 1991 by Imperial Valley Women and received a lifetime appointment by the governor and attorney general to the California Schools Education and Law 20

29 Enforcement Partnership in Ms. Galindo was re-elected as Division 5 Director on June 3, 2014; her term expires December, MATT DESSERT, Director. Mr. Dessert is the District Director representing Division 1, which includes El Centro and part of Calexico. Mr. Dessert was elected to the Board in November He represents the District on the California Farm Water Coalition. A lifetime resident of Imperial County, he has been employed as an Administrative Analyst for the Imperial County Air Pollution Control District for more than 10 years. Prior to his work there, he was employed for more than a decade in the farming and seed industry. He is a graduate of Cal Poly San Luis Obispo, where he earned a Bachelor s degree in Agricultural Business Management. Prior to his election, Mr. Dessert served on the District s Energy Consumer Advisory Committee for four years, chairing the group in He also served on the Imperial County Grand Jury from He is active in church and civic affairs, serving as a board member for Court Appointed Special Advocates and the New Creations Men s and Women s Homes. Mr. Dessert was re-elected as Division 1 Director on June 3, His term expires December, BRUCE KUHN, Director. Mr. Kuhn is the District Director representing Division 2, which includes Imperial, Seeley and part of El Centro. Mr. Kuhn was elected to the Board in November 2012 to begin his third term as a District director. He had previously served as a District director from 1996 to During his previous time as a director, Mr. Kuhn served on the District s water, general services, information technology and human resources committees as well as serving as the District president in 1999 and A native of the Imperial Valley, Mr. Kuhn has been self-employed in the land leveling business since Prior to that, he worked as a police officer for 12 years with the El Centro Police Department. Mr. Kuhn attended Imperial Valley College where he majored in political science. He also studied law enforcement at the College of the Redwoods in Eureka, California, graduating from the Peace Officers Standards and Training Academy. Mr. Kuhn s civic involvement include being a past board member of the Imperial Valley Food Bank, past president of Imperial Valley Environmental Task Force, past board member of Imperial County Farm Bureau and past vice president of the El Centro Little League, former member of the Imperial Rotary Club and current member of the Swiss Club. Mr. Kuhn has also been recognized for his humanitarian efforts. In 2004, he was honored with the NAACP s Martin Luther King Jr. Image Award for public service. Mr. Kuhn s term expires December, JAMES C. HANKS, Director. Mr. Hanks is the District Director representing Division 3, which includes Calipatria, Niland and parts of Brawley. Mr. Hanks has been appointed as a member on the state s Colorado River Board. Director Hanks was elected in the 2006 primary. Following the May 2006 death of incumbent director Lloyd Allen, Mr. Hanks was appointed by the Imperial County Board of Supervisors to fill the vacancy beginning in July Mr. Hanks is a retired school superintendent, having worked in the education field for 38 years. He holds a Masters, Bachelors and Associate of Science degrees in Counseling. He was raised in Brawley and attended Imperial Valley College, Southern Utah, San Diego State and the University of San Diego. Mr. Hanks served as Superintendent for the Calipatria Unified School District for 20 years. He was also a principal for four years, and assistant principal for seven years in Niland and Calipatria schools. Early in his career he was a teacher and an assistant principal in the Seeley Union School District. Mr. Hanks has also served on the Imperial Valley Telecommunications Agency Board, the Imperial County Volunteer Employer Benefits Area Board, the Special Education Local Planning Area Board, and the Imperial County Schools Joint Powers Authority. He also was a member of the Association of California School Administrators and has been a member of the Calipatria Lions Club for more than 25 years. He was honored by the Lions Club with the Melvin Jones Fellowship for community service. Mr. Hanks was re-elected as Division 3 Director on June 3, Mr. Hanks term expires December,

30 Management The management of the District is currently under the direction of Kevin Kelley who was appointed as General Manager on May 17, The following are the members of the District s management staff and their background. However, effective January 4, 2016, Vicken Kasarjian will assume the role of Energy Manager (Operations) and Carl Stills will head the Portfolio Management Office. KEVIN KELLEY, General Manager. Mr. Kelley was recruited to the District in June 2006 as the Community Information Officer. He was promoted to Assistant to the General Manager in February, A 1984 graduate of the University of Southern California, where he majored in communications arts and sciences, Mr. Kelley s background in media consulting, marketing communications and public affairs is wide-ranging and extensive. Prior to joining the District, Mr. Kelley was the former editor and publisher of Valley Grower magazine, an agricultural trade publication that was acquired by the Imperial Valley Press in As a freelance writer, his work has appeared in most major metropolitan newspapers in the West. From , he served as editorial page editor of the Imperial Valley Press. Mr. Kelley is a native of Brawley, California and a lifelong resident of the Imperial Valley. BELEN VALENZUELA, Chief Financial Officer. Ms. Valenzuela serves as the Chief Financial Officer where she oversees the fiscal operations of the District, including financial forecasting, economic and statistical analysis, auditing, budget analysis and control, and financial methods and systems. Ms. Valenzuela provides assistance and advice to District management and the Board in financial matters, and maintains financial controls to assure that the assets of the District are safeguarded. She is responsible for the development of the District s annual budget and acts as a liaison for the District with various financial institutions and external auditors. Ms. Valenzuela also oversees activities associated with the District s energy trading section. Formerly a Deputy Energy Manager primarily responsible for financial operations and resource optimization, Ms. Valenzuela is a 20-year employee who began her career at the District in the Finance Department. A lifelong Imperial Valley resident, she holds a Master s degree in Business Administration and is a Certified Public Accountant. CARL D. STILLS, Energy Manager, Operations. Mr. Stills is the Energy Manager in charge of operations for the District. With more than 35 years of experience in the energy industry, Mr. Stills has been instrumental in the District s efforts to promote and explore renewable energy resources, and has led the District s efforts in developing opportunities for native geothermal projects in the Imperial Valley. Prior to this, Mr. Stills served as the head of the District s Project Management Office where he was responsible for the planning, organizing and managing of resources to bring about the successful completion of specific project goals. He worked on a variety of projects for the utility, including electrical substation and transmission line construction projects, the energy management system consolidation, fiber optic installations, the SAP business system installation/upgrade, LAN/WAN systems development and an organizational-wide efficiency study. Mr. Stills attended Imperial Valley College and Fort Lewis College in Durango, Colorado, where he studied civil engineering and business. He has also studied advanced electronics, real estate and project management. VICKEN KASARJIAN, Energy Manager, Transmission and Planning. Mr. Kasarjian is the Energy Manager in charge of transmission and planning for the District. He oversees transmission, planning and engineering functions as well as the management control of system operations, generation and regulatory affairs. With the state s renewable portfolio standard moving from 33 to 50 percent by 2030, and the proposed expansion of California Independent System Operator into adjoining states, the District is facing many challenges to its energy balancing authority. Mr. Kasarjian will be working to preserve and position the District and its public power business model, ensuring its historically low rates while meeting the demands and expectations of a balancing authority area in an evolving energy 22

31 landscape. Mr. Kasarjian s career in the energy industry spans nearly 30 years and includes recently serving as vice president of generation, transmission and distribution for ZGlobal Engineering and Energy Solutions, 10 years at Sacramento Municipal Utility District, three years at Northern California Power Agency, five years at the CAISO and about 12 years at the California Department of Water Resources. He earned his bachelor s degree in electrical engineering from California State University-Los Angeles in TINA ANDERHOLT SHIELDS, Water Manager. Ms. Shields is the Water Manager for the Imperial Irrigation District where she oversees the District s Colorado River water supply entitlement with a focus on the implementation of water management policies and the coordination of various water conservation and transfer programs. Ms. Shields represents the District s water interests at local, state and federal levels protecting its senior water rights and its annual 3.1 million acre-feet allocation of Colorado River water. As a Water Resource Manager, Ms. Shields has directed the District in a wide range of issues related to water rights, supply and demand planning, resource management, water quality, regulatory compliance and water conservation. This includes the development and implementation of the Integrated Regional Water Management Plan, the District s water resources management plan and the District s interim water supply policy. All are crucial to balancing the immediate and long-term needs of the District s agricultural water users while ensuring that residential, commercial and industrial demands are met, including those forecasted for the emerging local renewable energy industry. A registered civil engineer, Ms. Shields provides technical guidance and recommendations for water policy decisions at the District and assists in the implementation and oversight of the Quantification Settlement Agreement ( QSA ), a historic agreement that forms the foundation of California s ability to live within its 4.4 million acre-foot annual apportionment of Colorado River water. She also oversees the implementation activities of the IID/San Diego County Water Authority water conservation and transfer program. Her work on QSA and water transfer matters includes issues ranging from state and federal environmental documentation and compliance to water efficiency and fallowing program planning and administration. Ms. Shields joined IID in 1992 as an engineering technician and rose to engineering and supervisory positions in the District s Water Resources, Planning and Management sections until being promoted to management in Ms. Shields graduated from California State Polytechnic University, Pomona, with a Bachelor of Science degree in Civil Engineering, and has completed coursework towards a Master s in Public Administration at San Diego State University. She is licensed by the State of California as a Professional Civil Engineer and Land Surveyor-in-Training. Ms. Shields was recognized as a Water Education Foundation Water Leader in MICHAEL A. PACHECO, Water Department Manager-Operations and Maintenance. Mr. Pacheco currently serves as Water Department Manager in charge of operations and maintenance activities. Mr. Pacheco has extensive experience at the District, serving the District for 34 years, all in the Water Department. Prior to his appointment, Mr. Pacheco had served four years as Assistant Department Manager in charge of the Northend Division. He began his career at the District as a Zanjero and worked as Water Coordinator, Assistant Superintendent of Operations and as Superintendent of Operations for the Northend Division. Mr. Pacheco attended Imperial Valley College. His community involvement includes serving as head basketball coach at Brawley High School, membership in the Imperial County Sheriff s Department Posse and a member of Brawley s Development Review Committee. He has also served as California Interscholastic Federation committee advisor and Little League committee member, Holtville. ROSS G. SIMMONS, General Counsel. Mr. Simmons serves as General Counsel for the District where he provides legal counsel to the Board, manages the operations of the in-house legal department and oversees the activities of outside attorneys and legal consultants. A graduate from the Marshall School of Business at the University of Southern California, Mr. Simmons received his law degree, as well as his Master of Science in Agricultural Economics, from the Davis campus of the University of California. Mr. Simmons is the principal of The Simmons Firm, ALC, and has an AV Preeminent 23

32 Rating the highest rating available from Martindale-Hubbell, the leading independent attorney rating entity. In addition to his legal practice, Mr. Simmons has taught Professional Responsibility as an Adjunct Professor at the University of San Diego and Thomas Jefferson Schools of Law. He was a four-term chair, and long-time vice chair of the San Diego County Bar Association Legal Ethics Committee, during which time he was awarded that Association s Outstanding Service Award. He has served as a Probation Monitor Referee for the State Bar of California since WILLIAM D. DEVOY, Manager-Human Resources Department. Mr. DeVoy joined the District in 2006 and oversees the department responsible for employing more than 1, 300 people. Mr. DeVoy also oversees the employee benefits, employment and compensation, employee training and development services, and security, claims and investigations functions of the District. Mr. DeVoy s experience includes collective bargaining, employee relations and working with staff and departments to ensure consistent application of personnel policies. Prior to joining the District, Mr. DeVoy worked for the County of Imperial for six years. During that time, he served as Human Resources and Risk Management Director, where he managed the day-to-day operations of the department for the county which employs more than 2,000 people. Prior to his service at the county, he was Director of Human Resources for El Centro Regional Medical Center. Mr. DeVoy holds a Masters of Business Administration degree from California Polytechnic State University, San Luis Obispo and a Bachelor of Science in Agricultural Business Management from California Polytechnic University, Pomona. He also attended Imperial Valley College. His professional and community involvement include: member of the County Personnel Administrators Association of California, board member of the California State Association of Counties Excess Insurance Authority and member of the California Public Employers Labor Relations Association, member of the Imperial Valley Employer s Consortium, chair of the Imperial Valley EEOC Advisory Council, and board positions with the Private Industry Council of Imperial County. Employees As of October 1, 2015, the Energy Department had 429 full-time employees. Since September 8, 2009, the District s employees have been represented by three bargaining groups: the International Brotherhood of Electrical Workers ( IBEW ) under an agency shop arrangement, the Professional Salaried Association ( PSA ) and the Executive Management Association ( EMA ). The District has never experienced a work stoppage and current Memorandums of Understanding ( MOU ) with the three bargaining units includes no strike provisions. The District recently negotiated a two year agreement with IBEW for years 2016 and The agreement was ratified by the Board on November 3, The MOU for PSA will expire on December 31, 2016 and the MOU for EMA will expire on December 31, The District has reached an agreement with PSA on salary and benefits for 2016 that was ratified by the Board on January 4, The District is in negotiations for salary and benefits with EMA for Pension Benefits Effective June 30, 2001, the District terminated its then-existing Defined Benefit Pension Plan. Most members became 100% vested in their accrued benefits. The Pension Plan also provided additional benefits to keep the Pension Plan members pension benefits whole. In June 2001, the District issued its $75,000,000 aggregate principal amount of Pension Bonds (of which $56,820,000 principal amount are currently outstanding) for the purpose of funding the Pension Plan obligation (including certain additional benefits). Approximately 51.5% of the payments to be made by the District for the payment of principal of and interest on the Pension Bonds (or $29,262,300 principal amount of the Pension Bonds) constitute Operation and Maintenance Expenses of the Electric System. 24

33 The Pension Plan was replaced in 2001 by a 401(a) plan. As a consequence of the issuance of the Pension Bonds and the termination and replacement of the Pension Plan as described herein, the District was relieved of any further obligation to make annual payments to the prior Pension Plan. Under the 401(a) plan, the District contributes an amount equal to 7% of participants base salary. In addition, participants may contribute up to 18% of their base salary, for a total maximum contribution of 25% of participants base salary. Investment decisions are made by members of the 401(a) plan, not the District. The District s total contribution to the 401(a) plan was $7,463,263 for the year ended December 31, The District has no liability for losses under the 401(a) plan, but does have the duty of due care that would be required of a fiduciary. On September 17, 2013 the Board approved a one percent (1%) increase for a new total of 8% contribution to the 401(a) retirement plan effective January 1, 2014 on behalf of current employees in the PSA bargaining unit. On December 2, 2014, the Board approved a one percent (1%) increase for a new total of 8% District contribution to the 401(a) retirement plan effective January 1, 2015 on behalf of current employees in the EMA bargaining unit. The District recently negotiated a two percent (2%) increase to the 401(a) retirement plan for employees in the IBEW bargaining unit. This is a tentative agreement and it will be brought to the Board for ratification once the IBEW members vote and accept the tentative agreement. Effective January 1, 2016, IBEW members will receive one percent (1%) for a total of eight percent (8%) of their creditable compensation. Effective January 1, 2017, IBEW members will receive an increase of one percent (1%) for a total of 9% of creditable compensation. For additional information on the 401(a) plan, see Note 9 to the District s audited financial statements included in Appendix A hereto. Other Post-Employment Benefits During the calendar year 2007, the District implemented GASB Statement 45, Accounting and Financial Reporting for Other Postemployment Benefits other than pensions, by state and local government employers. The District provides post-employment benefits in the form of health medical benefits in accordance with current District policy to qualified retirees and certain dependents. Retiree benefits primarily include medical insurance. Employees are eligible for postemployment benefits upon reaching the normal retirement age of 65 or upon early retirement at 55 with a minimum of ten years of service. Effective October 1, 2002, an Early Retirement Age option was approved by the Board for employees in the Executive class of service. These employees have the option to retire once they obtain the age of 52 if they have a minimum of 15 years of service. The District pays the majority of the monthly premium for retirees depending upon the age of the employee and the number of dependents the employees included in the plan. Benefits are payable for the lifetime of the retiree, spouse, and dependent children to age 26. Survivor benefits are provided in the event that a retiree predeceases his/her spouse. During 2013, the Board approved the following eligibility and contribution changes to the retiree benefits: The District will provide employee only medical benefits on behalf of retired employees for those retired unit members who were first employed by the District on May 14, 2013 or later for IBEW members, and by September 17, 2013, or later for PSA members, who have ten years of continuous full-time District employment, and who retire between the ages of sixty (60) to sixty-five (65). In December 2014, the Board approved a MOU with 25

34 the Executive members. In the Executive MOU, the District will provide employee only medical benefits on behalf of retired employees for those retired unit members who were first employed by the District on or after November 18, 2014 who (1) have ten years of continuous full-time District employment, and (2) retire between the ages of sixty (60) to sixty-five (65). For employees hired before May 14, 2013 for IBEW members, and before September 17, 2013 for PSA members, effective January 1, 2014, the District shall provide medical benefits on behalf of the retired employee and their eligible dependents enrolled at the time of retirement, with a maximum contribution per month ranging anywhere from $1, to $3, In December 2014, the Board approved a MOU with IBEW and PSA which increased the retirement contributions per month ranging from $1, to $3, For employees hired on May 14, 2013 or later for IBEW members, and on September 17, 2013 or later for PSA members, effective January 1, 2014, the District shall pay a maximum contribution per month per retiree between the ages of sixty (60) and sixty-five (65) (and who are otherwise eligible for retirement health benefits) toward the total cost of retiree health benefit coverage in the amount of $1, For employees hired on November 18, 2014 or later for Executive members, effective December 2, 2014, the District shall pay a maximum contribution per month per retiree between the ages of sixty (60) and sixty-five (65) (and who are otherwise eligible for retirement health benefits) toward the total cost of retiree health benefit coverage in the amount of $1, There is no guarantee of the continuance of any specific medical benefits plan by the District. The retired employee may continue to pay for any coverage for the employee s spouse and/or dependents as long as the retired employee makes regular and timely payments for the excess costs. The District s contribution for retiree medical benefits shall terminate upon the sooner of the retiree s 65th birthday, upon eligibility of the retired unit member for Medicare, or upon the date that the retiree becomes covered by another employer who provides full health benefits. The retired employee will be responsible for and pay to the District the cost for retiree health benefits in excess of the maximum contribution. In the event that the retired employee fails to make regular and timely payments to the District for the excess costs, the District s contribution for retiree medical benefits shall cease. The Board has reserved the right to adjust retiree contribution amounts payable by retirees. In 2015, the District hired an actuary that incorporated the eligibility and contribution changes discussed above. The actuary calculated the District s Unfunded Actuarial Accrued Liability ( UAAL ) for retired and vested employees as well as the Annual Required Contribution ( ARC ) assuming no changes in the plan vesting requirements and no change in the plan for current employees as they become eligible for medical retirement benefits under the current plan in place. The District estimates its UAAL at approximately $222.3 million as of January 1, 2015 based on these assumptions. The ARC under these assumptions is estimated to be approximately $22.9 million for The actuary estimated the amount to be approximately $17.5 million greater than the estimated pay-as-you-go contribution for The actuarial study, dated April 22, 2015, computed the present value of future benefits for all currently active and retired employees at approximately $332.6 million. Funds equal to each year s actuarially determined ARC, less annual contributions paid, have been set aside in a designated reserve account beginning in fiscal year ended December 31, The balance of this reserve account totaled approximately $104.2 million, of which $66.4 million is attributable to the Electric System, as of December 31, Such annual post-employment benefit expense is recognized 26

35 in the financial statements in an amount equal to the ARC. The District will be reviewing strategies for its post-employment benefits and funding policy. For additional information on Other Post-Employment Benefits Other Than Pensions, see Note 13 to the District s audited financial statements included in Appendix A hereto. Insurance The District maintains commercial insurance for property damage, casualty loss and other customary risks. A blanket fire policy is currently maintained that covers the full current value of all buildings of the District up to a limit of $400 million. The District also maintains boiler and machinery insurance with a limit of $250 million. It maintains $60 million excess liability coverage, subject to a $2 million self-insured retention per occurrence for which the District maintains a casualty reserve. The District self-insures for workers compensation claims. The District maintains stop loss coverage for workers compensation in the amount of $35 million, subject to a $500,000 self-insured retention. The District self-insures all of its exposure to earthquake loss. The District has conducted modeling of its earthquake exposure and purchases small limits of earthquake insurance opportunistically when coverage is reasonably affordable relative to loss exposure. Although the District is located in a seismically active area and has experienced three earthquakes in the last 33 years (1979, 1987 and 2010) of greater magnitude than the Northridge earthquake in 1994, the District has not experienced any severe disruptions in water or electrical service. The 7.2 earthquake on April 4, 2010 and aftershocks caused minimal damage to the Electric System facilities. Damages from this earthquake totaled $412,166 and the District anticipates receiving reimbursement of $319,777 from the federal and state emergency management agencies. The District has been reimbursed $277,236 as of April 7, On August 6, 2015, the District experienced a severe thunderstorm in the Salton Sea area of its service territory. The storm caused damages to the District s transmission and distribution lines estimated to be between $13 million and $18 million. The Board declared an emergency on August 11, 2015 which allowed the District to pursue emergency funds from the California Office of Emergency Services ( Cal OES ). The District has submitted an application for reimbursement to Cal OES and is awaiting a response on the District s application. None of damages are covered by the District s existing insurance policies. The District has prepared a Emergency Operations Plan that has been tested in a full scale, tabletop and functional exercise and is reviewed each year. In addition, the District employs aspects of its Emergency Operations Plan and its response capability with each severe occurrence. As a result, the District has experience working with the Federal Emergency Management Administration and the California Office of Emergency Services for reimbursement for damage and repairs of the systems in the event of man-made disaster, storm and/or earthquake damage. Investment Policies The Board has adopted an investment policy by resolution which permits the investment of fund balances other than special trust funds, which include bond proceeds, in investments permitted under Section of the Government Code for up to five years. The policy delegates the authority to invest or reinvest funds to the Treasurer and requires the Treasurer to provide quarterly reports to the Board. 27

36 Interdepartmental Transactions The District s Water and Energy Departments maintain separate accounting records. Excess revenues of the Electric System may only be applied to lawful purposes of the Electric System. See SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2015 BONDS Flow of Funds. The Energy Department does, however, conduct certain interdepartmental transactions with the Water Department. The transactions primarily involve charges by the Energy Department to the Water Department for electricity consumption and by the Water Department to the Energy Department for the use of water to generate electricity on the All-American Canal system. The interdepartmental charge for use of water in the All-American Canal to generate electricity is based upon the Canal Space Rental Fee approved by the Board on June 23, In 2013 these charges were $7.4 million and were $7.5 million in Charges for use of buildings, vehicles, and equipment, and general and administrative expenses of the District are allocated between the Energy Department and the Water Department based on various allocation formulas. All such charges payable by the Electric Department pursuant to interdepartmental transactions are Operation and Maintenance Expenses of the Electric System. In addition, the District s Pension Bonds constitute Operation and Maintenance Expenses of both the District s Electric System and Water System. See SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2015 BONDS Pension Bonds. District s Coachella Service Area Approximately 60 percent of the 152,000 electric customers served by the District reside outside its water service boundaries, principally in the Coachella Valley (the District Coachella Service Area ). The District acquired the District Coachella Service Area in 1943 through the purchase of the electric system and certain properties of California Electric Company in Imperial County and parts of Riverside County. Under state law, only those electric customers who reside in the District s water service boundaries may elect District board members. A portion of the District Coachella Service Area overlaps the service territory of the Coachella Valley Water District ( CVWD ). The CVWD, located primarily in Riverside County, was organized in 1918 as a county water district solely for the purpose of providing water for agricultural and other development in the Coachella Valley. In 1934, prior to the acquisition of the electric system from California Electric Company in Riverside County, the District and the CVWD executed the Agreement of Compromise in order to settle a dispute arising as a result of the development of a canal system in the CVWD (now known as the Coachella Canal) in connection with the construction of the Hoover Dam. Under the Agreement of Compromise the parties intended to enter into a long-term lease regarding CVWD s rights in the power generation potential of the Coachella Canal. Under the proposed lease, the District was to pay to CVWD a percentage of the District s energy net proceeds as a rental fee for the power potential rights to the District. The lease was to have a 100-year term (expiring in January 2033). The 100-year lease term was intended to pertain solely to the power potential on the Coachella Canal and the related payment of net proceeds and not to the District s ability to generate, transmit and distribute energy in the CVWD. The Coachella Canal was eventually built without any drops and consequently no hydroelectric generating facilities were constructed on the Coachella Canal. The lease, intended to be executed in 1934, was never formally created. The District, however, has made, and continues to make, the net proceeds payments to CVWD. From 2009 through 2014, the District has made one net proceeds payment to CVWD of $2,677,748 for operating results of fiscal year ending December 31, Future payments, if any, will be contingent upon the District s electric system fiscal year s net proceeds results. 28

37 For a number of reasons, including the lack of representation of the electric customers in the District Coachella Service Area on the District s board and uncertainty over the effect of the terms of the Agreement of Compromise on the District s continuing right to provide electric service to the District Coachella Service Area, particularly as to the provisions relating to the intended lease of the power generation potential of the Coachella Canal, questions have been raised from time to time regarding the disposition of the District Coachella Service Area by the District. In response to these questions, the District s then existing board unanimously adopted Resolution No on August 12, 2007 to the effect that the District has no intention of divesting itself of the District Coachella Service Area. Power Supply General THE ELECTRIC SYSTEM The District owns and operates electric generation, transmission and distribution facilities. Its generating facilities include fossil fuel-fired and hydroelectric plants. Its transmission system extends over 1,690 miles of transmission lines. Its distribution system includes approximately 5,056 miles of overhead and underground distribution lines. The District meets its customers energy requirements with its own hydroelectric units and oiland gas-fired generating facilities as well as with purchases of capacity and energy from other sources, as more fully described below. The District s generating facilities have a total net capability (summer season) of 686 megawatts ( MW ). Additional generation commitments through Southern California Public Power Authority ( SCPPA ) add 121 MW, and through Western Area Power Administration ( Western ) an additional 32.5 MW. Renewable resource contracts with SunPeak 1, San Diego State University community solar, Ormat Solar, Sol Orchard and Desert View Power added 103 MW of renewable generation in 2014 and SunPeak 2 added 20 MW at the end of the summer of In 2013, the District experienced a peak demand of 988 MW, generated 1,695,499 megawatt hours ( MWh ) and purchased 2,197,926 MWh. In 2014, the District experienced a peak demand of 982 MW, generated approximately 1,675,304 MWh and purchased approximately 2,004,161 MWh. The District s annual peak demands occur in the summer season due to customers energy requirements for air conditioning. [Remainder of This Page Intentionally Left Blank] 29

38 Set forth below are the power requirements and resources for the District for the Fiscal Years ended December 31, 2010 through IMPERIAL IRRIGATION DISTRICT POWER REQUIREMENTS AND RESOURCES (MW) Fiscal Years ended December 31, 2010 through Power Requirements: Highest Peak Demand (MW) ,000 1,004 Power Resources: (1) Generation (2) Steam Generation: El Centro # El Centro # Yucca Steam Subtotal: Combined Cycle: El Centro # El Centro #3 (3) Subtotal: Combustion Turbines: Rockwood # Rockwood # Coachella # Coachella # Coachella # Coachella # Niland # Niland # Yucca GT Subtotal: Hydro: IID Drops Joint Powers Agency Resources: SCPPA PVNGS SCPPA - San Juan # Subtotal: Purchased Power: (4) EPE/Replacements Shell (Coral Power) SP-15 Market Palo Verde Market RFP #484 Products Western Renewables Subtotal: Total Resources: 1, , , , , Less External Transmission Losses (5) Resources Available for System Requirements: 1, , , , , Amount Available for Reserves: Reserve Target (15% of Actual Peak): Resources in Excess of Reserve Target: (54.24) (1) Estimated capacity at the time of the annual peak demand. (2) Nameplate capacities based in 2014 Power Report. (3) El Centro #3 was repowered in October 2012 as a 2x1 combined-cycle unit. (4) (5) Firm contracts. Represent different losses at different paths. Source: Imperial Irrigation District 30

39 Owned Generating Facilities El Centro Generating Station. The El Centro Generating Station ( ECGS or Station ) is owned by the District and is located in the northeastern part of El Centro, California, consists of four generating units originally completed during the years 1949 to Unit 1 was retired in 1995, Unit 2 was repowered in 1993 as a 1x1 combined cycle unit and Unit 3 was repowered in October 2012 as a 2x1 combined-cycle unit. The units utilize natural gas, which is delivered through the Southern California Gas Company ( SoCal Gas ) pipeline into the Station. The District has established a transportation agreement with SoCal Gas for long-term firm transportation for this station and other District owned generating stations utilizing natural gas. See SoCal Gas Transportation Agreement. Units 2 and 4 can burn fuel oil as a secondary fuel. Fuel oil is delivered to the site by truck. The three active units have a combined net capacity (summer season) of 322 MW and are utilized as intermediate duty generation within the District s power resources. The Station is regulated in the areas of air emissions, water discharge and hazardous materials generated from the three units. The Imperial County Air Pollution Control District regulates the air emissions. The Imperial County Division of Environmental Health and the State Department of Toxic Substances Control, acting as the Certified Unified Program Agency ( CUPA ), regulate hazardous materials. The California Regional Water Quality Control Board regulates the water discharge. The Station is operating within all federal, state, and local permit requirements. Yucca Steam Unit and Combustion Turbine Unit. The District purchased the Yucca Steam Unit and Combustion Turbine Unit located in Yuma, Arizona, from Southern California Edison in April The Yucca Steam Unit utilizes natural gas, which is delivered through a TransCanada Corporation pipeline. See THE ELECTRIC SYSTEM Fuel Supply and Energy Risk Management. The Yucca Steam Unit has a net capacity of 75 MW. The Yucca Combustion Turbine Unit utilizes fuel oil. The fuel oil is supplied by truck to the Yucca Power Plant. The Yucca Combustion Turbine Unit has a net capacity of 21 MW and is utilized as a peaking generation resource. Both Yucca Units are operating within all federal, state, and local permit requirements. The units are regulated in the areas of air emissions, water discharge and hazardous materials generated from the units. The Arizona Department of Environmental Quality regulates the air emissions as well as hazardous materials and the Bureau of Reclamation regulates water discharge. California Combustion Turbines. Combustion turbines for peaking service were installed by the District during the years 1962 through 2008 and include four generating units at the Coachella Gas Turbine Plant, two generating units at the Rockwood Gas Turbine Plant and two generating units at the Niland Gas Turbine Plant. The Coachella combustion turbines, located in the eastern part of Coachella, California, can fire both natural gas and fuel oil. The natural gas is transported through a SoCal Gas pipeline. The Rockwood combustion turbines, located in the southern part of Brawley, California, can fire both natural gas and fuel oil (Unit 2 fires fuel oil only). The natural gas is transported through a SoCal Gas pipeline and fuel oil is transported by truck to the Rockwood plant. The Niland Gas Turbine Plant, which is located to the northeast of Niland, an unincorporated community located in Imperial County, can fire natural gas and consists of two simple cycle generating units with a net capacity of 45 MW each for a total output of approximately 90 MW. Natural gas is being supplied from two SoCal Gas transmission pipelines running north-south along the eastern boundary of the plant site. The District s California combustion turbines have a combined net capacity (summer season) of 214 MW. All of the District s California combustion turbine plants are operating within all federal, state, and local permit requirements. The Niland and Rockwood plants are regulated in the areas of air emissions and hazardous materials generated from the plants by the Imperial County Air Pollution 31

40 Control District and the Imperial County Division of Environmental Health and the State Department of Toxic Substances Control, acting as the CUPA, respectively. The Coachella plant is regulated by the South Coast Air Quality Management District and the Riverside County Department of Environmental Health. Hydroelectric. The District owns a number of hydroelectric facilities on its canal system, including Drops l, 2, 3, 4 and 5 Plants (the Drop Plants ), the Pilot Knob Plant, the Turnip Plant, the Double Weir Plant and the East Highline Plant, with a nameplate capability of 86 MW dependent upon available water flow. These plants are operated on a run of river and are dependent upon irrigation water flow. The Drop Plants consist of a total of 11 generating units and were installed between the years 1941 and The Pilot Knob Plant consists of two generating units installed in The Turnip Plant consists of one generating unit installed in The East Highline Plant consists of one generating unit installed in The Double Weir Plant consists of two units and was repowered in The District performed a major refurbishment to Unit 2 at the Drop Plant 4 in A new turbine runner and a new control system were installed on Unit 2 to improve the plant efficiency and increase production. The District has approved a major refurbishment of Unit 1 at Drop 4 which is expected to increase the reliability, efficiency and life of the unit. The refurbishment is expected to be completed in the first quarter of Additionally, the District is considering major refurbishments of four additional hydro units similar to its refurbishment of Unit 2 at Drop 4. The District will use proceeds of the Series 2015D Bonds to refund the Series B Notes that will be used to finance two low head-hydro projects, Check No. 8 and Foxglove, expected to cost approximately $8.9 million. Check No. 8 consists of two Hydrodynamic Screw Turbines (HDS), two asynchronous generators, intake structure, discharge structure, a gearbox (speed increaser) and controls. The gearbox, generator and controls would be housed in a 15 x 36 foot powerhouse building. The intake structure is composed of two 10-foot wide gates and open concrete canals allowing inflow from the Westside Main Canal. The intake structure widens to 31-feet and provides flow to the two parallel HDS turbines which are each 34.4-feet long. Flow exiting the turbines would be combined into a single 31- foot wide, 110-foot long, underground, closed concrete box tailrace and return the discharge water back into the Westside Main Canal on the other side of the existing check structure. Check No. 8 would have a nameplate capacity ranging from 610 kw up to 745 kw with the potential to produce 3,121 MWh up to 3,990 MWh annually to be used within the District s customer service electrical distribution system. Foxglove consists of three HDS, three asynchronous generators, intake structure, discharge structure, gearboxes (speed increaser) and controls. The gearbox, generator and controls would be housed in a 15 x 55 foot powerhouse building. The intake structure is composed of three 10-foot wide gates and an open concrete canal allowing inflow from the Westside Main Canal. The intake structure widens to 49.3-feet and provides flow to the three parallel HDS turbines which are each 19-feet long. Flow exiting the turbine would flow through a 49.3-foot wide, 81-foot long, open concrete box tailrace and return the discharge water back into the Westside Main Canal on the other side of the existing check structure. Foxglove would have a nameplate capacity ranging from 490 kw up to 665 kw with the potential to produce 3,051 MWh up to 3,685 MWh annually to be used within the District s customer service electrical distribution system. Joint Powers Agency Resources Palo Verde Nuclear Generating Station Southern California Public Power Authority ( SCPPA ). The District is a member of SCPPA. SCPPA, a joint powers agency, was created under authority of the Joint Exercise of Powers Act of the State of California as a separate public entity for the purpose of planning, financing, developing, acquiring, constructing, operating and maintaining projects for the generation or transmission of electric energy. 32

41 Through its membership in SCPPA, the District has purchased a 6.50% (approximately MW) entitlement share in SCPPA s interests in the Palo Verde Nuclear Generating Station and related facilities (the Palo Verde Project or PVNGS ). SCPPA s interest in the Palo Verde Project consists of (i) a 5.91% undivided ownership interest in the Palo Verde Nuclear Generating Station Units 1, 2 and 3 (the Generating Station ), including certain associated facilities and contractual rights relating thereto, and (ii) a 5.44% undivided ownership interest in the Arizona Nuclear Power Project ( ANPP ) High Voltage Switchyard (the Switchyard ) and contractual rights relating thereto. SCPPA s interest in the Palo Verde Project also includes a 6.55% share of the right to use certain portions of the transmission rights of the ANPP Valley Transmission System (the ANPP Transmission System ), although the District has not participated in this portion of the Palo Verde Project due to its acquisition of alternate transmission arrangements. See Transmission Arrangements for Joint Powers Agency Generation and Purchased Power below. The Generating Station and the Switchyard are collectively referred to herein as SCPPA Palo Verde Interest. Located approximately 50 miles west of Phoenix, Arizona, PVNGS consists of three nearly identical, nuclear electric generating units. Arizona Public Service Company ( APS ) is the operating agent for PVNGS Units 1, 2 and 3, which entered commercial operation on January 27, 1986, September 18, 1986, and January 19, 1988, respectively. Each PVNGS unit, designed for a 40-year life, has a nominal rating of 1,270 MW. Any capital improvements to the PNVGS that increase generating capacity are distributed proportionately to its owners. Following the replacement of the steam generators for Unit 2 in 2003, Unit 1 in 2005 and Unit 3 in 2007, design electrical rating was increased to 1,333 MW, 1,336 MW and 1,334 MW, respectively. In 2009, additional capital improvements were completed to increase the District s share from 13.8 MW to MW. Currently, Units 1, 2 and 3 each operate under a 40-year Full-Power Operating License from the Nuclear Regulatory Commission ( NRC ), expiring in 2025, 2026 and 2027, respectively. NRC approved all three license renewals on April 12, 2011; this allows the units to operate an additional 20 years until 2045 for Unit 1, 2046 for Unit 2 and 2047 for Unit 3. APS has also negotiated on behalf of the co-owners an extension of the Effluent Supply Agreement with the City of Phoenix and its nearby cities that allows continued water supply to the station for plant cooling purpose until the year of As of December 31, 2014, PVNGS operated at a plant capacity factor of 93.7% and provided 124,819 MWhs of electric energy to the District. The District s cost of PVNGS power was $0.043 per kilowatt hours ( kwh ) in 2014, excluding transmission costs. SCPPA has sold the entire capability of the SCPPA Palo Verde Interest pursuant to power sales contracts with certain SCPPA members, including the District. The District s payment obligation under the Palo Verde power sales contract constitutes Operation and Maintenance Expenses of the Electric System, payable solely from Revenues of the Electric System. Pursuant to power sales contracts, each participant is obligated to purchase a percentage of the capacity and energy in the SCPPA Palo Verde Interest equal to the participant s share. The participants are required to purchase such capacity on a take or pay basis; that is whether or not the SCPPA Palo Verde Interest or any part thereof is operating or operable, or its service is suspended, interfered with, reduced or curtailed or terminated in whole or in part, and such payments shall not be subject to reduction whether by offset or otherwise and shall not be conditioned upon the performance or nonperformance by any party of any agreement for any cause whatsoever. If a participant defaults on its payment obligations under its power sales contract, SCPPA may institute legal action to enforce the obligation. If the default continues, SCPPA may discontinue providing capacity and energy of the SCPPA Palo Verde Interest to the defaulting participant and may transfer the defaulting participant s rights under the power sales contract to nondefaulting participants or other transferees. To the extent that SCPPA receives payment for the capacity and energy so transferred, the defaulting participant s obligation is to be deemed satisfied without, however, reducing the obligation of the defaulting participant to make payments under its power sales contract. 33

42 As of November 1, 2015, SCPPA had $24,440,000 of refunding revenue bonds outstanding relating to the refinancing of the SCPPA Palo Verde Interest, of which $1,588,600 is attributable to the District s 6.50% interest. The schedule for the development of facilities for the permanent storage and disposal of spent fuel by the Department of Energy is uncertain. SCPPA and the District have incurred substantial additional costs as the result of the construction of onsite storage facilities and other related costs. San Juan Unit 3 SCPPA. Through its membership in SCPPA, the District purchased in June 1993, an approximate 50.98% (approximately 104 MW) entitlement share in SCPPA s interest in the San Juan Generating Station Unit 3 and related facilities (the San Juan Project ). The San Juan Generating Station is a four-unit coal-fired steam electric generating plant. SCPPA s interest in the San Juan Project consists of (i) a 41.8% undivided ownership interest (providing approximately 204 MW of power) in San Juan Unit 3, (ii) a 20.9% undivided ownership interest in facilities common to Units 3 and 4, and (iii) a 12.71% undivided interest in facilities common to all four units of the San Juan Project (the SCPPA San Juan Interest ). Unit 3 is a coal-fired steam electric generating unit with a net generating capability of 497 MW, which was constructed and is operated by Public Service Company of New Mexico ( PNM ). Unit 3 began operating on December 31, In the year ended December 31, 2014, San Juan Unit 3 provided 654,919 MWh of energy to the District at an average capacity factor of 72.78%. The District has several arrangements for firm transmission service for importing power from the Arizona-New Mexico Area. See Transmission Arrangements for Joint Powers Agency Generation and Purchased Power below. SCPPA has sold the entire capability of the SCPPA San Juan Interest pursuant to power sales contracts with certain SCPPA members, including the District. The District s payment obligation under the San Juan power sales contract (the SJPPA ) constitutes Operation and Maintenance Expenses of the Electric System, payable solely from Revenues of the Electric System. Pursuant to power sales contracts, each participant is obligated to purchase a percentage of the capacity and energy in the SCPPA San Juan Interest equal to the participant s share. The participants are required to purchase such capacity on a take or pay basis; that is whether or not the SCPPA San Juan Interest or any part thereof is operating or operable, or its service is suspended, interfered with, reduced or curtailed or terminated in whole or in part, and such payments shall not be subject to reduction whether by offset or otherwise and shall not be conditioned upon the performance or nonperformance by any party of any agreement for any cause whatsoever. If a participant defaults on its payment obligations under its power sales contract, SCPPA may institute legal action to enforce the obligation. If the default continues, SCPPA may discontinue providing capacity and energy of the SCPPA San Juan Interest to the defaulting participant and may transfer the defaulting participant s rights under the power sales contract to nondefaulting participants or other transferees. To the extent that SCPPA receives payment for the capacity and energy so transferred, the defaulting participant s obligation is to be deemed satisfied without, however, reducing the obligation of the defaulting participant to make payments under its power sales contract. As of November 1, 2015, SCPPA had $42,935,000 of refunding revenue bonds outstanding relating to the refinancing of the SCPPA San Juan Interest, of which $21,888,263 is attributable to the District s 50.98% interest. The San Juan Generating Station is a source that is subject to the statutory obligations of the federal Clean Air Act to reduce visibility impacts. Regulatory proceedings and other related litigation concerning the application of federal Clean Air Act requirements at the San Juan Generating Station have been ongoing. On February 15, 2013, PNM, the New Mexico Environment Department and the United States Environmental Protection Agency (the EPA ) agreed to pursue a plan that could provide a Best 34

43 Available Retrofit Technology path to comply with federal visibility rules at the San Juan Generating Station. This agreement would result in the retirement of the San Juan Generating Station Units 2 and 3 by the end of 2017 and the installation of selective non-catalytic reduction technology on Units 1 and 4 by the later of January 31, 2016 or 15 months after EPA approval of a revised State Implementation Plan. On October 9, 2014, the EPA issued a final rule approving this plan. The EPA rule became effective November 10, To meet the 2017 closure deadline, SCPPA owners who participate in Unit 3 of the San Juan Project, including the District, and other San Juan Project participants mediated concerning and negotiated terms which would, among other matters, allow the California San Juan Project owners to exit Units 3 and 4 of the San Juan Project. After extended mediated negotiations, five related agreements were reached that restructured the ownership of the San Juan Project and addressed other related issues: a Restructuring Agreement, an amended Mine Reclamation Agreement, a Decommissioning Agreement, and two amendments to the SJPPA, a Restructuring Amendment and an Exit Date Amendment. All five agreements were fully executed by July 31, On July 31, 2015, PNM filed all five executed agreements with the New Mexico Public Regulations Commission (the NMPRC ), seeking approval of PNM s acquisition of further capacity in Unit 4 (the Proceeding ). SCPPA and the District are not parties to the Proceeding. On August 13, 2015, PNM and a number of other parties to the Proceeding filed a supplemental stipulation settling issues with respect to the San Juan Project restructuring, which if approved would permit restructuring to proceed as agreed upon among the San Juan Project participants. That supplemental stipulation was opposed by, among others, New Energy Economy ( NEE ). On October 5, 2015, NEE filed a petition with the New Mexico Supreme Court seeking to disqualify four of the five Commissioners on the NMPRC from voting on the supplemental stipulation, alleging bias and denial of due process, and seeking a stay of the hearing on the supplemental stipulation scheduled to commence on October 13, On October 9, 2015, the New Mexico Supreme Court permitted the hearing to proceed before a hearing examiner but ordered that the Commissioners of the NMPRC not act on the supplemental stipulation pending further order of the New Mexico Supreme Court. The New Mexico Supreme Court subsequently denied the disqualification motion without prejudice to it being addressed on a later appeal and the matter proceeded to hearing. On December 16, 2015, the NMPRC approved the supplemental stipulation. Any party wishing to appeal the NMPRC order may file an appeal by January 15, An appeal will not stay the effectiveness of the order, but an appealing party may seek a stay from either the NMPRC or the New Mexico Supreme Court. It is currently unknown whether an appeal will be filed or a stay would be granted if requested. The two referenced amendments to the SJPPA (the Restructuring Amendment and Exit Date Amendment) have also been filed with FERC for regulatory approval but FERC has not yet acted on them. PNM also entered into agreements with a new miner for the San Juan coal mine and filed them with the NMPRC. It was contemplated that those agreements would take effect by January 1, On December 23, 2015, PNM and the new miner made filings with the Securities and Exchange Commission stating that the targeted date for closing had been moved to January 31, A delay in the closing date could delay the Effective Date of the Restructuring Agreement. It is not known what the impact, if any, will be if there is a delay in the Effective Date of the Restructuring Agreement. At the current time, the District cannot reasonably determine what obligation, if any, the District will have with respect to Unit 3 after 2017 nor can it be determined what action the EPA may take if the deadline for closure of Unit 3 is not met. Additionally, although the previously referenced Decommissioning Agreement addressing decommissioning responsibilities for the entire San Juan Project 35

44 have been executed and filed with the NMPRC, the District cannot reasonably estimate what its decommissioning costs may be for its ownership interest in Unit 3 of the San Juan Project. Heber-1 SCPPA. SCPPA and the District executed a purchase power agreement in September 2013 to procure a portion of an existing local geothermal facility (the Heber 1 Project ) where the District would take MW of the facility beginning December 16, 2015 for a term of ten years. The District began taking this energy as scheduled on December 16, The interconnection agreement was approved and executed on November 18, Additionally, the District is currently negotiating, along with other SCPPA members, a ten-year extension to the power sales agreement. The District would continue to take 10 MW of geothermal energy for an additional ten years. SCPPA is involved in a number of other electric energy projects. The District does not participate in, and has no obligation with respect to any other such project (other than the Palo Verde Project, the San Juan Project and the Heber 1 Project described herein). Purchased Power Western Area Power Administration. The District purchases hydroelectric power supplied by Western from the federal Parker-Davis Project. The District has an allocation of 32.5 MW during the months of March through September and 26.3 MW during the months of October through February. The District s contract with Western extends to September 30, Coral Power, L.L.C. The District entered into four power purchase agreements for a total of 125 MW of firm power with Coral Power, L.L.C. during 2005 and early Three of the four agreements have expired. The remaining agreement is a 7x24 day-ahead call option for 50 MW from June 2007 to May Imperial Valley Solar Company 1. On August 24, 2010, the District executed a power purchase contract for approximately 23 MW of photovoltaic renewable energy from Imperial Valley Solar Company 1 Sun Peak 1 photovoltaic project ( Sun Peak 1 ) located within the District s electric service boundaries. The project became fully operational on August 1, 2012 and the District began taking deliveries in early June The term of the agreement is for 30 years from the commercial operation date, with a purchase option in year 6 of the agreement. Energy generated from this contract qualifies as category 1 renewable energy. Imperial Solar 1, LLC. On November 15, 2011, the District executed a power purchase contract for approximately 10 MW of photovoltaic renewable energy from Imperial Solar 1 LLC Heber Solar photovoltaic project originally owned by Ormat ( Heber Solar ) and located within the District s electric service boundaries. On March 21, 2014, ownership of the Heber Solar project was transferred to Renewable Energy Trust Holdings, LLC. The Heber Solar project became fully operational on April 23, 2014 and the District began taking deliveries in April The term of the agreement is for 20 years from the commercial operation date. Energy generated from this contract qualifies as category 1 renewable energy. Sol Orchard Imperial 1, LLC. On November 22, 2011, the District executed a power purchase contract for approximately 20 MW of photovoltaic renewable energy from Sol Orchard Imperial 1 LLC photovoltaic project ( El Centro PV ) located within the District s electric service boundaries. In May 2013, membership interest of the El Centro PV project was transferred to T-Solar. The project became commercially operational on October 31, 2013 and the District began taking deliveries in October

45 The term of the agreement is for 25 years from the commercial operation date. Energy generated from this contract qualifies as category 1 renewable energy. NRG Solar Community 1, LLC. On December 22, 2011, the District executed a power purchase contract for approximately 5 MW of photovoltaic renewable energy from Sol Orchard Community Solar 1, LLC ( SDSU/Brawley Campus PV ) located within the District s electric service boundaries. In July 2014, the project was transferred to NRG. The project became commercially operational on June 27, 2014 and the District began taking deliveries in late May The term of the agreement is for 25 years from the commercial operation date. Energy generated from this contract qualifies as category 1 renewable energy. Imperial Valley Solar Company 2, LLC ( IVSC 2 ). On December 20, 2011, the District executed a power purchase contract for approximately 20 MW of photovoltaic renewable energy from Imperial Valley Solar Company 2 s Sun Peak 2 photovoltaic project ( Sun Peak 2 ) located within the District s electric service boundaries. A Change of Control Agreement for IVSC 2 was approved on June 18, 2015, selling membership interest of IVSC 2 Holdings to Dominion Solar Holdings, III, LLC. The project became commercially operational on August 6, The term of the agreement is for 30 years from the commercial operation date. Energy generated from this contract qualifies as category 1 renewable energy. Desert View Power, LLC. On April 18, 2012, the District executed a power purchase contract for approximately 45 MW of biomass renewable energy from Desert View Power ( DVP ). The District began taking deliveries under the contract on May 1, The contract has a 10-year term. The facility is located in the District s Coachella Service Area and uses two state-of-the art circulating fluidized bed boilers which has enabled it to have a stellar environmental compliance record. The project has been operating since 1992 and burns clean urban wood waste, forest and agricultural residues. It is the largest biomass energy provider in California. Energy generated from this contract qualifies as category 1 renewable energy. 96WI 8ME, LLC. On November 18, 2014, the District executed a power purchase contract for approximately 30 MW of photovoltaic renewable energy from 8Minute Energy and Gesamp Solar, (joint venture partnership/ownership) photovoltaic project ( Calipatria Solar Complex ) located within the District s electric service boundaries. The project s member interest was transferred to Solar Frontier, LLC on May 27, The project is expected to come on line no later than December 31, The term of the agreement is for 25 years from the commercial operation date. Energy generated from this contract qualifies as category 1 renewable energy. Regenerate Power, LLC. On May 27, 2014, the District executed a power purchase contract for approximately 30 MW of photovoltaic renewable energy from Regenerate Power, LLC ( Seville Solar ) located within the District s electric service boundaries. The project s member interest was transferred to Seville Solar 11, LLC on October 14, A Change of Control Agreement for Seville Solar, LLC was approved on June 30, 2015, in which Duke Solar acquired 100% of the membership interest of Seville Solar Holdings. The project is expected to come on line by June 1, The term of the agreement is for 25 years from the commercial operation date. Energy generated from this contract qualifies as category 1 renewable energy. GeoGenCo, LLC. On June 17, 2015, the District executed a power purchase contract for a 4 MW proof-of-concept geothermal project ( GeoGenCo Project ). The contract is unique in that it relates to a conceptual technology referred to as down hole heat exchange which allows for geothermal development without the need for large amounts of water as is customary in geothermal generation. The GeoGenCo Project is expected to come on line no later than June 15, The term of the agreement is 37

46 for 30 years, subject to a 36-month proof-of-concept period with the potential possibility of expansion (right of first offer) up to 15 MWs. CalEnergy, LLC. On August 11, 2015, the District executed a power purchase contract for approximately 50 MW of pooled geothermal renewable energy resources from CalEnergy, LLC ( CalEnergy ) located within the District s electric service boundaries, specifically from resources around the Salton Sea area. The project provides 50MW to the District from geothermal resources that total a generating capacity of 357 MW. The project is expected to begin deliveries by January 1, The term of the agreement is for 10 years from the delivery commencement date. Energy generated from this contract qualifies as category 1 renewable energy under the State s RPS program. Feed-in Tariff Power Purchase Agreements. SB 1332, which was adopted in 2012, requires all investor-owned and publicly owned utilities with 75,000 or more customers to make available to its renewable generating customers a standard feed-in-tariff (FIT). The District s estimated share of the 750 MW cap is approximately 14 MWs. Staff developed program requirements and rates that incorporate the estimated cost of demand reduction, environmental attributes, avoided transmission and distribution improvement costs. The program requires a standard power purchase agreement for a period of 10, 15, or 20 years. The District received 10 FIT projects in the queue that fulfilled the District s share of the statewide cap. Future Power Supply Resources Resource Planning The District has an integrated resource plan (most recently updated in 2014, the IRP ) which models a base case for the next twenty years. The resource plan models the District s current resources and contracts and identifies future resource needs and alternatives for meeting these future requirements. The resource plan takes into account legislative and regulatory requirements, including recent changes in renewable portfolio standards ( RPS ), greenhouse gas emission limitations and other critical energy laws and regulations. The District s base case is used as a benchmark for evaluation purposes when the District sends out a Request for Proposal ( RFP ) in addition to monitoring the continuous SCPPA RFP. The alternatives received from these RFP processes can be compared against self-built options. Following either of the RFP processes also ensures non-preferential treatment to any proposal, and helps the District to procure and optimize a power resources and transmission portfolio that provides safe, reliable and costeffective power to all District customers. The IRP identified the need for more than 340,000 MWh of renewable energy needs by 2020 and 347 MW of seasonal capacity. Additionally, the IRP identified the need to acquire more renewable resources to begin preparing for the RPS needs in the near and distant future. Much of this has been accomplished with the CalEnergy agreement described above with an expected delivery of approximately 350,000 MWh annually. With the increase in intermittent renewable resources, the District has determined that the system will require additional quick responding generation, particularly in the near term, battery storage. As a result, the District issued a Request for Qualifications ( RFQ ) in 2014 to survey and examine potential respondents to the battery storage RFP. An RFP for battery storage was issued and awarded in The 20 MW/33 MVA battery energy storage system is planned to be operational in the third quarter of The IRP also identified the need for quick-responding generation. As a result, the District may issue a Secondary Request for Proposal ( SRFP ) to review current offers of the District s specific needs. 38

47 This SRFP, if released, is expected to be released in late 2015 or in 2016 and is expected to be completed by the end of The District purchases power and energy primarily with counterparties located within the California Independent System Operator ( CAISO ) and is subject to certain CAISO tariffs and fees. The District is exploring purchasing power and energy from counterparties outside the CAISO balancing authority area, including counterparties in Arizona and Mexico. Such purchases would require improvements to the District s transmission system. These improvements are currently included in the District s Electric System Capital Plan. Wholesale Power/Real-Time Trading The District does not engage in significant sales of energy to other entities. However, the District does participate in the wholesale energy markets to displace existing power purchase agreements and internal generation to meet the District s native load and Western Electricity Coordinating Council ( WECC ), North American Electric Reliability Corporation ( NERC ) and Federal Energy Regulatory Commission ( FERC ) requirements as a balancing authority. On May 3, 2010, the District began conducting the real-time trading function with District employees during normal business hours. After hours, Shell Trading provided this service under a contractual arrangement, which expired in June Beginning July 2012, the District s real-time trading function was expanded to enable the District to selfprovide this function for all hours. The District participates in the CAISO energy market as well as bilateral transactions with counterparties to the east. At times, real-time traders will purchase transmission to deliver the energy transactions to the District s balancing authority. Renewables California s energy sector accounts for more than 85% of greenhouse gas emissions. The two largest sources of California s greenhouse gases are transportation, at 39%, and electricity production, at 21%. Accordingly, the state s existing clean energy and climate change programs focus on both the energy and the transportation sectors. Principal among those programs are the California Global Warming Solutions Act of 2006 (more commonly known as AB 32 ), which requires a reduction of the state s greenhouse gas emissions to 1990 levels by 2020, and the Renewable Portfolio Standard (RPS), which requires that 33% of the state s electricity come from renewable resources by On October 7, 2015, the Governor signed Senate Bill 350 ( SB 350 ) requiring that the amount of electricity generated per year from eligible renewable energy resources to be increased to at least 50% by December 31, SB350 also includes language on the specifics of accomplishing emissions reductions targets beyond 2020 after the Cap-and-Trade program expires, but this language is not yet specific enough to determine a final plan. The State is currently working on the mechanisms of the functionality of future emissions reductions targets beyond Signed into law on April 12, 2011, Senate Bill X1-2 ( SBX1-2 ) established the requirement of publicly owned utilities, such as the District, to serve an average of 20% of all retail sales from renewable resources for the period January 1, 2011 to December 31, 2013; make reasonable progress to ensure 25% by the end of December 31, 2016; and make reasonable progress to ensure 33% by the end of December 31, More recently, on October 7, 2015, Governor Jerry Brown signed a series of new environmental policy goals to be achieved by These goals include the following; increase renewable energy mandate from the current 33% to 50% and double the efficiency of existing buildings and improve heating fuels. Specifically, one of the new laws (SB350) defines compliance periods four, five and six, and requires that 65% of the requirement must be met with agreements that are at least 10 years in length of term. Additionally, SB350 requires utilities to begin submitting IRPs to the State every five years and the CEC will establish appropriate multi-year compliance targets for all subsequent years 39

48 beyond The District is continuing to apply the new targets and specifications of the law to future studies and requirements to establish a succinct plan moving forward. See DEVELOPMENTS IN THE CALIFORNIA ENERGY MARKETS State Legislation herein. The District s small hydroelectric units (approximately 32 MW) are treated as renewable resources for this purpose. The District has made significant progress to meet these requirements in part through the acquisition of or contracting with local geothermal power plants, biomass and solar generation and, if cost effective, by continuing to participate in future SCPPA Green RFPs or Biogas RFPs. The District may also opt to fulfill a portion of the requirement with the purchase of Renewable Energy Credits ( RECs ). The District served 20.4% of all retail sales from renewable resources for the period January 1, 2011 to December 31, 2013, as well as 20.1% in 2014, through its owned hydroelectric units, executed Sun Peak 1, Sol Orchard, Heber Solar photovoltaic power purchase contracts, DVP biomass power purchase contract, a two-year geothermal contract and a three-month bundled energy contract from several different renewable facilities which included biogas, biomass, geothermal, solar and wind. The District expects to meet 25% of all retail sales from renewable resources during the second compliance period through its owned hydroelectric units, executed Sun Peak 1, El Centro PV, Heber Solar, SDSU/Brawley Campus PV, Sun Peak 2, Calipatria Solar Complex photovoltaic power purchase contracts, DVP biomass power purchase contract and SCPPA Heber 1 Project. The District expects to meet 33% of all retail sales from renewable resources during the third compliance period through its owned hydroelectric units, executed Sun Peak 1, El Centro PV, Heber Solar, SDSU/Brawley Campus PV, Sun Peak 2, Calipatria Solar Complex, Seville Solar photovoltaic power purchase contracts, DVP biomass power purchase contract, SCPPA Heber 1 Project and CalEnergy purchased power agreement. In addition, the District is currently in the initial stages of negotiating a 25- year, 5 MW geothermal contract which is located within the District s service territory. While there can be no assurance such a contract will be executed, if executed, the District expects to be able to meet the 33% of all retail sales for the third compliance period. Reserves and Reliability WECC minimum operating reliability criteria require the District to carry a minimum amount of contingency reserve, except within the first sixty minutes following an event requiring the activation of contingency reserve. To this end, the District is a member of the Southwest Reserve Sharing Group ( SRSG ) and has executed the SRSG Participation Agreement under which members share reserve responsibility. The District must maintain a pro rata portion of the SRSG s group requirement. The SRSG group requirement is calculated as: (a) the amount of contingency reserve equal to the loss of the most severe, single contingency ( MSSC ) of the group as a whole; or (b) the amount of contingency reserve equal to the sum of 3% of the hourly integrated load plus 3% of the hourly integrated generation summed across all group members. The District s pro rata share is based on the District s MSSC and the sum of native load and generation relative to other members. Per WECC requirement, half of contingency reserve must be maintained as spinning reserve, while the remaining half may be carried as either spinning or nonspinning reserve. Each Balancing Authority and each Reserve Sharing Group shall maintain at least half of its minimum amount of Contingency Reserve identified in Requirement R1, as Operating Reserve Spinning that meets both of the following reserve characteristics: (1) reserve that is immediately and automatically responsive to frequency deviations through the action of a governor or other control system; and (2) reserve that is capable of fully responding within ten minutes. Compliance with WECC minimum planning reserve and reliability criteria is mandated by California Assembly Bill 40

49 380. The District has been meeting NERC and WECC reliability criteria by planning a 15% operating reserves margin in its historical and future expansion plans. Mandatory and enforceable Reliability Standards, including the ability to assess civil penalties for the violation thereof, have been promulgated by NERC and approved by FERC pursuant to the Energy Policy Act of See OTHER FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY Federal Energy Legislation NERC Reliability Standards. A compliance audit of the District was conducted December 2013 of NERC Reliability Standards for the period of November 30, 2010 to September 3, 2013 during which the audit team identified two possible violations. At the time of the audit, the District had a number of open enforcement actions related to self-reported possible violations reported in The District negotiated two settlement agreements totaling $62,000 approved by FERC in September and October 2014 to settle the six total violations. Since the December 2013 compliance audit, the District has self-reported nine instances of possible non-compliance with the NERC Reliability Standards. Following review by WECC, five of the nine instances of non-compliance are now closed and did not result in penalties. The other four instances are open enforcement actions pending review by WECC and may result in penalties. The nature or amount of such penalties is unknown at this time. Demand Side Management The District s Energy Management and Strategic Marketing Unit continues to work towards the adopted energy efficiency and reduction targets through 2020, focusing this year on the target for 2016 of 15,563 MWh. The District s residential and non-residential programs are aimed at energy efficiency air conditioning upgrades, lighting and maintenance. This program mix of conservation and energy efficiency programs are designed with the goal of reducing customers consumption, particularly during periods of peak demand, increasing their knowledge to use energy more wisely and reduce the cost of energy. The District offers various rate options for its commercial customers. The Interruptible Rate Program is available to commercial customers having a monthly maximum demand of 1,000 kilowatts (kw) or higher. Additionally, the High Voltage Rider is applicable to electric services used by single establishment commercial customers interconnected through a single point to the District s subtransmission and transmission electric systems. Current customer enrollment has a potential interruptible load of 2.2 MW. Fuel Supply and Energy Risk Management Fuel Supply-General The District s primary fuel sources for its generation are natural gas and coal. In 2014, approximately 39.0% of the District s energy was generated from natural gas; 17.8% from coal; and 23.1% from nuclear, hydro, solar and biomass. The remaining 20.1% consisted of purchased power. The District s coal and nuclear resources are both from SCPPA participation contracts. The natural gas for the District s El Centro units, Niland units, and Combustion Turbine units, which are owned and operated by the District, is purchased by the District using various natural gas supply contracts with different credit established counterparties. These contracts expire at different times. The natural gas for the District s Yucca Unit, which is owned by the District but operated by APS, was supplied by APS through an El Paso Corporation pipeline prior to the installation of the new 41

50 TransCanada pipeline (North Baja). The new gas pipeline was completed in 2010 and became fully operational at the Yucca Unit during April The Yucca Unit will continue to be operated by APS, but the addition of the pipeline allows the District to physically purchase and hedge natural gas for the plant. This new feature to the administrative characteristics of the Yucca Unit provides greater control and understanding of Yucca costs and allows for an amplified capability to manage fluctuating price movements and volatile fuel costs for the Yucca Unit. Fuel and Energy Risk Management The Board approved an Energy Risk Management Policy (the Policy ) to articulate the District s objectives, techniques and controls for managing risks related to wholesale energy and natural gas markets. The Board established an Energy Risk Management Group ( ERMG ) composed of five voting members and three non-voting members to provide managerial oversight of the Policy s implementation, compliance and revisions. The Policy is intended to establish guidelines with respect to, among other things (i) the levels of risk tolerance acceptable to the District, (ii) the types of wholesale electricity, renewable and natural gas market transactions that are authorized to be entered into, and (iii) acceptable counterparty creditworthiness standards and requirements for limits on credit exposure to any additional counterparty. The Chairperson of the ERMG presents all decisions of the ERMG to the District General Manager for concurrence. The District s General Manager presents such recommendations to the Board for approval, direction or further consideration by the ERMG. The Policy was revised in 2013 to incorporate the District s compliance under Renewable Portfolio Standards and Greenhouse Gas Emissions regulations. As a result, renewable energy credits, emission allowances, offset credits and alternate fuels were added as approved commodities under the Policy scope. The Policy addresses 60 months of a budget period and has established different percentages of value-at-risk acceptable on a month-ahead, year-ahead, second year-ahead and third yearahead basis. It is structured so the District will tolerate an annual budget variance of its fuel and energy cost of less than or equal to 5% of the current annual purchased power and fuel budget. It also limits the authorized transactions, dollar and term limits of the management of the Energy Department. In addition, energy transactions cannot exceed 100% of forecasted energy use or 100% of monthly capacity requirements to meet WECC s reserve and ancillary services. SoCal Gas Transportation Agreement SoCal Gas revised their rate structure for all standard tariff agreements as required by the California Public Utilities Commission and expanded capacity on their natural gas pipeline that delivers gas to the District s generating units. As a result, the District renegotiated its existing gas transportation agreement with SoCal Gas. The transportation agreement has a term extending through February 1, It provides for the firm gas transportation capacity needs of the El Centro units, Niland units and the District s other requirements during the peak period of May 1 through September 30 and discounted interruptible transportation service for the District s generating facilities during non-peak periods (October 1 through April 30). TransCanada/North Baja Transportation Agreements In 2010, the District entered into two Firm Transportation Service Agreements ( FTSA ) with TransCanada/North Baja Pipeline, LLC for the firm gas transportation capacity needs of the Yucca Steam Unit. The Mainline FTSA provides firm gas transportation from Ehrenberg to the US-Mexico border; the Yuma Lateral FTSA provides firm gas transportation from the Yuma border to the Yucca Unit and the Mexico/US Border at Yuma, Arizona. Both agreements have a term of 20 years. 42

51 Energy Transmission and Distribution The District operates its own balancing authority area within the WECC independent of CAISO. Energy transfers with other utilities and the operation of internal generation is coordinated by the District s 24-hour a day System Operations Center ( SOC ). The SOC is responsible for the safe and reliable operation, the economic operation and coordination of the transmission and distribution systems, generation and energy schedules in order to balance its native load and resources within its metered boundaries. The District is governed by its own Board which has the ability to set its own rates. District Transmission and Distribution Facilities As of December 31, 2014, the District s transmission system consisted of approximately 1,421 miles of 500-kV, 230-kV, 161-kV and 92-kV lines, and 27 transmission substations with a total capacity of 4,200,492 kva. The subtransmission/distribution system consisted of 269 miles of 34.5-kV lines. The District owns 67 distribution substations with a total capacity of 2,002,249 kva, 3,426 miles of overhead distribution lines and 1,630 miles of underground distribution lines. The District has developed a long-term system transmission plan to define the transmission improvements necessary to meet the District s native load service requirements and generators seeking interconnection and transmission service through the District s system in future years. The plan has primarily focused on the upgrade of certain elements of the District s 161 kv and 92 kv transmission systems to 230 kv to integrate the existing 230 kv collector system and create a 230 kv transmission loop that will cover most of the District s service area. The District s plan also considers the construction of a new 500 kv line from a new District Midway Substation to SCE s Devers 500 kv Substation, and either a new 500kV line from North Gila substation to Highline and Imperial Valley substations or a 230 kv line from the District s Highline Substation to a future APS Yucca 230 kv substation and a line from Yucca to Orchard to North Gila substations. In addition, the plan includes building transmission facilities to increase transformation capacity from 92 kv and 161 kv to 230 kv. Interconnection Facilities The District s transmission system is interconnected with the transmission systems of Western s Blythe and Knob 161 kv substations located in the cities of Blythe and Winterhaven, California, respectively. The District is also interconnected to CAISO at the Mirage Substations at the northwest corner of the District s service area and with APS at the Yucca Substation near Yuma, Arizona. The District also has an interconnection with CAISO at the Imperial Valley Substation, and low-capacity, normal-open lines to SDG&E/CAISO at the western edge of the District s service area. Power purchased by the District delivered through the Imperial Valley Substation is transmitted into the District s Electric System through interconnection facilities consisting of a 230-kV line from the Imperial Valley Substation to the District s 230-kV El Centro Switching Station. Transmission for Owned Generation Facilities Power generated by the El Centro units, Niland unit, Combustion Turbines units, and Hydroelectric units is transmitted into the District s Electric System through a system of transmission lines to distribution substations. Power is distributed from these substations to customers via a system of distribution lines. All this is done within the District s balancing authority area. 43

52 Transmission Arrangements for Joint Powers Agency Generation and Purchased Power The District s entitlement to the Southwest Powerlink enables it to obtain power from the San Juan Project and PVNGS associated with the purchase power agreements and economical displacement energy. The Southwest Powerlink is described below. Southwest Powerlink. The District owns a percentage interest (the District Interest ) in the ownership interest of San Diego Gas & Electric Company ( SDG&E ) as a tenant in common with APS in the Southwest Powerlink. The Southwest Powerlink consists of a 500-kV transmission line extending 278 miles from PVNGS in Arizona to SDG&E s Miguel Substation near San Diego, California, together with two intermediate substations located on the transmission line near Yuma, Arizona, and Imperial Valley, California. Agreements between APS and SDG&E provide for ownership percentages in the various components of the Southwest Powerlink. For the 115-mile transmission line segment in Arizona between PVNGS and the North Gila Substation, SDG&E has an undivided ownership interest of 76.22%, the District has an undivided interest of 12.78% and APS has an undivided ownership interest of 11%. APS, however, owns 100% of the transformation facilities at the North Gila Substation. For the Southwest Powerlink line section from North Gila to Imperial Valley Substation, SDG&E owns 85.64% and the District owns 14.36%. The District and SDG&E are also undivided owners in the 500 kv, 230 kv and 500/230 kv transformation ( Bank 80 ). SDG&E owns 100% of the remainder of the line from the Imperial Valley Substation to the Miguel Substation. The District Interest is in the portion of the line from PVNGS to Imperial Valley and in the Imperial Valley Substation. APS is responsible for operation and maintenance of the Arizona portion of the Southwest Powerlink from PVNGS to the Colorado River. SDG&E is responsible for operation and maintenance from the Colorado River to the Miguel Substation. The distance from the Colorado River to the Imperial Valley Substation is 75 miles. The Southwest Powerlink has been in operation since June The District Interest provides for up to 215 MW of transmission capability (North Gila to Imperial Valley 500 kv interest) but is limited to 168 MW due to its Imperial Valley Bank 80 s 28% directional interest. Although the Southwest Powerlink is considered highly reliable, the District has made arrangements for back-up service in the event of an outage on this line. In accordance with a formal agreement, the joint owners of the Southwest Powerlink and the Palo Verde-Devers 500-kV line share their entitlements in these facilities in the event of a loss of either of the lines. SDG&E issued its 5-year notice of termination in January of The remaining parties do not appear willing to continue with the agreement. IID is the only participant willing to remain under contract at this time until the NG- Highline element is placed into service in With the termination of the agreement, the District may have to rely on the CAISO in the event of an outage. The District has an agreement with Southern California Edison for emergency services and has an emergency assistance agreement with Mexico s Comisión Federal de Electricidad ( CFE ) through a 34.5 kv radial interconnection. For peak load, the District also has a number of combustion turbine generators which are normally utilized for reserve capacity. Other Arrangements. In addition to its Southwest Powerlink entitlement, the District has 160 MW of firm long-term transmission contract through Western s Lower Colorado Open Access Transmission Tariff ( OATT ). The District s points of receipt are Western Lower Colorado s Liberty 230 kv, Pinnacle Peak 230 kv and Westwing 500 kv substations with points of delivery to Blythe and Knob 161 kv substations. A contract with Southern California Edison provides 100 MW of transmission capacity for the District between the Devers Switchyard and the Mirage Switchyard in the summer season and 50 MW in the winter season. These two contracts together can provide 50 MW of transmission capacity from the Arizona-New Mexico area plus 50 MW from the Los Angeles area. 44

53 Transmission Expansion Projects General. A number of merchant renewable and independent power projects are under development in the District s balancing authority area. The majority of the energy associated with these projects will be exported to users in southwestern California and Arizona. Currently, projects totaling approximately 1,452.3 MW of generation are requesting interconnection to the District s transmission system. It is anticipated that much of this proposed generation could come on line in the District s balancing authority area by 2020 to meet California s utilities renewable portfolio requirements. The District has accordingly undertaken an expansion of its existing facilities which will involve significant upgrades to the District s transmission system to accommodate the development of renewable and fossil fuel projects in its balancing authority area. These upgrades are being funded primarily by new generators requesting interconnection to the District s system and seeking transmission to the CAISO. At this time, the District has identified the following upgrades: 1. The Imperial Valley to Dixieland 230 kv line. This project consists of the construction of a single circuit prepared for double circuit line. The project will increase the export/import thermal capacity to the Imperial Valley Substation by 300 MW, limited by the proposed Dixieland Substation 300 MVA transformer. The project will reduce the District s balancing authority generation reserve requirements by eliminating the S 230kV line single contingency outage. This project has been approved by the Board for securing rights of way and applicable permitting. 2. The Midway-Bannister 230 kv line. This project consists of the construction of a double circuit 230kV transmission line aimed at transporting renewable energy from the southern portion of the Salton Sea. The line is planned to be constructed in four phases. The first phase of the project is constructed and consists of a single circuit 230kV line prepared for double circuit from Midway Substation to 8.5 miles west of the Salton Sea area. The project has capacity of approximately 600 MW with an ultimate capacity of 1,200 MW when the second circuit is built. The first phase of the project is transmitting approximately 100 MW of energy from the Hudson Ranch geothermal and Sonora solar generating facilities. The remaining three phases of the project will consist in building a 230kV collector substation (Hoover Substation) in the Salton Sea area to interconnect the first phase of the project from Midway Substation and extend the line west to the proposed Bannister kV Substation and establish a 161kV interconnection to the existing 161kV L line between the El Centro Switching Station ( ECSS ) and Ave 58 Substation. 3. Path 42 Upgrade. Path 42 is a 35-mile transmission line jointly owned by the District and Southern California Edison. The District owns approximately 20 miles and the remaining 15 miles are owned by Southern California Edison. The District and Southern California Edison have agreed to jointly participate in the upgrade of this transmission path. The upgraded facilities are in-service. The District s portion of the project involved upgrading 20 miles of existing double-circuit, single-conductor 230kV transmission line to bundle (two conductors per phase) conductors. It is anticipated this upgrade will potentially add 900-1,000 MW more transfer capability. The District conducted an Open Season in 2009 to solicit interest from developers wishing to participate in the process. The District received requests for transmission service totaling 1,545 MW during the Open Season. 4. S Line 230 kv Upgrade. The S Line upgrade will encompass rebuilding 18 miles of the S 230kV single circuit line between ECSS and Imperial Valley Substation (IV Sub). The S Line will be constructed in phases. One of the phases will include the completion of the Imperial Valley Policy Driven Element that includes the construction of a new switching station on the S Line north of the existing IV Substation. The line is currently constructed in single wood pole configuration with a thermal capacity of 370 MVA. 45

54 5. Highline-ECSS 230kV Line. This transmission line entails building 20 miles of 230kV double circuit line from Highline Station to ECSS parallel to the 161kV A-Line and 92kV B-Line transmission circuits between East Highline canal and ECSS. The line is anticipated to have a line capacity of at least 1,195 MW per circuit. 6. HANG2 Project. On May 27, 2014, the District entered into a Joint Participation Agreement with APS for the Hassayampa-North Gila 500kV Transmission project ( HANG2 Project ). The District s ownership and cost sharing participation in the HANG2 Project is 20%. The transmission line, once connected to the District s system, will increase import and export capability to and from the Palo Verde energy marketplace. The project will allow the Electric System to serve load from eastern markets and accommodate additional generation interconnection requests. Transfer capability studies for the HANG2 Project depict 600 MW of transfer capability with the current configuration of the line just terminating at the North Gila substation. The District s 20% ownership in the line entitles it to 120 MW which will be stranded until a new 230 kv or 500kV line from North Gila to Highline to the Imperial Valley Substation is constructed. The HANG2 Project was energized and placed into service on May 26, The District is planning to interconnect the HANG2 Project with its electric system. In that regard, the District has been in discussions with APS for a partnership in a new 500 kv line from North Gila to Highline and then to the Imperial Valley Substation. Simultaneously, it commenced discussions with APS for a partnership in a new 230 kv line from North Gila to Yucca substation and to continue the path to Highline Substation by rebuilding the C and E Lines (92Kv lines). The planned in-service date for these facilities is sometime between 2019 and With the completion of either of these two transmission lines, the transfer capability from the HANG2 Project will be reassessed and increased to a new higher MW value. The District estimates that the rating will increase to the 1,200-1,500 MW capacity range, which will give the District an import/export capability of 240 to 300 MW. Once the new 230kV or 500 kv lines are constructed and connected, the District s ownership interest will provide for approximately 300 MW of bi-directional transmission capacity. The District has completed its Transitional Cluster interconnection study process. That study resulted in the execution of nine Generator Interconnection Agreements for projects proposing injection of 940 MW into the District s system. Additionally, the District completed the interconnection of three solar photovoltaic projects injecting and wheeling 150 MW into the District s system and exporting to the CAISO for the benefit of San Diego Gas & Electric. The District is in the process of studying Cluster 1, comprised of eight projects seeking interconnection to the District s system and proposing injection of 440 MW. Additional upgrades to the Electric System may be identified during this study as required to accommodate the proposed injection of generation. Upgrades to the Electric System identified in this study will be funded and paid for by those generators seeking interconnection. The District will reimburse the generators for these proposed upgrades via the issuance of transmission rate credits. Generators will fund the entire network upgrade and the District will allow them to move energy across the system until such time as they have recouped their investment. Stranded Investment. The District operates a balancing authority area independent of CAISO. CAISO has proposed creating, and FERC has approved, a new financing mechanism to facilitate the connection of multiple resources in areas designated as location constrained resource areas by means of a Trunk line to the CAISO grid. The cost of connecting may be recovered by a CAISO Participating Transmission Owner through a Transmission Access Charge payable by CAISO ratepayers. CAISO has listed the Salton Sea Resource Area, which is within the District s balancing authority area, as a location constrained resource area and has proposed a Trunk line that could enable generators to interconnect directly with the CAISO. See OTHER FACTORS AFFECTING THE ELECTRIC UTILITY 46

55 INDUSTRY CAISO FERC Filings. This Trunk line was studied for feasibility and subsequently rejected by CAISO in favor of using the District transmission system. In addition, even without a Trunkline the District believes that generators could finance their own line to the CAISO interconnection point if it is cost effective. The District believes that its balancing authority area is a resource area but not a transmission constrained resource area. The District has been involved in the CAISO stakeholder process on the proposed Locational Constrained Resource Interconnection (LCRI) policy to further develop tariff language to be filed with FERC and has a seat on the Renewable Energy Transmission Initiative ( RETI ) Steering Committee. Currently, the District is not aware of any additional threats to its balancing authority. The District intends to mitigate the potential for stranded investment through its participation in CAISO stakeholder processes on the proposed Remote Resource Interconnection initiative, participation in the California Transmission Planning Group ( CTPG ) and through the RETI process. The CTPG recently produced a Statewide Transmission Plan that identified several of the District s TEP projects as high potential renewable transmission projects in California. Affected System Upgrades. The District owns a transmission system interconnected to systems operated by CAISO and Western, among others. Customers interconnecting to other transmission systems may be identified during the system impact analysis under the affected system provisions of the District s OATT as causing impacts to the District s transmission system. Under the tariffs of other transmission providers, as well as the District s own tariff, those identified interconnection customers are required to cooperate in matters related to the conduct of studies and the determined modifications to the District as an affected system. The District has conducted five (5) Affected System Studies that identify upgrades required to the District as an affected system. The District is currently negotiating two (2) Affected System Agreements where customers interconnecting in the CAISO will be required to fund upgrades to the District s system to mitigate impacts. Designation of Transmission Corridor Zones. Senate Bill 1059 enacted in 2006 authorizes the State Energy Resources Conservation and Development Commission (the CEC ) to designate a transmission corridor zone on its own motion or by application of a person who plans to construct a highvoltage electric transmission line within the state and provides that the designation of a transmission corridor serves to identify a feasible corridor where a future transmission line can be built that is consistent with the state s needs and objectives as set forth in the strategic plan adopted by the CEC. The District is actively engaged in proceedings with the CEC to ensure that any designation of a transmission corridor zone will not result in the duplication of transmission facilities and stranded investment for the District. Rates and Billings The District s electric rates are established by the Board after a series of public hearings. The rates established by the District are not subject to approval by any state or federal agency. The District is subject to certain rate-making provisions of the Public Utility Regulatory Policies Act of Approximately 60% of the customers served by the District reside outside its water service boundaries, principally in the Coachella Valley. California law provides that the District will not charge rates in excess of rates imposed upon consumers within its own jurisdiction (after permitted adjustments for transmission). See OTHER FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY Federal Rate Regulation. The electric rates consist of a base rate and an energy cost adjustment ( ECA Factor ) which provides for an increase or decrease in the rates to reflect variations in the cost of fuel and purchased power. 47

56 As part of the 2014 budget plan, the Board approved the ECA Factor of 3.70 per kilowatt-hour for February 2014, and 4.15 per kilowatt-hour from March to December In 2014, the ECA Factor and energy base rate were reviewed as part of the comprehensive retail electric cost-of-service. Staff recommended shifting power supply costs from the ECA Factor to the retail energy rates along with revisions to the ECA Factor formula. The ECA formula was restructured based on industry standards, which will allow changes to fixed and variable power supply costs to be recovered from a pass-through rate. The shifting of power supply costs allowed the District to reset the ECA factor to zero to enable a recovery of energy costs and respond quickly to any changes out of the utility s control. Staff also provided a recommendation to adopt a new ECA Renewable Factor formula to capture the incremental costs difference between the total cost of meeting the renewable portfolio standards and the cost of fuel and purchased power without meeting the standards. On November 18, 2014, the District s Board approved the recommended changes to the ECA Factor formula and adopted an ECA Renewable Factor schedule with an effective date of January 1, During 2015, staff will present quarterly updates to the Board as 12 months of historical actual cost is realized. Starting in 2016, the ECA Factor and ECA Renewable Factor will begin to fluctuate. At management s direction, staff submitted a RFP in October 2013 for professional services to conduct an electric retail cost of service study and rate design. The comprehensive study was completed in July The study recommended an average 10.5 percent electric rate increase for all customer classes. Staff conducted public rate hearings and proposed an average rate increase of 7.4 percent in 2015 in order to lower the fiscal impact to customers. On November 18, 2014, the District s Board approved the proposed 7.4 percent rate increase and the ECA Factor restructuring discussed above. The rate increase consisted of (1) increasing monthly customer charges, (2) applying customer charges to those customer classes which currently were not charged, and (3) increasing demand charges to the applicable rate schedules. The percent rate increase recommended per customer class was based on what it cost the District to serve each class as determined by the study. The percent rate increase by customer class ranged from 6.24% to 9.41%. As part of the rate design phase of the cost of service study, proposed modifications to the street, outdoor area and commercial rate structures have been recently completed but have not been taken to the Board for consideration. The rate design includes the development of light-emitting diode (LED), metered street light, decorative lighting fixture rates, elimination of a declining commercial tier rate and inclusion of power factor charges applicable for commercial services. In 2011, a cost-of-service study was conducted for a review and update to the District s Open Access Transmission Tariff ( OATT ) rates. The study was primarily driven by the increase in growth of third-party owned generation requesting interconnection to the District s transmission system. The anticipated growth would cause significant improvements to the District s transmission system. During the study process, different rate designs were examined to better accommodate the interconnecting generators, more specifically renewable generators impacted by higher MWh costs related to their low load capacity operating levels. As a result, staff explored the potential of developing an economic development rate, with a focus on achieving a local economic boom for the least cost impact to the District and the generators. Staff proposed eligibility requirements that limit the duration of the economic development, and availability to new capacity from new development. On April 17, 2012, the Board approved and adopted an economic development rate for a period of 25 years that is available to wholesale transmission customers taking long-term firm transmission service. This rate may be subject to change through an open and participatory process if the District s cost to serve the wholesale transmission customers changes. 48

57 California Assembly Bill 1890 ( AB 1890 ) requires that the District establish a nonbypassable, usage-based charge on local distribution service to fund public benefits programs. This charge is equivalent to 2.85% of the District s power sales revenues. On January 1, 2012, AB 1890 was sunset by lawmakers. After legal review and advisement, the Energy Department was able to continue providing public benefit programs to its customers, as well as meeting energy efficiency targets driven by legislative mandates through the means of a public benefit charge. The following table presents a history of the average electric revenues per kwh sold since 2010: Historical Average Electric Revenues Cents Per kwh Sold (1) Year Base Rate Energy Cost Adjustment Factor Total (1) Base rate and ECA Factor rate calculated taking total energy sales revenues or ECA Factor revenues billed divided by total kwh sold for year. Source: Imperial Irrigation District. The District bills its energy customers on a monthly basis. After an account is 7 days delinquent, a Final Notice letter is mailed out for non-payment. If an account continues to be delinquent for 14 days the customer receives a 9-day shut-off notice. If the delinquent payment is not received within the shutoff notice period, an automated telephone call is made offering customers the payment options to avoid disconnect. If a payment is not received two days after the automated call, an order is scheduled for termination of electric service. End of the year gross billings delinquency rates for the past 5 years were as follows: Historical Delinquency Rates Source: Imperial Irrigation District. Year Delinquency Rate % % % % % 49

58 The following table sets forth average monthly electric billing for certain California entities: ELECTRIC RATE COMPARISON BY MONTHLY BILL (as of October 2015) Medium Commercial Small Commercial Residential 300 KW 100,000 kwh 2,000 kwh 1,000 kwh IID $12, $ $ Banning 20, Burbank 21, Colton 19, Glendale 13, LADWP 13, Pasadena 15, Riverside 13, SCE 13, SDG&E 19, Source: Rate tariffs from individual utilities. [Remainder of This Page Intentionally Left Blank] 50

59 Customers, Energy Sales, Revenues and Demand The number of total District residential customers increased at a compounded annual rate of 2.89% during the years The District s annual peak demands occur in the summer season due to customers energy requirements for air conditioning. In 2014, the District experienced a peak of 982 MW. In 2014, total energy requirements for retail customers were 3,392,434 MWh. In such period, the District generated 1,675,304 MWh, purchased 2,004,161 MWh on a firm basis and sold 66,591 MWh to other utilities. The energy sales to residential customers reflect relatively high summer usage for air conditioning. A summary of the District s year-end number of customers, MWh sales and revenues derived from sales by classification of service, as well as peak demand, during the past five years is set forth below: IMPERIAL IRRIGATION DISTRICT CUSTOMERS, ENERGY SALES, REVENUES AND DEMAND Year Ended December Customers: Residential 130, , , , ,535 Commercial/Industrial 19,322 18,895 18,672 18,872 18,596 Other 2,473 2,485 2,556 2,515 2,515 Total Customers 152, , , , ,646 Energy Sold (MWh): Residential 1,673,050 1,634,670 1,646,105 1,552,279 1,512,145 Commercial/Industrial 1,617,641 1,612,318 1,633,150 1,621,648 1,594,023 Other 101, , , , ,103 Total Energy Sold 3,392,434 3,351,824 3,386,703 3,285,211 3,218,271 Revenues from Energy Sales ($000): Residential $222,090 $224,590 $195,900 $183,783 $205,297 Commercial/Industrial 192, , , , ,698 Deferred Revenue (1) (46,500) Other 12,843 13,427 12,485 12,850 12,077 Total Revenues from Energy Sales (2) $427,647 $434,968 $394,300 $381,750 $378,572 Peak Demand (MW) (1) Deferred revenue was deposited into the Rate Stabilization Fund. (2) Amount for 2013 includes the recognition of $36.1 million of deferred revenues generated in 2011 from ECA Factor rates and $12.2 million transfer from the Rate Stabilization Fund to the Revenue Fund. Amount for 2014 includes $4.9 million transfer from the Rate Stabilization Fund to the Revenue Fund. Source: Imperial Irrigation District. Major Customers In 1987, the District began retail sales to independently owned, non-utility geothermal electric generating plants in the District s service area for operation of certain plant auxiliaries. The output of these plants is sold to Southern California Edison. These sales by the District amounted to approximately 11,358 MWh in The majority of the remaining general service customers of the District are relatively small industrial and commercial customers, and irrigation pumping customers located in the northern portion of the power service area which is outside the District s water service area. The ten largest power customers of the District, in terms of kwh sales, accounted for approximately 6.5% of total kwh sales and 5.5% of total sales revenues for the Fiscal Year ended December 31, The largest 51

60 customer accounted for 1.1% of total kwh sales and 0.4% of total sales revenues and the smallest of the ten largest customers accounted for 0.2% of total kwh sales and 0.2% of total sales revenues. The ten largest power customers for 2014 in alphabetical order are as follows: Name Armtec Defense Products Co. Cabazon Band of Mission Indians City of Indio Coachella Valley Unified School District Coachella Valley Water District Desert Sands Unified School District National Beef California LP State of CA Dept of Corrections USG Corporation US Navy Source: Imperial Irrigation District. Type of Business Ordinances and Accessories Tribal Gaming and Resort Facility Municipality Educational Public Water System Educational Beef Processing Plant Correctional Facility Gypsum Product Government Electric System Capital Plan The District s Electric System Capital Plan provides for $711.2 million of expenditures from 2015 through Approximately $158.5 million is expected to be required for generation assets and $450.8 million for transmission and distribution. The remaining $101.8 million will be for electric general plant assets. The District expects the majority of the capital requirements will be funded from revenues, developer contributions, and from the proceeds of future Obligations and Commercial Paper Notes. [Remainder of This Page Intentionally Left Blank] 52

61 Historical Operating Results The following operating results of the Energy Department (other than the debt service coverage information) have been derived from the audited combined financial statements of the District for the years 2010 through IMPERIAL IRRIGATION DISTRICT SUMMARY OF HISTORICAL OPERATING RESULTS (1) ENERGY DEPARTMENT ($000) Year Ended December (5) 2011 (5) 2010 Operating Revenues: Power sales (2) $425,946 $433,261 $392,429 $379,901 $425,072 Deferred Revenue (3) (46,500) Interdepartmental Charges (Use of All-American Canal) (7,458) (7,418) (7,577) (7,402) (7,161) Power Sales 1,701 1,708 1,870 1,849 1,694 Wheeling Charges 16,405 14,400 16,176 15,130 14,845 Other 2,269 2,028 2, ,296 Total $438,863 $443,979 $405,201 $389,677 $390,246 Operating Expenses: Cost of Fuel $ 64,016 $ 61,366 $ 51,529 $ 56,402 $ 56,971 Purchased Power 141, , , , ,540 Other Power Expenses (4) 142, , , , ,581 G&A 13,062 12,660 12,578 11,745 12,909 Provision for Depreciation 66,217 65,160 59,020 56,129 53,754 Total 427, , , , ,755 Net Operating Revenue $ 11,805 ($ 903) ($ 728) $ 4,905 $ 2,491 Non-operating Revenues (Expenses): Investment Income (6) $ 3,283 ($ 360) $ 2,785 $ 5,154 $ 3,264 Interest Expense (25,286) (25,863) (25,947) (27,954) (16,008) Other Income 4,308 2,310 2,858 2,320 2,813 Total (17,696) (23,913) (20,304) (20,480) (9,931) Net Income ($ 5,891) ($ 24,816) ($ 21,032) ($ 15,575) ($ 7,440) Add Back/(Deduct): Depreciation 66,217 65,160 59,020 56,129 53,754 Unrealized Mark-to-Market Investment (Gains)/Losses (1,154) 2, (1,726) (385) Interest Expense 25,286 25,863 25,947 27,954 16,008 Balance Available for Debt Service $ 84,459 $ 68,737 $ 64,593 $ 66,782 $ 61,937 Debt Service $ 35,985 $ 35,639 $ 34,361 $ 27,196 $ 21,526 Coverage on Debt Service (1) Totals may not add due to rounding. (2) Amount for 2013 includes the recognition of $36.1 million of deferred revenues generated in 2011 from ECA Factor rates and $12.2 million transfer from the Rate Stabilization Fund to the Revenue Fund. (3) The District deferred $46.5 million in revenues for Fiscal Year 2010 and deposited the funds into the Rate Stabilization Fund. (4) Includes, among other things, construction, operation and maintenance and customer operations. Increases primarily reflect District s determination to commit additional resources to maintenance expenses and increased customer base. Also includes debt service on the Pension Bonds allocable to the Electric System. (5) 2011 and 2012 operating results restated to conform to GASB Statement 65. (6) Includes unrealized mark-to-market investment gains and losses. Source: Imperial Irrigation District. 53

62 Presented below are condensed comparative operating results of the Energy Department taken from unaudited financial statements of the District for the first three quarters of 2015 and IMPERIAL IRRIGATION DISTRICT UNAUDITED SUMMARY OF HISTORICAL OPERATING RESULTS (1) ENERGY DEPARTMENT ($000) For the Nine Months Ended September 30, 2015 and Operating Revenues: Power sales (2) $356,575 $333,122 Interdepartmental Charges (Use of All-American Canal) (5,614) (5,594) Power Sales 1,962 1,285 Wheeling Charges 13,223 10,682 Other 2,006 1,681 Total $368,152 $341,176 Operating Expenses: Cost of Fuel $ 44,134 $ 50,807 Purchased Power 113, ,883 Other Power Expenses 90,044 96,642 General and Administrative Expense 14,937 8,147 Provision for Depreciation 48,593 49,362 Total 311, ,841 Net Operating Revenue $ 56,900 $ 25,335 Non-operating Revenues (Expenses): (Decrease) Increase in Fair Value of Investments and $ 2,880 $ 2,521 Investment Income Interest Expense (18,896) (19,062) Other Income 1,898 3,512 Total (14,118) (13,029) Net Income $ 42,782 $ 12,306 (1) Totals may not add due to rounding. (2) Reflects gross power sales for the first nine months of Fiscal Year 2015 and 2014, excluding deferred revenue recognized for Fiscal Year 2014 of $4.9 million and including the recognition of deferred revenue totaling $12 million through September 30, Power sales revenues for the first nine months of 2015 include the base and ECA rate changes implemented on January 1, See Rates and Billings section for further discussion on the rate changes. Source: Imperial Irrigation District. Net operating revenues increased from 2014 primarily as a result of power sales increase as a result of the implementation of an average 7.4% overall rate increase, and lower fuel costs and purchased power costs. Constitutional Limitations on Appropriations and Fees Under Article XIII B of the California Constitution, State and local government entities have an annual appropriations limit which limits their ability to spend certain moneys called appropriations subject to limitation, which consist of tax revenues, certain state subventions and certain other moneys, including user charges to the extent they exceed the costs reasonably borne by the entity in providing the service for which it is levying the charge. The District is of the opinion that the rates imposed by the District do not exceed the costs the District reasonably bears in providing the Electric Service. In general terms, the appropriations limit is to be based on certain 1978/79 expenditures, and is to be adjusted 54

63 annually to reflect changes in the consumer price index, population, and services provided by these entities. Among other provisions of Article XIII B, if an entity s revenues in any year exceed the amount permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years. Liquidity The District goal is to maintain adequate cash on hand to fund operations and provide for cash reserves through the use of specific types of cash investments. In October 2009, the Board adopted a Reserve Fund Policy which set various reserve levels. The policy set working capital levels for the Energy Department between $50 million and $150 million. The District has prepared a financial forecast that set a target of approximately $100 million in working capital for the Electric System. The goal is to maintain a minimum of 90 days cash over the next five years. The policy also set the rate stabilization fund level for the Energy Department at up to $100 million. On May 25, 2010, the Board approved the deferral of $53.5 million of Electric System revenues, which were deposited into the Rate Stabilization Fund. On April 19, 2011, the Board approved a second deferral of $46.5 million of Electric System revenues, which were also deposited into the Rate Stabilization Fund bringing the balance to $100 million. In 2013 and 2014, the District recognized $12.2 million and $4.9 million, respectively, of deferred revenues by making a transfer from the Rate Stabilization Fund into the Revenue Fund. In November 2014, the Board set a minimum balance of $15 million to be maintained in the Rate Stabilization Fund to mitigate or partially offset unexpected fuel and purchased power costs. In addition, the District approved the utilization of up to a maximum of $16 million annually from the Rate Stabilization Fund to offset increases to the energy cost adjustment billing factor until the minimum amount is reached. As of August 31, 2015, the Rate Stabilization Fund had a balance of $72,147,734. In 2007, the District implemented a Commercial Paper Program for the Electric System and Water System to meet interim construction financing and carved out a segment of this program to provide for cash liquidity if such an emergency exists. See INTRODUCTION Commercial Paper Program herein. Furthermore, as of December 31,2014, the District had unrestricted reserves of $107.6 million without taking into consideration the Rate Stabilization Fund. See Appendix A for a copy of the audited financial statements of the District as of and for the fiscal year ended December 31, State Legislation DEVELOPMENTS IN THE CALIFORNIA ENERGY MARKETS Each year, numerous legislative proposals and executive orders affecting the electric utility industry are introduced and/or enacted by the California Legislature and the Governor. In general, these proposals and orders seek to regulate greenhouse gas emissions, encourage greater investment in energy efficiency and promote the development of renewable energy resources through more stringent renewable portfolio standard requirements. The following is a brief summary of some proposals and orders that have recently been enacted. Greenhouse Gas Emissions Executive Orders. On June 1, 2005, then Governor Arnold Schwarzenegger signed Executive Order S-3-05, which placed an emphasis on efforts to reduce greenhouse gas emissions by establishing statewide greenhouse gas reduction targets. The targets are: 55

64 (i) a reduction to 2000 emissions levels by 2010; (ii) a reduction to 1990 levels by 2020; and (iii) a reduction to 80% below 1990 levels by The Executive Order also called for the California Environmental Protection Agency to lead a multi-agency effort to examine the impacts of climate change on California and develop strategies and mitigation plans to achieve the targets. On April 25, 2006, then Governor Schwarzenegger also signed Executive Order S which directs the State of California to meet a 20% biomass utilization target within the renewable generation targets of 2010 and 2020 for the contribution to greenhouse gas emission reduction. On April 29, 2015, Governor Jerry Brown signed Executive Order B-30-15, which establishes a new interim statewide greenhouse gas emission reduction target to reduce greenhouse gas emissions to 40% below 1990 levels by The Executive Order indicates that the new interim target is aimed at ensuring that California meets the target established by Executive Order S-3-05 of reducing greenhouse gas emission to 80% below 1990 levels by The Executive Order also directs the California Natural Resources Agency to update the State s climate adaptation strategy every three years and to ensure that its provisions are fully implemented. Among other requirements, the Executive Order provides that the State s adaptation strategy must identify a lead agency or agencies that are responsible for adaptation efforts in at least the following sectors: water, energy, transportation, public health, agriculture, emergency services, forestry, biodiversity and habitat, and ocean and coastal resources. The Executive Order requires that the lead agencies for each sector outline the actions in their sector that will be taken as identified in the State s adaptation strategy and report back to the California Natural Resources Agency by June Greenhouse Gas Emissions Global Warming Solutions Act. Then Governor Schwarzenegger signed Assembly Bill 32, the Global Warming Solutions Act of 2006 (the GWSA ), which became effective as law on January 1, The GWSA prescribed a statewide cap on global warming pollution with a goal of returning to 1990 greenhouse gas emission levels by In addition, the GWSA established an annual mandatory reporting requirement for all IOUs, local publicly-owned electric utilities ( POUs ) and other load-serving entities (electric utilities providing energy to end-use customers) to inventory and report greenhouse gas emissions to the California Air Resources Board ( CARB ), required CARB to adopt regulations for significant greenhouse gas emission sources (allowing CARB to design a cap-and-trade system) and gave CARB the authority to enforce such regulations beginning in On December 11, 2008, CARB adopted a scoping plan to reduce greenhouse gas emissions. The scoping plan set out a mixed approach of market structures, regulation, fees and voluntary measures. The scoping plan included a cap-and-trade program. In August 2011, CARB revised the scoping plan in response to litigation. The revised scoping plan also included a cap-and-trade program. The scoping plan is required to be updated every five years. CARB issued the proposed first update to the scoping plan update on February 10, 2014, which was approved by CARB on May 22, The scoping plan update recommends that a plan to extend the cap-and-trade program beyond 2020 be developed by In addition, CARB approved a resolution at its October 25, 2013 board meeting that directs CARB s executive officer to develop a plan for a post-2020 program, including a cost containment mechanism, before CARB is now working on the 2030 Target Scoping Plan Update towards incorporating the 2030 interim emissions reduction target (40% below 1990 emissions levels by 2030). The draft 2030 Target Scoping Plan Update is expected to be released in the spring of 2016 and finalized for adoption by the CARB in the fall of On October 20, 2011, CARB adopted a regulation implementing a cap-and-trade program. The California Office of Administrative Law ( OAL ) approved the regulation on December 13, The cap-and-trade regulation became effective on January 1, Emission compliance obligations under 56

65 the regulation began on January 1, The cap-and-trade program covers sources accounting for 85% of California s greenhouse gas emissions, the largest program of its type in the United States. The cap-and-trade program is being implemented in phases. The first phase of the program (January 1, 2013 to December 31, 2014) introduced a hard emissions cap covering emissions from electricity generators, electricity importers and large industrial sources emitting more than 25,000 metric tons of carbon dioxide-equivalent greenhouse gases ( CDE ) per year. In 2015, the program was expanded to cover emissions from transportation fuels, natural gas, propane and other fossil fuels. The cap will decline each year until the end of the program currently scheduled for 2020 unless otherwise extended. The cap-and-trade program includes the distribution of carbon allowances equal to the annual emissions cap. Each allowance is equal to one metric ton of CDE. As part of a transition process, initially, most of the allowances were distributed for free. Additional allowances are being auctioned quarterly (auctions began in November 2012). Utilities can acquire more allowances at these auctions or on the secondary market. IOUs are required to auction the allowances they received for free from CARB. This requirement also applies to POUs that sell electricity into the CAISO markets, other than sales of electricity from resources funded by municipal tax-exempt debt where the POU makes a matched purchase to serve its traditional retail customers. Utilities required to sell their allowances in the auctions are then required to purchase allowances to meet their compliance obligations, and use any remaining proceeds from the sale of their allocated allowances for the benefit of their ratepayers and to meet the goals of the GWSA. POUs that do not sell into the CAISO markets, and those that sell into the CAISO markets only electricity from resources funded by municipal tax-exempt debt, have three options (which are not mutually exclusive) once their allocated allowances are distributed to them. They can (i) place allowances in their compliance accounts to meet compliance obligations for plants they operate directly, (ii) place allowances in the compliance account of a joint powers agency or public power utility that generates power on their behalf, and/or (iii) auction the allowances and use the proceeds to benefit their ratepayers and meet the goals of the GWSA. The cap-and-trade program also allows covered entities to use offset credits for compliance (not exceeding 8% of a covered entity s compliance obligation). Offsets can be generated by emission reduction projects in sectors that are not regulated under the cap-and-trade program. CARB has approved the following types of offset projects: urban forest projects, reforestation projects, destruction of ozonedepleting substances, livestock methane management projects, destruction of fugitive coal mine methane and rice cultivation practices. CARB will continue to consider additional and updated offset protocols, including international, sector-based offsets. On April 25, 2014, CARB adopted various changes to the cap-and-trade program, including provisions relating to the electricity sector such as safe harbor provisions under the resource shuffling prohibition. These changes became effective on July 1, The California cap-and-trade program is linked to the equivalent program in Quebec, Canada. The link took effect on January 1, 2014, although the first joint auction was delayed until November 25, 2014 in order to resolve certain technical issues. California s program may be linked to additional Canadian provincial cap-and-trade programs, and possibly other U.S. state cap-and-trade programs, in later years as part of the Western Climate Initiative. The Western Climate Initiative is a regional effort consisting of California and four Canadian provinces (Quebec, British Columbia, Ontario and Manitoba), which have established a greenhouse gas reduction trading framework. The CARB held a workshop on October 2, 2015 to begin work towards developing 2016 cap-andtrade program amendments. The proceeding is only in the very initial steps; comments on initial scope 57

66 were due to CARB on October 19, The CARB has four objectives: (1) to extend the program beyond 2020; (2) to improve programmatic efficiencies (including for auctions and data reporting); (3) updates to better reflect the latest technical data on global warming potential and experiences with other emissions trading program; and (4) to maintain the environmental and market integrity of California s program. The District is unable to predict at this time the full impact of the cap-and-trade program over the long-term on the District s Electric System or on the electric utility industry generally or whether any additional changes to the adopted program will be made. However, the District could be adversely affected in the future if the greenhouse gas emissions of its resource portfolio is in excess of the allowances administratively allocated to it and it is required to purchase allowances or other compliance instruments on the market to cover its emissions. The District may also be adversely affected depending on how the federal Clean Power Plan affects the State s cap-and-trade program. See OTHER FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY Environmental Issues Greenhouse Gas Regulations under the Clean Air Act for a brief description of the federal Clean Power Plan. Greenhouse Gas Emissions Emissions Performance Standard. Senate Bill 1368 ( SB 1368 ) became effective as law on January 1, It provides for an emission performance standard ( EPS ), restricting new investments in baseload fossil fuel electric generating resources that exceed the rate of greenhouse gas emissions for existing combined-cycle natural gas baseload generation. SB 1368 allows the California Energy Commission (the CEC ) to establish a regulatory framework to enforce the EPS for POUs such as the District. The CPUC has a similar responsibility for the IOUs. The regulations promulgated by the CEC were approved by the OAL on October 16, The CEC regulations prohibit any investment in baseload generation that does not meet the EPS of 1,100 pounds of carbon dioxide ( CO2 ) per MWh of electricity produced, with limited exceptions for routine maintenance, requirements of pre-existing contractual commitments, or threat of significant financial harm. In January 2012, the CEC decided to undertake a review of the regulations for enforcement of the EPS for POUs to ensure there is adequate review of investments in facilities that do not meet the EPS. On March 19, 2014, the CEC issued its Final Conclusions in the EPS proceeding. The CEC proposed to expand the public notice requirement so that a POU would have to post a notice of a public meeting at which its governing board would consider any expenditure over $2.5 million to meet environmental regulatory requirements at a non-eps compliant baseload facility. The CEC further proposed to require each POU to file an annual notice identifying all investments over $2.5 million that it anticipates making during the subsequent 12 months on non-eps compliant baseload facilities to comply with environmental regulatory requirements. This requirement would be waived for any POU that has entered into a binding agreement to divest within five years of all baseload facilities exceeding the EPS. The CEC did not propose to lower the EPS. Further, by letter from the CPUC to the CEC, the CPUC expressed its view that the EPS not be lowered. A final regulatory package was unanimously adopted at the CEC s June 18, 2014 business meeting. The adopted regulations had limited changes to the proposed POU reporting requirements. CEC staff have also since confirmed that the $2.5 million threshold applies to an individual investment by each utility not the combined investment of all participants in a project. These changes and any future changes to the EPS regulations may impact the District. Energy Procurement and Efficiency Reporting. Senate Bill 1037 ( SB 1037 ) was signed by then Governor Schwarzenegger on September 29, It requires that each POU, including the District, prior to procuring new energy generation resources, first acquire all available energy efficiency, demand reduction, and renewable resources that are cost-effective, reliable and feasible. SB 1037 also requires each POU to report annually to its customers and to the CEC its investment in energy efficiency and demand reduction programs. The District has complied with such reporting requirements. 58

67 Assembly Bill 2021 ( AB 2021 ), signed by then Governor Schwarzenegger on September 29, 2006, requires that the POUs establish, report, and explain the basis of the annual energy efficiency and demand reduction targets by June 1, 2007 and every three years thereafter for a ten-year horizon. A subsequent bill has changed the time interval for establishing annual targets to every four years. The District has complied with this reporting requirement under AB Future reporting requirements under AB 2021 include: (i) the identification of sources of funding for the investment in energy efficiency and demand reduction programs; (ii) the methodologies and input assumptions used to determine cost-effectiveness; and (iii) the results of an independent evaluation to measure and verify energy efficiency savings and demand reduction program impacts. The information obtained from the POUs is being used by the CEC to present the progress made by the POUs towards the State of California s goal of reducing electrical consumption by 10% within ten years and the greenhouse gas targets presented in Executive Order S In addition, the CEC will provide recommendations for improvement to assist each POU in achieving cost-effective, reliable, and feasible savings in conjunction with the established targets for reduction. Governor Jerry Brown signed Assembly Bill 802 (Williams) into law on October 8, 2015 that allows savings to bring buildings up to code to count (rather than only above code savings to count) towards energy efficiency and demand reduction targets while setting new benchmarking requirements for California utilities. Renewable Portfolio Standard. Senate Bill X1 2 ( SBX1 2 ), the California Renewable Energy Resources Act, was signed into law by Governor Jerry Brown on April 12, SBX1 2 codifies the Renewable Portfolio Standard ( RPS ) target for retail electricity sellers to serve 33% of their loads with eligible renewable energy resources by 2020 as provided in Executive Order S (signed by Governor Jerry Brown in November 2008). As enacted, SBX1 2 makes the requirements of the RPS program applicable to POUs (rather than just prescribing that POUs meet the intent of the legislation as under previous statutes). However, the governing boards of POUs are responsible for implementing the requirements, rather than the CPUC, as is the case for the IOUs. In addition, certain enforcement authority for POUs is given to the CEC and CARB, including authority to impose penalties. SBX1 2 requires each POU to adopt and implement a renewable energy resource procurement plan. As set out in more detail in the CEC s RPS enforcement regulation, noted below, the plan must require the utility to procure at least the following amounts of electricity products from eligible renewable energy resources, which may include renewable energy certificates ( RECs ), as a proportion of total kilowatt hours sold to the utility s retail end-use customers: (i) over the compliance period, an average of 20% of retail sales from January 1, 2011 to December 31, 2013, inclusive; (ii) over the compliance period, a total equal to 20% of 2014 retail sales, 20% of 2015 retail sales, and 25% of 2016 retail sales; (iii) over the compliance period, a total equal to 27% of 2017 retail sales, 29% of 2018 retail sales, 31% of 2019 retail sales, and 33% of 2020 retail sales; and (iv) for 2021 and each subsequent year, 33% of retail sales for the applicable year. SBX1 2 grandfathers any facility approved by the governing board of a POU prior to June 1, 2010 as satisfying renewable energy procurement obligations adopted under prior law if the facility is a renewable electrical generation facility as defined in the bill (subject to certain restrictions). Renewable electrical generation facilities include certain out-of-state renewable energy generation facilities if such facility: (i) will not cause or contribute to any violation of a California environmental quality standard or requirement, (ii) participates in the accounting system to verify compliance with the RPS program requirements, and (iii) either (a) commenced initial commercial operation after January 1, 2005 or (b) either (x) the electricity generated by the facility is from incremental generation resulting from expansion or repowering of the facility or (y) the electricity generated by the facility was procured by a retail seller or POU as of January 1, The percentage of a retail electricity seller s RPS requirements that may be met with unbundled RECs from generating facilities outside California declines over time, beginning at 25% through 2013 and declining to a level of 10% in 2017 and beyond. 59

68 The CEC has developed detailed rules to implement SBX1 2. On June 12, 2013, the CEC adopted regulations for the enforcement of the RPS program requirements for POUs. In connection with the implementation of SBX1 2, the CEC is responsible for certifying electric generation facilities as eligible renewable energy resources for purposes of the RPS program and on April 30, 2013, adopted guidelines that identify the requirements, conditions and process for certification of facilities as eligible renewable energy resources. The current guidelines identify bio-methane as an eligible renewable energy resource in certain circumstances. Under these guidelines, utilities that procure bio-methane were required to reapply for certification of the generating facilities that use the bio-methane. The CEC is expected to propose new amendments to the RPS enforcement procedures for POUs in December 2015 (or soon thereafter). CEC staff held a July 11, 2014 pre-rulemaking workshop to solicit comments on the following topics for proposed amendments: the Portfolio Content Category for POU-owned or procured distributed generation systems; the definitions of retail sales and resale; contract amendments and excess procurement; and dynamic transfer agreements. Clean Energy and Pollution Reduction Act of SB 350, the Clean Energy and Pollution Reduction Act of 2015, was signed into law by Governor Jerry Brown on October 7, SB 350, as enacted, establishes an RPS target of 50% by December 31, 2030 for the amount of electricity generated and sold to retail customers from eligible renewable energy resources for retail sellers and POUs, including interim targets of (i) 40% by the end of the compliance period, (ii) 45% by the end of the compliance period and (iii) 50% by the end of the compliance period. SB 350 requires each retail seller of electricity (including IOUs, most POUs above a certain size threshold, community choice aggregation and energy service providers) to provide a renewable energy procurement plan on an annual basis, and to file an integrated resource plan ( IRP ), and a schedule for periodic updates to the plan, for approval. This includes addressing how affected utilities plan to meet the 2030 interim emissions reductions goal set by the CARB. IRPs for retail sellers other than POUs will be reviewed by the CPUC. For POUs, the governing body of the POU is responsible for adopting the IRP, subject to review by the CEC, which can recommend modifications to correct any shortcomings. SB 350 specifies the factors that must be considered in proposed procurement plans and provides that the goals must be balanced by the need to have just and reasonable rates, to ensure system and local reliability, to preserve the resilience of the electric grid, and to enhance distribution system management. The bill specifically requires the CPUC to identify a balanced portfolio of resources to ensure reliability and optimal integration of renewables, and requires that utilities include in their procurement plans a strategy for procuring best-fit and least cost resources to meet the portfolio needs the CPUC identifies. SB 350 further requires the CEC to establish annual targets for statewide energy efficiency savings and demand reduction that will achieve a cumulative doubling of statewide energy efficiency savings in electricity and natural gas final end uses of retail customers by January 1, The CPUC is required to establish energy efficiency targets for electrical and gas corporations consistent with this goal, and specifies programs that may be used to achieve the goal. POUs are required to establish annual targets for energy efficiency savings and demand reduction consistent with the goal and to report those targets to the CEC every four years for the next 10-year period. The bill provides guidance as to what measures qualify and requires an evaluation of feasibility and cost effectiveness in setting annual targets for those savings. SB 350 also requires the CEC to adopt a responsible contractor policy and establish consumer protection guidelines. A CEC rulemaking is not expected to begin until January SB 350 requires the CAISO to prepare proposed governance modifications to facilitate the transformation of the CAISO into a regional organization but provides that such governance modifications will not take effect prior to completion of a specified process for review and study of the 60

69 impacts of a regional market and the enactment by the Legislature of future legislation implementing the proposed governance changes by Solar Power. On August 21, 2006, then Governor Schwarzenegger signed into law California Senate Bill 1 (also known as the California Solar Initiative ). This legislation requires POUs, including the District, to establish a program supporting the stated goal of the legislation to install 3,000 MW of photovoltaic energy in California. POUs are also required to establish eligibility criteria in collaboration with the CEC for the funding of solar energy systems receiving ratepayer-funded incentives. The legislation gives a POU the choice of selecting an incentive based on the installed capacity or based on the energy produced by the solar energy system, measured in kilowatt-hours. Incentives would be required to decrease at a minimum average rate of 7% per year. POUs also have to meet certain reporting requirements regarding the installed capacity, number of installed systems, number of applicants, amount of awarded incentives and the contribution toward the program s goals. The District has established programs in accordance with the requirements of the California Solar Initiative. Future Regulation The electric industry is subject to continuing legislative and administrative reform. States routinely consider changes to the way in which they regulate the electric industry. Historically, both further deregulation and forms of additional regulation have been proposed for the industry, which has been highly regulated throughout its history. While there is no current proposal to further deregulate the industry, there still are additional regulations or legislative mandates being proposed or considered for the industry such as higher reliance on renewable energy and tighter regulations for greenhouse gas emission reductions. The District is unable to predict at this time the impact any such proposals will have on the operations and finances of the Electric System or the electric utility industry generally. Impact of Developments on the District The effect of the developments in the California energy markets described above on the District cannot be fully ascertained at this time. Also, volatility in energy prices in California may return due to a variety of factors that affect both the supply and demand for electric energy in the western United States. These factors include, but are not limited to, the adequacy of generation resources to meet peak demands, the availability and cost of renewable energy, the impact of economy-wide greenhouse gas emission legislation and regulations, fuel costs and availability, weather effects on customer demand, transmission congestion, the strength of the economy in California and surrounding states and levels of hydroelectric generation within the region (including the Pacific Northwest). See OTHER FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY. This price volatility may contribute to greater volatility in the revenues of the Electric System from the sale (and purchase) of electric energy and, therefore, could materially affect the Electric System s financial condition. The District undertakes resource planning and risk management activities and manages its resource portfolio to mitigate such price volatility and spot market rate exposure. OTHER FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY Federal Legislation and Regulatory Actions Energy Policy Act of Under the federal Energy Policy Act of 2005 ( EPAct 2005 ), FERC was given refund authority over POUs if they sell into short-term markets, like the CAISO markets, and sell eight million MWhs or more of electric energy on an annual basis. In addition, FERC was given authority over the behavior of market participants. Under FERC s authority it can impose penalties on any seller for using a manipulative or deceptive device, including market manipulation, in connection 61

70 with the purchase or sale of energy or of transmission service. The Commodity Futures Trading Commission ( CFTC ) also has jurisdiction to enforce certain types of market manipulation or deception claims under the Commodity Exchange Act. EPAct 2005 authorized FERC to issue permits to construct or modify transmission facilities located in a national interest electric transmission corridor if FERC determines that the statutory conditions are met. EPAct 2005 also required the creation of an electric reliability organization ( ERO ) to establish and enforce, under FERC supervision, mandatory reliability standards ( Reliability Standards ) to increase system reliability and minimize blackouts. Failure to comply with such Reliability Standards exposes a utility to significant fines and penalties by the ERO. NERC Reliability Standards. EPAct 2005 required FERC to certify an ERO to develop mandatory and enforceable reliability standards, subject to FERC review and approval. The reliability standards apply to users, owners and operators of the Bulk-Power System, as more specifically set forth in each reliability standard. On February 3, 2006, FERC issued Order 672, which certified the North American Electric Reliability Corporation ( NERC ) as the ERO. Many Reliability Standards have since been approved by FERC. The ERO or the entities to which NERC has delegated enforcement authority through an agreement approved by FERC ( Regional Entities ), such as the WECC, may enforce the Reliability Standards, subject to FERC oversight, or FERC may independently enforce them. Potential monetary sanctions include fines of up to $1 million per violation per day. FERC Order 693 further provided the ERO and Regional Entities with the discretion necessary to assess penalties for such violations, while also having discretion to calculate a penalty without collecting the penalty if circumstances warrant. See also THE ELECTRIC SYSTEM Reserves and Reliability. Other Legislation. Congress has considered and is considering numerous bills addressing domestic energy policies and various environmental matters, including bills relating to energy supplies and development (such as a federal energy efficiency standard and expedited permitting for natural gas drilling projects), global warming, physical and cyber security and water quality. Many of these bills, if enacted into law, could have a material impact on the Electric System and the electric utility industry generally. In light of the variety of issues affecting the utility sector, federal energy legislation in other areas such as reliability, transmission planning and cost allocation, operation of markets, environmental requirements and cyber security is also possible. However, the District is unable to predict the outcome or potential impacts of any possible legislation. CAISO FERC Filings The District operates a balancing authority area independent of the CAISO and is not a CAISO load-serving entity. Accordingly, the District is not subject to the CAISO s recent FERC-approved initiatives. However, certain FERC approved actions taken by the CAISO may indirectly impact the District. In early 2007, the CAISO filed and obtained FERC approval to develop a financing mechanism for the construction of generator interconnection facilities to access location-constrained resources. Location-constrained resources are defined as new generation resources that are typically constrained as a result of their location, relative to size and the immobility of their fuel source. The financing mechanism would initially roll the costs of interconnecting these facilities into the transmission access charge ( TAC ) of the CAISO, thus essentially socializing the costs across the entire CAISO transmission customer base. The CAISO filing referenced the District s Salton Sea area as a potentially locationconstrained resource area. Although no attempt has been made by the CAISO or any other transmission developer to propose a transmission project to access renewables in the Salton Sea resource area using 62

71 this financing mechanism, the District can give no assurance that the CAISO may propose such a project in the future that could facilitate the bypass of the District s transmission system. More recently, the CAISO filed for approval of a revised transmission planning process at FERC, and the CAISO s new process was conditionally approved by FERC on December 16, The CAISO created a new category of transmission projects, called policy-driven projects, which would include, for example, transmission projects designed to meet the State s renewable portfolio standards. If a proposed, policy-driven transmission project is approved by the CAISO in accordance with its new procedures, the costs of such project could be rolled into the CAISO s TAC, effectively socializing the costs across the entire CAISO transmission customer base. Although no policy-driven transmission project has been approved by the CAISO at this time that would bypass the District s transmission systems, the District can give no assurance that a policy-driven project will not be proposed in the future that could facilitate the bypass of the District s transmission system. Environmental Issues General. Electric utilities are subject to continuing environmental regulation. Federal, state and local standards and procedures which regulate the environmental impact of electric utilities are subject to change. These changes may arise from continuing legislative, regulatory and judicial action regarding such standards and procedures. Consequently, there is no assurance that any District facility or project will remain subject to the laws and regulations currently in effect, will always be in compliance with future laws and 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, reduced operating levels or the shutdown of individual units not in compliance. In addition, increased environmental laws and regulations may create certain barriers to new facility development, may require modification of existing facilities and may result in additional costs for affected resources. Greenhouse Gas Regulations Under the Clean Air Act. The EPA has taken steps to regulate greenhouse gas emissions under existing law. In 2009, the EPA issued a final endangerment finding, in which it declared that the weight of scientific evidence requires a finding that six identified greenhouse gases, namely, CO2, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride, cause global warming, and that global warming endangers the public health and welfare. The final rule for the endangerment finding was published in the Federal Register on December 15, As a result of this finding, the EPA determined that it was authorized to issue regulations limiting CO2 emissions from, among other things, motor vehicles and stationary sources, such as electric generating facilities, under the federal Clean Air Act. The EPA subsequently issued the Tailoring Rule, published in the Federal Register on June 3, 2010, which regulates greenhouse gas emissions from large stationary sources, including electric generating facilities, if the sources emit more than the specified threshold levels of tons per year of CO2. Large sources with the potential to emit in excess of the applicable threshold will be subject to the major source permitting requirements under the Clean Air Act, including the EPA s Prevention of Significant Deterioration ( PSD ) permit program and its Title V operating permit program. Permits would be required in order to construct, modify and operate facilities exceeding the emissions threshold. Examples of such permitting requirements include, but are not limited to, the application of Best Available Control Technology (known as BACT) for greenhouse gas emissions, and monitoring, reporting, and recordkeeping for greenhouse gases. Legislation has been introduced in the United States Congress that would repeal the EPA s endangerment finding or otherwise prevent the EPA from regulating greenhouse gases as air pollutants. The endangerment finding and the Tailoring Rule have also been challenged in court, but were upheld on June 26, 2012 in a decision by the U.S. Court of Appeals for the District of Columbia Circuit in Coalition for Responsible Regulation, Inc., et al. v. EPA. A petition for rehearing was denied on December 20, 63

72 2012. In October 2013, several petitions for review relating to these findings were consolidated in the United States Supreme Court case Utility Air Regulatory Group v. EPA, dealing with the issue of whether the EPA permissibly determined that its regulation of greenhouse gas emissions from new motor vehicles triggered permitting requirements under the Clean Air Act for stationary sources that emit greenhouse gases. On June 23, 2014, the United States Supreme Court issued its decision in the Utility Air Regulatory Group v. EPA case. In the decision, the Court invalidated substantial portions of the Tailoring Rule, which purported to modify the emissions thresholds set forth in the Clean Air Act (governing when PSD and Title V permitting would be triggered) to account for greenhouse gases, while preserving various aspects of the EPA s ability to regulate greenhouse gas emissions from most new major sources. The decision holds that, for facilities that are otherwise subject to PSD permitting obligations (by virtue of their emissions of conventional pollutants), the EPA may regulate greenhouse gases from those facilities through the PSD BACT standards (without approving the EPA s current approach to BACT regulation of greenhouse gases, or any other approach that may be adopted). In December 2010, the EPA announced two settlements with a number of states and environmental groups. Pursuant to one settlement agreement dated December 23, 2010, the EPA on April 13, 2012 proposed establishing New Source Performance Standards limiting CO 2 emissions from fossil-fuel fired electric generating units. In response to a June 25, 2013 Presidential memorandum (the Presidential Memorandum ), the EPA proposed revised, generally more stringent standards on September 20, 2013 and simultaneously rescinded the April 13, 2012 proposal. The EPA states that the revised standards would apply only to new facilities, not reconstructed or modified facilities. The Presidential Memorandum required the EPA to propose by June 1, 2014, and to finalize by June 1, 2015, standards, regulations, or guidelines that address carbon pollution from existing and modified or reconstructed power plants. The proposed rule for new power plants was published in the Federal Register on January 8, 2014 for public comment. At the close of the comment period on May 9, 2014, the EPA had received approximately two million comments on the proposed rule. As contemplated by the Presidential Memorandum, on June 2, 2014, the EPA concurrently released both its Clean Power Plan proposal for existing power plants and its proposed revised standards for modified or reconstructed power plants. The proposed rules for existing, and modified or reconstructed, power plants were published in the Federal Register on June 18, 2014; comments on the proposed rules were accepted until December 1, 2014 and October 16, 2014, respectively. On August 3, 2015, President Obama and the EPA announced the final version of the Clean Power Plan for existing power plants. The EPA further released its final new source performance standards for emissions of CO 2 for newly constructed, modified, and reconstructed power plants. The final version of the Clean Power Plan is designed to reduce CO 2 emissions from the power sector by 32% on average nationwide by 2030, from a 2012 baseline. Under the final rule, the EPA will set different interim and final emissions targets for each state based on overall CO 2 emissions and the amount of electricity generated in the State and revised the proposed rule to encourage greater regional cooperation (through WECC for California). Under the final rule, States would have until September 2016 to design their own state implementation plans to reach the emissions target or could request an extension until September 2018 either alone or in cooperation with other states while working on multistate plans. States may choose between two plan types in order to comply with the program: a sourcebased emission standards plan type, including source-specific requirements ensuring all affected power plants within the state meet their required emissions performance rates or state-specific rate based or mass-based goal, and a state measures plan type, including a mixture of measures implemented by the state, such as renewable energy standards and programs to improve residential energy efficiency, that 64

73 result in affected power plants meeting the state s mass-based goal. In both cases, states will have to demonstrate that their plan will meet the CO 2 emission performance rates, the state rate-based goal or the state mass-based goal by Interim standards are to be phased in from 2022 to 2029 prior to the final standards being reached in Progress towards meeting the target rates may be measured in one of three ways: (i) a rate-based state emissions goal measured in pounds per MWh; (ii) a mass-based state emissions goal measured in total short tons of CO 2 ; and (iii) a mass-based state goal with a new source complement measured in total short tons of CO. Under the rule, state emission targets may be met in a combination of ways, with emissions targets set based on three building blocks identified by the EPA as reflecting a Best System of Emissions Reduction, which may include improved efficiency at power plants, switching generation from higher-emitting coal to lower-emitting natural gas, and shifting generation to zero-emitting renewable or nuclear energy. In the event a state fails to develop a satisfactory implementation plan, the EPA may impose a federal implementation plan instead. Concurrently with the release of the final Clean Power Plan for existing power plants, on August 3, 2015, the EPA also set standards to limit CO 2 emissions from new, modified and reconstructed power plants. These new final carbon pollution standards will apply to: (i) any newly constructed fossil fuel-fired power plant that commenced construction on or after January 8, 2014, (ii) existing power plants subject to modification, which includes a physical or operational change that increases the source s maximum achievable hourly rate of emissions, which modification occurs on or after June 18, 2014, and (iii) reconstructed power plants, which includes any unit on which the replacement of components occurs on or after June 18, 2014 and to such an extent that the fixed capital costs of the new components exceeds 50% of the fixed capital costs that would be required to construct a comparable entirely new facility. In the final standards, the EPA is establishing separate standards for two types of fossil fuel-fired sources: (a) stationary combustion turbines, generally firing natural gas, and (b) electric utility steam generating units, generally firing coal. The new standards reflect the degree of emissions limitation achievable through the application of the Best System of Emissions Reduction, that the EPA has determined has been adequately demonstrated for each type of unit. Under the final standards, new and reconstructed baseload natural gas-fired electricity generating units would be required to meet an emissions limit of 1,000 pounds of CO 2 per MWh. Non-base load units would need to meet a clean fuels input-based standard. New coal-fired facilities would be required to meet an emissions limit of 1,400 pounds of CO2 per MWh-gross. Coal-fired electricity generating units subject to modifications resulting in an increase of hourly CO 2 emissions of more than 10% relative to the emissions of the most recent five years from that unit would be required to meet a unit-specific emission limit that is consistent with the unit s best historical annual CO 2 emissions rate since Such standard would be in the form of an emissions limit in pounds of CO 2 per MWh on a gross-output basis. Reconstructed coal-fired power plants with a heat input of greater than 2,000 MMBtu/h would be required to meet an emissions limit of 1,800 pounds of CO 2 per MWh-gross. Smaller coal-fired units would be required to meet an emission limit of 2,000 pounds of CO 2 per MWh-gross. These emissions limits are based on the use of the most efficient generating technology at the affected source. The final Clean Power Plan and the carbon pollution standards for new, modified and reconstructed power plants will become effective 60 days after their respective publications in the Federal Register, which occurred on October 23, A number of lawsuits have been filed or plan to be filed challenging the final rules and seeking to prevent the EPA from moving forward to implement the Clean Power Plan. On August 13, 2015, a group of 15 state attorneys general filed an action in the United States Court of Appeals for the District of Columbia Circuit seeking an emergency stay of the Clean Power Plan deadlines while its legality is reviewed by the courts. This request was denied by the court on September 10, Additional legal and legislative challenges are expected. Given the complexity and various approaches available to states towards implementing the final Clean Power Plan, it is too early to determine the impact of the final rule with any degree of certainty. Further, the District is unable to predict at this time the outcome of any ongoing legal challenges to other EPA rulemaking with respect to 65

74 greenhouse gas emissions or the effect that any final rules promulgated by the EPA regulating greenhouse gas emissions from electric generating units will have on the District or the Electric System. The CARB held an October 2, 2015 workshop to begin development of California s state compliance plan. CARB staff expects to submit the final plan to EPA for approval by the September 2016 deadline. Air Quality National Ambient Air Quality Standards. The Clean Air Act requires that the EPA establish National Ambient Air Quality Standards ( NAAQS ) for certain air pollutants. When a NAAQS has been established, each state must identify areas in its state that do not meet the EPA standard (known as non-attainment areas ) and develop regulatory measures in its state implementation plan to reduce or control the emissions of that air pollutant in order to meet the applicable standard and become an attainment area. The EPA periodically reviews the NAAQS for various air pollutants and has in recent years increased, or proposed to increase, the stringency of the NAAQS for certain air pollutants. The EPA revised the NAAQS for particulate matter on December 14, 2012, the NAAQS for sulfur dioxide on June 22, 2010, and the NAAQS for nitrogen dioxide on February 9, 2010, and in each case made the NAAQS more stringent. It is possible that some areas will be designated as non-attainment based on the revised standards for particulate matter, nitrogen dioxide and sulfur dioxide. These developments may result in stringent permitting processes for new sources of emissions and additional state restrictions on existing sources of emissions, such as power plants. On September 2, 2011, President Obama directed the EPA to withdraw a proposal advanced by the EPA to lower the NAAQS for ozone. As a result of this withdrawal, the EPA resumed the process of issuing non-attainment designations for the ozone NAAQS under the standard set in On April 30, 2012, the EPA issued ozone nonattainment designations for areas in California, including the Los Angeles San Bernardino Counties and the Los Angeles South Coast Air Basin. Additional non-attainment areas for ozone have been and may continue to be designated. On May 29, 2013, the EPA proposed a rule to implement the 2008 ozone NAAQS. Comments on the proposed rule were due to the EPA by August 5, While implementing the 2008 ozone NAAQS, the EPA is continuing its review of this standard. In January 2014, the EPA released draft risk and exposure assessment documents and a draft policy assessment document relating to this review; comments were due by March 24, In addition, the Supreme Court found in its review of EPA v. EME Homer City Generation, LP that the EPA has authority to impose a Cross-State Air Pollution Rule (the Transport Rule ) which curbs air pollution emitted in upwind states to facilitate downwind attainment of three NAAQS. On November 26, 2014, the EPA proposed to strengthen the stringency of the NAAQS for ozone by lowering the existing ozone standard of 75 parts per billion ( ppb ) to between 65 and 70 ppb, although the EPA is also soliciting public comment on a standard as low as 60 ppb. On October 1, 2015, the EPA issued its final rule, lowering the ozone standard to 70 ppb. EPA has until October 1, 2017 to make final non-attainment designations; the South Coast Air Basin is expected to once again have additional time to come into compliance with the new standard given the unique challenges the area faces in meeting ozone standards. Mercury and Air Toxics Standards. On December 16, 2011, the EPA signed a rule establishing new standards to reduce air pollution from coal- and oil-fired power plants under sections 111 (new source performance standards, or NSPS ) and 112 (toxics program) of the Clean Air Act. The final rule was published in the Federal Register on February 16, The EPA updated the Mercury and Air Toxics Standards ( MATS ) emission limits on November 30, 2012 and again on March 28, The EPA is currently reconsidering certain aspects of the regulation. Under section 111 of the Clean Air Act, MATS revises the standards that new and modified facilities, including coal- and oil-fired power plants, must meet for particulate matter, sulfur dioxide, and nitrogen oxide. Under section 112, MATS sets new toxics standards limiting emissions of heavy metals, including mercury, arsenic, chromium, and nickel; and acid gases, including hydrochloric acid and hydrofluoric acid, from existing and new power plants larger than 25 MW that burn coal or oil. Power plants have up to four years to meet these standards. 66

75 While many plants already meet some or all of these new standards, some plants will be required to install new equipment to meet the standards. On November 25, 2014, the United States Supreme Court agreed to review the MATS rule following the filing of petitions for writ of certiorari from 23 states and industry groups. On June 29, 2015, the United States Supreme Court issued its decision in the case, finding that the EPA interpreted the Clean Air Act improperly because it did not consider the costs of emissions reductions prior to crafting the MATS rules, and remanded the case back to the District of Columbia Circuit Court. Certain of the Project Participants purchase power from coal-fired power stations that may be affected by these new rules, and in the event the MATS standards are ultimately upheld, such Project Participants may be exposed to increased costs. Regulation of Coal Combustion Residuals. On June 21, 2010, the EPA proposed to regulate coal combustion residuals ( CCR ) such as ash. The EPA proposed to list these residuals as a special waste and regulate them as a hazardous waste. This would require a federal or state permitting program covering the storage, treatment, transport, disposal, and other activities related to residuals. The EPA also proposed an alternative regulation that would classify residuals as nonhazardous solid waste. Under the alternative regulation, plants could dispose of residuals in surface impoundments or landfills if they comply with national minimum standards. The disposal standards would address location, liner requirements, groundwater monitoring and other issues, but permits would not be required under the alternative regulation. The EPA solicited additional public comments on its proposed coal combustion residual regulation on October 12, 2011 and again on August 2, The EPA released its final CCR rule on December 19, 2014, adopting the industry-preferred alternative regulation classifying CCRs as nonhazardous solid waste. Legislation is pending in the U.S. Congress to further change the final rule, though its prospects remain uncertain given the threat of a presidential veto. Regulation of Cooling Water Intake Structures. On April 20, 2011, the EPA proposed to regulate cooling water intake structures at certain existing power plants in order to reduce the number of fish and other aquatic organisms that are trapped against intake screens or drawn into the generating unit. The EPA proposed to require modified intake screens that would capture and safely return fish to water bodies, or require the facility s water intake velocity to be reduced, thus allowing fish to move away from intake structures. The best technology to reduce entrainment would be determined on a site-specific basis. A final regulation was released by the EPA on May 16, 2014 and became effective on October 14, The regulation is expected to increase the cost of power that the District purchases from certain fossil fuel-fired units. Effluent Limitations Guidelines and Standards. On June 7, 2013, the EPA proposed to set technology-based effluent limitations guidelines and standards for metals and other pollutants in wastewater discharged from steam electric power plants. The proposal would cover wastewater associated with several types of equipment and processes, including flue gas desulfurization, fly ash, bottom ash, flue gas mercury control and gasification of fuels. The EPA is also considering best management practices for surface impoundments containing CCRs. The EPA proposed four preferred alternatives for regulating wastewater discharges. The stringency of controls, types of waste streams covered, and the costs vary between the four alternatives. The public comment period on this proposal ended on September 20, The EPA was expected to issue a final rule in May 2014 but in December 2013 it announced that it would need additional time to finalize this rule. The proposed regulation could increase the cost of power that the District purchases from steam electric power plants. On September 30, 2015, EPA announced the final Steam Electric Effluent Limitation Guidelines to update the federal limits on toxic metals in discharge wastewater. EPA will provide the industry more time to coordinate compliance with these guidelines and the coal ash rule. The District is unable to predict the outcome of the legal and legislative challenges to the EPA s endangerment finding and subsequent rulemaking, or the effect that any future final rules promulgated by 67

76 the EPA regulating electric generating units and other stationary sources would have on the Electric System. Other Factors The electric utility industry in general has been, or in the future may be, affected by a number of other factors which could affect the financial condition and competitiveness of many electric utilities and the level of utilization of generating and transmission facilities. In addition to the factors discussed above, such factors include, among others, (a) effects of compliance with rapidly changing environmental, safety, licensing, regulatory and legislative requirements other than those described above (including those affecting nuclear power plants or potential new energy storage requirements), (b) changes resulting from conservation and demand-side management programs on the timing and use of electric energy, (c) changes resulting from a national energy policy, (d) effects of competition from other electric utilities (including increased competition resulting from a movement to allow direct access or from mergers, acquisitions, and strategic alliances of competing electric and natural gas utilities and from competitors transmitting less expensive electricity from much greater distances over an interconnected system) and new methods of, and new facilities for, producing low-cost electricity, (e) the repeal of certain federal statutes that would have the effect of increasing the competitiveness of many IOUs, (f) increased competition from independent power producers and marketers, brokers and federal power marketing agencies, (g) self-generation or distributed generation (such as microturbines and fuel cells) by industrial and commercial customers and others, (h) issues relating to the ability to issue tax-exempt obligations, including severe restrictions on the ability to sell to nongovernmental entities electricity from generation projects and transmission service from transmission line projects financed with outstanding tax-exempt obligations, (i) effects of inflation on the operating and maintenance costs of an electric utility and its facilities, (j) changes from projected future load requirements, (k) increases in costs and uncertain availability of capital, (l) shifts in the availability and relative costs of different fuels (including the cost of natural gas and nuclear fuel), (m) sudden and dramatic increases in the price of energy purchased on the open market that may occur in times of high peak demand in an area of the country experiencing such high peak demand, such as has occurred in California, (n) inadequate risk management procedures and practices with respect to, among other things, the purchase and sale of energy and transmission capacity, (o) other legislative changes, voter initiatives, referenda and statewide propositions, (p) effects of the changes in the economy, (q) effects of possible manipulation of the electric markets, (r) natural disasters or other physical calamities, including, but not limited to, earthquakes and floods and (s) changes to the climate. Any of these factors (as well as other factors) could have an adverse effect on the financial condition of any given electric utility and likely will affect individual utilities in different ways. The District is unable to predict what impact such factors will have on the business operations and financial condition of the Electric System, but the impact could be significant. This Official Statement includes a brief discussion of certain of these factors. This discussion does not purport to be comprehensive or definitive, and these matters are subject to change subsequent to the date hereof. Extensive information on the electric utility industry is available from the legislative and regulatory bodies and other sources in the public domain, and potential purchasers of the Series 2015 Bonds should obtain and review such information. Federal Rate Regulation The District sets rates, fees and charges for electric service. The authority of the District to impose and collect rates and charges for electric power and energy sold and delivered is not subject to the general regulatory jurisdiction of the CPUC and presently neither the CPUC nor any other regulatory authority of the State nor the FERC approves such rates and charges. It is possible that future legislative 68

77 and/or regulatory changes could subject the rates and/or service area of the District to the jurisdiction of the CPUC or to other limitations or requirements. FERC could potentially assert jurisdiction over rates of licensees of hydroelectric projects and customers of such licensees under Part I of the Federal Power Act ( Part I ), although it has not as a practical matter exercised or sought to exercise such jurisdiction to modify rates that would legitimately be charged. There is a question as to whether FERC has jurisdiction at all to modify rates for municipalities which are authorized to set their own rates. FERC and its predecessor, the Federal Power Commission (the FPC ), have indicated on a number of occasions that municipalities and other public agencies authorized to set their own rates are not subject to FERC s regulatory jurisdiction over rates. On the other hand, the FPC in at least one decision suggested a contrary result. Even if FERC were to assert jurisdiction over the services and charges associated with such hydroelectric projects, it is unlikely that any reasonable rates and charges would be found to be contrary to applicable federal regulatory standards. Under the 1992 revisions to the Federal Power Act, enacted as the Energy Policy Act of 1992 (the Energy Policy Act ), FERC has the authority, under certain circumstances and pursuant to certain procedures, to order any utility (municipal or otherwise) to provide transmission access to others at costbased rates. FERC also has jurisdiction to regulate those cost-based rates, and has asserted that jurisdiction in Minnesota Municipal Power Agency v. Southern Minnesota Municipal Power Agency, 66 FERC 61,223 (1994) and 68 FERC 61,060 (1994). However, FERC s asserted jurisdiction over municipal rates does not extend to the rates for power sales outside a CAISO market, and applies only to transmission service ordered by FERC pursuant to Section 211 of the Federal Power Act, as amended by the Energy Policy Act. Neither the District nor the joint powers agencies with which the District has contracted which developed the transmission assets are providing any such transmission service to others. No assurance can be given that such service will not be requested in the future. On June 30, 2010, FERC issued a Notice of Proposed Rulemaking (NOPR) regarding transmission planning and cost allocation. In the NOPR, FERC is proposing cost allocation principles for regional and inter-regional transmission projects that potentially could spread the costs of new projects broadly to beneficiaries of those projects, even if transmission service is not requested by all who are deemed to be beneficiaries. FERC announced that it intends to apply its proposal to municipalities through a reciprocity condition on the ability of municipalities to take service from other FERCjurisdictional utilities. The District, other individual municipalities and trade associations representing municipalities have challenged FERC s claim of jurisdiction to apply its proposal to municipalities. FERC has not yet issued a final rule. Proposition 218 CONSTITUTIONAL LIMITATIONS ON GOVERNMENTAL SPENDING Proposition 218, a State ballot initiative known as the Right to Vote on Taxes Act, was approved by the voters of the State on November 5, Proposition 218 added Articles XIIIC and XIIID to the State Constitution. Article XIIID creates additional requirements for the imposition by most local governments (including the District) of general taxes, special taxes, assessments and propertyrelated fees and charges. Article XIIID explicitly exempts fees for the provision of electric service from the provisions of such article. Article XIIIC expressly extends the people s initiative power to reduce or repeal previouslyauthorized local taxes, assessments, and fees and charges. The terms fees and charges are not defined 69

78 in Article XIIIC, although the California Supreme Court held in Bighorn-Desert View Water Agency v. Verjil, 39 Cal.4th 205 (2006), that the initiative power described in Article XIIIC may apply to a broader category of fees and charges than the property-related fees and charges governed by Article XIIID. Electric service charges (which are expressly exempted from the provisions of Article XIIID) might be subject to the initiative provision of Article XIIIC, thereby subjecting such fees and charges imposed by the District to reduction by the electorate. The District believes that even if the electric rates of the District are subject to the initiative power, under Article XIIIC or otherwise, the electorate of the District would be precluded from reducing electric rates and charges in a manner adversely affecting the payment of the Series 2015 Bonds by virtue of the impairment of contracts clause of the United States and California Constitutions. Proposition 26 Proposition 26 was approved by the electorate at the November 2, 2010 election and amended California Constitution Articles XIIIA and XIIIC. The proposition imposes a two-thirds voter approval requirement for the imposition of fees and charges by the State. It also imposes a majority voter approval requirement on local governments with respect to fees and charges for general purposes, and a two-thirds voter approval requirement with respect to fees and charges for special purposes. Proposition 26, according to its supporters, is intended to prevent the circumvention of tax limitations imposed by the voters in California Constitution Articles XIIIA, XIIIC and XIIID pursuant to Proposition 13, approved in 1978, Proposition 218, approved in 1996, and other measures through the use of non-tax fees and charges. Proposition 26 expressly excludes from its scope a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable cost to the State or local government of providing the service or product to the payor. Proposition 26 may, however, be interpreted to limit fees and charges for electric utility services charged by governmental entities such as the District to require stricter standards for the allocation of costs among customer classes. The District is unable to predict at this time how Proposition 26 will be interpreted by the courts or what its ultimate impact will be. Other Initiatives Articles XIIIA, XIIIC and XIIID were adopted as measures that qualified for the ballot pursuant to California s initiative process. From time to time, including presently, other initiatives have been, and could be, proposed, and if qualified for the ballot, could be adopted affecting the Electric System s revenues or operations. Neither the nature and impact of these measures nor the likelihood of qualification for ballot or passage can be anticipated by the District. Series 2015C Bonds TAX MATTERS The Internal Revenue Code of 1986 (the Code ) imposes certain requirements that must be met subsequent to the issuance and delivery of the Series 2015C Bonds for interest thereon to be and remain excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes. Noncompliance with such requirements could cause the interest on the Series 2015C Bonds to be included in the gross income of the owners thereof for federal income tax purposes retroactive to the date of issuance of the Series 2015C Bonds. The District has covenanted in the Resolution to maintain the exclusion of the interest on the Series 2015C Bonds from the gross income of the owners thereof for federal income tax purposes. 70

79 In the opinion of Norton Rose Fulbright US LLP, Bond Counsel, under existing law interest on the Series 2015C Bonds is exempt from personal income taxes of the State of California and, assuming compliance with the aforementioned covenant, interest on the Series 2015C Bonds is excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes. Bond Counsel is of the further opinion that the Series 2015C Bonds are not specified private activity bonds within the meaning of section 57(a)(5) of the Code and, therefore, the interest on the Series 2015C Bonds is not treated as an item of tax preference for purposes of computing the alternative minimum tax imposed by section 55 of the Code; however, the receipt or accrual of interest on the Series 2015C Bonds owned by a corporation may affect the computation of its alternative minimum taxable income. A corporation s alternative minimum taxable income is the basis on which the alternative minimum tax imposed by section 55 of the Code will be computed. In rendering the foregoing opinions, Bond Counsel will rely upon representations and certifications of the District made in a Tax Certificate dated the date of delivery of the Series 2015C Bonds pertaining to the use, expenditure, and investment of the proceeds of the Series 2015C Bonds. The initial public offering price of certain Series 2015C Bonds (the Discount Bonds ) may be less than the amount payable on such Series 2015C Bonds at maturity. An amount equal to the difference between the initial public offering price of a Discount Bond (assuming that a substantial amount of the Discount Bonds of that maturity are sold to the public at such price) and the amount payable at maturity constitutes original issue discount to the initial purchaser of such Discount Bond. A portion of such original issue discount allocable to the holding period of such Discount Bond by the initial purchaser will, upon the disposition of such Discount Bond (including by reason of its payment at maturity), be treated as interest excludable from gross income, rather than as taxable gain, for federal income tax purposes, on the same terms and conditions as those for other interest on the Series 2015C Bonds described above. Such interest is considered to be accrued actuarially in accordance with the constant interest method over the life of a Discount Bond, taking into account the semiannual compounding of accrued interest, at the yield to maturity on such Discount Bond and generally will be allocated to an initial purchaser in a different amount from the amount of the payment denominated as interest actually received by the initial purchaser during the tax year. However, such interest may be required to be taken into account in determining the alternative minimum taxable income of a corporation, for purposes of calculating a corporation s alternative minimum tax imposed by Section 55 of the Code, and the amount of the branch profits tax applicable to certain foreign corporations doing business in the United States, even though there will not be a corresponding cash payment. In addition, the accrual of such interest may result in certain other collateral federal income tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, S corporations with subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, individuals otherwise qualifying for the earned income tax credit, owners of an interest in a financial asset securitization investment trust, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations. Moreover, in the event of the redemption, sale or other taxable disposition of a Discount Bond by the initial owner prior to maturity, the amount realized by such owner in excess of the basis of such Discount Bond in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Discount Bond was held) is includable in gross income. Owners of Discount Bonds should consult with their own tax advisors with respect to the determination of accrued original issue discount on Discount Bonds for federal income tax purposes and with respect to the state and local tax consequences of owning and disposing of Discount Bonds. The purchase price of certain Series 2015C Bonds (the Premium Bonds ) paid by an owner may be greater than the amount payable on such Series 2015C Bonds at maturity. An amount equal to the 71

80 excess of a purchaser s tax basis in a Premium Bond over the amount payable at maturity constitutes premium to such purchaser. The basis for federal income tax purposes of a Premium Bond in the hands of such purchaser must be reduced each year by the amortizable bond premium, although no federal income tax deduction is allowed as a result of such reduction in basis for amortizable bond premium. Such reduction in basis will increase the amount of any gain (or decrease the amount of any loss) to be recognized for federal income tax purposes upon a sale or other taxable disposition of a Premium Bond. The amount of premium that is amortizable each year by a purchaser is determined by using such purchaser s yield to maturity (or, in some cases with respect to a callable bond, the yield based on a call date that results in the lowest yield on the bond). Purchasers of the Premium Bonds should consult with their own tax advisors with respect to the determination of amortizable bond premium on Premium Bonds for federal income tax purposes and with respect to the state and local tax consequences of owning and disposing of Premium Bonds. Bond Counsel has not undertaken to advise in the future whether any events after the date of issuance of the Series 2015C Bonds may affect the tax status of interest on the Series 2015C Bonds or the tax consequences of the ownership of the Series 2015C Bonds. No assurance can be given that future legislation, or amendments to the Code, if enacted into law, will not contain provisions that could directly or indirectly reduce the benefit of the exemption of interest on the Series 2015C Bonds from personal income taxation by the State of California or of the exclusion of the interest on the Series 2015C Bonds from the gross income of the owners thereof for federal income tax purposes. Furthermore, Bond Counsel expresses no opinion as to any federal, state or local tax law consequences with respect to the Series 2015C Bonds, or the interest thereon, if any action is taken with respect to the Series 2015C Bonds or the proceeds thereof upon the advice or approval of other bond counsel. Although Bond Counsel is of the opinion that interest on the Series 2015C Bonds is exempt from California personal income tax and excluded from the gross income of the owners thereof for federal income tax purposes, an owner s federal, state or local tax liability may be otherwise affected by the ownership or disposition of the Series 2015C Bonds. The nature and extent of these other tax consequences will depend upon the owner s other items of income or deduction. Without limiting the generality of the foregoing, prospective purchasers of the Series 2015C Bonds should be aware that (i) section 265 of the Code denies a deduction for interest on indebtedness incurred or continued to purchase or carry the Series 2015C Bonds and the Code contains additional limitations on interest deductions applicable to financial institutions that own tax-exempt obligations (such as the Series 2015C Bonds), (ii) with respect to insurance companies subject to the tax imposed by section 831 of the Code, section 832(b)(5)(B)(i) reduces the deduction for loss reserves by 15% of the sum of certain items, including interest on the Series 2015C Bonds, (iii) interest on the Series 2015C Bonds earned by certain foreign corporations doing business in the United States could be subject to a branch profits tax imposed by section 884 of the Code, (iv) passive investment income, including interest on the Series 2015C Bonds, may be subject to federal income taxation under section 1375 of the Code for Subchapter S corporations that have Subchapter C earnings and profits at the close of the taxable year if greater than 25% of the gross receipts of such Subchapter S corporation is passive investment income, (v) section 86 of the Code requires recipients of certain Social Security and certain Railroad Retirement benefits to take into account, in determining the taxability of such benefits, receipts or accruals of interest on the Series 2015C Bonds and (vi) under section 32(i) of the Code, receipt of investment income, including interest on the Series 2015C Bonds, may disqualify the recipient thereof from obtaining the earned income credit. Bond Counsel has expressed no opinion regarding any such other tax consequences. Bond Counsel s opinion is not a guarantee of a result, but represents its legal judgment based upon its review of existing statutes, regulations, published rulings and court decisions and the representations and covenants of the District described above. No ruling has been sought from the Internal Revenue Service (the IRS or the Service ) with respect to the matters addressed in the opinion 72

81 of Bond Counsel, and Bond Counsel s opinion is not binding on the Service. The Service has an ongoing program of auditing the tax-exempt status of the interest on municipal obligations. If an audit of the Series 2015C Bonds is commenced, under current procedures the Service is likely to treat the District as the taxpayer, and the owners would have no right to participate in the audit process. In responding to or defending an audit of the tax-exempt status of the interest on the Series 2015C Bonds, the District may have different or conflicting interests from the owners. Public awareness of any future audit of the Series 2015C Bonds could adversely affect the value and liquidity of the Series 2015C Bonds during the pendency of the audit, regardless of its ultimate outcome. Existing law may change so as to reduce or eliminate the benefit to holders of the Series 2015C Bonds of the exclusion of interest thereon from gross income for federal income tax purposes. Proposed legislative or administrative action, whether or not taken, could also affect the value and marketability of the Series 2015C Bonds. Prospective purchasers of the Series 2015C Bonds should consult with their own tax advisors with respect to any proposed changes in tax law. Series 2015D Bonds State Tax Exemption. In the opinion of Bond Counsel, under existing law interest on the Series 2015D Bonds is exempt from personal income taxes of the State of California. Certain Federal Income Tax Considerations. The following is a general summary of certain federal income tax consequences of the purchase and ownership of the Series 2015D Bonds. The discussion is based upon the Code, U.S. Treasury Regulations, rulings, and decisions now in effect, all of which are subject to change (possibly, with retroactive effect) or possibly differing interpretation. No assurances can be given that future changes in the law will not alter the conclusions reached herein. The discussion below does not purport to deal with federal income tax consequences applicable to all categories of investors and generally does not address consequences relating to the disposition of a Series 2015D Bond by a beneficial owner thereof. Further, this summary does not discuss all aspects of federal income taxation that may be relevant to a particular investor in the Series 2015D Bonds in light of the investor s particular circumstances (for example, persons subject to the alternative minimum tax provisions of the Code), or to certain types of investors subject to special treatment under the federal income tax laws (including insurance companies, tax-exempt organizations and entities, financial institutions, broker-dealers, persons who have hedged the risk of owning the Series 2015D Bonds, traders in securities that elect to use a mark-to-market method of accounting, thrifts, regulated investment companies, pension and other employee benefit plans, partnerships and other pass-through entities, certain hybrid entities and owners of interests therein, persons who acquire Series 2015D Bonds in connection with the performance of services, or persons deemed to sell Series 2015D Bonds under the constructive sale provisions of the Code). The discussion below also does not discuss any aspect of state, local, or foreign law or U.S. federal tax laws other than U.S. federal income tax law. The summary is limited to certain issues relating to initial investors who will hold the Series 2015D Bonds as capital assets within the meaning of Section 1221 of the Code, and acquire such Series 2015D Bonds for investment and not as a dealer or for resale. This summary addresses certain federal income tax consequences applicable to beneficial owners of the Series 2015D Bonds who are United States persons within the meaning of Section 7701(a)(30) of the Code ( United States persons ) and, except as discussed below, does not address any consequences to persons other than United States persons. Prospective investors should note that no rulings have been or will be sought from the Service with respect to any of the federal income tax consequences discussed below, and no assurance can be given that the Service will not take contrary positions. ALL PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS IN DETERMINING THE FEDERAL, STATE, LOCAL, FOREIGN, AND ANY OTHER TAX 73

82 CONSEQUENCES TO THEM FROM THE PURCHASE, OWNERSHIP, AND DISPOSITION OF THE SERIES 2015D BONDS. Stated Interest and Reporting of Interest Payments. The stated interest on the Series 2015D Bonds will be included in the gross income, as defined in Section 61 of the Code, of the beneficial owners thereof as ordinary income for federal income tax purposes at the time it is paid or accrued, depending on the tax accounting method applicable to the beneficial owners thereof. Subject to certain exceptions, the stated interest on the Series 2015D Bonds will be reported to the Service. Such information will be filed each year with the Service on Form 1099 which will reflect the name, address, and taxpayer identification number ( TIN ) of the beneficial owner. A copy of Form 1099 will be sent to each beneficial owner of a Series 2015D Bond for federal income tax purposes. Medicare Contribution Tax. Pursuant to Section 1411 of the Code, as enacted by the Health Care and Education Reconciliation Act of 2010, an additional tax is imposed on individuals beginning January 1, The additional tax is 3.8% of the lesser of (i) net investment income (defined as gross income from interest, dividends, net gain from disposition of property not used in a trade or business, and certain other listed items of gross income), or (ii) the excess of modified adjusted gross income of the individual over $200,000 for unmarried individuals ($250,000 for married couples filing a joint return and a surviving spouse). Beneficial owners of the Series 2015D Bonds should consult with their own tax advisors concerning this additional tax, as it may apply to interest earned on the Series 2015D Bonds as well as gain on the sale of a Series 2015D Bond. Defeasance. Persons considering the purchase of a Series 2015D Bond should be aware that a defeasance of a Series 2015D Bond by the District could result in the realization of gain or loss by the beneficial owner of the Series 2015D Bond for federal income tax purposes, without any corresponding receipts of monies by the beneficial owner. Such gain or loss generally would be subject to recognition for the tax year in which such realization occurs, as in the case of a sale or exchange. Owners are advised to consult their own tax advisers with respect to the tax consequences resulting from such events. Backup Withholding. Under Section 3406 of the Code, a beneficial owner of the Series 2015D Bonds who is a United States person may, under certain circumstances, be subject to backup withholding (currently at a rate of 28 percent) on current or accrued interest on the Series 2015D Bonds or with respect to proceeds received from a disposition of the Series 2015D Bonds. This withholding applies if such beneficial owner of Series 2015D Bonds: (i) fails to furnish to the payor such beneficial owner s social security number or other TIN; (ii) furnishes the payor an incorrect TIN; (iii) fails to report interest properly; or (iv) under certain circumstances, fails to provide the payor or such beneficial owner s broker with a certified statement, signed under penalty of perjury, that the TIN provided to the payor or broker is correct and that such beneficial owner is not subject to backup withholding. To establish status as an exempt person, a beneficial owner will generally be required to provide certification on IRS Form W-9 (or substitute form). Backup withholding will not apply, however, if the beneficial owner is a corporation or falls within certain tax-exempt categories and, when required, demonstrates such fact. BENEFICIAL OWNERS OF THE SERIES 2015D BONDS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THEIR QUALIFICATION FOR EXEMPTION FROM BACKUP WITHHOLDING AND THE PROCEDURE FOR OBTAINING SUCH EXEMPTION, IF APPLICABLE. The backup withholding tax is not an additional tax and taxpayers may use amounts withheld as a credit against their federal income tax liability or may claim a refund as long as they timely provide certain information to the Service. 74

83 Withholding on Payments to Nonresident Alien Individuals and Foreign Corporations. Under Sections 1441 and 1442 of the Code, nonresident alien individuals and foreign corporations are generally subject to withholding of U.S. federal income tax by the payor at the rate of 30 percent on periodic income items arising from sources within the United States, provided such income is not effectively connected with the conduct of a United States trade or business. Assuming the interest income of such a beneficial owner of the Series 2015D Bonds is not treated as effectively connected income within the meaning of Section 864 of the Code, such interest will be subject to 30 percent withholding, or any lower rate specified in an income tax treaty, unless such income is treated as portfolio interest. Interest will be treated as portfolio interest if (i) the beneficial owner provides a statement to the payor certifying, under penalties of perjury, that such beneficial owner is not a United States person and providing the name and address of such beneficial owner, (ii) such interest is treated as not effectively connected with the beneficial owner s United States trade or business, (iii) interest payments are not made to a person within a foreign country which the Service has included on a list of countries having provisions inadequate to prevent United States tax evasion, (iv) interest payable with respect to the Series 2015D Bonds is not deemed contingent interest within the meaning of the portfolio debt provision, (v) such beneficial owner is not a controlled foreign corporation within the meaning of Section 957 of the Code, and (vi) such beneficial owner is not a bank receiving interest on the Series 2015D Bonds pursuant to a loan agreement entered into in the ordinary course of the bank s trade or business. Assuming payments on the Series 2015D Bonds are treated as portfolio interest within the meaning of Sections 871 and 881 of the Code, then no withholding under Section 1441 and 1442 of the Code, and no backup withholding under Section 3406 of the Code is required with respect to beneficial owners or intermediaries who have furnished Form W-8 BEN, Form W-8 BEN-E, Form W-8 EXP, or Form W-8 IMY, as applicable, provided the payor has no actual knowledge or reason to know that such person is a United States person. Foreign Account Tax Compliance Act. Sections 1471 through 1474 of the Code impose a 30% withholding tax on certain types of payments made to a foreign financial institution, unless the foreign financial institution enters into an agreement with the U.S. Treasury to, among other things, undertake to identify accounts held by certain U.S. persons or U.S.-owned entities, annually report certain information about such accounts, and withhold 30% on payments to account holders whose actions prevent it from complying with these and other reporting requirements, or unless the foreign financial institution is otherwise exempt from those requirements. In addition, the Foreign Account Tax Compliance Act ( FATCA ) imposes a 30% withholding tax on the same types of payments to a non-financial foreign entity unless the entity certifies that it does not have any substantial U.S. owners or the entity furnishes identifying information regarding each substantial U.S. owner. Failure to comply with the additional certification, information reporting and other specified requirements imposed under FATCA could result in the 30% withholding tax being imposed on payments of interest and principal under the Series 2015D Bonds and sales proceeds of Series 2015D Bonds held by or through a foreign entity. In general, withholding under FATCA currently applies to payments of U.S. source interest (including original issue discount) and will apply to (i) gross proceeds from the sale, exchange or retirement of debt obligations paid after December 31, 2016 and (ii) certain pass-thru payments no earlier than January 1, Prospective investors should consult their own tax advisors regarding FATCA and its effect on them. The preceding discussion of certain U.S. federal income tax consequences is for general information only and is not tax advice. Accordingly, each investor should consult its own tax advisor as to particular tax consequences to it of purchasing, owning, and disposing of the Series 2015D Bonds, including the applicability and effect of any state, local, or foreign tax laws, and of any proposed changes in applicable laws. 75

84 CONTINUING DISCLOSURE Pursuant to a Continuing Disclosure Certificate to be executed and delivered concurrently with the delivery of the Series 2015 Bonds (the Continuing Disclosure Certificate ), the District has covenanted for the benefit of the holders and beneficial owners of the Series 2015 Bonds to provide certain financial information and operating data relating to the District and the Electric System by not later than each July 31 following the end of the District s Fiscal Year (which Fiscal Year presently ends on December 31) (the Annual Report ), commencing with the report for the 2015 Fiscal Year, and to provide notices of the occurrence of certain enumerated events, if material. The Annual Report and any notices of material events will be filed by the District with the Municipal Securities Rulemaking Board through the Electronic Municipal Marketplace Access (EMMA) website. The Municipal Securities Rulemaking Board has made such information available to the public without charge through such internet portal. The specific nature of the information to be contained in the Annual Report and the notice of material events is set forth in Appendix E Proposed Form of Continuing Disclosure Certificate herein. These covenants have been made in order to assist the Underwriter in complying with S.E.C. Rule 15c2-12(b)(5) (the Rule ). During the past five years, the District failed to file its audited financial statements for the Fiscal Year ending December 31, 2011 prior to the due date of July 31, 2012 as required by its undertaking with respect to the Electric System Refunding Revenue Bonds, Series 2008A. The audited financial statement was filed on June 14, In addition, on April 16, 2010, Moody s Investors Service recalibrated the municipal rating for the Pension Bonds from Aa3 to Aa2 on the global rating scale. The District failed to file a notice of such recalibration. On May 28, 2015, Moody s notified the District that it has corrected the prior recalibration and that the rating on the Pension Bonds was changed to Aa3 from Aa2. The District has filed a notice with EMMA regarding the failure to file the prior recalibration and the correction of the prior recalibration. LITIGATION There is no action, suit or proceeding known to be pending or threatened, restraining or enjoining the execution or delivery of the Series 2015 Bonds or in any way contesting or affecting the validity of the Resolution or the Series 2015 Bonds or any proceedings of the District taken with respect to any of the foregoing. There is no litigation pending or, to the knowledge of the District, threatened, questioning the corporate existence of the District, or the title of the officers of the District to their respective offices, or the power and authority of the District to execute the Series 2015 Bonds and make the payments thereunder. There is no litigation pending, or to the knowledge of the District, threatened, questioning or affecting in any material respect any of the financial information or projections with respect to the District contained in this Official Statement. There are a number of suits and claims pending against the District covered by the District s selfinsurance program and thus outside the District s insurance coverage. The aggregate amount of the selfinsured liabilities of the District which may result from such suits and claims, will not, in the opinion of general counsel to the District, materially affect the District s finances or impair its ability to pay the Series 2015 Bonds when due. The District is currently in litigation with CVWD in the California Superior Court for Riverside County. This case arises under the Agreement of Compromise Between Imperial Irrigation District and Coachella Valley Water District dated February 14, 1934 (the Agreement of Compromise ). Under the Agreement of Compromise, the District is obligated to pay CVWD eight percent of the net proceeds of 76

85 the energy operations of the District. The current litigation is for declaratory relief, breach of contract, accounting and breach of fiduciary duty under the Agreement of Compromise. The issues in this litigation generally involve what is included in the net proceeds and how the net proceeds are calculated. This case was filed in 2012 and is currently in the discovery phase of the litigation. A trial is currently estimated to take place in the fall of Among other prayers of judgment, CVWD is seeking compensatory damages estimated by CVWD to exceed $10 million along with interest at the rate of six percent per year computed from the dates the net proceeds were due and payable pursuant to the Agreement of Compromise. The District has filed a cross-compliant and intends to vigorously defend the lawsuit. The District does not believe any adverse judgment would materially affect the District s finances or impair its ability to pay the Series 2015 Bonds when due. See IMPERIAL IRRIGATION DISTRICT Coachella s Service Area for additional information regarding the Agreement of Compromise. FERC/NERC Joint Inquiry On September 9, 2011, FERC and NERC announced a joint inquiry into the September 8, 2011 power outage that left more than 1 million customers in Southern California, parts of Arizona and Northern Baja Mexico without electricity. FERC and NERC stated they would coordinate with the Department of Energy and other federal agencies, the CAISO, the WECC, California and Arizona state regulators and the companies involved to monitor the situation. The District cooperated with the inquiry into the September 8, 2011 outage. A FERC/NERC Staff Report on the September 8, 2011 Blackout was published in which key findings, causes and recommendations were identified. On August 7, 2014, FERC approved a Stipulation and Consent Agreement between the FERC Office of Enforcement ( Enforcement ), NERC and the District to close out the investigation of the September 8 power outage. Without admitting liability, the District agreed to pay a civil penalty of $12,000,000, of which $3,000,000 has been paid to the United States Treasury and NERC, and $9,000,000 will be invested in reliability enhancement measures that go above and beyond mitigation of the violations and the requirements of the Reliability Standards. The District also agreed to commit to mitigation and compliance measures necessary to mitigate the violations described in the Stipulation and Consent Agreement, and to make semi-annual compliance reports to Enforcement and NERC for at least one year. RATING Standard and Poor s Ratings Services has assigned a rating of AA-. Such rating expresses only the view of the rating agency and an explanation of the significance of such rating may be obtained only from such rating agency. There is no assurance that such rating will continue for any given period of time or that it will not be revised or withdrawn entirely if, in the judgment of such rating agency, circumstances so warrant. Any such downward revision or withdrawal of any such rating could have an adverse effect on the market price of the Series 2015 Bonds. INDEPENDENT ACCOUNTANTS The financial statements of the District as of and for the fiscal year ended December 31, 2014 included in Appendix A to this Official Statement have been audited by Moss Adams LLP, Portland, Oregon, independent accountants, as stated in their report, which also appears in Appendix A. Since the date of its report, Moss Adams LLP has not provided any services or performed any procedures on the financial statements of the District for the fiscal years ended December 31, 2014 and Moss Adams has not reviewed or participated in the preparation of this Official Statement. 77

86 UNDERWRITING Citigroup Global Markets Inc. and Goldman, Sachs & Co. (the Underwriters ) have agreed, subject to certain conditions, to purchase the Series 2015C Bonds from the District at a price of $185,329, (representing the $161,175,000 aggregate principal amount of Series 2015C Bonds less $214, of Underwriters discount plus $24,368, of net original issue premium). The Underwriters have agreed, subject to certain conditions, to purchase the Series 2015D Bonds from the District at a price of $8,863, (representing the $8,875,000 aggregate principal amount of Series 2015D Bonds less $11, of Underwriters discount). The Bond Purchase Contract to be executed by Citigroup Global Markets Inc., as representative of the Underwriters, provides that the Underwriters will purchase all of the Series 2015 Bonds if any are purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in the Purchase Contract, the approval of certain legal matters by counsel and certain other conditions. The Underwriters may offer and sell Series 2015 Bonds to certain dealers and others at prices lower than the offering prices stated on the cover page hereof. The offering prices may be changed from time to time by the Underwriters. Citigroup Global Markets Inc. has entered into a retail distribution agreement with each of TMC Bonds L.L.C. ( TMC ) and UBS Financial Services Inc. ( UBSFS ). Under these distribution agreements, Citigroup Global Markets Inc. may distribute municipal securities to retail investors through the financial advisor network of UBSFS and the electronic primary offering platform of TMC. As part of this arrangement, Citigroup Global Markets Inc. may compensate TMC (and TMC may compensate its electronic platform member firms) and UBSFS for their selling efforts with respect to the Series 2015 Bonds. Citigroup Global Markets Inc. and its affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage activities. Citigroup Global Markets Inc. and its affiliates have, from time to time, performed, and may in the future perform, various investment banking services for the District for which they received or will receive customary fees and expenses. In addition, certain affiliates of Citigroup Global Markets Inc. are lenders, and in some cases agents or managers for the lenders, under credit and liquidity facilities. In the ordinary course of their various business activities, the Underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (which may include bank loans and/or credit default swaps) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve securities and instruments of the District. FINANCIAL ADVISOR Public Financial Management Inc. (the Financial Advisor ) has assisted the District with various matters relating to the planning, structuring and delivery of the Series 2015 Bonds. The Financial Advisor is a financial advisory firm and is not engaged in the business of underwriting or distributing municipal securities or other public securities. The Financial Advisor assumes no responsibility for the accuracy, completeness or fairness of this Official Statement. The Financial Advisor will receive compensation from the District which is not contingent upon the sale of the delivery of the Series 2015 Bonds. 78

87 APPROVAL OF LEGALITY The validity of the Series 2015 Bonds and certain other legal matters are subject to the approving opinion of Norton Rose Fulbright US LLP, Los Angeles, California, Bond Counsel. A complete copy of the proposed form of Bond Counsel opinion is contained in Appendix F hereto. Certain legal matters will be passed upon for the District by Ross G. Simmons, General Counsel, and Norton Rose Fulbright US LLP, Disclosure Counsel, and for the Underwriters by Stradling Yocca Carlson & Rauth, a Professional Corporation, Sacramento, California, Underwriters Counsel. MISCELLANEOUS This Official Statement speaks only as of its date, and the information and expression of opinions contained herein are subject to change without notice and neither 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 the District since the date hereof. This Official Statement, including any supplement or amendment thereto, is intended to be deposited with the Municipal Securities Rulemaking Board through the Electronic Municipal Marketplace Access (EMMA) website. The financial data and other information contained herein have been obtained primarily from the District s records, audited financial statements and other sources which are believed to be reliable. There is no guarantee that any of the assumptions or estimates contained herein will be realized. All of the summaries of the statutes, documents and resolutions contained in this Official Statement are made subject to all of the provisions of such statutes, documents and resolutions. These summaries do not purport to be complete statements of such provisions and reference is made to such statutes, documents and resolutions for further information. Reference is made to original documents in all respects. The authorization, agreements and covenants of the District are set forth in the Resolution and neither this Official Statement nor any advertisement of the Series 2015 Bonds is to be construed as a contract with the Owners of the Series 2015 Bonds. Any statements made in this Official Statement involving matters of opinion or of estimates, whether or not expressly so identified, are intended merely as such and not as representations of fact. The execution and delivery of this Official Statement has been duly authorized by the District. IMPERIAL IRRIGATION DISTRICT By: /s/ Kevin Kelley General Manager By: /s/ Belen Valenzuela Chief Financial Officer 79

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89 APPENDIX A FINANCIAL STATEMENTS OF THE DISTRICT

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91 Report of Independent Auditors and Financial Statements for Imperial Irrigation District December 31, 2014 and 2013

92 CONTENTS

93 REPORTOFINDEPENDENTAUDITORS ReportontheFinancialStatements Management sresponsibilityforthefinancialstatements Auditor sresponsibility

94 REPORTOFINDEPENDENTAUDITORS(continued) Opinions OtherMatters

95 IMPERIALIRRIGATIONDISTRICT MANAGEMENT SDISCUSSIONANDANALYSIS Introduction Background SettingofRates IntroductiontotheBasicFinancialStatements

96 IMPERIALIRRIGATIONDISTRICT MANAGEMENT SDISCUSSIONANDANALYSIS

97 IMPERIALIRRIGATIONDISTRICT MANAGEMENT SDISCUSSIONANDANALYSIS SummaryofFinancialPosition Netposition

98 IMPERIALIRRIGATIONDISTRICT MANAGEMENT SDISCUSSIONANDANALYSIS Utilityplant Otherassets Longtermliabilities

99 IMPERIALIRRIGATIONDISTRICT MANAGEMENT SDISCUSSIONANDANALYSIS Otherliabilities

100 IMPERIALIRRIGATIONDISTRICT MANAGEMENT SDISCUSSIONANDANALYSIS SummaryofOperationsandChangesinNetPosition Waterrevenues

101 IMPERIALIRRIGATIONDISTRICT MANAGEMENT SDISCUSSIONANDANALYSIS Powerrevenues Operating expenses

102 IMPERIALIRRIGATIONDISTRICT MANAGEMENT SDISCUSSIONANDANALYSIS Nonoperating revenues and expenses Capitalcontributions

103 IMPERIALIRRIGATIONDISTRICT MANAGEMENT SDISCUSSIONANDANALYSIS UtilityPlantandDebtAdministration Utilityplant

104 IMPERIALIRRIGATIONDISTRICT MANAGEMENT SDISCUSSIONANDANALYSIS Longtermdebt

105

106 IMPERIALIRRIGATIONDISTRICT STATEMENTSOFNETPOSITION ASSETS

107 IMPERIALIRRIGATIONDISTRICT STATEMENTSOFNETPOSITION LIABILITIESANDNETPOSITION

108 IMPERIALIRRIGATIONDISTRICT STATEMENTSOFREVENUES,EXPENSES,ANDCHANGESINNETPOSITION

109 IMPERIALIRRIGATIONDISTRICT STATEMENTSOFCASHFLOWS

110 IMPERIALIRRIGATIONDISTRICT STATEMENTSOFCASHFLOWS

111 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note1 SummaryofSignificantAccountingPolicies Reportingentity Basis of accounting Accountingpronouncements ItemsPreviouslyReportedasAssetsandLiabilities

112 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note1 SummaryofSignificantAccountingPolicies(continued) NetpositionNetinvestmentincapitalassets Restricted Unrestricted Utilityplant

113 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note1 SummaryofSignificantAccountingPolicies(continued) Protectionofwaterrights Inventory Revenuerecognition Allowancefordoubtfulaccounts Operatingandnonoperatingrevenueandexpense Restrictedassets Debtservicereservefund

114 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note1 SummaryofSignificantAccountingPolicies(continued) Constructionfund Otherrestrictedfunds Cash,cashequivalentsandinvestments Incometax Prepaidpensionobligation

115 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note1 SummaryofSignificantAccountingPolicies(continued) Capitalcontributions Compensatedabsences Regulatoryaccounting Regulatoryliability EnergyCostAdjustment(ECA)regulatoryliability

116 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note1 SummaryofSignificantAccountingPolicies(continued) Use of estimates Note2 CashandInvestments

117 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note2 CashandInvestments(continued) InvestmentsauthorizedbytheCaliforniaGovernmentCodeandtheImperialIrrigationDistrict s investmentpolicy Interestraterisk

118 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note2 CashandInvestments(continued) Creditrisk

119 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note2 CashandInvestments(continued) Concentrationofcreditrisk Custodialcreditrisk

120 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note2 CashandInvestments(continued) Investment in state investment pool

121 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note3 UtilityPlant

122 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note3 UtilityPlant(continued)

123 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note3 UtilityPlant(continued)

124 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note3 UtilityPlant(continued)

125 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note4 CommercialPaperPrograms Waterandelectricalsystem $200million Note5 LongTermDebt

126 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note5 LongTermDebt(continued)

127 Note5 LongTermDebt(continued) IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS

128 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note5 LongTermDebt(continued) Note6 CertificatesofParticipation/RevenueBonds 2008issue energy

129 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note6 CertificatesofParticipation/RevenueBonds(continued) 2011AIssue energy

130 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note6 CertificatesofParticipation/RevenueBonds(continued) 2011BIssue energy

131 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note6 CertificatesofParticipation/RevenueBonds(continued) 2011Cissue energy

132 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note6 CertificatesofParticipation/RevenueBonds(continued) 2011D Issue energy

133 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note6 CertificatesofParticipation/RevenueBonds(continued) 2012AIssue Energy

134 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note6 CertificatesofParticipation/RevenueBonds(continued) Note7 OtherLongTermDebt Pensionobligationrevenuebonds,2001issue

135 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note7 OtherLongTermDebt(continued) Note8 CapitalLeases

136 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note9 401(a)RetirementPlan Note10 InterDepartmentalTransactions Note11 CommitmentsandContingencies Selfinsurance

137 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note11 CommitmentsandContingencies(continued)

138 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note11 CommitmentsandContingencies(continued) Takeorpaycontracts

139 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note11 CommitmentsandContingencies(continued)

140 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note11 CommitmentsandContingencies(continued)

141 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note11 CommitmentsandContingencies(continued) Energysupplypurchasecommitment

142 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note11 CommitmentsandContingencies(continued) Letterofcredit Note12 ConstructionCommitments

143 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note13 OtherPostEmploymentBenefitsOtherThanPensions Accounting and Financial Reporting for PostemploymentbenefitsotherthanpensionsbyStateandLocalGovernmentalEmployers Plandescription Eligibility Currentpolicy

144 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note13 OtherPostEmploymentBenefitsOtherThanPensions Fundingpolicy AnnualOPEBcostandnetOPEBobligation

145 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note13 OtherPostEmploymentBenefitsOtherthanPensions(continued) Fundedstatusprogress Actuarialmethodsandassumptions Scheduleoffundingprogress (amountsinthousands)

146 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note14 MetropolitanWaterDistrictWaterConservationProgram Note15 SaltonSeaAuthority

147 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note15 SaltonSeaAuthority(continued) Note16 TrustLands

148 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note17 NoncurrentAdvances San Diego County Water Authority (SDCWA) advance

149 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note17 NoncurrentAdvances(continued) Transmission expansion and generator interconnection agreements Otheradvances

150 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note18 QuantificationSettlementAgreement(QSA) WaterTransfer

151 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note18 QuantificationSettlementAgreement(QSA) WaterTransfer(continued)

152 IMPERIALIRRIGATIONDISTRICT NOTESTOFINANCIALSTATEMENTS Note18 QuantificationSettlementAgreement(QSA) WaterTransfer(continued)

153 APPENDIX B GENERAL INFORMATION: IMPERIAL COUNTY AND RIVERSIDE COUNTY The following information is the most recent available and speaks as of its date. No assurances can be given that subsequent data when made publicly available will not be materially different or otherwise show a decline in the economic conditions of either Imperial or Riverside County. General IMPERIAL COUNTY Imperial County is located in the southeast corner of California. It is bordered on the north by Riverside County, on the west by San Diego County, on the south by Mexico, and on the east by the Colorado River which forms the boundary between California and Arizona. It is the ninth largest county in California and covers an area of 4,284 square miles. Imperial County has an average annual rainfall of less than three inches and three-fourths of the area is desert sand and rugged mountains. Even so, Imperial County is one of the state s major agricultural producers. Farming is done in the Imperial Valley, a 1,000 square-mile area that extends from the Mexican border north to the Salton Sea. An extensive irrigation system has been developed and adequate water is supplied from the Colorado River through the All-American Canal. There is a year round growing season with mean monthly temperatures ranging between 55 and 90 degrees. Table 1 provides a summary of assessed valuations for land only and for all property for Fiscal Years through TABLE 1 IMPERIAL COUNTY ASSESSED VALUATIONS (Before Redevelopment Adjustments) Fiscal Year Land Only All Property (1) $3,806,975,204 $11,074,831, ,813,338,125 10,812,467, ,767,338,686 10,906,532, ,880,186,825 11,753,217, ,913,559,409 12,182,729,605 (1) Includes unitary utility valuation. Source: Imperial County Auditor s Office B-1

154 Population The table below shows the population trend for incorporated and unincorporated areas in Imperial County. TABLE 2 POPULATION (CITIES AND UNINCORPORATED AREAS) (1) IMPERIAL COUNTY (2) Area Total Imperial County 175, , , , ,429 Unincorporated Areas 37,570 37,728 37,489 37,220 37,785 Incorporated Areas 138, , , , ,644 (1) As of January 1 of each year except for 2010, which is as of April 1, (2) Entire area of the County is included within the District s Electric System service area. Source: California Department of Finance, Demographic Research Unit. Economic Characteristics of Population Table 3 represents a yearly comparison of median household effective buying income for Imperial County, the State of California and the United States. TABLE 3 MEDIAN HOUSEHOLD INCOME For Years 2009 through 2013 Year Imperial County State of California United States 2009 $37,595 $60,963 $54, ,685 57,996 52, ,402 55,274 51, ,255 57,849 51, ,807 57,528 51,939 Source: United States Census Bureau. Economic Research Services/USDA in 2013 dollars. B-2

155 Building Construction Activity The following table provides a five-year summary of residential valuations and the numbers of new housing units in Imperial County. TABLE 4 IMPERIAL COUNTY BUILDING PERMITS VALUATIONS ($000) Residential Valuation ($000) Single Units $179,817 $175,198 $188,794 $189,449 $186,865 Multiple Units 58, ,610 53, ,385 Total $238,582 $175,198 $294,404 $243,236 $327,250 New Housing Units Single Units Multi-Units Total Note: Totals may not add due to independent rounding. Source: US Census Bureau. Employment The civilian labor force in Imperial County increased by approximately 1% during 2014 to an annual average of 82,200 from the 2010 level of 81,200. The annual average unemployment rate decreased in 2014 to 22.6% from the 2010 rate of 27.3%. These figures are shown below in Table 5. TABLE 5 CIVILIAN LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT ANNUAL AVERAGE, IMPERIAL COUNTY Civilian Labor Force (1) 81,200 79,400 77,700 80,300 82,200 Employment 59,000 57,600 57,200 63,400 63,600 Unemployment 22,200 21,800 20,500 16,900 18,600 Unemployment Rate (2) 27.3% 27.47% 26.3% 21.1% 22.6% (1) Annual Benchmark, non-seasonally adjusted. (2) The unemployment rate is computed from unrounded data; therefore, it may differ from rates using rounded figures in this table. Source: State Employment Development Department, Employment Data and Research. B-3

156 Industry Table 6 lists the ten largest employers located in Imperial County as of The largest retail employer is Wal-Mart, with 1,257 employees. The Elementary/High School Districts and State of California Department of Corrections are the largest non-manufacturing employers with 4,099 and 2,365 employees, respectively, followed by Imperial County with 2,100 employees. TABLE 6 TOP TEN EMPLOYERS IMPERIAL COUNTY Name of Employer Business Number of Employees Elementary/High School Districts Education 4,099 Calipatria/Centinela State Prisons Prison 2,365 Imperial County Government 2,100 Imperial Irrigation District Water & Power 1,330 Wal-Mart Retail 1,257 National (Brawley) Beef Meat Packers 1,200 United States Border Patrol/Immigration U.S. Border Control 1,100 Quechan Paradise Other Gambling 1,000 (1) El Centro Regional Medical Center Medical Services 821 Naval Air Facility Military 700 (1) Source: Quechan Paradise website. Source: California Employment Development Department, Labor Market Division, 2014 and telephone survey. Agriculture Imperial County s favorable climate and year round growing season are conducive to producing a wide variety of agricultural products. Table 7 gives a history of agricultural production during the past five years. TABLE 7 IMPERIAL COUNTY AGRICULTURAL PRODUCTION Agricultural Product Apiary Products $ 4,001,000 $ 4,877,000 $ 3,144,000 $ 4,708,000 $ 4,441,000 Field Crops 360,139, ,257, ,977, ,461, ,849,000 Fruit and Nut Crops 51,294,00 64,237,000 85,154, ,019,000 95,909,000 Livestock 321,022, ,880, ,833, ,371, ,512,000 Seed and Nursery Crops 52,952,00 68,877,000 67,432, ,557,000 93,818,000 Vegetable and Melon Crops 809,126, ,959, ,219, ,401, ,260,000 Total $1,598,534,000 $1,964,087,000 $1,945,759,000 $2,158,517,000 $1,858,789,000 Source: Imperial County Agricultural Commissioner s Office. B-4

157 RIVERSIDE COUNTY General The County of Riverside encompasses an area of approximately 7,420 square miles. The western portion of Riverside County is separated from the rest of the area by a series of mountain ranges which includes the San Jacinto and Santa Ana Mountain Ranges. This part of Riverside County contains almost all the population and commercial and industrial activity. Although agriculture continues to provide an important mainstay to Riverside County s economy, much of the economic growth in more recent years has been attributable to Riverside County s commercial, industrial and tourism sectors. In the eastern part of Riverside County is a series of sparsely settled desert ranges and basins which does, however, contain one region of growing population and commercial agricultural activity in the Palm Springs and adjacent Coachella Valley area. Approximately 10% of the County is included in the District s electric service area: Coachella, Desert Hot Springs, Indio and La Quinta, including portions of the cities of Palm Desert, Rancho Mirage and Indian Wells and certain unincorporated areas. Table 8 provides a summary of assessed valuations for land only and for all property for Fiscal Years through for Riverside County. TABLE 8 RIVERSIDE COUNTY ASSESSED VALUATIONS (Before Redevelopment Adjustments) (in Millions) Fiscal Year Land Only All Property (1) $70,167 $223, , , , , , , , ,460 (1) Excludes unitary utility valuation. Source: California Municipal Statistics, Inc. Riverside County Assessor s Web-site. B-5

158 Population The table below shows the population trend for incorporated and unincorporated areas in Riverside County. TABLE 9 RIVERSIDE COUNTY POPULATION (CITIES AND UNINCORPORATED AREAS) Area Riverside County 2,205,731 2,227,577 2,253,516 2,280,191 2,308,441 Unincorporated Areas 451, , , , ,823 Incorporated Areas 1,754,009 1,861,944 1,894,630 1,916,051 1,939,618 Note: The District s Electric System serves the Southeast portion of Riverside County. Source: California Department of Finance, Demographic Research Unit. Economic Characteristics of Population Table 10 represents a yearly comparison of effective buying income totals for Riverside County and the State of California as well as the Riverside County median household E.B.I. (Effective Buying Income) and per capita E.B.I. TABLE 10 RIVERSIDE COUNTY EFFECTIVE BUYING INCOME For Years 2008 through 2012 (in thousands) Year Riverside County State of California 2008 $38,631,365 $814,894, ,337, ,823, ,337, ,822, ,492, ,393, ,981, ,578, Median Household. $56,529 $61,094 Per capita (1) $23,591 $29,527 (1) United States Census Bureau. Economic Research Services/USDA in 2013 dollars. Source: 2008 Demographics USA County Edition and Nielson Solution Center for Building Construction Activity The District does not maintain separate records of building permits or housing starts. The information provided in Table 11 is applicable to Riverside County and is not necessarily representative of the District. The following table provides a five-year summary of residential and non-residential valuations in Riverside County. B-6

159 TABLE 11 RIVERSIDE COUNTY BUILDING PERMITS VALUATIONS AND NEW HOUSING UNITS (valuations in thousands) Valuation ($000) New Single-Family $914,057 $647,071 $904,156 $1,138,738 1,296,553 New Multi-Family 71, ,170 87, , ,117 Alterations and Adjustments 94, ,707 87,370 98, ,081 Total Residential $1,079,637 $879,949 $1,079,405 $1,375,593 $1,621,751 Non Residential New Commercial $191,324 $152,158 $347,167 $162, ,137 New Industry 6,686 10,000 26, , ,321 New Other 98,105 99, , , ,204 Alterations and Adjustments 243, , , , ,327 Total Nonresidential $539,379 $559,409 $657,595 $790,000 $814,990 Source: Construction Industry Research Board. Home Foreclosures Activity The District does not maintain separate records of home foreclosures. The information provided in Table 12 is applicable to Riverside County and is not necessarily representative of the District. The following table sets forth a comparison of home and condominium foreclosures recorded in Los Angeles County, Riverside County, San Bernardino County, and Southern California for the years and quarters indicated. TABLE 12 RIVERSIDE COUNTY COMPARISON OF HOME FORECLOSURES (2) Los Angeles ,997 12,466 35,366 13,836 Riverside ,778 12,497 32,423 12,237 San Bernardino ,011 7,746 23,557 9,632 Southern California (1) 2,221 1,702 7,355 46, ,056 47,770 (1) Southern California is comprised of Los Angeles, Orange, San Diego, Riverside, San Bernardino and Ventura Counties. (2) First two quarters of Source: MDA Data Quick Information Systems. B-7

160 Employment The civilian labor force in Riverside County increased during 2014 to an annual average of 1,010,700 from the 2013 level of 998,600. Employed residents numbered 927,300, an increase of 3.06% from the 2013 total. Unemployment as a percent of the total workforce was 8.2%, compared to the prior year s rate of 9.9%. These figures are shown below in Table 13. TABLE 13 RIVERSIDE COUNTY Estimated Average Annual Employment and Unemployment Civilian Labor Force (1) 905, , , ,600 1,010,700 Employment 776, , , , ,300 Unemployment 128, , ,200 98,800 83,400 Unemployment Rate (2) 14.20% 13.20% 11.60% 9.90% 8.20% (1) Annual Benchmark (2) The unemployment rate is computed from unrounded data; therefore, it may differ from rates using rounded figures in this table. Source: State of California, Employment Development Department. December 2010 (preliminary) Release No Industry There are currently numerous industrial parks at various locations within Riverside County. Most of the industry lies in the western portion of Riverside County, from Coachella Valley to the west. More than 600 manufacturing firms are housed in Riverside County and are involved in the manufacture of such products as aerospace and aircraft parts, electronic components and systems, mobile homes and recreational vehicles, irrigation equipment, and frozen food products. Stater-Brothers Markets, with approximately 6,900 employees, is Riverside County s largest private employer and is a grocery retailer. B-8

161 Listed in Table 14 are the largest employers within Riverside County. TABLE 14 RIVERSIDE COUNTY 2014 PRINCIPAL EMPLOYERS Company Name Product/Service Estimated Number of Employees (2) County of Riverside Government 21,198 March Air Reserve Base Military Reserve Base 8,500 Stater Brothers Markets Supermarket 6,900 Wal-Mart Retail Store 6,550 University of California, Riverside University 5,768 Kaiser Permanente Riverside Medical Center Hospital 5,300 Corona-Norco Unified School District School District 4,932 Pechanga Resort & Casino Resort Casino 4,000 Riverside Unified School District School District 3,871 Hemet Unified School District School District 3,400 Source: Riverside County Economic Development Agency. Agriculture Riverside County s favorable climate and long growing season are conducive to producing a wide variety of agricultural products. The major areas of agricultural production in Riverside County are Livestock and Poultry, nursery crops and vegetable crops. Table 15 gives a history of agricultural production by category during the past five years. TABLE 15 RIVERSIDE COUNTY GROSS VALUE OF AGRICULTURAL PRODUCTION ($000) Citrus $ 140,500,922 $ 119,942,513 $ 125,711,000 $ 142,404,000 $ 170,891,000 Trees & Vines 164,993, ,649, ,214, ,536, ,593,000 Vegetable, Melons and Misc. 292,002, ,628, ,234, ,407, ,404,000 Field & Seed Crops 81,328, ,198, ,352, ,582, ,575,000 Livestock & Poultry 235,926, ,03, ,553, ,683, ,746,000 Nursery 169,341, ,154, ,878, ,215, ,910,000 Aquaculture Products 4,921,700 4,808,250 4,205,000 2,262,000 5,078,000 Apiculture 4,631,700 4,844,400 4,983,000 4,715,000 4,819,000 Total Crops and Livestock $1,093,646,373 $1,282,256,116 $1,253,130,000 $1,327,804,000 $1,362,016,000 Source: Riverside County Department of Agriculture. Average annual components may not add to totals due to independent rounding. B-9

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163 APPENDIX C DTC AND BOOK-ENTRY ONLY SYSTEM The following description concerning DTC and DTC s book-entry system is based solely on information furnished by DTC. No representation is made herein by the District or the Underwriter as to the accuracy or completeness of such information. General The Depository Trust Company ( DTC ), New York, NY, will act as securities depository for the Series 2015 Bonds. The Series 2015 Bonds will be issued as fully-registered securities registered 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 each series of the Series 2015 Bonds, 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 Banking 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 Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC s participants ( 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 is the holding company for DTC, National Securities Clearing Corporation, and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. 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 ( Indirect Participants ). DTC has Standard & Poor s highest rating: AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at and The information set forth on these websites is not incorporated by reference herein. Purchases of 2015 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2015 Bonds on DTC s records. The ownership interest of each actual purchaser of each 2015 Bond ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, 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 the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 2015 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in 2015 Bonds, except in the event that use of the book-entry system for the Series 2015 Bonds is discontinued. C-1

164 To facilitate subsequent transfers, all 2015 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 2015 Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2015 Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such 2015 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. Conveyance 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 shall be sent to DTC. If less than all of the Series 2015 Bonds within an issue are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to 2015 Bonds unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy 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 2015 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal, premium, if any, and interest payments on the Series 2015 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 payable date in accordance with their respective holdings shown on DTC s records. Payments by 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 Participant and not of DTC nor its nominee, the Trustee, or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, premium, if any, 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 Series 2015 Bonds at any time by giving reasonable notice to the Trustee. Under such circumstances, in the event that a successor depository is not obtained, 2015 Bond certificates are required to be printed and delivered. The District may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, bond certificates will be printed and delivered. Discontinuation of the Book-Entry System If DTC determines not to continue to act as securities depository by giving notice to the District and the Trustee, and discharges its responsibilities with respect thereto under applicable law and there is not a successor securities depository, or the District determines that it is in the best interest of the C-2

165 Beneficial Owners of the Series 2015 Bonds that they be able to obtain certificates, the Trustee will execute, transfer and exchange 2015 Bonds as requested by DTC and will deliver new 2015 Bonds in fully registered form in denominations of $5,000 principal amount or any integral multiple thereof in the names of Beneficial Owners or DTC Participants. In the event the book-entry system is discontinued, the principal amount of and premium, if any, payable with respect to the Series 2015 Bonds will be payable upon surrender thereof at the principal corporate trust office of the Trustee. The interest on 2015 Bonds will be payable by check mailed to the respective Owners thereof at their addresses as they appear on the books maintained by the Trustee. Any 2015 Bond may, in accordance with its terms, be transferred, upon the register required to be kept pursuant to the provisions of the Resolution, by the person in whose name it is registered, in person or by his or her duly authorized attorney, upon surrender of such 2015 Bond for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form approved by the Trustee. The Series 2015 Bonds may be exchanged at the corporate trust office of the Trustee for a like aggregate principal amount of 2015 Bonds of other authorized denominations of the same series, tenor, maturity and interest rate by the person in whose name it is registered, in person or by his or her duly authorized attorney, upon surrender of such 2015 Bond for cancellation; provided that no transfer or exchange may occur during the period established by the Trustee for selection of 2015 Bonds for redemption, or of any 2015 Bond or portion of a 2015 Bond so selected for redemption. The Trustee shall require the Bondholder requesting such transfer or exchange to pay any tax or other governmental charge required to be paid with respect to such exchange. C-3

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167 APPENDIX D SUMMARY OF PRINCIPAL LEGAL DOCUMENTS The following is a summary of certain provisions of the Master Resolution, the Seventh Supplemental Resolution, the Eighth Supplemental Resolution and the Pension Bonds Indenture. This summary does not purport to be complete and is qualified in its entirety by reference to the foregoing documents for a complete statement of the provisions of such documents. MASTER RESOLUTION, SEVENTH SUPPLEMENTAL RESOLUTION AND THE EIGHTH SUPPLEMENTAL RESOLUTION DEFINITIONS Accreted Value means, with respect to any Capital Appreciation Obligation, the principal amount thereof plus the interest accrued thereon from its delivery date, compounded at the accretion rate thereof on each date specified therein, to the date of calculation. Act means, collectively, Article 11 of Chapter 3 of Division 2 of Title 5 of the Government Code of the State of California, and Part 9 of Division 11 of the Water Code of the State of California. Adjusted Net Revenues in any Fiscal Year means: (a) Net Revenues in such Fiscal Year, plus (b) Withdrawals, if any, from the Rate Stabilization Fund that have been allocated to such Fiscal Year pursuant to the Resolution, less (c) Deposits, if any, into the Rate Stabilization Fund that have been allocated to such Fiscal Year made pursuant to the Resolution. Annual Debt Service means, as of any date of calculation, for any Fiscal Year (or other designated twelve-month period) the amount of Principal and interest becoming due and payable on all Outstanding Obligations in such Fiscal Year (or other designated twelve-month period); provided, that for the purposes of computing Annual Debt Service: (i) the interest rate on Variable Rate Obligations shall be assumed to be the average of the SIFMA Index for the last 5 years; (ii) notwithstanding clause (i), if a Payment Agreement is in effect with respect to any Variable Rate Obligations pursuant to which the District pays a variable rate or fixed rate and receives a fixed rate or a variable rate different from the rate on such Obligations, the assumed interest rate on such Variable Rate Obligations during the period such Payment Agreement is in effect shall be adjusted by the net payments made and received by the District from time to time pursuant to such Payment Agreement; (iii) notwithstanding clause (i), if a Payment Agreement is in effect pursuant to which the District is obligated to pay a fixed rate with respect to any Variable Rate Obligations, the D-1

168 interest rate on such Variable Rate Obligations during the period such Payment Agreement is scheduled to be in effect shall be assumed to be the fixed rate specified in such Payment Agreement; (iv) if a Payment Agreement is in effect with respect to any fixed-rate Obligations pursuant to which the District receives a fixed rate in exchange for paying a variable rate, the interest rate on such Obligations during the period such Payment Agreement is scheduled to be in effect shall be assumed to be the sum of (A) the interest rate on such Obligations determined as if such Obligations were Variable Rate Obligations, and (B) the difference, if any, between the fixed rate of interest borne by such Obligations and the fixed rate the District receives pursuant to such Payment Agreement; (v) the Principal of any Balloon Obligations shall be assumed to become due and payable in each Fiscal Year in an amount that would be sufficient to fully amortize such Principal, together with interest thereon at the rate such Obligations are otherwise assumed to bear for purposes of this definition (using semi-annual compounding and a year of 360 days), on a level debt service basis over a period commencing on the first day of the Fiscal Year immediately preceding the date of calculation and ending 30 years thereafter; and (vi) the Principal and interest payments on Obligations shall be excluded to the extent such payments are to be made from amounts on deposit, as of the date of calculation, with the Trustee in an escrow or other account irrevocably dedicated therefor, including interest payments that are to be paid from the proceeds of Obligations held by the Trustee; Authorized Denominations means $5,000 and any integral multiple thereof. Authorized Investments means any investments then permitted by law. Balloon Obligations means the aggregate Principal of Obligations of a Series (including Capital Appreciation Obligations) that becomes due and payable, either at scheduled maturity, by Mandatory Sinking Fund Payment or by mandatory tender for purchase, in any Fiscal Year that constitutes 25% or more of the initial aggregate Principal of such Series of Obligations. Balloon Sinking Fund means a sinking fund established and maintained by the District with respect to each Balloon Obligation, in accordance with the Resolution. Beneficial Owner means, for any Obligation held by a nominee, the owner of the beneficial interest in such Obligation. Beneficial Owner Register means the books maintained for the identification of Beneficial Owners. Bond Counsel means a firm of attorneys appointed by the District with substantial experience and expertise in the field of municipal finance law and the federal and state tax laws related thereto whose legal opinions are widely recognized and accepted by the municipal finance markets. Bond Register means the books maintained for the registration and transfer of Obligations. Bond Year means, with respect to an Obligation, the Bond Year set forth in the Supplemental Resolution authorizing the issuance of such Obligation or in the Tax Certificate. D-2

169 Book-Entry Bonds means Obligations for which a Securities Depository or its nominee is the Owner. Business Day means any day other than (a) a Saturday, Sunday, or a day on which banking institutions in the State or the State of New York are authorized or obligated by law or executive order to be closed, (b) a day upon which the principal office of the District or the Trustee is authorized or required by law to be closed, or (c) with respect to an Obligation, any day so specified in the Supplemental Resolution authorizing the issuance of such Obligation. Capital Appreciation Obligations means any Obligations the interest on which is not scheduled to be paid until the maturity or prior redemption thereof, or the conversion thereof to Current Interest Obligations. Capitalized Interest Account means each account of that name established pursuant to the Resolution. Certificate of the District means a written certificate signed by a duly authorized officer or representative of the District. Code means the Internal Revenue Code of 1986, as amended and supplemented, and any successor legislation thereto, and all regulations promulgated from time to time by the United States Department of the Treasury with respect thereto. Year. Computation Period means a five (5) year period ending on the last day of each fifth Bond Construction Fund means each fund of that name established pursuant to the Resolution. Consulting Engineer means an independent consulting engineering firm appointed by the District with substantial experience and expertise in the area of electric utility engineering consulting whose opinions and views are widely recognized and accepted in the municipal finance markets. Consulting Engineer s Report means a report signed by a Consulting Engineer. Credit Facility means a letter of credit, line of credit, or other credit or liquidity facility provided by a financial institution or insurance company, including municipal bond insurance and guarantees, delivered to the Trustee for an Obligation or portion thereof, which provides for payment, in accordance with the terms thereof, of the Principal, Purchase Price and/or Redemption Price of and/or interest on such Obligation or portion thereof and which is designated as a Credit Facility by the District. Credit Facility Provider means the financial institution or insurance company that is providing a Credit Facility. Current Interest Obligations means any Obligations, other than Capital Appreciation Obligations, which pay interest at least annually to the Owners thereof commencing within 18 months from the date of issuance thereof. District means Imperial Irrigation District, an irrigation district duly organized and existing under the laws of the State of California. D-3

170 DTC means The Depository Trust Company, New York, New York, and its successors and assigns. Eighth Supplement or Eighth Supplemental Resolution means the Eighth Supplemental Resolution, adopted by the District s Board on November 17, 2015, and any amendments, modifications or supplements thereto. Electric System means all electric generation, transmission and distribution facilities and all general plant facilities related thereto now owned by the District and all other properties, structures or works for the generation, transmission and distribution of electricity hereafter acquired and constructed by the District and determined to be a part of the Electric System, including all contractual rights for electricity; together with all additions, betterments, extensions or improvements to such facilities, properties, structures or works or any part thereof hereafter acquired and constructed. Event of Default means each event defined as such in The Master Resolution Events of Default below. Fiscal Year means the twelve-month period selected from time to time by the District as the official fiscal year of the District. Fitch means Fitch Ratings and its successors and assigns, except that if such organization shall be dissolved or liquidated or shall no longer perform the functions of a securities credit rating agency, then the term Fitch shall be deemed to refer to any other nationally recognized securities credit rating agency selected by the District. Fund means any fund or account established under the Resolution. GAAP means generally accepted accounting principles from time to time applicable to governmental entities such as the District. Government Securities means direct obligations of, or obligations the principal and interest of which is unconditionally guaranteed as to timely payment by, the United States of America. Interest Account means each account of that name established pursuant to the Resolution. Interest Payment Date means, unless otherwise provided in the Delivery Certificate, May 1 and November 1 of each year, commencing November 1, Law means Irrigation District Law of the State of California, being Division 11 of the Water Code of the State of California. Letter of Representations means the blanket letter of representations executed by the District and delivered to DTC and any amendments thereto or successor blanket agreements between the District and any successor Securities Depository, relating to a system of Book-Entry Bonds to be maintained by the Securities Depository with respect to any bonds, notes or other obligations issued by the District. Mandatory Sinking Fund Payment means, with respect to any Term Obligation, an amount required by the Supplemental Resolution authorizing the issuance of the Obligation of which such Term Obligation is a part to be deposited in the Obligation Retirement Account created for such Obligation for the mandatory purchase or redemption of such Term Obligation or portion thereof prior to the final maturity thereof. D-4

171 Master Bond Resolution or Master Resolution means the Resolution No adopted by the District s Board on July 8, 2008, as amended and supplemented, including by the Seventh Supplemental Resolution and the Eighth Supplemental Resolution. Moody s means Moody s Investors Service, Inc. and its successors and assigns, except that if such organization shall be dissolved or liquidated or shall no longer perform the functions of a securities credit rating agency, then the term Moody s shall be deemed to refer to any other nationally recognized securities credit rating agency selected by the District. Net Revenues for any Fiscal Year (or other designated twelve-month period) means Revenues in such Fiscal Year (or other designated twelve-month period) less Operation and Maintenance Expenses for such Fiscal Year (or other designated twelve-month period). Nominee means the nominee of the Securities Depository, which may be the Securities Depository, as determined from time to time pursuant hereto. Notes means the Imperial Irrigation District Revenue Commercial Paper Warrants (Electric System and Water System Projects) Series A and Series B. Obligation or Obligations means any bonds, notes, installment sale agreements, capital leases, and other evidences of indebtedness issued or incurred by the District the payment of which is secured by a pledge of and charge and lien on Revenues and moneys in the Revenue Fund equal to and on a parity with the charge and lien upon the Revenues for the payment of all other Obligations, all in accordance with the Resolution. Obligation Coverage Ratio for any Fiscal Year means the ratio of (a) Adjusted Net Revenues in such Fiscal Year (plus the balance in the Rate Stabilization Fund, to the extent provided herein), to (b) Annual Debt Service on the Outstanding Obligations in such Fiscal Year. Obligation Fund means each fund of that name established pursuant to the Resolution. Obligation Retirement Account means each account of that name established pursuant to the Resolution. Operation and Maintenance Expenses means the costs paid or accrued for the proper operation, maintenance and repair of the Electric System and taxes, assessments or other governmental charges lawfully imposed on the Electric System or the Revenues, or payments in lieu thereof, all as determined in accordance with GAAP as applied to governmental entities. Operation and Maintenance Expenses shall not include depreciation or amortization expense or unrealized mark-to-market losses with respect to any property, investment, financial instrument or other agreement. Order means a written order of the District signed by a duly authorized officer or representative of the District. Outstanding means, as of any date, (a) when used with respect to the Obligations, all Obligations issued or incurred pursuant to a Supplemental Document other than obligations deemed to be no longer outstanding pursuant to the terms of such Supplemental Document; and (b) when used with respect to the Pension Bonds, all obligations issued or incurred pursuant to the Pension Bonds Indenture other than obligations deemed to be no longer outstanding pursuant to the terms of the Pension Bonds Indenture. D-5

172 Owner, with respect to an Obligation, means the Person in whose name such Obligation is registered. Participants means those broker-dealers, banks and other financial institutions for which the Securities Depository holds certificates as Securities Depository. Payment Agreement means any financial instrument that (a) is entered into by the District with a party that is a Qualified Counterparty at the time the instrument is entered into; (b) is entered into with respect to all or a portion of an Obligation; (c) is for a term not extending beyond the final maturity of the Obligation or portion thereof to which it relates; (d) provides that the District shall pay to such Qualified Counterparty an amount accruing at either a fixed rate or a variable rate, as the case may be, on a notional amount equal to or less than the principal amount of the Obligation or portion thereof to which it relates, and that such Qualified Counterparty shall pay to the District an amount accruing at either a variable rate or fixed rate, as appropriate, on such notional amount; (e) provides that one party shall pay to the other party any net amounts due under such instrument; and (f) which has been designated by the District as a Payment Agreement with respect to such Obligations. Payment Agreement Payments means the regularly scheduled net amounts required to be paid by the District to the Qualified Counterparty pursuant to a Payment Agreement. Payment Agreement Receipts means the regularly scheduled net amounts required to be paid by a Qualified Counterparty to the District pursuant to a Payment Agreement. Pension Bonds means the Bonds of the District issued pursuant to the Pension Bonds Indenture, which are payable in part from and secured by a lien and charge on Revenues as an Operation and Maintenance Expense. Pension Bonds Indenture means that certain Indenture, dated June 1, 2001, by and between the District and BNY Western Trust Company, as bond trustee. Person means an individual, corporation, firm, association, partnership, trust, or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof. Principal means, as of any date of calculation, (a) with respect to any Current Interest Obligation, the principal amount thereof, and (b) with respect to any Capital Appreciation Obligation, the Accreted Value thereof as of the date on which interest on such Capital Appreciation Obligation is compounded next preceding such date of calculation (unless such date of calculation is a date on which such interest is compounded, in which case, as of such date). Purchase Price means, with respect to any Obligation, the price payable upon the optional or mandatory tender for purchase of such Obligation or portion thereof as set forth in the Supplemental Resolution authorizing the issuance of the Obligation of which such Obligation is a part. Qualified Counterparty means a party other than the District which is the party to a Payment Agreement and, at the time of execution and delivery of the Payment Agreement, (a)(i) whose senior unenhanced debt obligations are or claims-paying ability is rated in one of the three highest rating categories of each of at least two Rating Agencies (without regard to any gradations within a rating category) or (ii) whose obligations under the Payment Agreement are guaranteed for the entire term of the Payment Agreement by a Person whose senior unenhanced debt obligations are or claims-paying ability is rated in one of the three highest rating categories of each of at least two Rating Agencies (without regard D-6

173 to any gradations within a rating category) and (b) which is otherwise qualified to act as the party to a Payment Agreement with the District under any applicable law. Rate Stabilization Fund means the fund of that name established pursuant to the Resolution. Rating Agencies means Fitch, Moody s and/or Standard & Poor s or any other nationally recognized securities credit rating agency selected by the District. Rebate Amount means, with respect to each Series of Tax-Exempt Obligations, an amount equal to the sum required to be paid to the United States Department of the Treasury from time to time, if any, with respect to the investment of proceeds of such Series of Tax-Exempt Obligations, all as determined in accordance with Section 148 of the Code and the Supplemental Resolution authorizing the issuance of such Obligation. Record Date means the fifteenth day of the calendar month before each Interest Payment Date. Redemption Price means, (a) with respect to any Obligation or portion thereof, the Principal of such Obligation or portion thereof plus the applicable premium, if any, payable upon redemption thereof pursuant to the provisions of such Obligation and the Supplemental Resolution authorizing the issuance of the Obligations of which such Obligation is a part, and (b) with respect to any other obligation for borrowed money or portion thereof, the principal or accreted value of such obligation or portion thereof plus the applicable premium, if any, payable upon redemption thereof pursuant to the provisions of such obligation and the resolution or resolutions authorizing the issuance or incurrence of such obligation. Registrar means the Person responsible for maintaining the Bond Register, which initially shall be the Trustee. Representation Letter means a representation letter from the District to the Securities Depository as described in the Seventh Supplemental Resolution and the Eighth Supplemental Resolution. Reserve Account means each account of that name established pursuant to the Resolution. Reserve Account Credit Facility means a letter of credit, insurance policy, surety bond, or other credit facility provided to the Trustee by a bank, insurance company or other financial institution whose senior unsecured debt obligations are, or whose claims-paying ability is, rated in the highest rating category by each of at least two Rating Agencies, which provides for payment when due, in accordance with the terms thereof, of the Principal or Redemption Price of and/or interest on one or more Obligations or portion thereof. Reserve Fund means the fund of that name established pursuant to the Resolution. Reserve Requirement means, with respect to any Obligation or portion thereof, unless otherwise specified in the Supplemental Resolution authorizing the issuance of such Obligation, the least of (a) ten percent (10%) of the stated Principal amount of such Obligation or portion thereof, (b) the maximum Annual Debt Service on such Obligation or portion thereof, and (c) 125% of the average Annual Debt Service on such Obligation or portion thereof. Resolution means the Master Bond Resolution, as supplemented or amended pursuant thereto, together with any Supplemental Resolutions. D-7

174 Revenue Fund means the fund of that name established pursuant to the Master Bond Resolution. Revenues means all revenues, rates and charges received or accrued by the District for electric power and energy and other services, facilities and commodities sold, furnished or supplied by the Electric System, together with income, earnings and profits therefrom (including interest earnings on the proceeds of any Obligations pending application thereof), all as determined in accordance with GAAP as applied to governmental entities. Revenues shall include principal and interest payments to the Electric System on or with respect to loans made by the Electric System to any other separate system of the District that is not part of the Electric System. Revenues shall not include (a) proceeds from the issuance of any obligations for borrowed money, (b) amounts loaned to the Electric System, (c) Payment Agreement Receipts, (d) proceeds from taxes, (e) customer deposits while retained as such, (f) contributions in aid of construction, (g) gifts, (h) grants, (i) insurance or condemnation proceeds that are properly allocable to a capital account, (j) unrealized mark-to-market gains with respect to any property, investment or financial or other agreement, or (k) money received by the District as the proceeds of the sale of any portion of the properties of the Electric System. Securities Depository means a Person registered as a clearing agency under Section 17A of the Securities Exchange Act of 1934, or any successor legislation, or whose business is confined to the performance of the functions of a clearing agency with respect to exempted securities, as defined in Section 3(a)(12) of such Act, or any successor legislation, for the purposes of Section 17A thereof. With respect to the Seventh Supplement and the Eighth Supplement, Securities Depository means the Securities Depository acting as such under the Seventh Supplement and the Eighth Supplement and which may be the District. Series means all of the Obligations issued and delivered on the same date which all are (a) payable from and secured by the same source of funds, and (b) and bear interest at either a Variable Rate or fixed-rate, regardless of individual variations in maturity, interest rate, redemption and other provisions, and any Obligations thereafter authenticated and delivered upon transfer or exchange or in lieu of or in substitution for (but not to refund) such Obligations as provided in the Master Bond Resolution. SIFMA Index means Securities Industry and Financial Markets Association Municipal Swap Index announced by Municipal Market Data on the rate determination date and based upon the weekly interest rate resets of tax-exempt variable rate issues included in a database maintained by Municipal Market Data which meets specified criteria established by the Securities Industry and Financial Markets Association or, if such index is no longer published such other equivalent index selected by the District and approved by the Trustee. Seventh Supplement or Seventh Supplemental Resolution means the Seventh Supplemental Resolution, adopted by the District s Board on June 17, 2015, and any amendments, modifications or supplements thereto. Standard & Poor s means Standard & Poor s Ratings Services and its successors and assigns, except that if such organization shall be dissolved or liquidated or shall no longer perform the functions of a securities credit rating agency, then the term Standard & Poor s shall be deemed to refer to any other nationally recognized securities credit rating agency selected by the District. State means the State of California. D-8

175 Subordinate Obligations means, collectively, bonds, notes or other obligations of the District for borrowed money payable from and secured by a pledge of and lien and charge on Revenues junior and inferior to the Obligations and the payments required to be made into the Obligation Funds and the Reserve Fund. Supplemental Document means any resolution, agreement, indenture, trust agreement or any other document or providing for the issuance or incurrence of Obligations, as originally executed and entered into and as they may from time to time be amended or supplemented in accordance herewith and therewith. Supplemental Resolution means any resolution duly adopted by the Board after the adoption of the Master Bond Resolution, supplementing, modifying or amending the Resolution in accordance therewith. Tax Certificate means the certificate delivered by the District regarding compliance with applicable provisions of the Code in connection with the issuance of the Obligations. Tax-Exempt Obligations means Obligations, the interest on which in the opinion of Bond Counsel as of the date of issuance thereof is not includable in gross income for federal income tax purposes under Section 103(a) of the Code. Term Obligations means Obligations that are subject to mandatory purchase or redemption prior to their scheduled maturity date or dates from Mandatory Sinking Fund Payments established for that purpose and calculated to retire such Obligations on or before their specified maturity date or dates. Treasurer means the District, acting by and through its Treasurer or Chief Financial Officer. Trustee means the trustee with respect to the Obligations appointed pursuant to the provisions of the Resolution. 2015C Bonds means the District s Electric System Refunding Revenue Bonds, Series 2015C (Tax-Exempt). 2015C Obligation Fund means the Imperial Irrigation District Electric System Refunding Revenue Bonds, Series 2015C Obligation Fund established pursuant to the Seventh Supplement. 2015C Rebate Fund means the Imperial Irrigation District Electric System Refunding Revenue Bonds, Series 2015C Rebate Fund established pursuant to the Seventh Supplement. 2015D Bonds means the District s Electric System Refunding Revenue Bonds, Series 2015D (Federally Taxable New Clean Renewable Energy Bonds Direct Payment). 2015D Obligation Fund means the Imperial Irrigation District Electric System Refunding Revenue Bonds, Series 2015D Obligation Fund established pursuant to the Eighth Supplement. Variable Rate Obligations means any Obligations the interest rate on which is not fixed to the scheduled maturity date or prior mandatory tender or redemption date, as of the date of calculation, at a single numerical rate for the entire remaining term to maturity or mandatory tender or redemption thereof. D-9

176 MASTER RESOLUTION Pledge of Revenues The Obligations are special limited obligations of the District payable from and secured by the Revenues, after payment of Operating and Maintenance Expenses. The Obligations are not a debt of the District, the State of California or any of its political subdivisions, and neither the District, the State of California nor any of its political subdivisions is liable on the Resolution, nor in any event shall the Obligations or any interest with respect thereto or any redemption premiums thereon be payable out of any funds or properties other than those of the District. The Obligations do not constitute an indebtedness of the District within the meaning of any constitutional or statutory limitation or restriction, and no persons executing the Obligations are liable on the Obligations personally by reason of their issuance or incurrence. Neither the full faith and credit nor the taxing power of the District, of the State of California, or of any political subdivision of the State of California, are pledged to the payment of the Obligations. In the Master Resolution, the District pledges and places a lien and charge upon the Revenues, subject to the prior payment of Operation and Maintenance Expenses, and the required payments and deposits with respect to the Pension Bonds, to secure the payment of the Obligations and Payment Agreement Payments, in accordance with their respective terms without priority or distinction of one over the other, subject only to the provisions of the Resolution permitting the application of such Revenues for the purposes and on the terms and conditions set forth therein and in the Resolution, and the Revenues will constitute a trust for the security and payment of the Obligations and Payment Agreement Payments. The pledge of and lien and charge on the Revenues made in the Resolution will be irrevocable until there are no Obligations Outstanding and until all Payment Agreement Payments have been made. The pledge of and lien and charge on the Revenues and other money and obligations will be valid and binding from the time made, and the Revenues so pledged and thereafter received by the District will immediately be subject to the pledge, lien and charge of the Resolution without any physical delivery or further act, and such pledge, lien and charge will be valid and binding as against any parties having claims of any kind in tort, contract, or otherwise against the District irrespective of whether such parties have notice thereof. Notwithstanding the foregoing, the pledge, lien and charge of the Pension Bonds on Revenues will have priority over the pledge, lien and charge of the Obligations and Payment Agreement Payments on Revenues established under the Resolution. Equality of Security In consideration of the acceptance of the Obligations by the Owners thereof from time to time, the Resolution will be deemed to be and will constitute a contract between the District and the Owners from time to time of the Obligations, and the covenants and agreements set forth in the Resolution to be performed by or on behalf of the District will be for the equal and proportionate benefit, security and protection of all Owners, without preference, priority or distinction as to security or otherwise of any Obligation over any other Obligation by reason of the Series, time of issue, sale or negotiation thereof or for any cause whatsoever, except as expressly provided therein or in the Resolution. Notwithstanding the foregoing, nothing in the Master Bond Resolution will prevent additional security being provided for a particular Obligation under any Supplemental Document. D-10

177 Existing and Concurrent Obligations Notwithstanding anything to the contrary contained in the Resolution, so long as any of the Pension Bonds are outstanding, the rights and obligations of the District under the Resolution will be subject to the terms, conditions and provisions of the Pension Bonds Indenture. Limitation on Issuance or Incurrence of Obligations The District will not create any special fund or funds for payment of revenue bonds, notes or other obligations for borrowed money or issue or incur any such obligations or create any additional indebtedness that will rank on a parity with or in priority over the pledge of and charge and lien on the Revenues or of the payments into the Obligation Funds and Reserve Fund established under the Resolution for the payment of the Obligations; provided, that Obligations may be issued or incurred and Payment Agreements may be entered into payable from the Revenues on a parity with the Obligations authorized by the Resolution, and secured by an equal pledge of and charge and lien on such Revenues in accordance with the provisions of the Resolution for any lawful purpose of the Electric System. Investment or Deposit of Funds All money on deposit in the Funds will be invested and reinvested by the Trustee or the District, as the case may be, in Authorized Investments that mature, or are subject to repurchase, withdrawal without penalty or optional redemption on or before the dates on which the amounts invested are reasonably expected to be needed for the purposes of the Resolution. All purchases or sales of Authorized Investments made by the Trustee will be made at the direction of the District (given in writing or orally, confirmed in writing). Any Authorized Investments held by the Trustee may be transferred by the Trustee, if required in writing by the District, from any of the Funds to any other Fund at the then current market value thereof without having to be sold and purchased or repurchased; provided, that after any such transfer or transfers, the Authorized Investments in each such Fund will be in accordance with the provisions of the Resolution, and whenever any other transfer or payment is required to be made from any particular Fund, such transfer or payment will be made from such combination of maturing principal, redemption premiums, liquidation proceeds and withdrawals of principal as the Trustee deems appropriate for such purpose. The Trustee will not be accountable for any depreciation in the value of Authorized Investments or for any losses incurred upon any authorized disposition thereof. Subject to the foregoing, the Trustee is expressly authorized to invest money in two or more Funds in a single investment, provided that the portion of the investment allocable to each such Fund, and all payments received with respect to such allocable portion, will be applied in accordance with the applicable provisions governing such Fund under the Resolution. Covenants Maintenance of Existence and Powers. The District shall at all times maintain its existence as an irrigation district formed under the authority of the Law, and shall at all times use its best efforts to maintain all the powers of such an irrigation district. D-11

178 Operation and Maintenance of Electric System. Subject to the provisions of the Resolution, the District will (i) at all times operate the properties of the Electric System and the business in connection therewith in an efficient manner and at reasonable cost, (ii) maintain, preserve and keep, or cause to be maintained, preserved and kept, the properties of the Electric System, and all additions and betterments thereto and extensions thereof, and every part and parcel thereof, in good repair, working order and condition, and (iii) from time to time make, or cause to be made, all necessary and proper repairs, renewals, replacements, additions, extensions and betterments thereto, so that at all times the business carried on in connection therewith will be properly and advantageously conducted. The District will at all times comply with the terms and conditions of any permits or licenses for the Electric System, or any property or facilities constituting a part thereof, issued by any federal or state governmental agency or body having jurisdiction thereof and with the power to issue orders with respect thereto and enforce the same, and with any federal or state law or regulation applicable to the construction, operation, maintenance and repair of the Electric System. The District will use its best efforts to obtain renewals of such permits or licenses or obtain new permits or licenses unless such renewals or new permits or licenses are not, in the judgment of the Board, in the best interests of the District. Protection of Security. The District is duly authorized under all applicable laws to issue and/or incur the Obligations and to adopt the Master Resolution and to pledge the Revenues purported to be pledged by the Master Resolution in the manner and to the extent provided in the Master Resolution. The Revenues so pledged are and shall be free and clear of any pledge, lien, charge or encumbrance thereon or with respect thereto prior to, or of equal rank with, the pledge created by the Master Resolution, except as otherwise expressly provided herein. The Obligations and the Master Resolution are and will be valid and binding obligations of the District enforceable in accordance with their terms and the terms of the Master Resolution; provided, that the rights of the Owners under the Master Resolution and under the Obligations may be subject to the exercise of judicial discretion, to bankruptcy, insolvency, reorganization, moratorium and other laws for the relief of debtors, and to limitations on remedies against public utility districts under the laws of the State. The District shall at all times, to the extent permitted by law, defend, preserve and protect the pledge of the Revenues and the rights of the Owners under the Master Resolution against all claims and demands of all persons whatsoever. No Free Service. The District shall not, except as may be required under the provisions of any federal or State statute, regulation or license, furnish or supply electric energy or any other commodity, service or facility furnished by or in connection with the operation of the Electric System, free of charge to any other system of the District or any Person; provided, that, notwithstanding the foregoing, the District may provide commodities, services or facilities at a discount or free of charge to Persons to the extent necessary or desirable to further the public policies and purposes of the District, but only if and to the extent that the Board finds and determines by resolution that it will not have a material adverse effect on the ability of the District to comply with the provisions of the Master Resolution, including, without limitation, covenant relating to rates and charges. The District shall promptly enforce the payment of any and all accounts owing to the District by discontinuing service, or by filing suit therefor within 180 days after any such accounts were due, or by both discontinuance of service and by filing suit. Not to Dispose of System Properties. The District will not sell, lease or otherwise dispose of, or cause the sale, lease or other disposition of, or permit to be sold, leased or otherwise disposed of, any real or personal properties constituting part of the Electric System unless: (a) Such sale, lease or disposal is of property that in the judgment of the District has become unserviceable, inadequate, obsolete, unfit or is no longer needed for the efficient and economical operation of the properties of the Electric System; or D-12

179 (b) Such sale, lease or disposal is of property having an aggregate fair market value in any Fiscal Year of less than one per cent (1%) of the value of all real or personal properties constituting part of the Electric System; or (c) As determined by a Certificate of the District, such sale, lease or disposal will not materially impair the ability of the District to comply with covenant relating to rates and charges for a period of five (5) Fiscal Years after such sale, lease or disposal, and the District transfers the proceeds of such sale, lease or disposal to the Construction Fund to be established for the purpose of repairing or restoring the Electric System or to each Obligation Retirement Account for all Obligations then Outstanding in the same ratio as the initial Principal amount of each Obligation then Outstanding bears to the aggregate initial Principal amount of all Obligations then Outstanding. Insurance. The District shall keep, or cause to be kept, the works, plants and facilities comprising the properties of the Electric System insured to the extent available at reasonable cost with responsible insurers with policies payable to the District for the benefit of the Electric System against risks of direct physical loss, damage or destruction of the Electric System, at least to the extent that similar insurance is usually carried by municipally-owned utilities operating like properties against accidents, casualties or negligence, including liability insurance, and against loss, including loss of revenue, caused by reason of suspension or interruption of generation or transmission of power and energy caused by such loss, damage or destruction. In the event of any loss or damage to the properties of the Electric System covered by insurance, the District will transfer the proceeds received by the District of any casualty insurance policy or policies covering such damage or loss to the Construction Fund to be established for the purpose of repairing or restoring the Electric System and thereafter to each Obligation Retirement Account for all Obligation then Outstanding in the same ratio as the initial Principal amount of each Obligation then Outstanding bears to the aggregate initial Principal amount of all Obligation then Outstanding. Within sixty (60) days after the close of each Fiscal Year, the District shall file, or cause to be filed, with the Trustee a Certificate of the District describing in reasonable detail the insurance then in effect pursuant to the requirements under this caption and stating whether such insurance then in effect reasonably complies with the provisions hereof. Eminent Domain. In the event of transfer of the properties of the Electric System by operation of law or under threat of condemnation, the District will transfer the proceeds received by the District of any such condemnation award or any such sale under threat of condemnation to the Construction Fund to be established for the purpose of repairing or restoring the Electric System, and thereafter to each Obligation Retirement Account for all Obligation then Outstanding in the same ratio as the initial Principal amount of each Obligation then Outstanding bears to the aggregate initial Principal amount of all Obligation then Outstanding. Financial Reports. The District shall prepare and make available for inspection at the principal administrative office of the District and shall provide to the Trustee and any Credit Facility Provider the most recent audited annual financial statements of the District, including any supplemental schedules showing the component units constituting a part of the Electric System. The District shall make available its audited annual financial statements within 180 days after the end of each Fiscal Year. Payment of Obligations. The District shall duly and punctually pay or cause to be paid when due and payable, but only from the Revenues, after payment of Operation and Maintenance Expenses, and from the proceeds of the sale or other disposition (whether voluntary or involuntary) of property of the Electric System, and thereafter the Obligations on the dates and at the places and in the manner provided in the Obligations, according to the true intent and meaning thereof, and shall faithfully do and perform and fully observe and keep any and all covenants, undertakings, stipulations and provisions contained in the Obligations and in the Master Resolution and any Supplemental Documents. D-13

180 Payment of Taxes and Claims. The District will from time to time duly pay and discharge, or cause to be paid and discharged, all taxes, assessments and other governmental charges, or required payments in lieu thereof, lawfully imposed upon the properties constituting the Electric System or the Revenues when the same will become due, and all lawful claims for labor and material and supplies which, if not paid, might become a lien or charge upon such properties, or any part thereof, or upon the Revenues, or which might in any way impair the security of the obligations issued by the District payable from the Revenues, including the taxes, assessments, charges or claims which the District will in good faith contest by proper legal proceedings. Tax Covenants. The District covenants that it shall not take any action, or fail to take any action, if any such action or failure to take action would adversely affect the exclusion from gross income of the interest on any Tax-Exempt Obligations under Section 103 of the Code. The District shall not directly or indirectly use or permit the use of any proceeds of the Tax-Exempt Obligations in such a manner as would adversely affect the exclusion of interest on any Tax-Exempt Obligations from gross income under Section 103 of the Code. The District shall not directly or indirectly use or permit the use of any proceeds of any Tax-Exempt Obligations, or of any facilities financed thereby, or other funds of the District, or take or omit to take any action, that would cause any Tax-Exempt Obligations to be arbitrage bonds within the meaning of Section 148 of the Code. To that end, the District shall comply with all requirements of Section 148 of the Code and all regulations of the United States Department of the Treasury promulgated thereunder to the extent such requirements are, at the time, in effect and applicable to the Tax-Exempt Obligations. In the event that at any time the District is of the opinion that for purposes under this caption it is necessary to restrict or to limit the yield on the investment of any moneys held by the Trustee under the Master Resolution, the District shall so instruct the Trustee in writing, and the Trustee shall take such action as may be directed in such instructions. Terms used but not otherwise defined under this caption shall have the meanings set forth in the Code. Further Assurances. The District shall at any and all times, insofar as it may be authorized to do so by law, pass, make, do, execute, acknowledge and deliver all and every such further resolutions, acts, assignments, instruments and assurances as may be necessary or desirable for the better assuring, granting, pledging, assigning and confirming any and all of the rights, revenues, funds and other property hereby granted, pledged or assigned to pay or secure the payment of the Obligations, in the manner and to the extent provided herein. Resignation or Removal of the Trustee; Appointment of Successor Trustee (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to the Resolution will become effective until the acceptance of appointment by the successor Trustee under the Resolution. (b) The Trustee may resign at any time by giving written notice to the District. Upon receiving such notice of resignation, the District will promptly appoint a successor Trustee by an instrument in writing. If an instrument of acceptance has not been delivered to the resigning Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee or any Owner of an Obligation then Outstanding may petition a court of competent jurisdiction for the appointment of a successor Trustee. (c) Prior to the occurrence and continuance of an Event of Default under the Resolution, or after the curing or waiver of any such Event of Default, the District or the Owners of a majority in aggregate Principal amount of the Outstanding Obligations may remove the Trustee and will appoint a successor Trustee. In the event there shall have occurred and be continuing an Event of Default under the Resolution, the Owners of a majority in aggregate Principal amount of the Outstanding Obligations may D-14

181 remove the Trustee and will appoint a successor Trustee. In each instance such removal and appointment will be accomplished by an instrument or concurrent instruments in writing signed by the District or such Owners, as the case may be, and delivered to the Trustee, the District and Owners of the Outstanding Obligations. (d) If at any time: (i) the Trustee ceases to be eligible and qualified under the Resolution and fails or refuse to resign after written request to do so by the District or the Owner of any Obligation, or (ii) the Trustee will become incapable of acting or will be adjudged insolvent, or a receiver of the Trustee or its property will be appointed, or any public officer will take charge or control of the Trustee, its property or affairs for the purpose of rehabilitation, conservation or liquidation, then in either such case (A) the District may remove the Trustee and appoint a successor Trustee in accordance with the provisions of subsection (c) of this section; or (B) any Owner of an Obligation then Outstanding may, on behalf of the Owners of all Outstanding Obligations, petition a court of competent jurisdiction for removal of the Trustee and appointment of a successor Trustee. (e) The District is required to give written notice of each resignation or removal of the Trustee and each appointment of a successor Trustee to each Owner of Obligations then Outstanding as listed in the Bond Register. Each such notice is required to include the name and address of the applicable corporate trust office of the successor Trustee. Supplemental Resolutions Without Owner Consent The District may from time to time and at any time adopt a Supplemental Resolution, without the consent of or notice to any Owner, to effect any one or more of the following: (i) Resolution; provide for the issuance of Obligations in accordance with the provisions of the (ii) cure any ambiguity or defect or omission or correct or supplement any provision in the Master Bond Resolution or in any Supplemental Resolution; (iii) grant to or confer upon the Trustee for the benefit of the Owners any additional rights, remedies, powers, authority or security that may lawfully be granted to or conferred upon the Owners or the Trustee that are not contrary to or inconsistent with the Resolution as then in effect or to subject to the pledge, lien and charge of the Resolution additional revenues, properties or collateral; (iv) add to the covenants and agreements of the District in the Resolution other covenants and agreements thereafter to be observed by the District or to surrender any right or power reserved in the Master Bond Resolution to or conferred upon the District that are not contrary to or inconsistent with the Resolution as then in effect; (v) permit the appointment of a co-trustee under the Resolution; (vi) modify, alter, supplement or amend the Resolution in such manner as will permit the qualification of the Resolution, if required, under the Trust Indenture Act of 1939 or, the Securities Act of 1933, as from time to time amended, or any similar federal statute hereafter in effect; or (vii) make any other change in the Master Bond Resolution that the Trustee determines will not be materially adverse to the interests of the Owners and which does not involve a change described in the Resolution requiring consents of specific Owners. D-15

182 Supplemental Resolutions Requiring Owner Consent The District, at any time and from time to time, may adopt a Supplemental Resolution for the purpose of making any modification or amendment to the Resolution, but only with the written consent, given as provided in the Resolution, of the Owners of a majority in aggregate Principal amount of the Outstanding Obligations at the time such consent is given, and in case less than all of the Obligations then Outstanding are affected by the modification or amendment, of the Owners of a majority in aggregate Principal amount of the Outstanding Obligations so affected at the time such consent is given; provided, that if such modification or amendment will, by its terms, not take effect so long as any Obligations so affected remain Outstanding, the consent of the Owners of such Obligations will not be required and such Obligations will not be deemed to be Outstanding for the purpose of any calculation of Outstanding Obligations under the Resolution. Notwithstanding the foregoing, no modification or amendment contained in any such Supplemental Resolution will permit any of the following, without the consent of each Owner whose rights are affected thereby: (a) a change in the terms of stated maturity or redemption of any Obligation or of any interest thereon; (b) a reduction in the Principal, Purchase Price or Redemption Price of any Obligation or in the rate of interest thereon or a change in the currency in which such Obligation is payable; (c) the creation of a pledge of and charge and lien on any part of the money or assets pledged under the Resolution other than as permitted by the Resolution; (d) the granting of a preference or priority of any Obligation over any other Obligation; (e) a reduction in the aggregate Principal amount of Obligations of which the consent of the Owners is required to effect any such modification or amendment; or (f) a change in the provisions of the Master Bond Resolution regarding waiver of defaults. Notwithstanding the foregoing, the Owner of any Obligation may extend the time for payment of the Principal, Purchase Price or Redemption Price of or interest on such Obligation; provided, that upon the occurrence of an Event of Default, funds available under the Resolution for the payment of the Principal, Purchase Price or Redemption Price of and interest on the Obligations will not be applied to any payment so extended until all Principal, Purchase Price, Redemption Price and interest payments that have not been extended have first been paid in full. Notice of any Supplemental Resolution executed pursuant to the Resolution will be given to the Owners promptly following the adoption thereof by the District. Consent of Owners and Opinions Each Supplemental Resolution executed and delivered pursuant to the provisions of the Resolution shall take effect only when and as provided in the Resolution. A copy of such Supplemental Resolution (or brief summary thereof or reference thereto in form approved by the Trustee), together with a request to Owners for their consent thereto in form satisfactory to the Trustee, shall be sent by the Trustee to the Owners, at the expense of the District, by first class mail, postage prepaid; provided, that a failure to mail such request shall not affect the validity of the Supplemental Resolution when consented to as provided hereinafter. Such Supplemental Resolution shall not be effective unless and until there shall have been filed with the Trustee (a) the written consents of Owners of the percentage of Obligations specified in the Resolution, and (b) the written opinion of Bond Counsel described in the Resolution. Any such consent shall be binding upon the Owner giving such consent and upon any subsequent Owner of such Obligations and of any Obligations issued in exchange therefor or in lieu thereof (whether or not such subsequent Owner has notice thereof), unless such consent is revoked in writing by the Owner giving such consent or a subsequent Owner of such Obligations by filing such revocation with the Trustee prior to the date the Trustee receives the material required in subsections (a) and (b) of this Section. Notwithstanding anything else herein, if a Supplemental Resolution is to become effective on the same date as the date of issuance of an Obligation, the consents of the underwriters of such Obligation shall be counted for purposes of the Resolution. D-16

183 Discharge and Defeasance Discharge. If (a) the Principal of any Obligations and the interest due or to become due thereon together with any premium required by redemption or prepayment of any of such Obligations prior to maturity will be paid, or is caused to be paid, or is provided for under the Resolution, at the times and in the manner to which reference is made in such Obligations, according to the true intent and meaning thereof, or such Obligations will have been paid and discharged in accordance with the Resolution, and (b) and all Payment Agreement Payments and other payments due in accordance with the provisions of the Payment Agreements and the Resolution have been made and (c) all of the covenants, agreements, obligations, terms and conditions of the District under the Resolution shall have been kept, performed and observed and there shall have been paid to the Trustee all sums of money due or to become due to it in accordance with the terms and provisions of the Resolution, then the right, title and interest of the Trustee in all money and other property then held under the Resolution will thereupon cease and the Trustee, on request of and at the expense of the District, will release the Resolution and will execute such documents to evidence such release as may be reasonably required by the District and will turn over to the District, or to such other Person as may be entitled to receive the same, all balances remaining in any Funds except for amounts required to pay such Obligations or held pursuant to the Supplemental Indenture. Defeasance. If the District deposits with the Trustee money or noncallable Government Securities which, together with the earnings thereon, are sufficient to pay the Principal, Purchase Price or Redemption Price of any particular Obligation or Obligations, or portions thereof, becoming due, together with all interest accruing thereon to the due date or redemption date, and pays or makes provision for payment of all fees, costs and expenses of the Trustee due or to become due with respect to such Obligations, all liability of the District with respect to such Obligation or Obligations (or portions thereof) will cease, such Obligation or Obligations (or portions thereof) will be deemed not to be Outstanding hereunder and the Owner or Owners of such Obligation or Obligations (or portions thereof) will be restricted exclusively to the money or Government Securities so deposited, together with any earnings thereon, for any claim of whatsoever nature with respect to such Obligation or Obligations (or portions thereof), and the Trustee will hold such money, Government Securities and earnings in trust exclusively for such Owner or Owners and such money, Government Securities and earnings will not secure any other Obligations under the Resolution. In determining the sufficiency of the money and Government Securities deposited pursuant to this section, the Trustee will receive, at the expense of the District, and may rely upon: (a) a verification report of a firm of nationally recognized independent certified public accountants or other qualified firm acceptable to the District and the Trustee; and (b) a defeasance opinion of Bond Counsel. Upon such defeasance all rights of the District, including its right to provide for optional redemption or prepayment of Obligations on dates other than planned pursuant to such defeasance, will cease unless specifically retained by filing a written notification thereof with the Trustee on or prior to the date the Government Securities are deposited with the Trustee. When an Obligation is deemed to be paid hereunder, as aforesaid, it will no longer be secured by or entitled to the benefits of the Resolution, except for the purposes of any such payment from such money or Government Securities and except for certain provisions of the Resolution and the District will continue to be subject to the provisions of the Resolution relating to Trustee compensation. Events of Default Each of the following events will be an Event of Default under the Master Bond Resolution: (a) The District will default in the payment of any Principal, Purchase Price (to the extent provided by a Supplemental Document) or Redemption Price of or interest on any Obligation when the same becomes due and payable; or D-17

184 (b) Subject to the provisions of the Resolution, default in the performance, or breach, of any covenant, warranty or representation of the District contained in the Resolution (other than a default described under subsection (a) of this section); or (c) (i) The filing of a petition in bankruptcy (or other commencement of a bankruptcy or similar proceedings) by the District as debtor, under federal or state bankruptcy law; (ii) the filing of a petition in bankruptcy (or other commencement of a bankruptcy or similar proceedings) against the District as debtor, under federal or state bankruptcy law, which petition is not dismissed within sixty (60)days after filing; (iii) the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or other similar official of the District or of any substantial portion of its property; or (iv) the ordering of the winding up or liquidation of the affairs of the District. Remedies upon Default (a) If an Event of Default under the Master Resolution occurs and is continuing, the Trustee may, and upon the written request to the Trustee by the Owners of a majority in aggregate Principal amount of the Outstanding Obligations the Trustee will, subject to the requirements of the Master Resolution, by written notice to the District, declare the Principal of the Obligations and all interest accrued thereon to the date of acceleration to be immediately due and payable. (b) At any time after such a declaration of acceleration has been made and before the entry of a judgment or decree for payment of the money due, the Trustee may, or the Owners of a majority in aggregate Principal amount of the Outstanding Obligations, may by written notice to the District and the Trustee, and subject to the requirements of the Resolution, direct the Trustee to, rescind and annul such declaration and its consequences if: (i) there has been paid to or deposited with the Trustee by or for the account of the District, or provision satisfactory to the Trustee has been made for the payment of a sum sufficient to pay: (A) all overdue installments of interest on the Obligations; (B) the Principal, Purchase Price, and Redemption Price of any Obligations that have become due other than by such declaration of acceleration and interest thereon; (C) to the extent lawful, interest upon overdue interest and redemption premium, if any; and (D) all sums paid or advanced by the Trustee under the Master Bond Resolution, together with the reasonable compensation, expenses, disbursements and advances of the Trustee and its agents and counsel prior to the date of notice of rescission; and (ii) all Events of Default have been cured or waived, other than the nonpayment of Principal, Purchase Price or Redemption Price of and interest on the Obligations that occasioned such acceleration. (c) No such rescission and annulment will affect any subsequent default or impair any consequent right. (d) The Trustee, upon the occurrence of an Event of Default may, and upon the written request of the Owners of a majority in aggregate Principal amount of the Outstanding Obligations, and subject to the requirements of the Resolution, will proceed to protect and enforce its rights and the rights of the Owners of the Obligations under the Resolution by a suit or suits in equity or at law, either for the specific performance of any covenant or agreement contained in the Resolution or in aid of the execution of any power granted in the Resolution or therein, or for the enforcement of any other appropriate legal or equitable remedy, and the Trustee in reliance upon the advice of counsel may deem most effective to protect and enforce any of the rights or interests of the Owners of the Obligations under the Obligations or the Resolution. D-18

185 (e) Without limiting the generality of the foregoing, the Trustee will at all times have the power to institute and maintain such proceedings as it may deem expedient: (i) to prevent any impairment of the money and other property then held under the Resolution by any acts that may be unlawful or in violation of the Resolution, and (ii) to protect its interests and the interests of the Owners in the money and other property then held under the Resolution and in the issues, profits, revenues and other income arising therefrom, including the power to maintain proceedings to restrain the enforcement of or compliance with any governmental enactment, rule or order that may be unconstitutional or otherwise invalid, if the enforcement of, or compliance with, such enactment, rule or order would impair the money and other property then held under the Resolution or be prejudicial to the interests of the Owners or the Trustee. Priority of Payment Following Event of Default (a) If at any time after the occurrence of an Event of Default the money held by the Trustee under the Resolution will not be sufficient to pay the Obligations as the same become due and payable, such money, together with any money then available or thereafter becoming available for such purpose, whether through the exercise of remedies described above or otherwise, will, subject to the provisions of the Resolution described in subsections (b) and (c) of this section, be applied by the Trustee as follows: (i) First, to the payment of all amounts due the Trustee under the Resolution; (ii) Second, to the payment of Operation and Maintenance Expenses; (iii) Third, to the payment of all interest on the Obligations and Payment Agreement Payments then due and payable in the order in which the same became due and payable, and, if the amount available will not be sufficient to make any payment in full, then to the payment, ratably, according to the amounts due with respect to such payments, without discrimination or preference; (v) Fourth, to the payment of the unpaid Principal amount of any of the Obligations that will have become due and payable, in the order of due dates (other than Obligations called for redemption or contracted to be purchased for the payment of which money is held pursuant to the provisions of the Resolution), with interest upon the Principal amount of the Obligations from the respective dates upon which they will have become due and payable, and, if the amount available will not be sufficient to pay in full the Principal of such Obligations due and payable on any particular due date, together with such interest, then to the payment first of such interest, ratably, according to the amount of Principal due on such date, without any discrimination or preference; (vi) Fifth, to the payment of the Redemption Price of Obligations called for optional redemption, if any; (vii) Sixth, to the payment under all reimbursement agreements with the providers of Reserve Account Credit Facilities of all amounts due and payable thereunder (and if there is not sufficient money to make all such payments, then on a pro rata basis to each provider); (viii) Seventh: (A) for the payment of principal and premium, if any, and interest on Subordinate Obligations; (B) for deposit into a reserve fund securing any Subordinate Obligations; (C) for regularly scheduled net amounts required to be paid by the District to counterparties pursuant to swap agreements entered into by the District with respect to any Subordinate Obligations; and (D) for payment to any financial institution or insurance company providing any letter of credit, line of credit, or other credit or liquidity facility, including municipal bond insurance and guarantees, that secures the payment of principal of or interest on any Subordinate Obligations; in each case in any order of priority which may be established by the District after the adoption of the Master Bond Resolution; (ix) Eighth, for any payment under a Payment Agreement that does not constitute a Payment Agreement Payment; and (x) Ninth, to the payment of all other charges or obligations against the Revenues of whatever nature imposed thereon by law or contract as of the date of, and subsequent to, the adoption of the Master Resolution, in any order of priority which may be hereafter established by the District. (b) If the Principal of all Obligations will have become due and payable, subject to clause (i) of subsection (a) above regarding payment to the Trustee, all such money will be applied to the payment of the Principal and interest then due and unpaid upon the Obligations, without preference or priority of Principal over interest or of interest over Principal, or of any installment of interest over any other D-19

186 installment of interest, or of any Obligation over any other Obligation, ratably, according to the amounts due respectively for Principal and interest, without any discrimination or preference. (c) Whenever money is to be applied pursuant to the provisions of the Master Bond Resolution described in this section, the Trustee may, in its discretion, establish and maintain a reserve for future fees and expenses, and may apply money to be distributed at such times, and from time to time, as the Trustee will determine, having due regard for the amount of such money available for application and the likelihood of additional money becoming available for such application in the future. Whenever the Trustee will apply such funds, it will fix a date (which will be an interest payment date unless it will deem another date more suitable) upon which such application is to be made and upon such date interest on the amounts of Principal to be paid on such dates, and for which money is available, will cease to accrue. The Trustee will also select a record date for such payment date. The Trustee will give such notice as it may deem appropriate of the deposit with it of any money and of the fixing of any such record date and payment date, and will not be required to make payment to the Owner of any Obligation until such Obligation will be presented to the Trustee for appropriate endorsement or for cancellation if fully paid. Owners May Direct Proceedings The Owners of a majority in aggregate Principal amount of the Outstanding Obligations will, subject to the requirements of the Resolution, have the right, by an instrument or instruments in writing executed and delivered to the Trustee, to direct the method and place of conducting all remedial proceedings by the Trustee under the Resolution, provided that such direction will not be in conflict with any rule of law or the Resolution and that the Trustee will have the right to decline to follow any such direction which in the opinion of the Trustee would be unduly prejudicial to the rights of Owners not parties to such direction or would subject the Trustee to personal liability or expense. Notwithstanding the foregoing, the Trustee will have the right to select and retain counsel of its choosing to represent it in any such proceedings. The Trustee may take any other action which is not inconsistent with any direction under the Resolution. Limitations on Rights of Owners (a) No Owner will have any right to pursue any other remedy under the Resolution or the Obligations unless: (i) an Event of Default will have occurred and is continuing; (ii) the Owners of a majority in aggregate Principal amount of the Outstanding Obligations have requested the Trustee, in writing, to exercise the powers granted in the Master Bond Resolution or to pursue such remedy in its or their name or names; (iii) the Trustee has been offered indemnity satisfactory to it against costs, expenses and liabilities reasonably anticipated to be incurred; (iv) the Trustee has declined to comply with such request, or has failed to do so, within 60 days after its receipt of such written request and offer of indemnity; and (v) no direction inconsistent with such request has been given to the Trustee during such 60-day period by the Owners of a majority in aggregate Principal amount of the Outstanding Obligations. (b) The provisions of the Master Bond Resolution described in subsection (a) of this section are conditions precedent to the exercise by any Owner of any remedy under the Resolution. The exercise of such rights is further subject to the provisions of the Resolution. No one or more Owners will have any right in any manner whatever to enforce any right under the Resolution, except in the manner provided in the Master Bond Resolution. All proceedings at law or in equity with respect to an Event of Default will be instituted and maintained in the manner provided in the Master Bond Resolution for the equal and ratable benefit of the Owners of all Obligations Outstanding. D-20

187 Unconditional Right of Owners To Receive Payment Notwithstanding any other provision of the Resolution, the Owner of each Obligation will have the absolute and unconditional right to receive payment of Principal and Redemption Price of and interest on such Obligation on and after the due date thereof, and to institute suit for the enforcement of any such payment. Restoration of Rights and Remedies If the Trustee or any Owner has instituted any proceeding to enforce any right or remedy under the Resolution, and any such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or such Owner, then the District, the Trustee and the Owners will, subject to any determination in such proceeding, be restored to their former positions under the Resolution, and all rights and remedies of the Trustee and the Owners will continue as though no such proceeding had been instituted. Rights and Remedies Cumulative No right or remedy conferred upon or reserved to the Trustee in the Master Bond Resolution is intended to be exclusive of any other right or remedy, but each such right or remedy will, to the extent permitted by law, be cumulative of and in addition to every other right or remedy given under the Resolution or existing at law, in equity or otherwise. The assertion or employment of any right or remedy under the Resolution will not prevent the concurrent assertion or employment of any other appropriate right or remedy. Delay or Omission Not Waiver No delay or omission by the Trustee or any Owner to exercise any right or remedy accruing upon any Event of Default will impair any such right or remedy or constitute a waiver of such Event of Default. Every right and remedy given by the Master Bond Resolution with respect to defaults and remedies or by law to the Trustee or the Owners may be exercised from time to time, and as often as may as deemed expedient, by the Trustee or the Owners, as the case may be. Waiver of Defaults (a) The Owners of a majority in aggregate Principal amount of the Outstanding Obligations may, by written notice to the Trustee and subject to the requirements of the Resolution, waive any existing default or Event of Default and its consequences, except an Event of Default described in subsection (a) of Events of Default above. Upon any such waiver, the default or Event of Default will be deemed cured and will cease to exist for all purposes. No waiver of any default or Event of Default will extend to or effect any subsequent default or Event of Default or will impair any right or remedy consequent thereto. (b) Notwithstanding any provision of the Resolution, in no event will any Person, other than all of the affected Owners, have the ability to waive any Event of Default under the Resolution if such event results or may result, in the opinion of Bond Counsel, in interest on any of the Tax-Exempt Obligations becoming includable in gross income for federal income tax purposes. D-21

188 Credit Facility Provider Rights Except as otherwise provided in the Supplemental Resolution authorizing the issuance of an Obligation, if the Credit Facility Provider with respect to such Obligation is not in default in respect of any of its obligations under the Credit Facility securing such Obligation, the following will apply: (a) Such Credit Facility Provider, and not the actual Owners, will be deemed to be the Owner of such Obligation at all times for the purposes of (i) giving any approval or consent to the effectiveness of any Supplemental Resolution other than a Supplemental Resolution providing for (A) a change in the terms of redemption, purchase or maturity of the principal of any Outstanding Obligation or any interest thereon or a reduction the Principal amount, Purchase Price or Redemption Price thereof or in the rate of interest thereon, or (B) a reduction in the percentage of Owners required to approve or consent to the effectiveness of any Supplemental Resolution, and (ii) giving any approval or consent or exercising any remedies in connection with the occurrence of an Event of Default. (b) Any amendment to the Resolution requiring the consent of Owners of such Obligation will also require the prior written consent of such Credit Facility Provider. (c) Any amendment to the Resolution not requiring the consent of Owners of such Obligation shall require the prior written consent of such Credit Facility Provider if its rights shall be materially and adversely affected by such amendment. (d) The prior written consent of such Credit Facility Provider will be a condition precedent to the substitution by the District of any Reserve Account Credit Policy for cash deposited in any Reserve Account securing such Obligation. (e) In the event the maturity of the Obligations is accelerated, such Credit Facility Provider may elect, in its sole discretion, to pay the accelerated Principal of such Obligation and interest thereon to the date of acceleration (to the extent unpaid by the District). Upon payment of such accelerated Principal and interest, the obligations of such Credit Facility Provider under such Credit Facility with respect to such Obligation will be fully discharged. (f) Such Credit Facility Provider will have the right to institute any suit, action or proceeding at law or in equity under the same terms as an Owner of such Obligation in accordance with the Resolution. (g) Such Credit Facility Provider will, to the extent it makes any payment of Principal or Purchase Price of or interest on such Obligation, become subrogated to the rights of the recipients of such payments in accordance with the terms of such Credit Facility. (h) The Principal or Purchase Price of or interest on such Obligation paid by such Credit Facility Provider under such Credit Facility shall not be deemed paid for purposes of the Resolution, and the Obligations with respect to which such payments were made shall remain Outstanding and continue to be due and owing until paid by the District in accordance with the Resolution. (i) In the event of any defeasance of such Obligation, the District will provide such Credit Facility Provider with copies of all documents required by the Resolution to be delivered to the Trustee. (j) The District will not discharge the Resolution unless all amounts due or to become due to such Credit Facility Provider have been paid in full or duly provided for. D-22

189 (k) The District will send or cause to be sent to such Credit Facility Provider copies of notices required to be sent to Owners or the Trustee under the Resolution. (l) The District will observe any payment procedures under such Credit Facility required by such Credit Facility Provider as a condition to the issuance and delivery of the Credit Facility. SEVENTH SUPPLEMENTAL RESOLUTION AND EIGHTH SUPPLEMENTAL RESOLUTION Establishment and Application of 2015C Obligation Fund The Seventh Supplemental Resolution establishes a special fund of the District to be known as the Imperial Irrigation District Electric System Refunding Revenue Bonds, Series 2015C Obligation Fund (the 2015C Obligation Fund ) to be held in trust by the Trustee. From Revenues, the Treasurer will transfer to the Trustee funds for deposit into the 2015C Obligation Fund in the amounts and at the times necessary to pay the principal of, premium, if any, and interest on the 2015C Bonds as the same will become due and payable on each Interest Payment Date, redemption date or maturity date. On each Interest Payment Date, redemption date or maturity date, the Trustee will apply moneys in the 2015C Obligation Fund to pay the principal of, premium, if any, and interest due on the 2015C Bonds on such date. The 2015C Obligation Fund and the amounts on deposit therein will be subject to the pledge of the Resolution for the benefit of the Owners of the 2015C Bonds. Establishment and Application of 2015D Obligation Fund The Eighth Supplemental Resolution establishes a special fund of the District to be known as the Imperial Irrigation District Electric System Refunding Revenue Bonds, Series 2015D Obligation Fund (the 2015D Obligation Fund ) to be held in trust by the Trustee. From Revenues, the Treasurer will transfer to the Trustee funds for deposit into the 2015D Obligation Fund in the amounts and at the times necessary to pay the principal of, premium, if any, and interest on the 2015D Bonds as the same will become due and payable on each Interest Payment Date, redemption date or maturity date. On each Interest Payment Date, redemption date or maturity date, the Trustee will apply moneys in the 2015D Obligation Fund to pay the principal of, premium, if any, and interest due on the 2015D Bonds on such date. The 2015D Obligation Fund and the amounts on deposit therein will be subject to the pledge of the Resolution for the benefit of the Owners of the 2015D Bonds. Establishment and Application of 2015C Rebate Fund To ensure proper compliance with the tax covenants contained in the Seventh Supplement, the District will establish and will maintain a fund separate from any other fund or account established and maintained under the Seventh Supplement or under the Resolution to be known as the Imperial Irrigation District Electric System Refunding Revenue Bonds, 2015C Rebate Fund. All money at any time deposited in the 2015C Rebate Fund in accordance with the provisions of the Tax Certificate will be held by the Treasurer for the account of the District in trust for payment to the federal government of the United States of America, and neither the District nor the Owner of any 2015C Bonds will have any rights in or claim to such money. All amounts deposited into or on deposit in the 2015C Rebate Fund will be governed by the Resolution and the Seventh Supplement and by the Tax Certificate. The Treasurer will invest all amounts held in the 2015C Rebate Fund in accordance with the Resolution and the Tax Certificate. Money will not be transferred from the 2015C Rebate Fund except in accordance with the Resolution and the Tax Certificate. The 2015C Rebate Fund and the amounts on deposit therein will not be subject to the pledge of the Resolution for the benefit of the Owners of the 2015C Bonds D-23

190 Tax Covenants In order to maintain the exclusion from gross income of the interest on the 2015C Bonds for federal income tax purposes, the District covenants to comply with each applicable requirement of Section 103 and Sections 141 through 150 of the Code and the Regulations promulgated pursuant thereto and the District agrees to comply with the covenants contained in, and the instructions given pursuant to, the Tax Certificate. Definitions PENSION BONDS INDENTURE Maintenance and Operation Costs means the reasonable and necessary costs paid or incurred by the District for maintaining and operating the Utility System, including all payments of debt service on the Pension Bonds; provided, that the term Maintenance and Operation Costs shall in all cases be construed consistent with the District s existing obligations under the Installment Purchase Contracts and the Refunding Bonds. Plan means the Imperial Irrigation District Employee Pension Plan. Trustee means BNY Western Trust Company, a state banking corporation duly organized and existing under and by virtue of the laws of the State of California, and authorized to accept and execute trusts of the character herein set forth, at its principal corporate trust office, acting in its capacity as trustee under and pursuant hereto, and its successors or assigns, or any other bank or trust company or national banking association having its principal corporate trust office in Los Angeles, California, which may at any time be substituted in its place as provided in the Pension Bonds Indenture. Utility System means all electric generation, transmission and distribution facilities and all general plant facilities related thereto now owned by the District, together with all other properties, structures or works for the generation, transmission and distribution of electricity hereafter acquired and constructed by the District and determined to be a part of the Utility System, including all contractual rights for electricity, and all additions, betterments, extensions or improvements to such facilities, properties, structures or works or any part thereof hereafter acquired and constructed; and all facilities for obtaining, storing and delivering water and related facilities for the disposition of drainage water now owned or operated by the District, together with all other properties, structures or works for obtaining, storing and delivering water and related facilities for the disposition of drainage water hereafter acquired and constructed by the District and determined to be a part of the Utility System, whether located within or without the District, and all improvements to such facilities, properties, structures or works or any part thereof hereafter acquired or constructed; provided, that the term Utility System shall in all cases be construed consistent with the District s existing obligations under the Installment Purchase Contracts and the Refunding Bonds. Utility System Revenues means all gross income and revenue received or receivable by the District from the ownership or operation of the Utility System, determined in accordance with Generally Accepted Accounting Principles, including all rates and charges received by the District for the services provided by the Utility System and all proceeds of insurance covering business interruption loss relating to the Utility System and all other income and revenue howsoever derived by the District from the ownership or operation of the Utility System or arising from the Utility System, but excluding refundable deposits made to establish credit and advances or contributions in aid of construction and line extension fees; provided, that the term Utility System Revenues shall in all cases be construed consistent with the District s existing obligations under the Installment Purchase Contracts and the Refunding Bonds. D-24

191 Covenants Against Encumbrances. The District will not make any pledge of or place any lien on the Utility System Revenues except as provided herein; provided, that the District may at any time, or from time to time, issue evidences of indebtedness (the payment of which shall be subordinate in all respects to the payment of the Pension Bonds as provided herein) for any lawful purpose of the District which are payable from and secured by a pledge of and lien on any money deposited in the General Fund from the Utility System Revenues. Against Sale or Other Disposition of the Utility System. The District will not sell, lease or otherwise dispose of the Utility System any part thereof essential to the proper operation of the Utility System or to the maintenance of the Utility System Revenues, and the District will not enter into any agreement or lease which impairs the operation of the Utility System or any part thereof necessary to secure adequate Utility System Revenues for the payment of the Pension Bonds, or which would otherwise impair the rights of the Owners with respect to the Utility System Revenues or the operation of the Utility System; provided, that any real or personal property of the Utility System which has become nonoperative or which is not needed for the efficient and proper operation of the Utility System, or any material or equipment of the Utility System which has become worn out, may be sold if such sale will not materially reduce the Utility System Revenues. Against Competitive Facilities. The District will not, to the extent permitted by law, acquire, construct, maintain or operate and will not, to the extent permitted by law and within the scope of its powers, permit any other public or private agency, corporation, district or political subdivision or any person whomsoever to acquire, construct, maintain or operate within the District any utility system competitive with the Utility System; provided, that nothing contained herein shall prevent the District from permitting other parties to sell electricity to retail customers within the area currently served by the Utility System. Maintenance and Operation of the Utility System. The District will maintain and preserve the Utility System in good repair and working order at all times and will operate the Utility System in an efficient and economical manner and will pay all Maintenance and Operation Costs as they become due and payable. On or before the first day of each Fiscal Year, the District will adopt a budget approved by the Board of Directors setting forth the estimated Maintenance and Operation Costs for such Fiscal Year, which budget may be amended at any time during such Fiscal Year. Payment of Claims. The District will pay and discharge any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien on the Utility System Revenues or any part thereof or on any funds in the hands of the District prior to or superior to the lien of the Pension Bonds or which might impair the security of the Pension Bonds; provided, that nothing herein contained shall require the District to make any such payments so long as the District in good faith shall contest the validity of any such claims. Compliance with Contracts. The District will comply with, keep, observe and perform all agreements, conditions, covenants and terms, express or implied, required to be performed by it contained in all contracts for the use of the Utility System and all other contracts affecting or involving the Utility System to the extent that the District is a party thereto. Payment of Taxes and Compliance with Governmental Regulations. The District will pay and discharge all taxes, assessments and other governmental charges which may hereafter be lawfully imposed upon the Utility System or any part thereof or upon the Utility System Revenues when the same shall become due. The District will duly observe and conform with all valid regulations and requirements D-25

192 of any governmental authority relative to the operation of the Utility System or any part thereof, but the District shall not be required to comply with any regulations or requirements so long as the validity or application thereof shall be contested in good faith. Amount of Rates and Charges. The District will fix, prescribe and collect rates and charges for the services provided by the Utility System which are reasonably fair and nondiscriminatory and which will be at least sufficient to yield Utility System Revenues during each Fiscal Year equal to one hundred per cent (100%) of the Maintenance and Operation Costs for such Fiscal Year. The District may make adjustments from time to time in such rates and charges and may make such classification thereof as it deems necessary, but shall not reduce the rates and charges then in effect unless the Utility System Revenues from such reduced rates and charges will at all times be sufficient to meet the requirements of this section. Collection of Rates and Charges. The District will have in effect at all times rules and regulations requiring each consumer or customer located on any premises connected with the Utility System to pay the rates and charges applicable to the services provided by the Utility System to such premises and providing for the billing thereof and for a due date and a delinquency date for each bill, and in each case where such bill remains unpaid in whole or in part after it becomes delinquent, the District will enforce the collection procedures contained in such rules and regulations. To the extent permitted by law, the District will not permit any part of the Utility System or any facility thereof to be used or taken advantage of free of charge by any corporation, firm or person, or by any public agency (including the United States of America, the State of California and any city, county, district, political subdivision, public corporation or agency of any thereof); provided, that the District may without charge use the services provided by the Utility System. Prosecution and Defense of Suits. The District will defend against every suit, action or proceeding at any time brought against the Trustee upon any claim to the extent involving the failure of the District to fulfill its obligations hereunder; provided, that the Trustee or any affected Owner at its election may appear in and defend any such suit, action or proceeding. The District, to the extent permitted by law, will indemnify and hold harmless the Trustee against any and all liability claimed or asserted by any person to the extent arising out of such failure by the District, and will indemnify and hold harmless the Trustee against any attorney s fees or other expenses which it may incur in connection with any litigation to which it may become a party by reason of its actions hereunder, except for any loss, cost, damage or expense resulting from the active or passive negligence, willful misconduct or breach of duty by the Trustee. Notwithstanding any contrary provision hereof, this covenant shall remain in full force and effect even though all Pension Bonds secured hereby have been fully paid and satisfied. Defaults and Remedies Events of Default. Each of the following defaults constitute an Event of Default under the Pension Bonds Indenture: (a) default in the due and punctual payment of the interest on any Bond when and as the same shall become due and payable; (b) default in the due and punctual payment of the principal of or the payment of any sinking fund account payment for any Bond when and as the same shall become due and payable, whether at maturity as therein expressed, by declaration or otherwise; (c) default by the District in the observance or performance of any of the other agreements, conditions, covenants or terms on its part contained herein or in the Pension Bonds, and such default shall have continued for a period of thirty (30) days after the District shall have been given notice in writing of such default by the Trustee; provided, that such default shall not constitute an Event of Default hereunder if the District shall commence to cure such default within such thirty (30)-day period and thereafter diligently and in good faith shall proceed to cure such default within a reasonable period of time; or (d) if the District shall file a petition or answer seeking reorganization or arrangement under the federal bankruptcy D-26

193 laws or any other applicable law of the United States of America or the State of California, or if a court of competent jurisdiction shall approve a petition, filed with or without the consent of the District, seeking reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or the State of California, or if, under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction shall assume custody or control of the District or of the whole or any substantial part of its property. Remedies. In each and every such case during the continuance of such Event of Default, the Trustee, with the prior written consent of the Bond Insurer, may, and upon the written request of the owners of not less than twenty-five per cent (25%) in aggregate principal amount of the Pension Bonds at the time Outstanding and with the prior written consent of the Bond Insurer or at the direction of the Bond Insurer (as defined in the Pension Bonds Indenture), shall, by notice in writing to the District and the bond insurer, declare the principal of all of the Pension Bonds then Outstanding and the interest accrued thereon to be immediately due and payable, and upon any such declaration the same shall become and shall be due and payable, anything contained herein or in the Bonds to the contrary notwithstanding. Any owner shall have the right for the equal benefit and protection of all owners similarly situated: (a) by mandamus or other suit or proceeding at law or in equity to enforce his rights against the District and any of the officers and employees of the District, and to compel the District or any such officers or employees to perform and carry out their duties under the Law and their agreements and covenants with the Owners as provided herein; (b) by suit in equity to enjoin any acts or things which are unlawful or violate the rights of the Owners; or (c) upon the happening of an Event of Default, by a suit in equity to require the District and its officers and employees to account for the Utility System Revenues as the trustee of an express trust. Remedies under the Pension Bonds Indenture are controlled by Ambac Assurance Corporation as insurer of the Pension Bonds. D-27

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195 APPENDIX E PROPOSED FORM OF CONTINUING DISCLOSURE CERTIFICATE This Continuing Disclosure Certificate (the Disclosure Certificate ) is executed and delivered by the Imperial Irrigation District (the District ) in connection with the issuance and delivery of $161,175,000 Imperial Irrigation District Electric System Refunding Revenue Bonds, Series 2015C (Tax- Exempt) (the 2015C Bonds ) and $8,875,000 Imperial Irrigation District Electric System Refunding Revenue Bonds, Series 2015D (Federally Taxable New Clean Renewable Energy Bonds Direct Payment) (the 2015D Bonds, and together with the 2015C Bonds, the Bonds ). The Bonds are being issued and delivered pursuant to Resolution No (the Master Resolution ), as amended and supplemented (collectively, the Resolution ). The District covenants and agrees as follows: SECTION 1. Purpose of this Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the District for the benefit of the Holders and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with the Rule. SECTION 2. Definitions. In addition to the definitions set forth in the Resolution, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: Annual Report shall mean any Annual Report provided by the District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. Beneficial Owner shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes. date. Fiscal Year shall mean the one-year period ending on December 31 of each year or such other Holder means a registered owner of the Bonds. Listed Events shall mean any of the events listed in Section 5(a) of this Disclosure Certificate. MSRB shall mean the Municipal Securities Rulemaking Board established pursuant to Section 15B(b)(1) of the Securities Exchange Act of 1934 or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to the Rule. Until otherwise designated by the MSRB or the Securities and Exchange Commission, filings with the MSRB are to be made through the Electronic Municipal Marketplace Access (EMMA) website of the MSRB, currently located at Participating Underwriter shall mean any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds. Rule shall mean Rule 15c2-12 adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. E-1

196 SECTION 3. Provision of Annual Reports. (a) The District shall provide not later than July 31 of each year (beginning in July 31, 2016) to MSRB an Annual Report relating to the immediately preceding Fiscal Year which is consistent with the requirements of Section 4 of this Disclosure Certificate, which Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Certificate. (b) If the District is unable to provide to MSRB an Annual Report by the date required in subsection (a), the District shall send to MSRB a notice in substantially the form attached hereto as Exhibit A. SECTION 4. Content of Annual Reports. The Annual Report shall contain or incorporate by reference the following: 1. The audited financial statements of the District s Electric System for the most recently completed Fiscal Year, prepared in accordance with generally accepted accounting principles for governmental enterprises as prescribed from time to time by any regulatory body with jurisdiction over the District and by the Governmental Accounting Standards Board; 2. Updated information comparable to the information in the table entitled Historical Average Electric Revenues; 3. Updated information comparable to the information in the table entitled ELECTRIC RATE COMPARISON BY MONTHLY BILL; 4. Updated information comparable to the information in the table entitled CUSTOMERS, ENERGY SALES, REVENUES AND DEMAND; and 5. Updated information comparable to the information in the table entitled SUMMARY OF HISTORICAL OPERATING RESULTS ENERGY DEPARTMENT. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the District or related public entities, which are available to the public on the MSRB s Internet Web site or filed with the Securities and Exchange Commission. SECTION 5. Reporting of Listed Events. The District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds (in each case to the extent applicable) in a timely manner not more than ten business days after the occurrence of the event: 1. principal or interest payment delinquencies; 2. non-payment related defaults, if material; 3. modifications to the rights of the Holders, if material; 4. optional, contingent or unscheduled calls, if material, and tender offers; 5. defeasances; 6. rating changes; E-2

197 7. adverse tax opinions or the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the Bonds or other material events affecting the tax status of the Bonds; 8. unscheduled draws on the debt service reserves reflecting financial difficulties; 9. unscheduled draws on the credit enhancements reflecting financial difficulties; 10. substitution of the credit or liquidity providers or their failure to perform; 11. release, substitution or sale of property securing repayment of the Bonds, if material; 12. bankruptcy, insolvency, receivership or similar proceedings of the District, which shall occur as described below; 13. appointment of a successor or additional trustee or the change of name of a trustee, if material, or; 14. the consummation of a merger, consolidation, or acquisition involving the District or the sale of all or substantially all of the assets of the Electric System of the District other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material. For these purposes, any event described in item 12 of this Section 5 is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the District in a proceeding under the United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the District, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the District. SECTION 6. Customarily Prepared and Public Information. Upon request, the District shall provide to any person financial information and operating data regarding the District which is customarily prepared by the District and is publicly available. SECTION 7. Termination of Obligation. The District s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the E-3

198 Bonds. If such termination occurs prior to the final maturity of the Bonds, the District shall give notice of such termination in the same manner as for a Listed Event under Section 5. SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the District may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that, in the opinion of nationally recognized bond counsel, such amendment or waiver is permitted by the Rule. In the event of any amendment or waiver of a provision of this Disclosure Certificate, the District shall give notice of such amendment or waiver in the same manner as for a Listed Event under Section 5. SECTION 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the District chooses to include any information in any notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the District shall not thereby have any obligation under this Disclosure Certificate to update such information or include it in any future notice of occurrence of a Listed Event. SECTION 10. Default. In the event of a failure of the District to comply with any provision of this Disclosure Certificate, any Holder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Resolution, and the sole remedy under this Disclosure Certificate in the event of any failure of the District to comply with this Disclosure Certificate shall be an action to compel performance. No Holder or Beneficial Owner of the Bonds may institute such action, suit or proceeding to compel performance unless they shall have first delivered to the District satisfactory written evidence of their status as such, and a written notice of and request to cure such failure, and the District shall have refused to comply therewith within a reasonable time. SECTION 11. Filings with the MSRB. All financial information, operating data, financial statements, notices, and other documents provided to MSRB in accordance with this Disclosure Certificate shall be provided in an electronic format prescribed by MSRB and shall be accompanied by identifying information as prescribed by MSRB. SECTION 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. Date: January 21, 2016 Chief Financial Officer E-4

199 EXHIBIT A NOTICE TO MSRB OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Name of Issue: IMPERIAL IRRIGATION DISTRICT ELECTRIC SYSTEM REFUNDING REVENUE BONDS, SERIES 2015C (TAX- EXEMPT)/SERIES 2015D (FEDERALLY TAXABLE NEW CLEAN RENEWABLE ENERGY BONDS DIRECT PAYMENT) Date of Issuance: January, 2016 NOTICE IS HEREBY GIVEN that the District has not provided to the MSRB an Annual Report with respect to the above-named Bonds as required by the Continuing Disclosure Certificate, dated as of January 21, The District anticipates that the Annual Report will be filed by. Dated: IMPERIAL IRRIGATION DISTRICT By E-5

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201 APPENDIX F PROPOSED FORM OF OPINION OF BOND COUNSEL Imperial Irrigation District Imperial, California [Closing Date] Imperial Irrigation District Electric System Refunding Revenue Bonds, Series 2015C (Tax-Exempt)/ Series 2015D (Federally Taxable New Clean Renewable Energy Bonds Direct Payment) (Final Opinion) Ladies and Gentlemen: We have acted as bond counsel to the Imperial Irrigation District (the District ) in connection with the issuance of $161,175,000 aggregate principal amount of Electric System Refunding Revenue Bonds, Series 2015C (Tax-Exempt) (the Series 2015C Bonds ) and $8,875,000 aggregate principal amount of Electric System Refunding Revenue Bonds, Series 2015D (Federally Taxable New Clean Renewable Energy Bonds Direct Payment) (the Series 2015D Bonds, and together with the Series 2015C Bonds, the Bonds ), issued in accordance with Article 11 of Chapter 3 of Division 2 of Title 5 of the Government Code of the State of California, and pursuant to Resolution No , of the Board of Directors of the District (the Board ) adopted on July 8, 2008 (the Master Resolution ), as amended and supplemented, including as amended and supplemented by Resolution No adopted by the Board on June 17, 2015 (the Seventh Supplemental Resolution ) and Resolution No adopted by the Board on November 17, 2015 (the Eighth Supplemental Resolution ) (as so amended and supplemented, the Resolution ). The Bank of New York Mellon Trust Company, N.A. (the Trustee ) will serve as Trustee for the Bonds pursuant to the Resolution. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Resolution. As bond counsel, we have examined copies certified to us as being true and complete copies of the proceedings of the District in connection with the issuance of the Bonds. We have also examined such certificates of officers of the District and others as we have considered necessary for the purposes of this opinion. Based upon the foregoing, we are of the opinion that: 1. The Bonds constitute valid and binding limited obligations of the District as provided in the Resolution, and are entitled to the benefits of the Resolution. 2. The Resolution has been duly adopted and executed by the District and constitutes the legally valid and binding obligation of the District, enforceable against the District in accordance with its terms. The Resolution creates a valid pledge, to secure the payment of principal of and interest on the Bonds, of the Revenues, after payment of Operation and Maintenance Expenses and amounts required to be paid and deposited with respect to the District s Pension Bonds, and other amounts held by the Trustee in the funds and accounts established pursuant to the Resolution, subject to the provisions of the Resolution permitting the application thereof for other purposes and on the terms and conditions set forth therein. F-1

202 3. Under existing law, interest on the Bonds is exempt from personal income taxes of the State of California and, assuming compliance with the covenant described below, interest on the Series 2015C Bonds is excluded pursuant to section 103(a) of the Internal Revenue Code of 1986 (the Code ) from the gross income of the owners thereof for federal income tax purposes. The Series 2015C Bonds are not specified private activity bonds within the meaning of section 57(a)(5) of the Code and, therefore, the interest on the Series 2015C Bonds is not treated as an item of tax preference for purposes of computing the alternative minimum tax imposed by section 55 of the Code; however, the receipt or accrual of interest on the Series 2015C Bonds owned by a corporation may affect the computation of its alternative minimum taxable income, upon which the alternative minimum tax is imposed. The Code imposes certain requirements that must be met subsequent to the issuance and delivery of the Series 2015C Bonds for interest thereon to be and remain excluded from the gross income of the owners thereof for federal income tax purposes. Noncompliance with such requirements could cause the interest on the Series 2015C Bonds to be included in gross income retroactive to the date of issue of the Series 2015C Bonds. The District has covenanted in the Resolution to maintain the exclusion of interest on the Series 2015C Bonds from the gross income of the owners thereof for federal income tax purposes. Our opinions expressed in paragraph 3 above are rendered in reliance on representations and certifications of the District made in a Tax Certificate dated the date hereof pertaining to the use, expenditure, and investment of the proceeds of the Series 2015C Bonds. Except as stated in paragraph 3 above, we express no opinion as to any federal or state tax consequences of the ownership or disposition of the Bonds. Furthermore, we express 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 bond counsel. The opinions expressed in paragraphs 1 and 2 above are qualified to the extent the enforceability of the Bonds and the Resolution may be limited by applicable bankruptcy, insolvency, debt adjustment, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors rights generally or as to the availability of any particular remedy. The enforceability of the Bonds and the Resolution is subject to the effect of general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing, to the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law, and to the limitations on legal remedies against governmental entities in California. No opinion is expressed herein on the accuracy, completeness or sufficiency of the Official Statement or other offering material relating to the Bonds. Our opinions are based on existing law, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may hereafter come to our attention or to reflect any changes in any law that may hereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service; rather, such opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above. Very truly yours, F-2

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204 IMPERIAL IRRIGATION DISTRICT Electric System Refunding Revenue Bonds, Series 2015C (Tax-Exempt) and Series 2015D (Federally Taxable New Clean Renewable Energy Bonds Direct Payment)