NEW ISSUE - BOOK ENTRY ONLY

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1 NEW ISSUE - BOOK ENTRY ONLY Ratings: S&P: AAA Moody s: Aa2 In the opinion of Kronick, Moskovitz, Tiedemann & Girard, a Professional Corporation, Special Counsel, based upon an analysis of existing laws, regulations, rulings, and court decisions, and assuming, among other things, the accuracy of certain representations and compliance with certain covenants, the interest component of the 2016 Installment Payments paid by the Agency under the Installment Purchase Contract and received by the owners of the 2016 Certificates is excludable from gross income for federal income tax purposes and is exempt from State of California personal income taxes. Special Counsel is also of the opinion that such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, such interest is taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on certain corporations. Special Counsel expresses no opinion regarding any other tax consequences relating to ownership or disposition of the 2016 Certificates or the accrual or receipt of such interest. See LEGAL MATTERS - Tax Matters. $24,840,000 PLACER COUNTY WATER AGENCY WATER REVENUE CERTIFICATES OF PARTICIPATION SERIES 2016 REFUNDING Evidencing and Representing Proportionate Interests of the Registered Owners Thereof in Series 2016 Installment Payments to be made by PLACER COUNTY WATER AGENCY Dated: Date of Delivery Due: July 1, as shown on the inside cover 2016 Certificates. The certificates of participation captioned above (the 2016 Certificates ) evidence and represent proportionate interests of the Owners thereof in installment payments (the 2016 Installment Payments ), which include principal and interest components, to be made by the Placer County Water Agency (the Agency ) under an Installment Purchase Contract, dated as of May 1, 2005, as previously supplemented and as supplemented by a Fifth Supplemental Installment Purchase Contract, dated as of May 1, 2016 (the Installment Purchase Contract ), by and between the Agency and the Placer County Water Agency Public Facilities Corporation (the Corporation ). The 2016 Certificates are being executed and delivered under a Trust Agreement, dated as of May 1, 2005, as previously supplemented and as supplemented by a Fifth Supplement to Trust Agreement, dated as of May 1, 2016 (the Trust Agreement ), by and between the Agency, the Corporation and The Bank of New York Mellon Trust Company, N.A., as trustee (the Trustee ) to provide funds, together with other available funds of the Agency, to (i) pay and prepay a portion of the outstanding 2007 Certificates (described herein), and (ii) pay certain costs incurred in connection with the execution and delivery of the 2016 Certificates. The 2016 Certificates will be initially delivered in denominations of $5,000 or any integral multiple thereof only in book-entry form, registered to Cede & Co. as nominee of The Depository Trust Company, New York, New York ( DTC ), which will act as securities depository of the 2016 Certificates. Interest and principal represented by the 2016 Certificates are payable by the Trustee to DTC, which remits such payments to its Participants for subsequent distribution to the beneficial owners of the 2016 Certificates. See APPENDIX F DTC and the Book-Entry Only System. Interest with respect to the 2016 Certificates will be payable on January 1 and July 1 of each year, commencing July 1, Security for the 2016 Certificates. The obligation of the Agency to make the 2016 Installment Payments is a special obligation of the Agency payable from Water Revenues of the Agency s Water System and certain funds and accounts created under the Installment Purchase Contract and the Trust Agreement. See SECURITY FOR THE 2016 CERTIFICATES. Existing and Future Parity Debt. The 2016 Installment Payments have a claim on Water Revenues that is on parity with the installment payments payable by the Agency with respect to its 2013 Installment Payments, 2008 Installment Payments and 2007 Installment Payments (in each case, as defined in this Official Statement) and certain other obligations of the Agency. See SECURITY FOR THE 2016 CERTIFICATES Source of Payment for the 2016 Installment Payments and Existing Parity Liens on Water Revenues, and WATER SYSTEM FINANCES Outstanding Water Division Obligations. The Agency has covenanted in the Installment Purchase Contract that it will not issue any bonds, notes or other obligations, including refunding obligations, that are secured by a pledge and lien on Water Revenues that is senior to the pledge and lien on Water Revenues contained in the Installment Purchase Contract; however, under the Installment Purchase Contract, the Agency may issue additional bonds, notes or other obligations payable from Water Revenues on parity with the 2016 Installment Payments. See SECURITY FOR THE 2016 CERTIFICATES Issuance of Parity Debt. Prepayment Prior to Maturity. The 2016 Certificates are subject to optional and extraordinary mandatory prepayment prior to maturity as described in this Official Statement. See THE 2016 CERTIFICATES Prepayment Provisions. Not a Debt of Agency or State. The obligation of the Agency to make the 2016 Installment Payments does not constitute a debt of the Agency or the State of California or of any political subdivision thereof within the meaning of any constitutional or statutory debt limit or restriction, nor does it constitute an obligation for which the Agency, the State of California or any political subdivision thereof is obligated to levy or pledge any form of taxation or for which the Agency, the State of California or any political subdivision thereof levied or pledged any form of taxation. Proposed Amendments, and Consent Thereto. Purchasers of the 2016 Certificates will be deemed to have consented and agreed to certain amendments to the Trust Agreement and Installment Purchase Contract relating to the Certificate Reserve Requirement for the 2016 Certificates. See SECURITY FOR THE 2016 CERTIFICATES Proposed Amendments to Trust Agreement and Installment Purchase Contract and APPENDIX H herein. This cover page contains information for reference only. Investors must read the entire Official Statement to obtain information essential in making an informed investment decision. See CERTIFICATE OWNERS RISKS for a discussion of factors that should be considered, in addition to the other matters set forth in this Official Statement, in evaluating the investment quality of the 2016 Certificates. The 2016 Certificates were sold at competitive sale held on Tuesday, May 3, 2016, in accordance with an Official Notice of Sale related thereto, to JPMorgan Securities LLC (the Purchaser ). The 2016 Certificates will be offered when, as and if executed and delivered and received by the Purchaser, subject to the approval as to their legality by Kronick, Moskovitz, Tiedemann & Girard, a Professional Corporation, Sacramento, California, Special Counsel. In addition, certain legal matters will be passed upon for the Agency and the Corporation by Kronick, Moskovitz, Tiedemann & Girard, a Professional Corporation and Jones Hall, A Professional Law Corporation, San Francisco, California, which is serving as Disclosure Counsel to the Agency. It is anticipated that the 2016 Certificates in definitive form will be available for delivery through the facilities of DTC on or about May 19, Dated: May 3, 2016

2 MATURITY SCHEDULE $24,840,000 Serial Certificates Maturity (July 1) Principal Amount Interest Rate Yield CUSIP No. (726030) 2018 $785, % 0.820% GQ , GR , GS , GT , GU , GV ,045, GW ,095, GX ,150, GY ,210, C GZ ,270, C HA ,335, C HB ,400, C HC ,455, HD ,495, HE ,530, HF ,570, HG ,610, HH ,660, HJ ,705, HK8 C : Priced to the first optional par prepayment date of July 1, Copyright 2016, American Bankers Association. CUSIP data in this Official Statement are provided by Standard & Poor s CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc., and are provided for convenience of reference only. None of the Agency, Corporation or Purchaser assumes any responsibility for the accuracy of the CUSIP data.

3 PLACER COUNTY WATER AGENCY PLACER COUNTY WATER AGENCY PUBLIC FACILITIES CORPORATION BOARD OF DIRECTORS Michael Lee, District 3, Board Chair Robert Dugan, District 4, Board Vice Chair Gray Allen, District 1 Primo Santini, District 2 Joshua Alpine, District 5 AGENCY STAFF Einar Maisch, P.E., General Manager Joseph Parker, CPA, Director of Financial Services Brent Smith, P.E., Director of Technical Services SPECIAL COUNSEL AND AGENCY COUNSEL Kronick, Moskovitz, Tiedemann & Girard, A Professional Corporation Sacramento, California TRUSTEE AND ESCROW AGENT The Bank of New York Mellon Trust Company, N.A. Los Angeles, California MUNICIPAL ADVISOR Montague DeRose and Associates, LLC Westlake Village, California VERIFICATION AGENT Grant Thornton LLP Minneapolis, Minnesota DISCLOSURE COUNSEL Jones Hall, A Professional Law Corporation San Francisco, California

4 GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT Use of Official Statement. This Official Statement is submitted in connection with the offer and sale of the 2016 Certificates referred to in this Official Statement and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not to be construed as a contract with the purchasers of the 2016 Certificates. Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure by the Agency in any press release and in any oral statement made with the approval of an authorized officer of the Agency or any other entity described or referenced in this Official Statement, the words or phrases will likely result, are expected to, will continue, is anticipated, estimate, project, forecast, expect, intend and similar expressions identify forward looking statements within the meaning of the Private Securities Litigation Reform Act of Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material. The information and expressions of opinion in this Official Statement are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, give rise to any implication that there has been no change in the affairs of the Agency or any other entity described or referenced in this Official Statement since the date hereof. The information and expressions of opinions in this Official Statement 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 Agency or any other entity described or referenced in this Official Statement since the date hereof. All summaries of the documents referred to in this Official Statement are made subject to the provisions of such documents, respectively, and do not purport to be complete statements of any or all of such provisions. Limit of Offering. No dealer, broker, salesperson or other person has been authorized by the Agency to give any information or to make any representations in connection with the offer or sale of the 2016 Certificates other than those contained in this Official Statement and if given or made, such other information or representation must not be relied upon as having been authorized by the Agency or the Purchaser. 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 2016 Certificates by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. Stabilization of Prices. In connection with this offering, the Purchaser may overallot or effect transactions that stabilize or maintain the market price of the 2016 Certificates at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Purchaser may offer and sell the 2016 Certificates to certain dealers and others at prices lower than the public offering prices set forth on the cover page hereof and said public offering prices may be changed from time to time by the Purchaser. THE 2016 CERTIFICATES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXCEPTION FROM THE REGISTRATION REQUIREMENTS CONTAINED IN SUCH ACT. THE 2016 CERTIFICATES HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. Website Not Incorporated. The Agency maintains a website; however, the information it contains is not part of this Official Statement and should not be relied on in making investment decisions with respect to the 2016 Certificates.

5 *EUREKA *REDDING PLACER COUNTY AUBURN OSACRAMENTO SAN FRANCISCO MONTEREY LOS ANGELES SAN DIEGO

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7 TABLE OF CONTENTS Page INTRODUCTION... 1 THE FINANCING PLAN... 7 Refunding of Certain 2007 Certificates... 7 Estimated Sources and Uses of Proceeds... 8 THE 2016 CERTIFICATES... 9 General... 9 Prepayment Provisions... 9 Installment Payment Schedule SECURITY FOR THE 2016 CERTIFICATES Nature of the 2016 Certificates Source of Payment for the 2016 Installment Payments No Existing or Future Senior Liens on Water Revenues Existing Parity Liens on Water Revenues Rate Covenant Certificate Reserve Fund Rate Stabilization and Capital Improvement Fund Issuance of Parity Debt Proposed Amendments to Trust Agreement and Installment Purchase Contract THE AGENCY History and Purpose Organization Board of Directors and Management Employee Relations Insurance Retirement Program Other Post-Employment Benefits THE WATER SYSTEM Overview Service Area Zones Water Supply Service Demand and Customer Base Water Facilities Five-Year Capital Investment Program WATER SYSTEM FINANCES Financial Statements Revenues Water Sales Billings and Collections Rates and Charges in General Treated Water Rates and Charges for Residential Water Customers Water Connection Charge (WCC) Raw Water Rates and Charges for Irrigation Service Outstanding Water Division Obligations Historical Revenues, Expenditure and Debt Service Coverage Projected Revenues, Expenditures and Debt Service Coverage Agency s Investment Policy and Recent Results CERTIFICATE OWNERS RISKS CONSTITUTIONAL AND STATUTORY LIMITATIONS Article XIIIB of the California Constitution... 60

8 Articles XIIIC and XIIID of the California Constitution Future Initiatives LEGAL MATTERS Certain Legal Matters Tax Matters Absence of Litigation CONCLUDING INFORMATION Continuing Disclosure Ratings Underwriting Escrow Verification Municipal Advisor Miscellaneous APPENDIX A APPENDIX B APPENDIX C APPENDIX D APPENDIX E APPENDIX F APPENDIX G APPENDIX H PLACER COUNTY GENERAL DEMOGRAPHIC INFORMATION SUMMARY OF PRINCIPAL LEGAL DOCUMENTS FORM OF OPINION OF SPECIAL COUNSEL FORM OF CONTINUING DISCLOSURE CERTIFICATE AUDITED FINANCIAL STATEMENTS FOR THE AGENCY FOR THE YEAR ENDED DECEMBER 31, 2015 DTC AND THE BOOK-ENTRY ONLY SYSTEM DEBT SERVICE RESERVE POLICY PROPOSED AMENDMENTS TO TRUST AGREEMENT AND INSTALLMENT PURCHASE CONTRACT

9 OFFICIAL STATEMENT $24,840,000 PLACER COUNTY WATER AGENCY WATER REVENUE CERTIFICATES OF PARTICIPATION SERIES 2016 REFUNDING INTRODUCTION General This Official Statement, which includes the cover page and appendices hereto, provides certain information concerning the sale and delivery of the Placer County Water Agency Water Revenue Certificates of Participation, Series 2016 Refunding (the 2016 Certificates ). Capitalized terms not otherwise defined in this Official Statement have the meaning given to them in the Trust Agreement. See APPENDIX B Summary of Principal Legal Documents. Investors must read the entire Official Statement to obtain information essential in making an informed investment decision. See CERTIFICATE OWNERS RISKS for a discussion of factors that should be considered, in addition to the other matters set forth in this Official Statement, in evaluating the investment quality of the 2016 Certificates. The 2016 Certificates The 2016 Certificates evidence and represent proportionate interests of the Owners thereof in installment payments (the 2016 Installment Payments ), which include principal and interest components, to be made by the Placer County Water Agency (the Agency ) under an Installment Purchase Contract, dated as of May 1, 2005, as previously supplemented and as supplemented by the Fifth Supplemental Installment Purchase Contract, dated as of May 1, 2016 (the Installment Purchase Contract ), between the Agency and the Placer County Water Agency Public Facilities Corporation (the Corporation ). The 2016 Certificates are being executed and delivered under a Trust Agreement, dated as of May 1, 2005, as previously supplemented and as supplemented by a Fifth Supplement to Trust Agreement, dated as of May 1, 2016 (the Trust Agreement ), between the Agency, the Corporation and The Bank of New York Mellon Trust Company, N.A., as trustee (the Trustee ) to provide funds, together with other available funds of the Agency, to (i) pay and prepay a portion of the outstanding 2007 Certificates (described herein), and (ii) pay certain costs incurred in connection with the execution and delivery of the 2016 Certificates. The 2016 Certificates are being executed and delivered in denominations of $5,000 or any integral multiple thereof. Interest will accrue on the principal components of each 2016 Certificate at the applicable interest rate (as set forth on the inside cover hereof) from its date of delivery until its date of maturity or prior prepayment, with interest becoming payable on each January 1 and July 1, commencing July 1, The 2016 Certificates are subject to prepayment as described in this Official Statement. See THE 2016 CERTIFICATES Prepayment Provisions.

10 The Agency and Water System Agency. The Agency was created in 1957 by a special act of the California State Legislature, and its jurisdiction is conterminous with the borders of Placer County. It was formed for the purpose of developing and operating water facilities in Placer County. The Agency currently employs approximately 220 regular employees that are grouped among three divisions: Agency-Wide (Administration), Water Division and Power Division. See THE AGENCY and THE WATER SYSTEM in this Official Statement for a more complete description of the Agency. The Agency acquired its first and primary water system in With subsequent acquisitions and growth, it has become the largest water purveyor in Placer County, serving more than 39,000 water accounts. Water System. The Installment Purchase Contract and 2016 Certificates relate to only a portion of the Agency s total service area located within its Western Water System. This portion is divided into three zones that the Agency refers to as Zone 1, Zone 2 and Zone 3. Together, these zones are referred to in this Official Statement as the Water System. See SECURITY FOR THE 2016 CERTIFICATES. The area served by the Water System encompasses the cities of Auburn, Rocklin, Lincoln, Colfax, Loomis, portions of Roseville and the surrounding unincorporated areas, covering approximately 216 square miles in Placer County. Water Supply. The Agency obtains its water from the following sources: (i) Up to 100,400 acre-feet ( AF ) per year of water through a supply contract with Pacific Gas & Electric ( PG&E ) from the Yuba River and Bear River, through PG&E s Drum-Spaulding Unit Power System (the Drum-Spaulding Project ), that forms the basis of the supply for Zone 1 ( Western Water Supply Contract ); (ii) Up to 25,000 AF of water per year through a supply contract with PG&E, also from the Drum-Spaulding Project, for service to Zone 3 ( Zone 3 Water Supply Contract ); (iii) Up to 120,000 AF of water per year from appropriated water rights developed through construction in the 1960s of the Agency s Middle Fork Project on the American River ( Middle Fork Project ); (iv) Up to 35,000 AF of water per year from the U.S. Bureau of Reclamation s Central Valley Project ( Central Valley Project ); and (v) Up to 2,000 AF of water per year from wells in Western Placer County. These sources of supply are described in greater detail under THE WATER SYSTEM - Water Supply. 2

11 Financing Structure Installment Payments. The 2016 Certificates evidence and represent proportionate interests of the Owners thereof in the 2016 Installment Payments, which include principal and interest components, to be made by the Agency under the Installment Purchase Contract, between the Agency and the Corporation. The 2016 Certificates are being executed and delivered under the Trust Agreement, and the Corporation has assigned to the Trustee, for the benefit of the owners of the 2016 Certificates, certain of its rights, title and interest in and to the Installment Purchase Contract, including the right to receive 2016 Installment Payments and the right to enforce payment of 2016 Installment Payments when due. The 2016 Certificates are being issued to defease and prepay a portion (but not all) of the outstanding 2007 Certificates (defined herein). Water Revenues. In the Installment Purchase Contract, the Agency has pledged Water Revenues of the Water System to the payment of the 2016 Certificates and any Parity Debt (as such terms are defined in this Official Statement). The Installment Purchase Contract requires the Agency to make payments to the Trustee which, in the aggregate, are sufficient for the payment in full of all principal and interest with respect to the 2016 Certificates when due, or upon the earlier prepayment thereof. With the exception of moneys applied to pay costs of the execution and delivery of the 2016 Certificates, all net proceeds of the 2016 Certificates will be applied to the prepayment of a portion of the 2007 Installment Payments and a portion of the 2007 Certificates (as defined herein). See SECURITY FOR THE 2016 CERTIFICATES. No Senior Debt; Existing and Future Parity Debt; Rate Covenant No Existing or Future Senior Debt. The Agency previously had certain loans outstanding from the State of California with a claim on Water Revenues that would have been senior to the claim of the 2016 Installment Payments on Water Revenues (the Senior Loans ) and constituted Senior Obligations (as defined herein) under the Installment Purchase Contract. However, those Senior Loans have been repaid as of the date of this Official Statement and, accordingly, there are no obligations outstanding that are senior to the claim of the 2016 Installment Payments on Water Revenues. Furthermore, the Agency has covenanted in the Installment Purchase Contract that it will not issue any additional bonds, notes or other obligations that are secured by a pledge and lien on Water Revenues that is senior to the pledge and lien on Water Revenues contained in the Installment Purchase Contract. See SECURITY FOR THE 2016 CERTIFICATES No Existing or Future Senior Liens on Water Revenues. Existing Parity Debt. Under the Trust Agreement, the Agency has previously issued its Second Senior Water Revenue Certificates of Participation, Series 2007 (the 2007 Certificates ), a portion of which will be refunded by the 2016 Certificates, that are payable from installment payments under the Installment Purchase Contract (the 2007 Installment Payments ), its Second Senior Water Revenue Certificates of Participation, Series 2008 (the 2008 Certificates ) that are payable from installment payments under the Installment Purchase Contract (the 2008 Installment Payments ) and its Second Senior Water Revenue Certificates of Participation, Series 2013 Refunding (the 2013 Certificates ) that are payable from installment payments under the Installment Purchase Contract (the 2013 Installment Payments, and together with the 2007 Installment Payments, and the 2008 Installment Payments, the Parity Installment Payments ). The Parity Installment Payments are payable from Water Revenues on a parity with the 2016 Installment Payments. 3

12 The Agency also has outstanding certain loans that have a claim on Water Revenues that is on a parity with the 2016 Installment Payments (the Parity Loans ) and are described in detail under the heading entitled SECURITY FOR THE 2016 CERTIFICATES - Existing Parity Liens on Water Revenues. Future Parity Debt. Under the Installment Purchase Contract, the Agency may issue additional bonds, notes or other obligations payable from Water Revenues on parity with the 2016 Installment Payments and Parity Installment Payments. See SECURITY FOR THE 2016 CERTIFICATES Issuance of Parity Debt. Rate Covenant. Pursuant to the terms of the Installment Purchase Contract, the Agency has covenanted to fix, prescribe and collect rates and charges for the Agency s Water Service (i.e., water furnished, made available, or sold by the Water System) that will be at least sufficient to yield, during each Fiscal Year, Net Water Revenues that, together with other revenues of the Agency, are equal to 120% of the combined debt service on the 2007 Certificates remaining outstanding following issuance of the 2016 Certificates, the 2008 Certificates, the 2013 Certificates, the 2016 Certificates, the Parity Loans and any additional Parity Debt. See SECURITY FOR THE 2016 Certificates Rate Covenant. Prepayment Prior to Maturity The 2016 Certificates are subject to optional and extraordinary mandatory prepayment prior to maturity as described in this Official Statement. See THE 2016 CERTIFICATES Prepayment Provisions. Certificate Reserve Fund The 2016 Certificates will have the benefit of the Certificate Reserve Fund, which is a debt service reserve fund for the 2016 Certificates, the 2013 Certificates, the 2008 Certificates, the 2007 Certificates, and any future Parity Debt that is held by the Trustee and must be maintained at an amount equal to the Certificate Reserve Requirement, as defined herein. The Certificate Reserve Requirement is currently partially satisfied by a debt service reserve insurance policy, which was issued by Financial Security Assurance Inc. (now succeeded by Assured Guaranty Municipal Corp.) at the time of the execution and delivery of the 2007 Certificates, and which will remain on deposit in the Certificate Reserve Fund following execution and delivery of the 2016 Certificates in accordance with its terms. See APPENDIX G. No additional deposit will be made to the Certificate Reserve Fund in connection with the execution and delivery of the 2016 Certificates. See SECURITY FOR THE 2016 CERTIFICATES - Certificate Reserve Fund. The Proposed Amendments (defined below), if they become effective, would modify the definition of Certificate Reserve Requirement with respect to the 2016 Certificates and any future Series of Certificates (but not the 2007 Certificates, 2008 Certificates or 2013 Certificates). If this occurs, the owners of the 2016 Certificates would no longer be secured by the Certificate Reserve Fund. See Proposed Amendments to Trust Agreement below. Proposed Amendments to Trust Agreement and Installment Purchase Contract In connection with the execution and delivery of the 2016 Certificates, certain amendments are proposed to be made to the Trust Agreement and Installment Purchase Contract (collectively, the Proposed Amendments ), effective, in the case of the Trust Agreement amendments, upon the date that the Owners of 50% of aggregate principal of Certificates Outstanding consent thereto, and, in the case of the Installment Purchase Contract 4

13 amendments, upon the date that the Owners of 60% of aggregate principal of Certificates Outstanding consent thereto. The Proposed Amendments would amend and restate the definition of Certificate Reserve Requirement in the Trust Agreement for the 2016 Certificates and any future Series of Certificates, so that it means, as of any date of calculation, the amount specified in the Supplemental Trust Agreement that establishes the terms and provisions of such Series of Certificates, which amount shall not exceed the least of (i) Maximum Annual Debt Service on the Certificates of such Series Outstanding, (ii) 125% of Average Annual Debt Service on the Certificates of such Series Outstanding, and (iii) 10% of the initial proceeds of such Series of Certificates. The Fifth Supplement to Trust Agreement further states that if and when the Proposed Amendments to the Trust Agreement become effective, the Certificate Reserve Requirement for the 2016 Certificates will be reduced to $0. The Agency expects that if the Certificate Reserve Requirement for the 2016 Certificates is reduced to $0, a portion of the moneys on deposit in the Certificate Reserve Fund would be released, and may be used by the Agency for any lawful purpose, and the Owners of the 2016 Certificates would no longer be secured by the Certificate Reserve Fund. The Owners of the 2016 Certificates, by their purchase and acceptance of their Certificates, will be deemed to have consented and agreed to the Proposed Amendments. See SECURITY FOR THE 2016 CERTIFICATES Proposed Amendments to Trust Agreement and Installment Purchase Contract and APPENDIX H. Continuing Disclosure The Agency has covenanted for the benefit of the holders and beneficial owners of the 2016 Certificates to provide (i) certain financial information and operating data relating to the Agency by not later than six months following the end of the Agency s fiscal year (which fiscal year currently ends on December 31), and (ii) notices of the occurrence of certain enumerated events. The specific nature of the information to be contained in each annual report or event notice is provided in APPENDIX D Form of Continuing Disclosure Certificate. The Agency has entered into a number of prior continuing disclosure undertakings in connection with the issuance of other long-term obligations, and has provided annual reports and event notices in accordance with those undertakings. With the exception of a few instances, the Agency has filed its annual reports prior to the due date and has complied, in all material respects, with the requirements of its continuing disclosure undertakings in the past five years. The instances of noncompliance involved certain filings that were not timely made; however, the Agency has since made the necessary corrective filings and is up-to-date with its continuing disclosure obligations during the five-year period. See CONCLUDING INFORMATION Continuing Disclosure herein. Miscellaneous This Official Statement contains brief descriptions of, among other things, the Agency, 2016 Certificates, Installment Purchase Contract and Trust Agreement. The descriptions do not purport to be comprehensive or definitive. All references in this Official Statement to documents are qualified in their entirety by reference to such documents, and references to the 2016 Certificates are qualified in their entirety by reference to the form of 2016 Certificate included in the Trust Agreement. During the offering period for the 2016 Certificates, copies of the forms of the Trust Agreement and other documents described in this Official Statement may be obtained at the principal offices of the Purchaser. Copies of these documents may be obtained from the Trustee or the Agency after delivery of the 2016 Certificates. 5

14 Forward Looking Statements 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, expect, estimate, project, budget or other similar words. Such forward-looking statements include, but are not limited to, certain statements contained in the information under the caption THE WATER SYSTEM and WATER SYSTEM FINANCES. THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE AGENCY DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THE FORWARD-LOOKING STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT. 6

15 Refunding of Certain 2007 Certificates THE FINANCING PLAN A portion of the proceeds of the 2016 Certificates will be applied to refund, on an advance basis, a portion of the 2007 Certificates, as described below. The 2007 Certificates were executed and delivered on September 19, 2007, in the initial principal amount of $33,580,000. The 2007 Certificates are currently outstanding in the amount of $28,355,000. The 2007 Certificates are payable from installment payments made under the Installment Sale Contract, which are referred to as the 2007 Installment Payments. A portion of the net proceeds from the sale of the 2016 Certificates will be used to pay and prepay a portion of the 2007 Installment Payments resulting in the defeasance, payment and prepayment of all of the outstanding 2007 Certificates maturing on and after July 1, 2018 (the Refunded 2007 Certificates ); the 2007 Certificates maturing on July 1, 2016 and July 1, 2017 will remain outstanding on a parity basis with the 2016 Certificates. The Refunded 2007 Certificates will be paid and prepaid pursuant to the Escrow Agreement, dated as of May 1, 2016 (the Escrow Agreement ), between the Corporation and The Bank of New York Mellon Trust Company, N.A., as escrow agent (the Escrow Agent ). On the date of delivery of the 2016 Certificates, the Corporation will cause the Escrow Agent to deposit cash into the escrow to be established pursuant to the Escrow Agreement, and the Refunded 2007 Certificates will be defeased in accordance with the provisions of the Trust Agreement. Under the Escrow Agreement, the amounts on deposit in the escrow will be held by the Escrow Agent and used to pay and prepay the Refunded 2007 Certificates on July 1, 2017, at a prepayment price equal to the principal amount of Refunded 2007 Certificates to be prepaid, without premium. Sufficiency of the deposits in the Escrow Fund for the foregoing purposes will be verified by Grant Thornton LLP, certified public accountants, Minneapolis, Minnesota (the Verification Agent ). See CONCLUDING INFORMATION Escrow Verification herein. The amounts held and invested by the Escrow Agent in the escrow are pledged solely to the payment of the Refunded 2007 Certificates. Neither the funds deposited in the escrow nor the interest on the invested funds will be available for the payment of principal and interest with respect to the 2016 Certificates. 7

16 Estimated Sources and Uses of Proceeds The table below sets forth the estimated sources and uses of proceeds. Sources of Funds Par Amount of 2016 Certificates $24,840, Plus: Net Premium 3,002, Plus: Funds relating to Refunded 2007 Certificates 870, Total Sources $28,712, Uses of Funds Delivery Costs (1) $224, Deposit to Escrow Fund (2) 28,345, Purchaser s Discount 142, Total Uses $28,712, (1) Includes legal, financial advisory, rating agency, printing, and other miscellaneous delivery costs. (2) Amount required to pay or prepay all the Refunded 2007 Certificates. 8

17 THE 2016 CERTIFICATES General The 2016 Certificates will be executed and delivered in the aggregate principal amount set forth on the cover, will be dated their date of execution and delivery, will represent interest from such date at the rates per annum set forth on the inside cover page hereof, payable semiannually on January 1 and July 1 in each year (each, an Interest Payment Date ), commencing July 1, 2016, and will mature on the dates set forth on the inside cover page hereof. The 2016 Certificates will be delivered only in fully registered form and, when executed and 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 for the 2016 Certificates. Ownership interests in the 2016 Certificates may be purchased in book-entry form only in denominations of $5,000 or any integral multiple thereof. See APPENDIX F DTC and the Book-Entry Only System in this Official Statement. In the event the book-entry only system described in Appendix F is discontinued, the principal and prepayment premium (if any) evidenced by any 2016 Certificates are payable to the Owner thereof, upon surrender of the 2016 Certificates, in lawful money of the United States of America at the corporate trust office of the Trustee. Interest evidenced by each 2016 Certificate is payable by check mailed by first class mail or, upon the written request of any Owner of $1,000,000 or more in aggregate amount of principal of Certificates who has provided the Trustee with wire transfer instructions, by wire transfer on each Interest Payment Date to the Owner thereof at its account in the United States, as of the close of business on the Regular Record Date. The Regular Record Date for the 2016 Certificates shall be the 15th day of the calendar month immediately preceding the relevant Interest Payment Date. Any interest represented by any 2016 Certificate that is payable but is not punctually paid or duly provided for on any Interest Payment Date will cease to be payable to the Owner on the relevant Regular Record Date. Such defaulted interest shall be paid to the person in whose name the 2016 Certificate is registered at the close of business on a Special Record Date (a date fixed by the Trustee for the payment of any defaulted interest represented by Certificates of any Series) for the payment of such defaulted interest to be fixed by the Trustee. In the name and at the expense of the Agency, the Trustee shall cause notice of the payment of such defaulted interest and the Special Record Date to be mailed, first-class postage prepaid, to each owner of a 2016 Certificate at his address as it appears in the 2016 Certificate Register not fewer than ten days prior to such Special Record Date. In the event that any date for the payment of the interest or principal or prepayment premiums, if any, evidenced and represented by any 2016 Certificate falls on a day which is not a Business Day, the interest or principal or prepayment premium, if any, represented by such 2016 Certificates which are due and payable on such date shall be paid by the Trustee on the next succeeding Business Day. Prepayment Provisions Extraordinary Mandatory Prepayment. The 2016 Certificates are subject to prepayment prior to maturity as a whole on any date or in part (by such maturities as may be specified by the Agency and by lot within a maturity) on any Interest Payment Date, from prepaid 2016 Installment Payments made by the Agency from funds received by the Agency due to a casualty 9

18 loss or governmental taking of the Water System or portions thereof by eminent domain proceedings, under the circumstances and upon the conditions and terms prescribed in the Trust Agreement and in the Installment Purchase Contract, at a prepayment price equal to the sum of the principal amount represented thereby plus accrued interest represented thereby to the date fixed for prepayment, without premium. Optional Prepayment. The 2016 Certificates maturing on or after July 1, 2027, are subject to prepayment prior to their respective stated maturities, at the option of the Agency, from any source of available funds, as a whole or in part (by such maturities as may be specified by the Agency) on any date on or after July 1, 2026, at a prepayment price equal to the principal amount of 2016 Certificates called for prepayment, plus accrued interest to the date fixed for prepayment, without premium. Selection of 2016 Certificates to be Prepaid. Whenever prepayment of less than all of the 2016 Certificates is required, the Agency may designate the maturities to be prepaid, and the Trustee will select 2016 Certificates for prepayment by lot within a single maturity. As to any 2016 Certificate, such prepayment will be in the amount of $5,000 or any integral multiple thereof. Notice of Prepayment. Notice of prepayment shall be given by mail on behalf of and at the expense of the Agency in accordance with the Trust Agreement to the respective Owners of all 2016 Certificates designated for prepayment in whole or in part not less than 30 days nor more than 60 days prior to their prepayment date and to the securities depositories and one or more securities information services selected by the Agency in its sole discretion and designated to the Trustee in writing. Each notice shall state the date of such notice, the 2016 Certificates to be prepaid, the date of the 2016 Certificates, the prepayment date, the prepayment price, the place of prepayment (including the name and address of the Trustee), the CUSIP number (if any) of the maturity or maturities and, if less than all of any such maturity, the numbers of the 2016 Certificates of such maturity to be prepaid and, in the case of 2016 Certificates to be prepaid in part only, the respective portions of the principal amount evidenced and represented thereby to be prepaid. The notice shall state that interest represented by the 2016 Certificates or the portions thereof designated for prepayment shall cease to accrue from and after such prepayment date, and that on such prepayment date there will become due and payable on each of the 2016 Certificates, or the portions thereof designated for prepayment, the prepayment price evidenced and represented thereby, and shall require that such 2016 Certificates be then surrendered at the Principal Corporate Trust Office of the Trustee so designated. Right to Rescind. The Agency shall have the right to rescind any prepayment from funds received by the Agency due to a casualty loss or a governmental taking, by written notice to the Trustee on or prior to the date fixed for prepayment. The Agency shall rescind any notice of prepayment if for any reason funds are not (or will not be) available on the date fixed for prepayment for the payment in full of the Certificates then called for prepayment, and such rescission shall not constitute an Event of Default under the Trust Agreement. The Trustee shall mail notice of rescission of prepayment in the same manner notice of prepayment was originally provided. Effect of Prepayment. If notice of prepayment has been duly given, and money for the payment of the prepayment price of the 2016 Certificates or the portions thereof to be prepaid is held by the Trustee, then on the prepayment date designated in such notice, the 2016 Certificates or such portions thereof so called for prepayment shall become payable at the 10

19 prepayment price represented and evidenced thereby as specified in such notice. From and after the date so designated, interest represented and evidenced by the 2016 Certificates or such portions thereof so called for prepayment shall cease to accrue, and such 2016 Certificates or portions thereof shall cease to be entitled to any benefit, protection or security under the Trust Agreement, and the Owners of such 2016 Certificates shall have no rights in respect thereof except to receive payment of the prepayment price evidenced and represented by the 2016 Certificates or such portions to be prepaid. The Trustee shall, upon surrender for prepayment of any of the 2016 Certificates to be prepaid in whole or in part on their prepayment dates, pay such 2016 Certificates or such portions thereof at the prepayment price evidenced and represented thereby. 11

20 Installment Payment Schedule The table below shows the annual schedule of 2016 Installment Payments, together with payments on the Parity Loans and the Parity Installment Payments. The information presented below assumes no extraordinary prepayments Installment Payments Fiscal Year Ending Dec. 31 Payments on Parity Loans (1) Parity Installment Payments (1)(2) Principal Interest Total 2016 Payments Total Payments 2016 $1,915, $5,920, $114, $114, $7,950, ,915, ,869, , , ,762, ,915, ,982, $785, , ,762, ,660, ,852, ,003, , , ,762, ,619, ,790, ,983, , , ,756, ,530, ,790, ,995, , , ,753, ,539, ,790, ,985, , , ,753, ,529, ,790, ,982, , , ,756, ,529, ,790, ,147, ,045, , ,756, ,694, ,765, ,143, ,095, , ,754, ,663, ,741, ,223, ,150, , ,754, ,719, ,741, ,226, ,210, , ,757, ,725, ,115, ,196, ,270, , ,756, ,068, , ,190, ,335, , ,758, ,437, , ,400, , ,756, ,245, , ,455, , ,755, ,244, , ,495, , ,760, ,249, , ,530, , ,758, ,247, , ,570, , ,758, ,002, ,610, , ,755, ,755, ,660, , ,760, ,760, ,705, , ,756, ,756, Totals (3) $25,602, $59,850, $24,840, $11,397, $36,237, $121,691, (1) See SECURITY FOR THE 2016 CERTIFICATES Existing Parity Liens on Water Revenues. (2) Excludes debt service on the Refunded 2007 Certificates. (3) Totals may not foot due to rounding. 12

21 Nature of the 2016 Certificates SECURITY FOR THE 2016 CERTIFICATES Each 2016 Certificate represents an undivided interest in 2016 Installment Payments to be made by the Agency under the Installment Purchase Contract. The Agency is required under the Installment Purchase Contract to make 2016 Installment Payments equal to principal and interest with respect to the 2016 Certificates. Pursuant to the Trust Agreement, certain of the rights, title and interest of the Corporation under the Installment Purchase Contract have been assigned to the Trustee for the benefit of the 2016 Certificate Owners, including its right to 2016 Installment Payments under the Installment Purchase Contract. The Trustee, pursuant to the Trust Agreement, will receive 2016 Installment Payments for the benefit of the 2016 Certificate Owners. The Trustee s obligation to make payments to 2016 Certificate Owners is limited to amounts received by it as 2016 Installment Payments under the Installment Purchase Contract, from proceeds of the 2016 Certificates or from any other legally available moneys. Additional payments due from the Agency under the Installment Purchase Contract include amounts sufficient to pay certain taxes and assessments charged, if any, with respect to the Water System, insurance premiums and certain administrative costs. The Agency has covenanted in the Installment Purchase Contract to maintain and preserve the Water System in good repair and working order and to pay all Maintenance and Operation Costs of the Water System during the term of the Installment Purchase Contract. If the Agency defaults under the Installment Purchase Contract, the Installment Purchase Contract provides that the Corporation shall declare the entire principal amount of the unpaid 2016 Installment Payments and the accrued interest thereon to be due and payable immediately. NEITHER THE 2016 CERTIFICATES NOR THE OBLIGATION OF THE AGENCY TO MAKE 2016 INSTALLMENT PAYMENTS CONSTITUTES AN INDEBTEDNESS OF THE AGENCY, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. NEITHER THE 2016 CERTIFICATES NOR THE OBLIGATION TO MAKE SUCH 2016 INSTALLMENT PAYMENTS CONSTITUTES AN OBLIGATION FOR WHICH THE AGENCY HAS LEVIED ANY FORM OF TAXATION OR FOR WHICH THE AGENCY IS OBLIGATED TO LEVY ANY FORM OF TAXATION. 13

22 Source of Payment for the 2016 Installment Payments The 2016 Installment Payments are payable exclusively from Water Revenues, which are defined in the Trust Agreement as all charges (including standby charges) received for, and all other income and receipts derived by the Agency from, the ownership or operation of the Water System or otherwise arising from the Water System, together with any receipts derived from the Agency s Water Connection Charge ( WCC ), including, without limiting the generality of the foregoing: (1) all income, rates, fees, charges, insurance proceeds, or other moneys derived by the Agency from the sale, furnishing, and supplying of water or other services, facilities, and commodities sold, furnished, or supplied through the facilities of or in the conduct or operation of the business of the Water System, (2) the earnings on and income derived from the investment of such income, rates, fees, charges, or other moneys to the extent that the use of such earnings and income is limited to the Water System by or pursuant to law, and (3) the proceeds derived by the Agency directly or indirectly from the sale, lease, or other disposition of a part of the Water System, but excluding in all cases (a) moneys derived from the levy or collection of taxes or assessments by the Agency, (b) hydroelectric revenues, and (c) customers deposits or any other deposits or advances subject to refund until such deposits or advances have become the property of the Agency. Pledge of Water Revenues. The Agency has pledged Water Revenues to its obligation to pay the 2016 Installment Payments, the 2013 Installment Payments, the 2008 Installment Payments, the 2007 Installment Payments and any other Parity Debt issued in accordance with the Installment Purchase Contract and the Trust Agreement. See Existing Parity Liens on Water Revenues below. Application of Water Revenues. The Installment Purchase Contract requires the Agency to apply Water Revenues as follows (see APPENDIX B Summary of Principal Legal Documents for certain definitions used below): First: to pay all Maintenance and Operation Costs, which are defined in the Installment Purchase Contract as the reasonable and necessary costs of maintaining and operating the Water System calculated in accordance with generally accepted accounting principles as applicable to governmental type organizations, including (without limitation) the costs of purchasing water, the reasonable expenses of management, repair and other expenses necessary to maintain and preserve the Water System in good repair and working order, and reasonable amounts for administration, overhead, insurance, taxes (if any), and other similar costs, but excluding in all cases (a) depreciation and obsolescence charges or reserves therefore, amortization of intangibles, losses or gains on subsidiaries accounted for on any equity basis, or other bookkeeping entries of a similar nature, (b) all costs paid from the proceeds of taxes received by the Agency, and (c) all interest charges and charges for the payment of principal or amortization of bonded or other indebtedness of the Agency; 14

23 Second: to pay to the Trustee debt service with respect to the Senior Obligations (however, there are no Senior Obligations currently outstanding and the Agency has covenanted not to issue any Senior Obligations); Third: to pay to the Trustee the interest due with respect to all Installment Payments, Contracts, and Bonds (including the 2016 Installment Payments, the 2013 Installment Payments, the 2008 Installment Payments, the 2007 Installment Payments and Parity Debt, if any), without preference or priority, and in the event of any insufficiency of such moneys ratably without any discrimination or preference; Fourth: to pay to the Trustee the principal due with respect to all Installment Payments, Contracts, and Bonds (including the 2016 Installment Payments, the 2013 Installment Payments, the 2008 Installment Payments, the 2007 Installment Payments and additional Parity Debt, if any), without preference or priority, and in the event of any insufficiency of such moneys ratably without any discrimination or preference; Fifth: for payment to the Trustee of any required deposits to the Certificate Reserve Fund (which is established pursuant to the Trust Agreement and is to be held by the Trustee) and deposits to any reserve fund or account as may be provided for Bonds or Installment Payments or other Parity Debt other than the 2016 Installment Payments, without preference or priority, and in the event of any insufficiency of such moneys ratably without any discrimination or preference; and Sixth: for any other legal purpose of the Agency, including deposit to the Rate Stabilization and Capital Improvement Fund (held by the Agency). The pledge of Water Revenues is irrevocable until all of the 2016 Certificates are no longer outstanding. Limitations. Neither the credit nor the taxing power of the Agency is pledged to the payment of the 2016 Installment Payments. The 2016 Installment Payments are not a legal or equitable pledge, charge, lien or encumbrance upon any of the Agency s property (including the Water System) or upon any of its incomes, receipts or revenues except the Water Revenues to the extent of the pledge thereof contained in the Installment Purchase Contract. Amounts held from time to time in the Interest Fund, Principal Fund, Redemption Fund and Certificate Reserve Fund are also pledged to secure the payment of the 2016 Installment Payments. Subject to the Agency s receipt of Water Revenues and the application thereof as provided in the Installment Purchase Contract, the obligation of the Agency to make the 2016 Installment Payments under the Installment Purchase Contract is absolute and unconditional, and until such time as the 2016 Installment Payments have been paid in full (or provision for the payment thereof has been made as provided for in the Installment Purchase Contract), the Agency will not abate, discontinue or suspend any 2016 Installment Payments required to be made by it when due, whether or not its Water System or any part thereof is operating or operable, or its use 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 conditional upon the performance or nonperformance by any party of any agreement for any cause whatsoever. 15

24 No Existing or Future Senior Liens on Water Revenues The Agency previously had certain loans outstanding from the State of California (the Senior Loans ) with a claim on Water Revenues that was senior to the pledge and lien on Water Revenues contained in the Installment Purchase Contract. The Senior Loans constituted Senior Obligations under the Installment Purchase Contract, where the term Senior Obligations is defined to mean bonds, notes or other obligations that are secured by a pledge and lien on Water Revenues that is senior to the pledge and lien on Water Revenues contained in the Installment Purchase Contract. All of the Senior Loans have been repaid as of the date of this Official Statement and, accordingly, there are no obligations outstanding that are senior to the claim of the 2016 Installment Payments or the Parity Installment Payments on Water Revenues. The Agency has covenanted in the Installment Purchase Contract that it will not issue any additional Senior Obligations. Existing Parity Liens on Water Revenues The Agency s pledge of Water Revenues to the payment of the 2016 Installment Payments is on a parity with its pledge to the payment of the Parity Installment Payments in connection with the 2007 Certificates, 2008 Certificates, 2013 Certificates, and the Parity Loans; however, other than the 2016 Certificates, only the 2007 Certificates, 2008 Certificates and 2013 Certificates are secured by the Certificate Reserve Fund. The 2007 Certificates, 2008 Certificates, 2013 Certificates and Parity Loans are described below Certificates. On October 2, 2007, the Corporation delivered $33,580,000 initial principal amount of 2007 Certificates. Debt service with respect to the 2007 Certificates is payable on a parity with debt service with respect to the 2016 Certificates. At December 31, 2015, the 2007 Certificates were outstanding in the aggregate principal amount of $28,355,000; a portion of the proceeds of the 2016 Certificates will be used to defease, pay and prepay the Refunded 2007 Certificates. Accordingly, following issuance of the 2016 Certificates, the 2007 Certificates will be outstanding in the aggregate principal amount of $1,630, Certificates. On April 24, 2008, the Corporation delivered $40,385,000 initial principal amount of 2008 Certificates. Debt service with respect to the 2008 Certificates is payable on a parity with debt service with respect to the 2016 Certificates. At December 31, 2015, the 2008 Certificates were outstanding in the aggregate principal amount of $34,355, Certificates. On June 19, 2013, the Corporation delivered $8,100,000 initial principal amount of 2013 Certificates. Debt service with respect to the 2013 Certificates is payable on a parity with debt service with respect to the 2016 Certificates. At December 31, 2015, the 2013 Certificates were outstanding in the aggregate principal amount of $6,755,000. Parity Loans. Debt service with respect to the Parity Loans is payable on a parity with debt service with respect to the 2016 Certificates. The Parity Loans consist of the following two obligations: SRF Loan Auburn Water Treatment Plant. In 2007, the Agency entered into a funding agreement for a loan of up to $20,000,000 with the State of California Department of Health Services under the California Safe Drinking Water State Revolving Fund Law of 1997 (the Auburn WTP SRF Loan ). At December 31, 2015, the Auburn 16

25 WTP SRF Loan had an outstanding principal balance of $14,469,806 and matures in The purpose of the loan was to finance rehabilitation of the Auburn Water Treatment Plant. SRF Loan Electric Street Tank. In 2012, the Agency entered into a funding agreement for a loan of up to $7,801,000 with the State of California Department of Health Services under the California Safe Drinking Water State Revolving Fund Law of 1997 (the Electric Street SRF Loan, and together with the Auburn WTP SRF Loan, the SRF Loans ). The Electric Street SRF Loan bears an interest rate of % and is estimated to mature in At December 31, 2015, it had an outstanding principal balance of $7,644,579. The purpose of the loan was to finance a pre-existing reservoir with a 5 million gallon pre-stressed concrete water storage tank. Rate Covenant Rate Covenant. The Installment Purchase Contract requires the Agency to fix, prescribe, and collect rates and charges for the Water Service that are reasonably fair and nondiscriminatory and that will be at least sufficient to yield during each Fiscal Year all of the following: (a) Net Water Revenues that, together with other revenues of the Agency (including property taxes, special taxes and assessments not pledged to debt service on other obligations of the Agency), are equal to 120% of the Annual Debt Service on the 2016 Certificates, the 2013 Certificates, the 2008 Certificates, the 2007 Certificates and any additional Parity Debt for such Fiscal Year, (b) Adjusted Net Water Revenues that, together with other revenues of the Agency (including property taxes, special taxes and assessments not pledged to debt service on other obligations of the Agency), are equal to 100% of the Annual Debt Service on the 2016 Certificates, the 2013 Certificates, the 2008 Certificates, the 2007 Certificates and any additional Parity Debt for such Fiscal Year, and (c) any amounts necessary to replenish the Certificate Reserve Fund and any similar reserve fund established with respect to any Bonds or Contracts to their required amounts. The Agency 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 Net Water Revenues and the Adjusted Net Water Revenues from such reduced rates and charges will at all times be sufficient to meet the rate covenant described above. Net Water Revenues. Net Water Revenues are defined as, for any Fiscal Year: (i) (ii) the Water Revenues for such Fiscal Year, less the Maintenance and Operation Costs for such Fiscal Year, plus (iii) any amounts withdrawn from the Rate Stabilization and Capital Improvement Fund for inclusion in Water Revenues for such Fiscal Year, less 17

26 (iv) any amounts withdrawn from Water Revenues for such Fiscal Year for deposit in the Rate Stabilization and Capital Improvement Fund. Adjusted Net Water Revenues. The term Adjusted Net Water Revenues is defined as the Net Water Revenues for such Fiscal Year after adding thereto the Annual Debt Service on Obligations (as defined below) for such Fiscal Year. Obligation. The term Obligation is defined as any contract or lease for the purchase of water, facilities, properties, or structures, under which the final payments are due more than one year following the effective date thereof, so long as the payments in each such case thereunder constitute Maintenance and Operation Costs. Maintenance and Operation Costs. Maintenance and Operation Costs are defined as the reasonable and necessary costs of maintaining and operating the Water System calculated in accordance with generally accepted accounting principles as applicable to governmental type organizations, including (without limitation) the costs of purchasing water, the reasonable expenses of management, repair and other expenses necessary to maintain and preserve the Water System in good repair and working order, and reasonable amounts for administration, overhead, insurance, taxes (if any), and other similar costs, but excluding in all cases (a) depreciation and obsolescence charges or reserves therefore, amortization of intangibles, losses or gains on subsidiaries accounted for on any equity basis, or other bookkeeping entries of a similar nature, (b) all costs paid from the proceeds of taxes received by the Agency, and (c) all interest charges and charges for the payment of principal or amortization of bonded or other indebtedness of the Agency. See APPENDIX B Summary of Principal Legal Documents for complete definitions of the above terms in addition to other capitalized terms used in this Official Statement. Certificate Reserve Fund The Certificate Reserve Fund (which is a debt service reserve fund for the 2016 Certificates, the 2013 Certificates, the 2008 Certificates, the 2007 Certificates and any future Parity Debt) is held by the Trustee and must be maintained at an amount equal to the Certificate Reserve Requirement, which is defined, as of the date of any calculation, to be the least of (i) Maximum Annual Debt Service on all Certificates then outstanding, (ii) 125% of average Annual Debt Service (excluding accrued interest) on all Certificates then outstanding and (iii) 10% of the initial proceeds of Certificates then outstanding. After taking into account the execution and delivery of the 2016 Certificates and the refunding of the Refunded 2007 Certificates, the Certificate Reserve Requirement will be $5,399,682, $2,058,581 of which will be satisfied by the Reserve Policy described below and the remaining $3,341,101 of which will be satisfied by cash. The Trustee will use amounts deposited in the Certificate Reserve Fund solely for payment of the Installment Payments when other moneys of the Agency are not otherwise available to pay such Installment Payments. If, on the last business day of June or December of any year, the amount in the Certificate Reserve Fund exceeds the Certificate Reserve Requirement, the Trustee, if the Agency is not then in default under the Installment Purchase Contract or the Trust Agreement, will pay the amount of such excess to the Agency. If at any time the balance in the Certificate Reserve Fund is reduced below the Certificate Reserve Requirement, the Agency will immediately commence to make deposits with 18

27 the Trustee, to the extent permitted by law, (i) over a period of not more than four months, in four substantially equal payments in the event such deficiency results from a decrease in the market value of the Permitted Investments on deposit in the Certificate Reserve Fund and (ii) over a period of not more than twelve months, in twelve substantially equal payments, in the event such deficiency results from a withdrawal from the Certificate Reserve Fund pursuant to the terms of the Trust Agreement and the Installment Purchase Contract so that an amount equal to the Certificate Reserve Requirement will be on deposit in the Certificate Reserve Fund. Subject to certain conditions, the Trust Agreement permits the delivery of a letter of credit, insurance policy, surety bond or other credit source deposited with the Trustee (each, a Reserve Facility ) in full or partial satisfaction of the Certificate Reserve Requirement. To the extent the Certificate Reserve Requirement is satisfied by a deposit of cash or Investment Securities and one or more Reserve Facilities (or any combination thereof), the Trustee shall first draw on the portion of the Certificate Reserve Fund held in cash or Investment Securities and then draw on or collect under such Reserve Facilities. See APPENDIX B Summary of Principal Legal Documents. The Certificate Reserve Requirement is currently satisfied, in part, by a municipal bond debt service reserve insurance policy, which was issued by Financial Security Assurance Inc. (now succeeded by Assured Guaranty Municipal Corp.) ( AGM ) at the time of the execution and delivery of the 2007 Certificates (the Reserve Policy ), and which will remain on deposit in the Certificate Reserve Fund following execution and delivery of the 2016 Certificates. A copy of the Reserve Policy is included as APPENDIX G Debt Service Reserve Policy, and reference to its particular terms is hereby made to it. Amounts available under the Reserve Policy are limited by the terms thereof, and in no event shall exceed the Policy Limit stated therein or be available for draw after the Termination Date stated therein. See APPENDIX G. AGM is a New York domiciled financial guaranty insurance company and an indirect subsidiary of Assured Guaranty Ltd. ( AGL ), a Bermuda-based holding company whose shares are publicly traded and are listed on the New York Stock Exchange under the symbol AGO. All consolidated financial statements of AGM and all other information relating to AGM included in, or as exhibits to, documents filed by AGL with the Securities and Exchange Commission pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are available over the internet at the SEC s website at and at AGL s website at No additional deposit will be made to the Certificate Reserve Fund in connection with the issuance of the 2016 Certificates. In connection with the execution and delivery of the 2016 Certificates, certain amendments are proposed to be made to the Trust Agreement and Installment Purchase Contract (referred to herein as the Proposed Amendments). The Proposed Amendments would amend and restate the definition of Certificate Reserve Requirement in the Trust Agreement for the 2016 Certificates and any future Series of Certificates, so that it means, as of any date of calculation, the amount specified in the Supplemental Trust Agreement that establishes the terms and provisions of such Series of Certificates, which amount shall not exceed the least of (i) Maximum Annual Debt Service on the Certificates of such Series Outstanding, (ii) 125% of Average Annual Debt Service on the Certificates of such Series Outstanding, and (iii) 10% of the initial proceeds of such Series of Certificates. The Fifth Supplement to Trust Agreement further states that if and when the Proposed Amendments become effective, the Certificate Reserve Requirement for the 2016 Certificates will be reduced to $0. The Owners of the

28 Certificates, by their acceptance of their Certificates, will be deemed to have consented and agreed to the Proposed Amendments. For more information on the Proposed Amendments, see Proposed Amendments to Trust Agreement and Installment Purchase Contract below and APPENDIX H. Rate Stabilization and Capital Improvement Fund From time to time the Agency may deposit Water Revenues in the Rate Stabilization and Capital Improvement Fund (also referred to as the Rate Stabilization Fund) in amounts determined by the Agency not to be required to pay Installment Payments with respect to the Certificates. The deposits for each Fiscal Year may be made until (but not after) 120 days following the end of such Fiscal Year. The Agency may withdraw amounts from the Rate Stabilization and Capital Improvement Fund during any Fiscal Year or within 120 days after the end of such Fiscal Year and any amounts so withdrawn will be accounted for as Water Revenues. The balance in the Rate Stabilization and Capital Improvement Fund as of December 31, 2015 was $31,467,278. The Fund can be used for rate stabilization such as times of drought, accumulate funds for pay-as-you-go, or for future capacity infrastructure projects. See WATER SYSTEM FINANCES Historical Revenues, Expenditure and Debt Service Coverage in this Official Statement. Issuance of Parity Debt The Agency may issue bonds, notes or other obligations payable from Water Revenues on a parity with the Installment Payments (including the 2016 Installment Payments and Parity Installment Payments) ( Parity Debt ), provided that certain conditions are satisfied, including the following: either: (i) Historic Test. The Net Water Revenues for a period of 12 consecutive months during the 18 months immediately preceding the date of adoption by the Board of the resolution authorizing the execution of such Contracts or Obligations or the issuance of such Bonds, as the case may be, as evidenced by a calculation prepared by the Agency, shall have produced a sum equal to at least 120% of Maximum Annual Debt Service on all Outstanding Contracts and Bonds and the Contracts or Bonds to be executed or issued, and the Adjusted Net Water Revenues for the same 12 month period, evidenced by a calculation prepared by the Agency, shall have produced a sum equal to at least 100% of Maximum Annual Debt Service on all Outstanding Contracts, Bonds, and Obligations and the Contracts, Bonds, or Obligations to be executed or issued, for the Fiscal Year in which such total Annual Debt Service is the greatest; provided that in the calculations for such purpose: (A) If rates and charges in effect on the date upon which such Contracts, Bonds, or Obligations will become Outstanding will be greater than those in effect during the most recent Fiscal Year for which audited financial statements are available, then the Net Water Revenues for said Fiscal Year may be augmented by 95% of the estimated increase in Net Water Revenues computed to accrue to the Water System in the first twelve months during which such rates and charges shall be in effect; (B) Net Water Revenues may be augmented by 95% of the projected increase in annual Net Water Revenues to be provided by additional facilities under construction (financed from any source) or to be constructed with the proceeds of 20

29 the Contracts, Bonds, or Obligations then being executed or issued computed to accrue to the Water System in the first twelve months during which such additional facilities are placed in operation; and (C) Net Water Revenues for such purpose shall not include Water Revenues anticipated to be used to pay principal and interest, if any, on the Placer County Water Agency Middle Fork Project Revenue Bonds, Series A; or: (ii) Projected Revenue Test. (A) Recent Year Compliance. The Net Water Revenues for a period of 12 consecutive months during the 18 months immediately preceding the date of adoption by the Board of the resolution authorizing the execution of such Contracts or Obligations or the issuance of such Bonds, as the case may be, as evidenced by a calculation prepared by the Agency, shall have produced a sum equal to at least 120% of the Annual Debt Service for such 12 month period on the Outstanding Contracts and Bonds, and the Adjusted Net Water Revenues for the same 12 month period, evidenced by a calculation prepared by the Agency, shall have produced a sum equal to at least 100% of the Annual Debt Service for such 12 month period on the Outstanding Contracts, Bonds, and Obligations; and (B) Projected Revenues. The estimated Net Water Revenues for the then current Fiscal Year and for each Fiscal Year thereafter to and including the first complete Fiscal Year after the latest Date of Operation of any uncompleted Project, as evidenced by an Engineer s Report on file with the Agency, plus (after giving effect to the completion of all uncompleted Projects) an allowance for estimated Net Water Revenues for each of such Fiscal Years arising from any increase in the rates and charges estimated to be fixed and prescribed for the Water Service and that are economically feasible and reasonably considered necessary based on projected operations for such period, as evidenced by an Engineer s Report on file with the Agency, shall produce a sum equal to at least 120% of the estimated Annual Debt Service for each of such Fiscal Years on the Contracts and Bonds to be Outstanding, and the estimated Adjusted Net Water Revenues for each of the same Fiscal Years, evidenced by similar documents (and using similar allowances) on file with the Agency, shall produce a sum equal to at least 100% of the estimated Annual Debt Service for each of such Fiscal Years on the Contracts, Bonds, and Obligations to be Outstanding after giving effect, in either case, to the execution of all Contracts and Obligations and the issuance of all Bonds estimated to be required to be executed or issued to pay the costs of completing all uncompleted Projects, assuming that all such Contracts and Obligations and Bonds have maturities, interest rates, and proportionate principal repayment provisions similar to the Contracts and Obligations last executed or then being executed or the Bonds last issued or then being issued for the purpose of acquiring and constructing any of such uncompleted Projects; and: (iii) Project Feasibility. The Project to be acquired and constructed with the proceeds of such Contracts or Obligations or such Bonds is technically feasible and the estimated cost of the acquisition and construction thereof is reasonable, and (in the event any of the facilities of such Project constitute facilities for the acquisition of water supplies) the cost of the water to be obtained therefrom is reasonable compared with other sources of water available to the Agency, as evidenced by an Engineer s Report (prepared at the time of the execution of the initial Contracts or Obligations or the issuance of the initial Bonds, as the case may be, for the purpose of acquiring and constructing such Project) on file with the Agency. Notwithstanding the preceding Parity Debt test, if any such Contracts are executed or Bonds are issued for the purpose of discharging or defeasing Contracts or Bonds then unpaid 21

30 and outstanding, upon such execution or issuance, a special report prepared by an Independent Certified Public Accountant is filed with the Agency to the effect that the Annual Debt Service for all future Fiscal Years following such discharge or defeasance shall be less than the Annual Debt Service for all future Fiscal Years if such discharge or defeasance did not occur. Proposed Amendments to Trust Agreement and Installment Purchase Contract Pursuant to the Fifth Supplement to Trust Agreement to be entered into by the Agency, the Corporation and the Trustee in connection with the execution and delivery of the 2016 Certificates, certain amendments are proposed to be made to the Trust Agreement, effective upon the date that the Owners of a majority in aggregate principal represented by the Certificates have consented thereto. In addition, pursuant to the Fifth Supplemental Installment Purchase Contract to be entered into by the Agency and the Corporation in connection with the execution and delivery of the 2016 Certificates, certain amendments are proposed to be made to the Installment Purchase Contract, effective upon the date that the Owners of at least 60% in aggregate principal represented by the Certificates then Outstanding have consented thereto. The proposed amendments to the Trust Agreement and Installment Purchase Contract are collectively referred to as the Proposed Amendments. The Proposed Amendments would amend and restate the definition of Certificate Reserve Requirement in the Trust Agreement for the 2016 Certificates and any future Series of Certificates, so that it means, as of any date of calculation, the amount specified in the Supplemental Trust Agreement that establishes the terms and provisions of such Series of Certificates, which amount shall not exceed the least of (i) Maximum Annual Debt Service on the Certificates of such Series Outstanding, (ii) 125% of Average Annual Debt Service on the Certificates of such Series Outstanding, and (iii) 10% of the initial proceeds of such Series of Certificates. The Fifth Supplement to Trust Agreement further states that if and when the Proposed Amendments to the Trust Agreement become effective, the Certificate Reserve Requirement for the 2016 Certificates will be reduced to $0. See APPENDIX H. The Agency expects that if the Certificate Reserve Requirement for the 2016 Certificates is reduced to $0, a portion of the moneys on deposit in the Certificate Reserve Fund would be released, and may be used by the Agency for any lawful purpose, and the Owners of the 2016 Certificates would no longer be secured by the Certificate Reserve Fund. The Owners of the 2016 Certificates, by their acceptance of their Certificates, will be deemed to have consented and agreed to the Proposed Amendments. Accordingly, on the date of execution and delivery of the 2016 Certificates, approximately 37.66% of the Certificates then Outstanding will have consented to the Proposed Amendments. Although the Agency expects that the consent of the requisite percentages of Owners of aggregate principal represented by the Certificates will consent to the Proposed Amendments in the future, there can be no assurance that the Proposed Amendments will become effective within any definite time frame, or at all. 22

31 23

32 THE AGENCY History and Purpose The Agency was created by a special act of the California State Legislature in 1957 for the purpose of developing and operating water facilities in Placer County. Pursuant to the Placer County Water Agency Act, the Agency has the powers necessary to form service zones, which are uniquely associated with a given geographic area, to provide sufficient water for the present and future beneficial uses of the lands and inhabitants within the jurisdiction of the Agency. The Agency s boundaries are conterminous with the borders of Placer County, and from the establishment of the Agency in 1957 through 1974, the Board of Supervisors of Placer County served ex officio as the Board of Directors of the Agency. Since 1975, the Agency has been governed by an independent, elected five-member Board of Directors. The Agency s territory extends over an area of approximately 1,500 square miles, which includes relatively level valley lands in its western portion and extends easterly into the Sierra Nevada mountains to Lake Tahoe and the Nevada state line. It is located immediately northeast of Sacramento County, approximately 100 miles northeast of the San Francisco Bay metropolitan area. Interstate 80 transects Placer County from west to east. Since its inception, the Agency has been actively involved in Placer County s 1,500 square miles on a wide variety of water and energy issues. Organization The Agency is organized into three divisions: Agency-Wide, the Power Division and the Water Division. These three divisions are described as follows: Agency-Wide. Agency-Wide activities are varied and far ranging. Foremost, these include involvement in water issues affecting the Lake Tahoe and Truckee River, the American River, the Yuba/Bear Rivers, the Sacramento River and the Bay/Delta system. The Agency is actively involved in numerous collaborative partnerships, including watershed planning, groundwater management, and regional infrastructure and conjunctive use projects. Advocacy for Agency water entitlements and energy resources for Placer County are at the forefront of Agency-Wide interests and activities. The foremost of these is the protection of the Middle Fork Project water rights, which are currently under review for consideration of an extension of time to increase the Agency s use by the State Water Resources Control Board. The Power Division. The Agency s Power System was established with the construction of the Middle Fork American River Project that began in 1963 and was completed in The Agency owns and operates five interconnected hydroelectric power plants, two major storage reservoirs (French Meadows and Hell Hole) and 24 miles of tunnels. The Project can generate, at peak power, 224 megawatts. Annually, the average production is 1.03 billion kilowatt hours of hydroelectric power that is wholesaled to Pacific Gas and Electric Company ( PG&E ). This is sufficient to provide reliable power to over a quarter of a million retail electricity customers. The Middle Fork Project is the eighth largest public power project in the State. The Project also provides important public recreational opportunities, including campgrounds and boating facilities as constructed by the Agency and operated through the U.S. Forest Service. 24

33 The Water Division. The Agency s Water System is the largest water purveyor in Placer County, serving more than 39,000 water accounts in several water service zones. Treated surface water is sold directly to Agency customers residing in Auburn, Colfax, Loomis, Rocklin, portions of Roseville and throughout various unincorporated areas of Placer County. Agency treated water is also sold wholesale to the City of Lincoln and other purveyors who retail it directly to their customers. The Agency also utilizes groundwater to occasionally supplement surface water supplies when needed in Western Placer County. See THE WATER SYSTEM herein. Board of Directors and Management The Agency is governed by a five-member independently elected Board of Directors serving staggered four-year terms. Each Director must reside within his or her elective district, and the boundaries of each district coincide with Placer County s supervisorial districts. The Agency has a staff of approximately 220 regular employees that are grouped among three divisions described above: Agency-Wide (Administration), Water Division and Power Division. All employees serve under the direction of the General Manager. The following persons currently comprise the Agency s Board of Directors: Michael Lee, District 3, Board Chair. Mr. Lee was first elected to the Board in November He represents District 3, which includes most of the City of Rocklin and all of the communities of Loomis, where he resides, Penryn, Newcastle and Ophir. He has a strong background in public service, having served 16 years on the Placer County Board of Supervisors. He also served as a director of the Agency from 1973 to Mr. Lee serves on the Board of Directors for Sacramento Valley Teen Challenge, the South Placer Heritage Foundation and the Lincoln Volunteer Center. He is a member and past president for the Lincoln Area Chamber of Commerce and a member of the Loomis Lions Club. Mr. Lee is the project manager of the Twelve Bridges (a master-planned community) in Lincoln. Robert Dugan, District 4, Board Vice Chair. Mr. Dugan was elected to the Board in November He represents District 4, which includes the eastern part of the City of Roseville-Granite Bay. Mr. Dugan resides in the City of Roseville, where he is a longtime community leader, planning commissioner and two-term chairman of the Roseville City Planning Commission. He has worked in and managed government and public affairs operations at the local, state and federal levels, representing a variety of interests including heavy civil construction, public infrastructure finance, and utility and aggregate industries. Gray Allen, District 1. Mr. Allen was elected in November He represents District 1, which includes most of the City of Roseville, where he resides, as well as portions of unincorporated west Placer County. He is a long-time public relations consultant with clients in agriculture, high tech, transportation, banking and building products. He also held management positions in international and corporate public relations. He is a former member of the Planning Commission for the City of Roseville. Mr. Allen is president of Roseville Crime Stoppers, a board member of the Roseville Police Activities League and Roseville Library Foundation. He also serves on the Citizens Advisory Board of the California Highway Patrol. Primo Santini, District 2. Appointed in June 2013 to the Board to fill the unexpired term of retired Director Alex Ferreira, Mr. Santini represents District 2, which includes the City of Lincoln, parts of the City of Rocklin and unincorporated Placer County agricultural and rural communities. He is a third-generation Lincolnite and a graduate of Lincoln schools and 25

34 Stanford University. Since 1984, he has been an owner of Cornerstone Associates Insurance Services, Inc. located in downtown Lincoln. Prior to his appointment to the Board, Mr. Santini served two consecutive terms (2000 through 2008) on the Lincoln City Council and served twice (2003 and 2008) as mayor of his hometown. In addition, he served as the council representative on the Regional Water Authority Board, South Placer Regional Transportation Authority, and the ad hoc committee working toward the completion of the Placer County Conservation Plan. He also was the chair of the committee responsible for the award-winning update of the City of Lincoln s General Plan, adopted by the Lincoln City Council in Joshua Alpine, District 5. Mr. Alpine was elected to the Board in November He represents District 5, which extends eastward from the City of Auburn east to Lake Tahoe and the Nevada state line. Mr. Alpine is a community leader, having served 10 years on the Colfax City Council, including two terms as Mayor. He works as an Electric Transmission System Operator for PG&E. The following persons are members of the Agency s management. General Manager Einar Maisch, P.E. Mr. Maisch was named General Manager of the Agency in February Mr. Maisch began his career with the Agency in 1985 as the Agency Engineer, serving as senior civil engineer, engineering administrator and director of planning and marketing before being named Director of Strategic Affairs in He earned a bachelor s degree in civil engineering from California State University, Sacramento in 1979 following service in the U.S. Army, which included a tour of duty in Vietnam. His early engineering career included work for a land development services engineering firm in Sacramento specializing in water resource projects. Director of Financial Services Joseph Parker, CPA. Mr. Parker joined the Agency in July 2002, prior to which he was a practicing certified public accountant. He has over 30 years of accounting and financial experience with governmental and special district organizations. His background includes 12 years with KPMG as an auditor, accountant and consultant for governmental and special districts. Mr. Parker earned a Masters of Economics from University of California, Santa Barbara (1985) and a Bachelor of Arts degree in Business Economics from University of California, Santa Barbara (1981). Mr. Parker is a certified public accountant (CPA), a member of the American Institute of Certified Public Accountants, a member of the California Society of CPAs, a member of the Government Finance Officers Association, a member of the Association of California Water Agencies and a member of the California Municipal Treasurers Association. Mr. Parker served on the Board and Finance Committee Chair of the Association of California Water Agencies for 10 years ( ). Director of Technical Services Brent Smith, P.E. Mr. Smith began working for the Agency in He was promoted to the Director of Technical Services position in October Since joining the Agency, he has been involved in numerous water infrastructure projects involving planning, design and construction management, preparation of several water system master plans, and management of the Engineering and Drinking Water Operations Divisions. Mr. Smith holds a Bachelor of Science Degree in Civil Engineering from the University of Utah and is a Registered 26

35 Professional Engineer in the State of California. He is a member of the American Water Works Association and the American Society of Civil Engineers. Prior to joining the Agency, Brent worked for the U.S. Bureau of Reclamation in the Upper Colorado Regional Office. Employee Relations The Agency has two formal employee bargaining units. The general employees bargaining units for both the Water Division and Power Division are represented by I.U.O.E. Stationary Engineers Local 39. The Department Managers, Mid-Management and Confidential bargaining units are unrepresented. The current memorandum of understanding for each group expires on December 31, The Agency considers its employee relations to be good, and has experienced no labor strikes. Insurance The Agency has various operating exposures not limited to legal liability, tortious acts, injury to employees, and loss to physical property. In response to these exposures, the Agency purchases insurance through a broker. The Agency is a member of the Association of California Water Agencies-Joint Powers Insurance Authority (ACWA-JPIA), and participates in the property insurance program for the Water System. For a list of insurance coverages, see Note 8 to the Agency s audited financial statements attached hereto as Appendix E. The Agency is obligated under the Installment Purchase Contract to maintain insurance on the Water System with responsible insurers in such amounts and against such risks (including accident to or destruction of the Water System) as are usually covered in connection with water systems similar to the Water System so long as such insurance is available from reputable insurance companies. In the event of any damage to or destruction of the Water System caused by the perils covered by such insurance, the Net Proceeds of the insurance will be applied to the reconstruction, repair, or replacement of the damaged or destroyed portion of the Water System. The Agency will begin the reconstruction, repair, or replacement promptly after such damage or destruction has occurred; continue and properly complete such reconstruction, repair, or replacement as expeditiously as possible; and pay out of such Net Proceeds all costs and expenses in connection with the reconstruction, repair, or replacement so that the same is completed and the Water System is free and clear of all claims and liens. If the Net Proceeds exceed the costs of reconstruction, repair, or replacement, then the excess Net Proceeds will be applied in part to the redemption of the 2016 Certificates and any Parity Debt. If such Net Proceeds are sufficient to enable the Agency to retire the entire obligation evidenced hereby prior to the final due date of the 2016 Installment Payments and all Parity Debt, the Agency may elect not to reconstruct, repair, or replace the damaged or destroyed portion of the Water System and apply the Net Proceeds to the prepayment and redemption of those obligations. Any insurance required to be maintained pursuant to the Installment Purchase Contract may be maintained under a traditional insured program, self-insurance program or pooled risk program, so long as the insurance or pooled risk program is maintained in the amounts and manner usually maintained in connection with similar water systems in California. 27

36 Retirement Program This caption contains certain information relating to PERS (defined below). The information is primarily derived from information produced by PERS, its independent accountants and actuaries. None of the Agency, the Municipal Advisor and the Purchaser has independently verified the information provided by PERS and makes no representations and expresses no opinion as to the accuracy of the information provided by PERS. The comprehensive annual financial reports of PERS are available on its Internet website at The PERS website also contains PERS most recent actuarial valuation reports and other information concerning benefits and other matters. Such information is not incorporated by reference herein. None of the Agency, the Municipal Advisor and the Purchaser can guarantee the accuracy of such information. Actuarial assessments are forward-looking statements that reflect the judgment of the fiduciaries of the pension plans, and are based upon a variety of assumptions, one or more of which may not materialize or may be changed in the future. Actuarial assessments will change with the future experience of the pension plans. The Agency provides retirement benefits through the State of California Public Employees Retirement System ( PERS ), an agent multiple-employer defined benefit retirement plan that acts as a common investment and administrative agent for various local and state governmental agencies within the State. The Agency pays the full contribution for each employee, based on a percentage of payroll (8% for fiscal year 2015). The Agency is required to contribute at an actuarially determined rate. The Agency s annual required contribution rates (as a percentage of payroll) for fiscal year 2015 were as follows: Fiscal Year 2015 Required Contribution Rate Required Contributions January 1 June 30, 2015 (1) % $2,000,272 July 1 December 31, 2015 (1) ,536,270 Total $4,536,542 (1) The Agency s pension plan maintains a plan year (ending June 30 annually) that differs from the Agency s fiscal year, which ends on December 31. The Agency s annual required contribution rates (as a percentage of payroll) for fiscal year 2016 are estimated as follows: Estimated Required Contribution Rate Required Contributions January 1 June 30, 2016 (1) % $2,536,000 July 1 December 31, 2016 (1) ,016,000 Total $5,552,000 (1) The Agency s pension plan maintains a plan year (ending June 30 annually) that differs from the Agency s fiscal year, which ends on December

37 The Schedule of Funding Progress below shows the recent history of the Agency s actuarial value of assets, accrued liability, their relationship, and the relationship of the unfunded actuarial accrued liability ( UAAL ) to payroll. Information for 2015 is not currently available. (Dollars in Thousands) Annual Covered Payroll UAAL as a % of Payroll Market Value of Assets Valuation Date Accrued Liabilities Actuarial Assets UAAL Funded Ratio 6/30/08 $61,947 $49,135 $12, % $12, % $49,884 6/30/09 72,114 52,547 19, , ,345 6/30/10 75,988 56,209 19, , ,292 6/30/11 81,664 60,491 21, , ,237 6/30/12 86,443 64,880 21, , ,719 6/30/13 92, , , ,338 6/30/14 104, , , ,393 In addition, the Agency offers its employees two deferred compensation plans created in accordance with Internal Revenue Code Section 457. The plans, available to all regular Agency employees, permit employees to defer a portion of their salary until future years. The deferred compensation is not available to employees until termination, retirement, death, unforeseeable emergency or age 70.5 years. Recent Actions Taken by PERS. On March 14, 2012, the PERS Board of Administration voted to reduce its discount rate, which rate is attributable to its expected price inflation and investment rate of return (net of administrative expenses), from 7.75% to 7.5%. As a result of such discount rate decrease, among other things, (i) the amounts of PERS member state and schools employer contributions increased by 1.2 to 1.6% for Miscellaneous plans and 2.2 to 2.4% for Safety plans beginning in Fiscal Year and (ii) the amounts of PERS member public agency contributions increased by 1 to 2% for Miscellaneous plans and 2 to 3% for Safety plans beginning in Fiscal Year The PERS Board adjustment was undertaken in order to address underfunding of the PERS funds, which arose from significant losses incurred as a result of the economic crisis arising in 2008 and persisting due to a slower than anticipated, subsequent economic recovery. At its April 17, 2013 meeting, the PERS Board of Administration approved a recommendation to change the PERS amortization and smoothing policies. Prior to this change, PERS employed an amortization and smoothing policy that spread investment returns over a 15-year period with experience gains and losses paid for over a rolling 30-year period. After this change, PERS will employ an amortization and smoothing policy that will pay for all gains and losses over a fixed 30-year period with the increases or decreases in the rate spread directly over a 5-year period. According to PERS, the current amortization and smoothing policy was designed to reduce volatility in employer contribution rates, and, although the policy accomplished this goal fairly well since its adoption, a number of concerns have developed: The use of an actuarial value of assets corridor can lead to significant single year increases to rates in years when there are large investment losses. The use of long asset smoothing periods and long rolling amortization periods result in slow progress toward full funding. 29

38 The use of an actuarial value of assets requires the disclosure of two different funded statuses and unfunded liability numbers in actuarial valuation reports. This adds confusion and inhibits transparency. The use of rolling amortization and long asset smoothing periods makes it difficult for employers to predict when contribution rates will peak and how high that peak will be. The use of rolling amortization and asset smoothing periods may result in additional calculations for the new accounting standards. These calculations would be avoided with a quicker funded status recovery. According to PERS, the adoption of the new smoothing and amortization policies will change future employer contribution rates, as follows: Funding levels will improve, which will reduce the funding level risk. Local agencies plans will experience more rate volatility in normal years, but a much-reduced chance of very large rate increases in years when there are large investment losses. Contribution rates in the near term will increase. Long-term contribution rates will be lower. There will be greater transparency about the timing and impact of future employer contribution rate changes. The new policy eliminates the need for an actuarial value of assets. As a result, there will be only one funded status and unfunded liability in actuarial reports. There will be less confusion when the new accounting standards are implemented since there will be no need for extra liability calculations. Pension Reform Act of 2013 (Assembly Bill 340). On September 12, 2012, Governor Brown signed AB 340, a bill that enacted the California Public Employees Pension Reform Act of 2013 ( PEPRA ) and amended various sections of the California Education and Government Codes, including the County Employees Retirement Law of AB 340 (i) increases the retirement age for new State, school, and city and local agency employees depending on job function, (ii) caps the annual PERS pension benefit payout for members hired after January 1, 2013, (iii) addresses numerous abuses of the system, (iv) requires State, school, and certain city and local agency employees hired after January 1, 2013 to pay at least half of the costs of their PERS pension benefits and (v) determines final compensation for members hired after January 1, 2013 based on the highest average annual pensionable compensation earned over a period of at least 36 consecutive months. PEPRA will apply to all public employers except the University of California, charter cities and charter counties (except to the extent they contract with PERS). The provisions of AB 340 went into effect on January 1, 2013 with respect to State employees hired on that date and after; local government employee associations, including employee associations of the Agency, will have a five-year window to negotiate compliance with AB 340 through collective bargaining. If no deal is reached by January 1, 2018, a city, public agency or school district could force employees to pay their half of the costs of PERS pension benefits, up to 8 percent of pay for civil workers and 11 percent or 12 percent for public safety workers. PERS predicts that the impact of AB 340 on employers, including the Agency, and employees will vary, based on each employer s current level of benefits. To the extent that the 30

39 new formulas lower retirement benefits, employer contribution rates could decrease over time as current employees retire and employees subject to the new formulas make up a larger percentage of the workforce. This change would, in some circumstances, result in a lower retirement benefit for employees than they currently earn. Additionally, PERS notes that changes arising from AB 340 could ultimately have an adverse impact on public sector recruitment in areas that have historically experienced recruitment challenges due to higher pay for similar jobs in the private sector. More information about AB 340 can be accessed through PERS s website at The reference to this Internet website is shown for reference and convenience only; the information contained within the website may not be current and has not been reviewed by the Agency and is not incorporated herein by reference. Also, on February 20, 2014, the PERS Board approved new demographic assumptions reflecting (i) expected longer life spans of public agency employees and related increases in costs for the PERS system and (ii) trends of higher rates of retirement for certain public agency employee classes, including police officers and firefighters. The increase in liability due to the new assumptions will be amortized over 20 years with increases phased in over five years, beginning with the contribution requirement for Fiscal Year The new demographic assumptions affect the State and all other public agencies, including the Agency. The Agency is unable to predict what the amount of PERS liabilities will be in the future or the amount of the PERS contributions which the Agency may be required to make, including, but not limited to, as a result of the implementation of AB 340 or changes to the economic and demographic assumptions adopted by PERS in February 2014, and as a result of negotiations with its employee associations. The table below reflects the Plans provision and benefits in accordance with PEPRA at, June 30, 2015: Hire Date on or after Hire Date Prior to January 1, 2013 January 1, 2013 (New Member) Benefit formula Benefit vesting schedule 5 year service 5 year service Benefit payments monthly for life monthly for life Retirement age Monthly benefits as a % of annual salary 2.0% to 2.7% 1.0% to 2.5% Required employee contribution rates 8.00% 6.25% Required employer contribution rates 21.28% 12.50% Other Post-Employment Benefits Based on Memoranda of Understanding ( MOU ) between the Agency and the employees union, retirees may purchase health coverage with unused sick leave. The cost to the Agency in the year ended December 31, 2015, was $21,651. The Agency also provides other post-employment healthcare benefits ( OPEB ) to retirees through PERS. In addition, the Agency contributes the larger of the Public Employees Medical and Hospital Care Act ( PEMHCA ) and MOU benefit. In fiscal year 2015, 98 retirees received post-retirement benefits ranging from $ to $1, (PEMHCA cap) per month. The cost to the Agency in the fiscal year ended December 31, 2015 was $731,

40 As part of implementation of Governmental Accounting Standards Board s Statement No. 45 ( Statement No. 45 ), which requires, among other things, that the Agency account for post-employment benefits other than pension benefits, in 2008, the Agency elected to pursue a fully prefunded program and establish an irrevocable trust to provide a funding mechanism for OPEB and apply the provisions of Statement No. 45 on a prospective basis. The trust is administered by PERS through its California Employers Retiree Benefit Trust ( CERBT ) and managed by an appointed board that is not under the control of the Agency s Board of Directors. CERBT is a tax-qualified irrevocable trust organized under Internal Revenue Code Section 115 and established to pre-fund retiree healthcare benefits. As of December 31, 2015, the Agency has set aside $14,456,634 in its CERBT account. In accordance with Statement No. 45, the Agency engaged Bartel Associates, LLC to conduct an actuarial study to determine the Agency s liability with respect to OPEB. As of the actuarial valuation dated June 30, 2015, the Agency s unfunded actuarial liability was $12,954,000 on a fully prefunded program with PERS. The Agency s annual required and actual OPEB contributions for the years ended December 31, 2013, 2014 and 2015 are shown below. Year End Annual OPEB Cost Actual Contribution Percentage of OPEB Cost Net OPEB Asset (Obligation) 12/31/13 $1,963,000 $2,105, % $110,836 12/31/14 1,897,000 1,998, ,338 12/31/15 1,977,000 1,977, ,339 32

41 THE WATER SYSTEM Overview The Water System was established in It has become the largest water purveyor in Placer County, serving more than 39,000 water accounts. Surface water supplies are purchased from PG&E (from the Yuba/Bear Rivers) and Agency Wide (from the American River). The Agency owns and operates 165 miles of canals, ditches, flumes and several small reservoirs, most of which were built in the Gold Rush era. A significant amount of Agency raw water irrigates pastures, orchards, rice fields, farms, ranches, golf courses and landscaping. The Agency owns and operates eight water treatment plants, 27 storage tanks and more than 580 miles of treated water pipelines. Treated surface water is sold directly to Agency customers residing in Auburn, Colfax, Loomis, Rocklin, portions of Roseville and throughout various unincorporated areas of Placer County. Agency treated water is also sold wholesale to the City of Lincoln and other purveyors who retail it directly to their customers. The Agency also utilizes groundwater to occasionally supplement surface water supplies when needed in Western Placer County. Service Area Zones The Water Division is separated into zones that have been established as the Agency incorporated these areas into its water operations. Zone 1, Zone 2, and Zone 3 comprise over 99% of the Water Division, and are collectively referred to as the Western Service Area or Western Water System. The Agency had a Zone 4 (Eastern Water System) that was established in 1992 for a water system in the Martis Valley near Truckee, California. On October 1, 2015, Zone 4 was transferred to Northstar Community Services District. Zone 5 serves commercial agricultural land in western Placer County. As noted above, the Installment Purchase Contract and 2016 Certificates relate to only the portion of the Agency s total service area (Zone 1, Zone 2 and Zone 3). Together, these zones are referred to in this Official Statement as the Water System. A map showing the Water Division s service zones is set forth on the following page. 33

42 p Placer County Water Agency Service Area Map Rollins Reservoir Bear River 80 Alta North Fork American River 34 «65 Bear River «65 Zone 5 Camp Far West Reservoir «193 «65 Zone 1 3Q Sunset WTP Ophir Pump Station Auburn Tunnel Pump Station Newcastle Penryn Loomis 3Q Lake Of The Pines Lake Combie «49 Applegate WTP Foothill WTP 3Q 3Q Auburn Auburn WTP [Ú [Ú 3Q Bowman WTP «174 Zone 3 American River pump Station Auburn Tunnel Colfax North Fork American River Middle Fork American River North Fork of the Middle Fork American River Middle Fork American River Rocklin «65 Zone 2 80 Folsom Lake Miles

43 Water Supply The Agency obtains its water from the following sources, which are primarily supplied from the Sierra-Nevada snowpack runoff: (i) Up to 100,400 acre-feet ( AF ) of water per year from its Western Water Supply Contract with PG&E; (ii) with PG&E; Up to 25,000 AF of water per year from its Zone 3 Water Supply Contract (iii) Up to 120,000 AF of water per year from appropriated water rights developed through construction in the 1960s of the Agency s Middle Fork Project; (iv) Up to 35,000 AF of water per year from the U.S. Bureau of Reclamation s Central Valley Project; and (v) Up to 2,000 AF of water per year from wells in Western Placer County. These sources of supply are described in the paragraphs that follow. Western PG&E Water Supply Contract (Formerly Zone 1). The basis of the western water supply from PG&E is the Western Water Supply Contract, pursuant to which water is provided to the Agency from the Yuba and Bear Rivers through PG&E s Drum-Spaulding Project. The Drum-Spaulding Project consists of several reservoirs and a series of canals, tunnels and hydroelectric generation facilities. The Western Water Supply Contract was originally memorialized in a June 18, 1968 agreement with PG&E that allowed the Agency to take delivery of up to a maximum of 100,400 AF per year from specified diversion points along the canal system at prices initially ranging from $1.45 to $3.93 per AF. On April 29, 2013, the Agency and PG&E approved a bridging agreement that extended the term of the 1968 agreement at substantially increased prices of $30.00 per AF effective January 1, 2014 and $40.00 per AF effective January 1, On February 27, 2015 the Western Water Supply Contract was approved by both parties for $40.00 per AF in 2015 and to be adjusted annually based on the Consumer Price Index, thereafter. The agreement is expected to ensure continued reliable water delivery to the people of western Placer County for the next 30 years. In fall 2013, the Agency s Board adopted a 5-year water rate and fee structure that included an inflationary index to be effective January 1, Beginning January 1, 2014, the wholesale cost of water delivered by PG&E to Zone 1 increased from about $200,000 per year to up to approximately $3 million per year, depending on the water requested. In 2015, purchased water increased approximately $1 million to an estimated yearly total of $4 million and will increase annually based on the Consumer Price Index as noted above. On January 01, 2016, a 1.2% water rate increase went into effect. In January 2014, based on the lack of precipitation, primarily snowpack, PG&E notified the Agency that water supplies were limited and expect less than half of the contracted water supply. On February 6, 2014, the Agency s Board of Directors heard a staff report on the impacts of the dry conditions on local water supply, held a public hearing to receive input, and then adopted a resolution declaring a water shortage emergency condition. After the early April 35

44 snow survey, PG&E reported the forecast for water deliveries to the Agency would be 67% of normal deliveries. At an adjourned meeting on April 10, 2014, the Agency s Board of Directors adopted prescriptive measures for water restrictions by directing both treated and untreated water customers to reduce their water use by a minimum of 10% and all customers are further requested to strive for a 20% overall conservation. Through a combination of efforts and circumstances, the Agency was able to meet its water demands without significant impact to its customers. Those efforts and circumstances included customer water conservation efforts, Western Water Supply contract water supply increasing, the ability to divert the Middle Fork Project water at the American River Pump Station into the Auburn Tunnel, and the use of groundwater was the fourth dry year in a row in the State; as a result, the California State Water Resources Control Board set water reduction levels across the State. With water use efficiency, education and increased public outreach, the Agency achieved as much as 38% conservation in the summer months and approximately 30% for the State s compliance period. On February 18, 2016, the Agency rescinded its water shortage emergency condition and restrictions on delivery and consumption of water ( Drought Emergency ) originally adopted on April 10, 2014 and amended through June 4, The following table shows information relating to the volume of water received by the Water System and amount paid during the last five calendar years in connection with the Western Water Supply Contract. Table No. 1 PLACER COUNTY WATER AGENCY RAW WATER RECEIVED FROM PG&E WESTERN WATER SUPPLY CONTRACT Calendar Year Acre-Feet Received Amount Paid ,728 $118, , , , , ,916 1,750,149 (1) ,049 2,265,073 (1) (1) Increases in Calendar Years 2014 and 2015 reflect increased prices per AF paid to PG&E under the Western Water Supply Contract. See narrative above. Source: Placer County Water Agency. The Western Water Supply Contract provides that PG&E is not liable for insufficiency or interruption of water supply during droughts or as a result of certain natural or human causes. It is the Agency s responsibility to insure adequate storage to continue delivery to customers during such interruptions or diminished service from PG&E. Zone 3 Water Supply Contract. In 1982, the Agency entered into its Zone 3 Water Supply Contract with PG&E to acquire treated and raw water systems serving the portion of upper Placer County that is adjacent to Interstate 80 from Alta, down through Colfax, to the eastern boundary of Zone 1. Along with the acquired treated and raw water systems, the Agency acquired the right to purchase up to 25,000 AF annually from PG&E for use within Zone 3. Like the water purchased under the Western Water Supply Contract, this water is sourced from PG&E s Drum-Spaulding Project. Deliveries to the Agency under the Zone 3 Water Supply Contract are made at Alta Tailrace and Alta Forebay. The Agency incurs no charge for deliveries made available by 36

45 PG&E of 13,000 AF or less in any water year. Above 13,000 AF, the water price is set by the California Public Utilities Commission. Under the Zone 3 Water Supply Contract, the Agency receives conservation credits for operating the Zone 3 system to conserve water and decrease delivery requirements below 11,000 AF per year. The Agency has not yet exceeded delivery of 13,000 AF in any water year and has, therefore, incurred no charge for deliveries under the contract. The following table shows information relating to the volume of water received by the Water System and the conservation credit during the last five calendar years in connection with the Zone 3 Water Supply Contract. Table No. 2 PLACER COUNTY WATER AGENCY RAW WATER RECEIVED FROM PG&E - ZONE 3 WATER SUPPLY CONTRACT Calendar Year Acre-Feet Received Conservation Credit (1) ,781 $90, ,182 35, ,007 58, ,713 45, ,647 63,012 (1) As explained above, the Agency receives conservation credits for operating the Zone 3 system to conserve water and decrease delivery requirements below 11,000 AF per year. The credits constitute Water Revenues and are included in the Agency s income statement in Table No. 12 in the line item Other Revenues. See Table No. 12. Source: Placer County Water Agency. Middle Fork Project. In addition to the 100,400 AF available from the Western Water Supply Contract and 25,000 AF available from the Zone 3 Water Supply Contract, the Agency has up to 120,000 AF of water available annually from appropriated water rights developed through construction in the 1960s of its Middle Fork Project on the American River. The Middle Fork Project consists of two storage and five diversion dams, five power plants, diversion and water transmission facilities, 24 miles of tunnels and related facilities. Middle Fork Project water can be diverted into the Western Water System through the American River Pump Station to Auburn tunnel and from Folsom Reservoir. The Folsom Reservoir diversion does not serve demand in the Agency s Water System but rather allows water sales to other agencies (such as City of Roseville, San Juan Water District and Sacramento Suburban Water District). The following table shows information relating to the volume of water received by the Agency during the last five calendar years from the Middle Fork Project. Table No. 3 PLACER COUNTY WATER AGENCY RAW WATER RECEIVED (PUMPED) MIDDLE FORK PROJECT Acre-Feet Received Calendar Year (Pumped) , , , , ,028 Source: Placer County Water Agency. 37

46 Central Valley Project. The Agency s fourth source of raw water is from the U.S. Bureau of Reclamation s Central Valley Project pursuant to a 1970 contract that was amended in February 2002 and August This source could provide up to 35,000 AF of water annually. Historical use has been less than 100 AF annually. The Agency only pays for water used. Wells in Western Placer County. The Agency currently has two wells within the Sunset Industrial area located in unincorporated Western Placer County. These wells were upgraded with new pumps, motors, and control systems in 2015 and are able to reliably provide slightly greater than 2,000 AF per year. These wells provide back-up supply to the Agency s water system and are not routinely operated to meet normal system demands. Service Demand and Customer Base Service Demand. The following table presents a five-year record from fiscal year 2011 through fiscal year 2015 of total and average daily deliveries and orders for treated and raw water for the Agency. Table No. 4 PLACER COUNTY WATER AGENCY WATER SYSTEM WATER DELIVERIES AND ORDERS (TREATED AND RAW) (in Acre-Feet) Calendar Year Treated Water Raw Water (1) Total Average Per Day ,055 82, , ,981 93, , ,293 95, , ,973 81, , ,790 82, , (1) Reflects quantities ordered. Actual deliveries may differ Source: Placer County Water Agency. 38

47 Customer Base. The following tables show fiscal year 2015 active accounts and water consumption for treated and raw Water System customers, respectively. Table No. 5 PLACER COUNTY WATER AGENCY WATER SYSTEM TREATED WATER ACTIVE ACCOUNTS AND ORDERS BY TYPE OF CUSTOMER Fiscal Year Ending December 31, 2015 Type of Customer End-of-Year Active Accounts Percent Water Ordered (Acre-Feet) Percent Residential (Single Unit) 29, % 11, % Residential (Multi-Unit) , Commercial 1, , Construction Fire Protection Municipal Landscape , Industrial Agriculture Resale (1) , No Demand (2) TOTAL 35, % 26, % (1) The Agency provides treated water to public agencies and public utilities that own, operate and maintain their own distribution systems, storage reservoirs and pumping plants, and who resell water to individual users. Currently, the Agency s primary resale water customers are the City of Lincoln and Cal-American Water Co. (2) Accounts that pay renewal & replacement charges and monthly service charges, but are not drawing water. The small consumption amount is the result of usage occurring and being billed prior to changing customer type. Source: Placer County Water Agency. Table No. 6 PLACER COUNTY WATER AGENCY RAW WATER ACTIVE ACCOUNTS AND ORDERS BY TYPE OF CUSTOMER Fiscal Year Ending December 31, 2015 Type of Customer End-of-Year Active Accounts Percent Metered Consumption (Acre-Feet) Percent Irrigation Customers 3, % 52, % Commercial Agriculture , Landscape , Metered Resale , TOTAL 4, % 82, % Source: Placer County Water Agency. Projected Ability to Meet Demand. The Agency believes projected demands for its service areas throughout Placer County will be met through buildout of the various General Plans of Placer County and the Cities by water sourced from the Western Water Supply Contract, Zone 3 Water Supply Contract, Middle Fork Project, Central Valley Project and wells in Western Placer County. 39

48 Water Facilities The Water System serves approximately 216 square miles in Placer County. Its raw and treated water facilities are described below. Raw Water Facilities. Water is received from PG&E delivery points and the American River Pump Station into a system of open canals, pipes, and tunnels that deliver the water to the Agency s treatment plants and raw water customers. The Agency s key raw water facilities include those described below. American River Pump Station. The American River Pump Station was completed in March 2008 and can supply 189 cubic feet per second ( cfs ) of water into a tunnel for delivery to the lower water system throughout the year. This water can be delivered to existing water treatment facilities during outages of the PG&E supply and raw water customers along Auburn Ravine west of the City of Lincoln through the tunnel outlet. Completion of the Ophir Road Pump Station and Ophir Road Pipelines projects (described below), allowed the American River Supply to be available year-round delivering raw water directly to customers and to the Sunset water treatment plant. Auburn Tunnel Pump Station. The existing Auburn Tunnel Pump Station can currently lift 50 cfs from the tunnel to serve the lower portion of the Water System s treated and raw water customers during outages of the PG&E supply. Ophir Road Pump Station. The Ophir Road Pump Station was completed in late 2008 and has capacity to pump up to 100 cfs of raw water from the tunnel to future facilities, including one of the Ophir Road Pipelines and the Ophir Water Treatment Plant that is planned for construction on Agency owned property directly adjacent to the Ophir Road Pump Station site. Ophir Road Pipelines. This project was completed in 2014 and included the construction of three pipelines in or along Ophir Road. The primary purpose of the project was to deliver raw water from the American River, through the facilities described above, to Dutch Ravine and to the Foothill Water Treatment Plant and treated water from a future Ophir Water Treatment Plant to areas of growth within Western Placer County. The current demand on Dutch Ravine is up to 78 cfs for raw water customers and the Agency s Sunset water treatment plant, which currently can only be met by PG&E supplies. By creating capacity to serve this demand from the American River, the PG&E supply is freed up for other system demands and greater reliability. The Ophir Road Pipelines project will also result in the construction of a portion of the treated water pipeline from the future Ophir Water Treatment Plant and a smaller treated water pipeline from the Agency s Newcastle Storage Tank into Ophir Road and loop into the Newcastle Water System. Treated Water Facilities. The Agency owns and operates eight water treatment plants and 27 storage tanks within its service area. These facilities are carefully monitored by a team of licensed professional water treatment and distribution operators to standards that meet or exceed all Federal, State, and local public health and quality standards. The treated water is distributed to customers through more than 580 miles of transmission and distribution pipelines. 40

49 Treated water facilities include the following treatment plants: Primary Treatment Plants. Auburn Treatment Plant: This treatment plant was expanded in It has a rated treatment capacity of 8 million gallons per day ( MGD ) and provides treated water to portions of the Water System. The new plant is designed for an ultimate capacity of 14 MGD. Bowman Treatment Plant: Built in 1978 and expanded in 1993, this treatment plant has a rated treatment capacity of 7 MGD and provides treated water to the upper portion of the Water System. Foothill Treatment Plant: Built in 1978 and expanded in 1990, 2004 and 2012, this treatment plant has a rated treatment capacity of 58 MGD. It provides treated water to the lower portion of the Water System. Sunset Treatment Plant: Built in 1968 and expanded in 2003, this treatment plant has a rated treatment capacity of 8 MGD and provides treated water to the lower portion of the Water System. There are four additional treatment plants between Applegate and Alta with a combined treatment capacity of approximately 2 MGD, including the Colfax Water Treatment Plant, which has a capacity of 1.6 MGD. Storage: The Water System has a treated water storage capacity of approximately 62 million gallons in 27 storage tanks. The current storage capacity provides the water system approximately one day of storage. Five-Year Capital Investment Program The Agency s five-year ( ) capital improvement program totals $174.2 million, $106.4 million of which is attributable to the Water Division. The Agency prepares and updates its capital improvement program for the Water Division ( Water Division Capital Investment Program or CIP ) annually. The 2016 CIP totals $18.2 million in Water Division projects. The following is a breakdown of the Water Division Capital Investment Program: Expansion Projects. Expansion projects are projects that expand the water system s capacity. The total cost of the Agency s expansion projects over the next 5-years is projected to be approximately $57.4 million. The cash flow to fund the expansion project costs is expected to be funded through Water Connection Charge ( WCC ) revenues and if necessary, capital debt issuance. These projects encompass key pipeline and tank expansion projects, as well as, the design and initial stages of building the Ophir water treatment plant. Rates Projects. Rate projects are projects for the operation or renewal/replacement of the existing water system. These would include project required for regulatory compliance, enhancement to operational efficiencies, technology upgrades and on-going rehabilitation/replacement. The total cost of the Agency s rate projects over the next 5-years is projected to be approximately $49.0 million. These projects are funded by rate payer collected revenue, which is primarily the collection of the Renewal and Replacement Charge that adds approximately $11 million annually. Rehabilitation is an on-going commitment and challenge for 41

50 both the untreated water conveyance and treated water transmission systems. The treated water operation is dependent upon major segments of the Agency s 165-mile untreated water conveyance system, some of which is over 100 years old, as well as the 580 miles of transmission and distribution pipelines. Table No. 7 includes the five-year CIP by funding category: Table No. 7 PLACER COUNTY WATER AGENCY FIVE YEAR WATER DIVISION CAPITAL INVESTMENT PROGRAM (CIP) BUDGET BY FUNDING SOURCE (in millions) Calendar Year Expansion Projects (1) Rates Projects Other Projects Total Costs Total $57.4 $45.7 $3.3 $106.4 (1) Subsequent to the adoption of the 2016 budget, it is anticipated that additional capacity expansion projects will be funded in years 2018 and Source: Placer County Water Agency Year Capital Plan Expansion Projects Foothill Plant Expansion #2: This project consists of improving two process trains at Foothill WTP that were installed in approximately The improvements will replace the flocculation, sedimentation, and sludge handling systems, replace valve actuators, and provide additional modifications to the plant to obtain up to an additional 3 MGD of capacity. Foothill Raw Water Supply Pipeline: This project will provide a means of conveying raw water from the Ophir Road Pump Station to the Foothill Water Treatment Plant completely independent of PG&E s South Canal. This project will satisfy the redundant facilities required to be built by 2022 per the 2015 Water Supply Agreement with PG&E. Ophir Water Treatment Plant: This project includes the design and construction of a multiphased water treatment plant off Ophir Road in Auburn. Design will include finalization of a phasing plan to provide capacity to meet the projected demands of the region. Songbird Storage Tank: The project includes the design and construction of a 10 million gallon storage tank. The purpose of the project is to provide water storage capacity to lands in western Placer County, the Sunset Industrial area, and the Whitney Ranch/Sunset Ranchos Community Plan Area. This would provide additional fire protection storage and emergency storage and address the operational storage needs of the area. Water System Modeling and Planning: This project will analyze infrastructure needs, cost, and timing to keep up with development activity and new water system 42

51 connections. The past plan was to construct Ophir Water Treatment Plant and related infrastructure; however, given the high cost of that concept and the slower pace of growth anticipated in the near future, other less expensive and smaller projects are under consideration to bridge the gap between current remaining capacity and the time when Ophir Water Treatment Plant can be afforded. The project will also investigate financing options. Rates Projects Advanced Metering Infrastructure (AMI) Program: This project will continue progress to install and operate new technologies in water metering. In the last several years the Agency has completed efforts to install radio read devices such that meter reading can be completed from a vehicle, which has allowed waning of temporary staff used to read meters by hand. The next concept that is under consideration is the installation of radio read base stations and communications to centralize receivers for real-time reading. Also under consideration is hourly or daily data collection, which has applications in leak detection and engineering analysis. Alta WTP Improvements - Phase 2: This project will be the second phase of a project to expand the capacity of Alta Water Treatment Plant with hydraulic upgrades to the water supply and replace aging infrastructure within the plant. The first phase to replace the filter vessels and add air scour has been completed. Phase 2 will increase the size of the raw water supply pumps, piping, and other appurtenances necessary to improve the hydraulic capacity in the plant. A final phase will evaluate the electrical system and complete improvements necessary to improve reliability of the facility. Arc Flash Program: The NFPA 70E is a safety requirement that requires a formal risk assessment for calculating and documenting electrical energy, arc-flash boundaries, corresponding working distances, and personal protective equipment required for all electrical service areas over 50-volts. In order to comply with this requirement the project will prioritize and address the labeling of the extensive electrical system used to support treatment plants and other facilities. Field Services Projects: These projects will help to minimize system leaks, add automated controls, and replace portions of the system that have deteriorated due to age, specifically, untreated water projects such as guniting, replacing flume components and or siphons, along with treated water projects, such as replacing sections of steel pipe and services. Long Ravine Pipeline: This project will replace the Long Ravine Pipeline portion of the Boardman Canal. This pipeline is very old, constantly surges due to air entrainment, and at risk of failure. The project will include countermeasures to eliminate the air entrainment and eliminate surging. The Boardman Canal is the only supply of water for several foothill water systems and a critical backup supply into Auburn. Based on the critical nature of this pipeline, this project will greatly enhance reliability of the Agency s backbone water system. PCWA/NID Emergency Intertie (Mt. Vernon): This project consists of installation of approximately 1240 linear feet of pipe and a pressure reducing station at the PCWA/NID service boundary located along Mount Vernon Road. 43

52 Security Management Plan: The project will provide security hardware, software, infrastructure and peripheral devices used for protecting vital drinking water assets including plant, tank and pump station security following the standards set forth in the Agency plan. Tank Mixers/Power Vents: This project includes adding tank-mixing systems to various tanks in order to address the problem of increased total trihalomethane (TTHM) levels due to water aging in the system. YBDS Water Supply Project: Staff and consultants will monitor PG&E, NID, and YCWA s relicensing proceedings for possible changes in their operating conditions that may affect PCWA s water supplies 44

53 WATER SYSTEM FINANCES Financial Statements The Water Division s operations are accounted for as an enterprise fund, which includes the operation and maintenance of the water supply, distribution, water treatment facilities, special assessment funds, and service level support. The Agency s accounting principles conform to generally accepted accounting principles as applicable to governmental type organizations. The enterprise funds are accounted for on the accrual basis of accounting. The revenues are recognized when they are earned, and the expenses are recognized when they are incurred. The Agency s financial statements, audited by Davis Farr, LLP Irvine, California (the Auditor ), for the year ended December 31, 2015, are attached hereto as Appendix E together with the opinion of the Auditor relating thereto. Revenues The Water Division s primary sources of revenue are charges collected for services, but more broadly include (i) water sales, (ii) the Renewal and Replacement Charge, and (iii) interest and other miscellaneous income. The Agency currently receives property tax revenues of approximately $800,000 annually; however, these revenues are not used to fund Water Division expenses and are not pledged to the payment of the 2016 Installment Payments. Water Sales The Agency has two types of water sales: (i) on-going retailed or wholesaled water sales of both treated and raw water to customers connected to the Agency s water system infrastructure; and (ii) individual contracted one-time water sales to other water providers or the environmental water bank. The on-going water sales are recorded as operating revenue and the one-time water sales are recorded as non-operating revenue. Water Division sales can fluctuate up to 20% or more based on precipitation. Historically, the annual weather effects of the late spring or early fall precipitation can either increase or decrease commodity sales as customers modify their outdoor water use. Over the past five years, consumption has varied due to economic and weather effects, which directly impacts water revenue. Although the volume of treated water billed has historically been between 27% and 32% of the total volume of water billed, approximately 90% of water sales revenues have historically been derived from treated water, with the remaining 10% of water sales derived from raw water. The last three years of drought conditions and the 2015 State mandatory water use reductions have caused many customers to implement permanent water savings by modifying landscaping and water use fixtures. During 2015, Agency staff analyzed the future water commodity revenue and determined that an additional reduction in the baseline water commodity revenue (treated and untreated) was warranted. This re-evaluation reduces the projected treated water commodity revenue (retail and resale) by an estimated 12% and untreated commodity by 8% from the 2013 baseline amounts. 45

54 The following tables show Water Division water sales billed and water sales revenues. Table No. 8 PLACER COUNTY WATER AGENCY WATER SYSTEM WATER SALES BILLED (in Acre-Feet) Year Treated Water Treated Water % of Total Raw Water (1) Raw Water % of Total Total Billed ,055 27% 82,928 73% 112, , , , , , , , , , , , ,690 (1) Raw water figures are quantities ordered. Actual deliveries may differ. Source: Placer County Water Agency. Treated Water Sale Revenues Table No. 9 PLACER COUNTY WATER AGENCY WATER SYSTEM SALE REVENUES (Dollars in Millions) Raw Water Sale Revenues Total Water Sale Revenues % Total Water % Total Sale Year Sale Revenues Revenues 2011 $ % $ % $ Source: Placer County Water Agency. The table on the following page represents the ten largest customers of the Water System, ordered by the amount each customer was billed by the Agency, along with each customer s corresponding total water usage amounts. 46

55 Table No. 10 PLACER COUNTY WATER AGENCY TEN PRINCIPAL WATER USERS (by Amount Billed) Fiscal Year 2015 Type of Customer Amount Billed (1) % of Total Amount Billed Total Usage in Acre-Feet % of Total Usage Customer City of Lincoln Resale $6,114, % 6, % Cal American Water Resale 703, City of Rocklin Municipal 664, Rocklin Unified School District Municipal 364, Rio Bravo Rocklin Industrial 255, United Auburn Indian Community Commercial 184, Hidden Valley Community Assn. Resale 186, Loomis Union School District Municipal 71, Sierra College Municipal 52, Lakeview Hills Community Assn. Resale 45, TOTAL TOP TEN $ 8,521, % 11, % TOTAL WATER DIVISION $ 42,698, ,909 (1) Includes water sales, surcharges, renewal and replacement charges, penalties and other similar charges. Source: Placer County Water Agency Billings and Collection Water Revenues. The following table details the five-year history of billings, collections and delinquencies of the Water System. Table No. 11 PLACER COUNTY WATER AGENCY HISTORICAL BILLINGS, COLLECTIONS AND DELINQUENCIES Year Water Billings (1) Collections Uncollectible Collection Percentage ,175,843 38,062, , % ,623,874 40,546,730 77, ,330,081 43,263,628 64, ,797,871 42,741,965 55, ,411,249 41,361,039 50, (1) Includes water sales, surcharges, renewal and replacement charges, penalties and other similar charges. Source: Placer County Water Agency. 47

56 Rates and Charges in General Authority to Establish Rates and Charges. The Agency s Board of Directors has the authority under California law to establish rates and charges for service without the oversight or review of any other governmental body, subject to certain legal constraints. See CONSTITUTIONAL AND STATUTORY LIMITATIONS. The Agency s rates and charges are established by resolutions of the Board of Directors. The Agency has the right to refuse or terminate water service to delinquent customers and to require full payment of delinquent amounts and reconnection fees to resume service. With respect to certain potential limitations on the ability of the Agency to increase water rates and charges, see CONSTITUTIONAL AND STATUTORY LIMITATIONS Articles XIIIC and XIIID of the California Constitution. In May 2013, the Agency initiated a Proposition 218 process for a proposed water rate adjustment in the Zone 1 region. This action was taken to cover increases in wholesale water costs and to cover higher general operating costs. Beginning January 1, 2014, the wholesale price of water delivered by PG&E to Zone 1 increased from $1.45 to $3.93 per acre-foot to $30.00 per acre-foot. In 2015, the price further increased to $40.00 per acre-foot. In subsequent years, the cost will increase annually according to a suitable index to the increased cost of construction. On August 8, 2013, the Agency s Board of Directors adopted a new 5-year water rate and fee structure to pay for these increased costs and ensure the continuing reliability of the Agency s primary water source. In 2016, the Agency has contracted to perform a water rate study. The Agency s 2016 budget contains a 1.2% water rate increase for Zone 1. See THE WATER SYSTEM Water Supply Western Water Supply Contract. Treated Water Rates and Charges. Each treated Water Division customer pays a (i) monthly fixed charge based on meter size and (ii) quantity charge per hundred cubic feet of water delivered. Rates and charges differ depending on the user s classification as treated, fire protection or construction service. In addition, the Agency initially established a monthly charge for renewal and replacement projects on January 1, 2002, currently referred to as the Renewal and Replacement Charge. See THE WATER SYSTEM Five-Year Capital Investment Program. The monthly fixed charge and Renewal and Replacement Charge are payable whether or not any water is used. In addition, new customers must pay a charge for setting a meter and the Agency s WCC. See Treated Water Rates and Charges for Residential Water Customers. Raw Water Rates and Charges. The rate schedule for each raw water customer depends on the class of service. See Raw Water Rates and Charges for Irrigation Service. Overview of Rates and Charges. Set forth in the following sections is information about the following current rates and charges: 1. Treated water rates and charges for residential water customers (residential accounts represent 86.89% of treated water accounts), including the Renewal and Replacement Charge, charges for meter service and WCC. 2. Raw water and charges for irrigation service (irrigation customers account for approximately 84.30% of raw water accounts). 48

57 Additional information about the Agency s various rates and charges may be obtained from the Agency: 144 Ferguson Road, Auburn, California 95604, Attn. Director of Customer Services; Phone: Treated Water Rates and Charges for Residential Water Customers Minimum Service Charges for Monthly Residential Water Service (1). The current metered residential service charges for treated water, which were last revised in November 2015 (effective January 1, 2016), based on meter size, are set forth below. Meter Size No. of Meters (2) Monthly Service Charge (3) 5/8 26,090 $ /4 1, , ½ , , , (1) Rates are for the Zone 1 Western Water System service area. The Zone 1 Western Water System comprises over 96% of total water customers; water flow and total water sales revenue, and therefore, has the most significant impact on determining fees & charges. (2) Includes residential and residential fire meters for the Water System. (3) Multiple dwelling units and mobile home parks pay either $12.95 per month per dwelling unit/space or meter size charge, whichever is greater. Source: Placer County Water Agency. Renewal and Replacement Charge. A schedule of the current Renewal and Replacement Charge, which was last revised in November 2015 (effective January 1, 2016), based on meter size, is set forth below. Meter Size No. of Meters Monthly Service Charge (1) 5/8 26,090 $ /4 1, , ½ , City of Lincoln 0 $12.31 Special Condition (2) Cal American Water Company 0 $13.69 Special Condition (2) (1) Charge determined based on the estimated maximum day demand. (2) Charges for the renewal and replacement charge for all resale customers with meters 8-inches and larger is determined by the Agency based on the applicant s estimated maximum day demand set forth in the application for service, or meter readings. Source: Placer County Water Agency. 49

58 Charges for Quantity of Water Delivered. The charges for quantity delivered, last revised in November 2015 (effective January 1, 2016), are set forth below. Metered Residential Service (1) First 400 cubic feet, per 100 cubic feet: $1.42 Next 600 cubic feet, per 100 cubic feet: $1.53 Next 1,000 cubic feet, per 100 cubic feet: $1.63 Next 2,000 cubic feet, per 100 cubic feet: $1.75 Next 1,800 cubic feet, per 100 cubic feet: $1.86 Next 1,900 cubic feet, per 100 cubic feet: $2.18 Over 7,700 cubic feet, per 100 cubic feet: $2.44 (1) Rates are for the Western Water System service area. Source: Placer County Water Agency. Water Connection Charge (WCC) The Agency s WCC is a capacity charge assessed for the public water facilities in existence, or for new facilities to be constructed. It has five components: (1) a treatment plant component, to cover the capital costs for treatment plants, clearwell storage and facilities for delivering raw water to the treatment plants; (2) a storage component, to cover the capital costs of distribution storage facilities; (3) a transmission component, to cover the capital costs of regional transmission facilities; (4) a planning component to cover the costs of regional planning efforts; and (5) a groundwater component to cover the costs of wells and other groundwater supplies to the water system. The WCC charge for a 5/8-inch meter is the basic unit in determining all other WCC charges, including those for mobile home parks. The WCC for multiple dwelling units for all indoor water use shall be 40% of the charge applicable to customers using 5/8-inch meter times the number of multiple dwelling units. Pursuant to the California Government Code Section 66013, these funds are restricted for use on capacity projects. Charges for New Customer Water Connection Charge (WCC). WCC was last revised in January 2016 through a construction cost escalator. The current WCC for a customer using a 5/8-inch meter is $17,712 or $12,278 per connection for Zone 1 and Zone 3, respectively. WCC for customers requesting 3/4 inch and 1 inch meters are incrementally greater. WCC for customers requiring 1 1/2 inch and larger meters are established by the Agency based upon estimated and actual maximum day demand. Comparison with Other Local Providers. A comparison of both the total monthly charges and the connection charge of other local water providers are shown below. The monthly charge is the sum of the monthly residential service charge (5/8 inch meter, except as noted) and monthly commodity charge at 11,220 gallons per month. 50

59 Local Water Provider Monthly Charge Connection Charge Placer County Water Agency $56.14 $12,278 17,712 (1) San Juan Water District ,910 (2) Nevada Irrigation District ,703 13,013 El Dorado Irrigation District ,157 (3) City of Roseville ,559 (4) City of Grass Valley ,198 (4) (1) Rates as of January 1, (2) Charge for up to 1-inch meter (3) Rates as of February 2, 2016; Charge for 3/4 inch meter. (4) Charge for up to 3/4 inch meter. Sources: Water provider websites and Placer County Water Agency. The Agency s WCC is higher than the connection charge for other water providers listed above in part because of the geographic nature of the Agency s Water System. Historically, the Agency has determined to use WCC, rather than revenues from water sales, to fund the expansion components of the Water Division Capital Investment Program. Raw Water Rates and Charges for Irrigation Service Raw Water Service. The Water Division provides raw water service to several classes of customers. A different rate schedule applies to each class of service. Approximately 90% of the Water Division s raw water customers are charged on the basis of miner s inches, which is a continuous flow measurement developed during California s gold mining days. A statutory miner s inch is approximately the flow of 1-1/2 cubic feet per minute (1/40 cfs or gallons per minute). Irrigation Service. The charges for irrigation service vary depending upon whether water is delivered on an annual or a seasonal basis, and upon the size of the outlet (assuming continuous flow). Historical and Current Residential Water Rates. In 2015, residential water rates were responsible for approximately 78% of the Water Division s water sale revenues. The following table sets forth the current and historical treated water service rates for an average residential user in Zone 1. The current rate was adopted in November 2015 (effective January 1, 2016) and reflects an average household using 18,000 cubic feet per year (the equivalent of 11,220 gallons per month) with a 5/8 meter. Annual Water Charges Effective Date per Residential Unit January 1, 2015 $ January 1, January 1, January 1, January 1, January 1, January 1, January 1, Sources: Placer County Water Agency. 51

60 Outstanding Water Division Obligations The Agency has several outstanding obligations other than the 2016 Certificates that are secured by and payable from Water Revenues. See SECURITY FOR THE 2016 CERTIFICATES Existing Parity Liens on Water Revenues. Historical Revenues, Expenditures and Debt Service Coverage The following table sets forth the audited revenues and expenses of the Agency over the last five years, and includes the Water Revenues pledged to pay Installment Payments, as well as the historical debt service coverage as defined in the Installment Purchase Contract. The debt service coverage calculations shown in the following table do not reflect debt service payable with respect to the obligations not secured by Water Revenues as described in Outstanding Water Division Obligations above. See APPENDIX E Audited Financial Statements for the Agency for the Year Ended December 31, 2015 for scheduled debt service on these obligations. The following table reflects historic revenues and expenditures for the Water System only (that is, excluding revenues and expenditures for the Eastern Water System). 52

61 Table No. 12 PLACER COUNTY WATER AGENCY WATER SYSTEM HISTORIC REVENUES AND EXPENDITURES Fiscal Years Ending December 31, 2011 through Water Revenues Water Sales $28,896,949 $31,363,672 $33,069,801 $32,538,769 $29,312,065 Mandated Costs Charges (1) 2,826 2,967 2,926 2,902 2,901 Water Connection Charges (2) 399,568 1,647,974 5,002,272 9,387,510 24,996,970 Rate Stabilization and Capital Improvement (15,000,000) Fund Transfers (3) Renewal and Replacement Charges 8,822,279 8,955,065 8,893,320 10,414,123 11,088,602 Surcharge Revenue 271, , , , ,848 Interest Income 1,442, , , , ,788 Other Revenue (4) 1,782, , ,171 1,753,150 4,812,367 Total Water Revenues 41,617,985 44,151,184 48,903,747 55,225,391 56,416,541 Maintenance and Operation Costs (5) Water Purchases (6) 683, , ,698 2,583,561 3,054,297 Water Treatment 5,676,288 5,427,762 6,295,652 8,634,747 9,690,930 Water Transmission & Distribution 7,050,761 7,959,140 7,700,996 7,089,790 7,830,872 Engineering 2,820,386 3,766,219 Customer Service 3,665,726 4,402,508 General & Administrative 10,193,844 12,720,322 11,811,216 5,028,419 5,058,316 Other 910, , , , ,403 Total Maintenance & Operation Costs 24,514,341 27,595,148 27,530,158 30,697,202 34,772,545 Net Water Revenues 17,103,644 16,556,036 21,373,589 24,528,189 21,643,996 Debt Service Coverage Calculation Debt Service (7) 1999 Certificates 694, , Certificates 1,177,428 1,177,428 1,180, Certificates 2,054,181 2,054,181 2,056,981 2,058,581 2,053, Certificates 2,276,731 2,276,731 2,964,731 2,954,331 2,952, Certificates ,044,463 1,040,700 Federal and State Loans (8) 115, , ,141 95,781 95,786 Electric Street SRF Loan ,937 Auburn WTP SRF Loan 1,377,536 1,377,536 1,377,536 1,377,536 1,377,536 Total Debt Service 7,696,230 7,686,422 7,691,417 7,530,692 7,789,271 Debt Service Coverage Ratio with Water Connection Charges Debt Service Coverage Ratio without Water Connection Charges 2.22:1 2.15:1 2.78:1 3.26:1 2.78:1 2.17:1 1.94:1 2.13:1 2.01:1 1.50:1 Rate Stabilization and Capital Improvement Fund Beginning Balance 16,467,278 16,467,278 16,467,278 16,467,278 16,467,278 Transfers In ,000,000 Transfers Out Ending Balance $16,467,278 $16,467,278 $16,467,278 $16,467,278 $31,467,278 (1) Represents State and Federal mandatory charges. (2) Water Connection Charges (WCC) vary depending on construction demands. (3) In Fiscal Year 2015, a portion of WCC revenues were transferred into the Rate Stabilization and Capital Improvement Fund for future capacity infrastructure projects. (4) Comprised primarily of customer service, engineering charges, interest earnings and proceeds from the sale of fixed assets. Also includes conservation credits received in connection with the Zone 3 Water Supply Contract. See THE WATER SYSTEM Water Supply Zone 3 Water Supply Contract. (5) Excludes depreciation. (6) Purchases from PG&E and other sources. (7) See SECURITY FOR THE 2016 CERTIFICATES Existing Parity Liens on Water Revenues for a description of the Agency s currently outstanding Parity Debt. (8) Includes the Senior Loans and the Agency s United States Economic Development Administration - Community Emergency Drought Relief Act of 1977 Loan (which was a Parity Debt), none of which are currently outstanding. Source: Placer County Water Agency, as compiled from the Agency s audited financial statements. 53

62 Projected Revenues, Expenditures and Debt Service Coverage The table on the following page shows estimated Water Revenues, Maintenance and Operation Costs and debt service coverage for the Water Division for years 2016 through Although the table reflects debt service on estimated future Parity Debt, the amount and timing of the issuance of such Parity Debt has not yet been determined. The projections set forth in the following table and elsewhere in this Official Statement are not a guarantee of future performance. The Agency has made certain assumptions with regard to operations, revenues and expenses that it believes are reasonable, but it cannot guarantee that it will meet these assumptions. See INTRODUCTION Forward Looking Statements in this Official Statement. The following table reflects projected revenues and expenditures for the Water System only (that is, excluding revenues and expenditures for the Eastern Water System). 54

63 Table No. 13 PLACER COUNTY WATER AGENCY WATER SYSTEM PROJECTED REVENUES, EXPENDITURES AND DEBT SERVICE COVERAGE Fiscal Years Ending December 31, 2016 through 2020 Water Revenues Water Sales (1) $33,720,000 $34,400,000 $35,000,000 $35,608,000 $36,325,000 Water Connection Charges (2) 12,500,000 12,500,000 12,500,000 12,500,000 8,500,000 Rate Stabilization and Capital ,000,000 8,400, Improvement Fund Transfers (3) Renewal and Replacement Charges 11,000,000 11,165,000 11,388,000 11,617,000 11,848,000 Surcharge Revenue 320, , , , ,000 Interest Income 750,000 1,000,000 1,000,000 1,000,000 1,000,000 Other Revenue (4) 2,365,000 1,065,000 1,065,000 1,065,000 1,065,000 Total Water Revenues 60,655,000 60,454,000 74,283,000 70,528,000 59,083,000 Maintenance and Operation Costs (5) Water Purchases (6) 4,318,000 4,382,770 4,470,425 4,559,834 4,651,031 Water Treatment 7,046,056 7,150,000 7,300,000 7,500,000 7,590,000 Water Transmission & Distribution 7,557,314 7,670,000 7,824,000 7,980,000 8,140,000 Engineering 2,841,876 2,884,000 2,942,000 3,000,000 3,061,000 Customer Service 4,823,078 4,895,000 4,993,000 5,093,000 5,195,000 General & Administrative 7,839,444 7,957,036 8,116,000 8,278,000 8,444,000 Other 1,014,772 1,030,000 1,051,000 1,072,000 1,093,000 Total Maintenance/Operation Costs 35,440,540 35,968,806 36,696,425 37,482,834 38,174,031 Net Water Revenues 25,214,460 24,485,194 37,586,575 33,045,166 20,908,969 Debt Service Coverage Calculation: Debt Service 2007 Certificates 1,919, , Certificates 2,963,331 2,961,731 2,942,931 2,957,531 2,939, Certificates 1,038,100 1,044,500 1,039,500 1,045,750 1,044, Certificates 114, ,244 1,762,244 1,762,994 1,756,744 Senior Loans (7) 408, Electric Street SRF Loan 537, , , , ,873 Auburn WTP SRF Loan 1,377,536 1,377,536 1,377,536 1,377,536 1,377,536 Total Debt Service 8,358,305 7,762,084 7,660,084 7,681,684 7,656,034 Debt Service Coverage Ratio with Water Connection Charges 3.02:1 3.15:1 4.91:1 4.30:1 2.73:1 Debt Service Coverage Ratio without Water Connection Charges 1.52:1 1.54:1 1.58:1 1.58:1 1.62:1 Rate Stabilization and Capital Improvement Fund Beginning Balance 31,467,278 31,467,278 31,467,278 18,467,278 10,067,278 Transfers In Transfers Out ,000,000 8,400, Ending Balance $31,467,278 $31,467,278 $18,467,278 $10,067,278 $10,067,278 (1) Water sales revenue and renewal and replacement charges are projected based on anticipated rate increases proportionate to the increase in anticipated water purchases costs. (2) Water Connection Charges (WCC) revenues are projected based upon anticipated growth in meter set connections to be served by the water system. The growth projections used by the Agency were developed primarily through analysis of growth projections prepared by Placer County and municipalities within the water system s service area. (3) Rate Stabilization and Capital Improvement Fund monies are expected to be used in 2018 and 2019 to fund needed capacity infrastructure projects. (4) Comprised primarily of customer service, engineering charges and interest earnings. (5) Excludes depreciation. Growth in expenditure categories is based upon annual escalation rates between 1.5 and 2 percent. (6) Purchases from PG&E and other sources. Year-to-year increase reflects anticipated increase in costs associated with the Western Water Supply Contract. (7) The Senior Loans have been repaid as of the date of this Official Statement. See SECURITY FOR THE 2016 CERTIFICATES No Existing or Future Senior Liens on Water Revenues. Source: Placer County Water Agency. 55

64 Agency s Investment Policy and Recent Results The Agency s Investment Policy (the Investment Policy ) was last approved by the Board of Directors on January 7, The Investment Policy applies to all Agency funds. The Director of Financial Services annually reviews the Investment Policy as necessary, and recommended revisions are submitted as needed to the Board of Directors in order to ensure consistency and its relevance to current law, and financial and economic trends. The Director of Financial Services also submits the Investment Policy to the Board of Directors for its review and approval during the first quarter of each fiscal year. Objectives and Criteria. The Investment Policy states that the primary objective is to safeguard the principal of the funds. The secondary objective is to meet the liquidity needs of the Agency. The third objective is to achieve a maximum return on invested funds. It is the policy of the Agency to invest public funds in a manner to obtain the highest yield obtainable with the maximum security while meeting the daily cash flow demands of the Agency as long as investments meet the criteria established by the Investment Policy for safety and liquidity and conform to all laws governing the investment of Agency funds. Current Portfolio Information. The following table summarizes certain information relating to the Agency s investment portfolio as of March 31, The market value of the portfolio was 100% of the par value as of such date. At March 31, 2016, 70% of the Agency s investment portfolio is attributable to the Water System. The Agency s investment portfolio complies with the Board adopted Investment Policy. Table No. 14 PLACER COUNTY WATER AGENCY Investment Portfolio Summary (as of March 31, 2016) Investments Par Value Market Value Local Agency Investment Fund (1) $ 42,881,284 $ 42,881,284 Passbook/Checking Accounts 822, ,131 Medium Term Notes 6,000,000 6,038,160 Federal Agencies 94,470,000 94,664,337 Placer County Treasury 16,246,940 16,246,940 Cash with Fiscal Agents 5,994,565 5,994,565 Total $166,414,920 $166,647,417 (1) Local Agency Investment Fund (LAIF) is maintained by the California State Treasurer. The Agency is a voluntary participant in this investment pool. Source: Placer County Water Agency and MUFG Union Bank, N.A. 56

65 CERTIFICATE OWNERS RISKS Payment of principal and interest represented by the 2016 Certificates depends primarily upon the Agency s payments of the 2016 Installment Payments pursuant to the Installment Purchase Contract. Some of the events, which could prevent the Agency from making the 2016 Installment Payments, are set forth below. The following discussion of risks is not meant to be an exhaustive list of the risks associated with the purchase of the 2016 Certificates and does not necessarily reflect the relative importance of the various risks. Limited Obligations. The 2016 Installment Payments are limited obligations of the Agency and are not secured by a legal or equitable pledge or charge or lien upon any property of the Agency or any of its income or receipts, except the Water Revenues. The obligation of the Agency to make the 2016 Installment Payments does not constitute an obligation of the Agency to levy or pledge any form of taxation or for which the Agency has levied or pledged any form of taxation. Water Supply Limitations. Factors beyond the control of the Agency could impair the ability of the Agency to supply water to its customers in an amount sufficient to yield Water Revenues sufficient to pay the 2016 Installment Payments when due. In particular, the Agency s existing sources could become limited due to a loss of contract rights, depletion of such sources (because of weather or otherwise), or due to restrictions imposed upon the ability of the Agency to continue receiving water from such sources at levels sufficient to satisfy demand. See THE WATER SYSTEM Water Supply for a discussion of the Agency s water rights and possible limitations, including the expiration of existing contracts. Demand and Usage. There can be no assurance that the local demand for services provided by the Water System will continue according to historical levels. In addition, drought conditions and voluntary or mandatory conservation measures could decrease usage of the services of the Water System. Reduction in the level of demand or usage could require an increase in rates or charges in order to produce Net Operating Revenues sufficient to comply with the Agency s rate covenants. Such rate increases could increase the likelihood of nonpayment. Limited Recourse on Default. Failure by the Agency to pay the 2016 Installment Payments required to be made under the Installment Purchase Contract constitutes an event of default under the Installment Purchase Contract and the Trustee is permitted to pursue remedies at law or in equity to enforce the Agency s obligation to make such 2016 Installment Payments. Although the Trustee has the right to accelerate the total unpaid principal amount of the 2016 Installment Payments, there is no assurance that the Agency will have sufficient funds to pay the accelerated 2016 Installment Payments. See also CONSTITUTIONAL AND STATUTORY LIMITATIONS Articles XIIIC and XIIID of the California Constitution in this Official Statement. Water System Expenses and Collections. There can be no assurance that the Agency s expenses for the Water System will remain at the levels described in this Official Statement. Changes in technology, energy or other expenses and increased treatment costs could reduce the Agency s Net Operating Revenues and could require substantial increases in rates or charges. Such rate increases could increase the likelihood of nonpayment or decrease demand. 57

66 Although the Agency has covenanted to prescribe, revise and collect rates and charges for the Water System at certain levels, there can be no assurance that such amounts will be collected in the amounts and at the times necessary to make timely payments with respect to the 2016 Certificates. The ability of the Agency to comply with its covenants under the Resolution and to generate Net Operating Revenues sufficient to pay principal of and interest on the Parity Debt, including the 2016 Certificates, may be adversely affected by actions and events outside the control of the Agency and may be adversely affected by actions taken (or not taken) by voters, property owners, taxpayers or payers of assessments, fees and charges. See CONSTITUTIONAL AND STATUTORY LIMITATIONS. The remedies available to the owners of the Parity Debt, including the 2016 Certificates, upon the occurrence of an event of default under the Resolution are in many respects dependent upon judicial actions that are typically subject to discretion and delay and could prove both expensive and time consuming to obtain. Bankruptcy. The rights and remedies provided in the Installment Purchase Contract may be limited by and are subject to the provisions of federal bankruptcy laws and to other laws or equitable principles that may affect the enforcement of creditors rights. If the Agency were to file a petition under Chapter 9 of the Bankruptcy Code, the Owners of the 2016 Certificates and the Agency could be prohibited from taking any steps to enforce their rights under the Installment Purchase Contract and Trust Agreement, and from taking any steps to collect amounts due from the Agency under the Installment Purchase Contract. Rate Regulation. The authority of the Agency to impose and collect rates and charges for water sold and delivered is not currently subject to the regulatory jurisdiction of the CPUC, and presently no other regulatory authority of the State of California limits or restricts such rates and charges. It is possible that future legislative changes could subject the rates or service areas of the Agency to the jurisdiction of the CPUC or to other limitations or requirements. Environmental Laws and Regulations. Water treatment facilities are subject to a wide variety of local, State, and federal health and environmental laws. Among the types of regulatory requirements faced by such facilities are air and water quality control requirements. Such regulations, as they may be from time to time amended or subsequently enacted could affect the Net Water Revenues available to pay the 2016 Certificates. Loss of Tax Exemption. The Agency has covenanted in the Installment Purchase Contract that it shall take all actions necessary to assure the exclusion of interest with respect to the 2016 Certificates from the gross income of the Owners of the 2016 Certificates to the same extent as such interest is permitted to be excluded from gross income under the Internal Revenue Code of In the event the Agency fails to comply with the foregoing tax covenant, the interest component of the 2016 Installment Payments evidenced by the 2016 Certificates may be includable in the gross income of the Owners thereof for federal tax purposes. See LEGAL MATTERS Tax Matters in this Official Statement. Existing and Future Parity Obligation. The Agency has outstanding certain obligations payable from Water Revenues on a parity basis with the 2016 Installment Payments. In addition, under certain conditions, the Installment Purchase Contract permits the issuance of additional bonds, notes or other obligations of the Agency which are payable from Water Revenues on a parity with the 2016 Installment Payments. See SECURITY FOR THE 2016 CERTIFICATES Existing Parity Liens on Water Revenues and Issuance of Parity Debt. Such additional bonds, notes or other obligations would increase Annual Debt Service, and 58

67 could adversely affect Debt Service coverage with respect to the 2016 Certificates. In such event, however, the Rate Covenant described in this Official Statement will remain in effect. See SECURITY FOR THE 2016 CERTIFICATES Rate Covenant in this Official Statement. Seismic Considerations. The areas in and surrounding the Agency, like those in much of California, may be subject to unpredictable seismic activity. If there were to be an occurrence of severe seismic activity in the area of the Agency, there could be an interruption in the service provided by the Water System resulting in a temporary reduction in the amount of Water Revenues available to pay the 2016 Installment Payments. California Drought Conditions. On April 1, 2015, for the first time in the State s history, Governor Edmund G. Brown directed the State Water Resources Control Board to implement mandatory water reductions in cities and towns across the State to reduce water usage by 25%. This savings amounts to approximately 1.5 million acre-feet of water over the following nine months. This action resulted from a series of low-rainfall years. California set a new low water mark on April 1, 2015, with its early-april snowpack measurement. The Statewide electronic reading of the snowpack s water content stood at 5% of the April 1st average. April 1, 2015 s content was only 1.4 inches, or 5%, of the 28-inch average. The lowest previous reading since 1950 was 25% of average, so water year 2015 is the driest winter in the State s written record. See THE WATER SYSTEM for a discussion of the impact of the drought on the Agency s water supply and revenues. The Agency cannot predict how long the drought conditions will last, what effect drought conditions may have on revenues of the Water System, or whether or to what extent water reduction requirements may affect the Water System and Water Revenues. Secondary Market for Certificates. There can be no guarantee that there will be a secondary market for the 2016 Certificates or, if a secondary market exists, that any 2016 Certificates can be sold for any particular price. Prices of bond issues for which a market is being made will depend upon then-prevailing circumstances. Such prices could be substantially different from the original purchase price. No assurance can be given that the market price for the 2016 Certificates will not be affected by the introduction or enactment of any future legislation (including without limitation amendments to the Internal Revenue Code), or changes in interpretation of the Internal Revenue Code, or any action of the Internal Revenue Service, including but not limited to the publication of proposed or final regulations, the issuance of rulings, the selection of the 2016 Certificates for audit examination, or the course or result of any Internal Revenue Service audit or examination of the 2016 Certificates or obligations that present similar tax issues as the 2016 Certificates. After Effective Date of Proposed Amendments, 2016 Certificates May Not Be Secured by Certificate Reserve Fund. As noted above, the Proposed Amendments would amend and restate the definition of Certificate Reserve Requirement in the Trust Agreement for the 2016 Certificates and any future Series of Certificates, so that it means, as of any date of calculation, the amount specified in the Supplemental Trust Agreement that establishes the terms and provisions of such Series of Certificates, which amount shall not exceed the least of (i) Maximum Annual Debt Service on the Certificates of such Series Outstanding, (ii) 125% of Average Annual Debt Service on the Certificates of such Series Outstanding, and (iii) 10% of the initial proceeds of such Series of Certificates. The Fifth Supplement to Trust Agreement further states that if and when the Proposed Amendments to the Trust Agreement become effective, the Certificate Reserve Requirement for the 2016 Certificates will be reduced to $0. The Agency expects that if the Certificate Reserve Requirement for the 2016 Certificates is reduced to $0, a portion of the moneys on deposit in the Certificate Reserve Fund would be 59

68 released, and may be used by the Agency for any lawful purpose, and the Owners of the 2016 Certificates would no longer be secured by the Certificate Reserve Fund. CONSTITUTIONAL AND STATUTORY LIMITATIONS Article XIIIB of the California Constitution Article XIIIB of the California State Constitution limits the annual appropriations of the State and of any city, county, school district, authority or other political subdivision of the State to the level of appropriations of the particular governmental entity for the prior fiscal year, as adjusted for changes in the cost of living and population. The base year for establishing such appropriation limit is the fiscal year and the limit is to be adjusted annually to reflect changes in population and consumer prices. Adjustments in the appropriations limit of an entity may also be made if (i) the financial responsibility for a service is transferred to another public entity or to a private entity, (ii) the financial source for the provision of services is transferred from taxes to other revenues, or (iii) the voters of the entity approve a change in the limit for a period of time not to exceed four years. Appropriations subject to Article XIIIB generally include the proceeds of taxes levied by the State or other entity of local government, exclusive of certain State subventions and refunds of taxes. Proceeds of taxes include, but are not limited to, all tax revenues and the proceeds to an entity of government from (i) regulatory licenses, user charges, and user fees (but only to the extent such proceeds exceed the cost of providing the service or regulation), and (ii) the investment of tax revenues. Article XIIIB includes a requirement that if an entity s revenues in any year exceed the amounts permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years. Certain expenditures are excluded from the appropriations limit including payments of indebtedness existing or legally authorized as of January 1, 1979, or of bonded indebtedness thereafter approved by the voters and payments required to comply with court or federal mandates which without discretion require an expenditure for additional services or which unavoidably make the providing of existing services more costly. The Agency believes that the Water System rates and charges are not proceeds of taxes for purposes of Article XIIIB. Articles XIIIC and XIIID of the California Constitution Proposition 218. On November 5, 1996, California voters approved Proposition 218, the so-called Right to Vote on Taxes Act. Proposition 218 added Articles XIIIC and XIIID to the State Constitution, which affect the ability of local governments to levy and collect both existing and future taxes, assessments, and property-related fees and charges. Proposition 218, which generally became effective on November 6, 1996, changed, among other things, the procedure for the imposition of any new or increased property-related fee or charge, which is defined as any levy other than an ad valorem tax, a special tax or an assessment, imposed by a (local government) upon a parcel or upon a person as an incident of property ownership, including user fees or charges for a property related service (and referred to in this section as a property-related fee or charge ). 60

69 Specifically, under Article XIIID, before a municipality may impose or increase any property-related fee or charge, the entity must give written notice to the record owner of each parcel of land affected by that fee or charge. The municipality must then hold a hearing upon the proposed imposition or increase at least 45 days after the written notice is mailed, and, if a majority of the property owners of the identified parcels present written protests against the proposal, the municipality may not impose or increase the property-related fee or charge. Further, under Article XIIID, revenues derived from a property-related fee or charge may not exceed the funds required to provide the property-related service and the entity may not use such fee or charge for any purpose other than that for which it imposed the fee or charge. The amount of a property-related fee or charge may not exceed the proportional cost of the service attributable to the parcel, and no property-related fee or charge may be imposed for a service unless that service is actually used by, or is immediately available to, the owner of the property in question. In addition, Article XIIIC states that the initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge. The power of initiative to affect local taxes, assessments, fees and charges shall be applicable to all local governments and neither the Legislature nor any local government charter shall impose a signature requirement higher than that applicable to statewide statutory initiatives. Judicial Interpretation of Proposition 218. After Proposition 218 was enacted in 1996, appellate court cases and an Attorney General s opinion initially indicated that fees and charges for water and wastewater services, which are based on the amount of services consumed, would not be considered property-related fees and charges, and thus not subject to the requirements of Article XIIID. However, numerous subsequent court cases have held that certain types of water and wastewater charges could be subject to the requirements of Proposition 218. These cases include, for example, Capistrano Taxpayers Assoc., Inc. v. City of San Juan Capistrano (186 Cal. Rptr. 3d 362 (Cal. App. 4th Distr. 2015)), Bighorn-Desert View Water Agency v. Verjil (46 Cal. Rptr. 3d 73 (Cal. 2006)), and Howard Jarvis Taxpayers Assoc. v. City of Fresno (26 Cal. Rptr. 3d 153 (Cal. App. 5th Distr. 2005)). Proposition 26. On November 2, 2010, the voters approved Proposition 26 and approved revising provisions of Articles XIIIA and XIIIC of the California Constitution. Proposition 26 re-categorizes many State and local fees as taxes and specifies approval requirements for those taxes. In its Findings and Declarations of Purpose section, Proposition 26 states: Fees couched as regulatory but which exceed the reasonable costs of actual regulation or are simply imposed to raise revenue for a new program and are not part of any licensing or permitting programs are actually taxes and should be subject to the limitations applicable to the imposition of taxes. In order to increase State taxes, a two-thirds vote of both houses of the Legislature is required. The State bears the burden of proving that a levy, charge or other exaction is not a tax subject to Proposition 26. Any State-imposed tax adopted after January 1, 2010, but prior to the effective date of Proposition 26 that was not adopted in compliance with Proposition 26 s approval requirements is void 12 months after the effective date of Proposition 26. The ultimate resolution as to the scope of Proposition 26 will likely be determined through litigation. It is not certain how the courts will interpret the provisions of Proposition 26 as applicable to regulatory fees. 61

70 With respect to local government taxes, Proposition 26 expressly excludes a variety of levies, charges and exactions from the definition of tax, including a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege. The Agency believes that the Water System rates and charges are not taxes for purposes of Proposition 26. Proposition 26 amended Article XIIIC to provide that the local government bears the burden of proving by a preponderance of the evidence that a levy, charge or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor s burdens on, or benefits received from, the governmental activity. Conclusion. It is not possible to predict how courts will further interpret Article XIIIC and Article XIIID in future judicial decisions, and what, if any, further implementing legislation will be enacted. Under the Bighorn case, local voters could adopt an initiative measure that reduces or repeals the Agency s rates and charges, although it is not clear whether (and California courts have not decided whether) any such reduction or repeal by initiative would be enforceable in a situation in which such rates and charges are pledged to the repayment of bonds or other indebtedness. There can be no assurance that the courts will not further interpret, or the voters will not amend, Article XIIIC and Article XIIID to limit the ability of local agencies to impose, levy, charge and collect increased fees and charges for utility service, or to call into question previously adopted utility rate increases. Future Initiatives Articles XIIIB, XIIIC, XIIID and Proposition 26 were adopted as measures that qualified for the ballot pursuant to California s initiative process. From time to time other initiatives could be proposed and adopted affecting the Agency s revenues or ability to increase revenues. 62

71 LEGAL MATTERS Certain Legal Matters The legal opinion of Kronick, Moskovitz, Tiedemann & Girard, a Professional Corporation, Sacramento, California, Special Counsel, substantially in the form of Appendix C hereto, will be made available to purchasers at the time of original delivery of the 2016 Certificates, and a copy thereof will accompany each 2016 Certificate. Certain legal matters will be passed upon for the Corporation and the Agency by its general counsel, Kronick, Moskovitz, Tiedemann & Girard and by Jones Hall, A Professional Law Corporation, San Francisco California, as Disclosure Counsel. Payment of the fees and expenses of Special Counsel and Disclosure Counsel is contingent upon the execution and delivery of the 2016 Certificates. Tax Matters In the opinion of Special Counsel, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other things, the accuracy of certain representations and compliance with certain covenants, the interest component of the 2016 Installment Payments paid by the Agency under the Installment Purchase Contract and received by the owners of the 2016 Certificates is excludable from gross income for federal income tax purposes and is exempt from State of California personal income taxes. Special Counsel is also of the opinion that such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, such interest is taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on certain corporations. A complete copy of the proposed form of opinion of Special Counsel is set forth in Appendix C hereto. To the extent the issue price of any maturity of the 2016 Certificates is less than the amount to be paid at maturity of such 2016 Certificates (excluding amounts stated to be interest and payable at least annually over the term of such 2016 Certificates), the difference constitutes original issue discount, the accrual of which, to the extent properly allocable to each owner thereof, is treated as interest represented by such 2016 Certificates that is excludable from gross income for federal income tax purposes and exempt from State of California personal income taxes. For this purpose, the issue price of a particular maturity of the 2016 Certificates is the first price at which a substantial amount of such maturity of the 2016 Certificates is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The original issue discount with respect to any maturity of the 2016 Certificates accrues daily over the term to maturity of such 2016 Certificates on the basis of a constant interest rate compounded semiannually (with straight-line interpolation between compounding dates). The accruing original issue discount is added to the adjusted basis of such 2016 Certificates to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such 2016 Certificates. Owners of 2016 Certificates should consult their own tax advisors with respect to the tax consequences of ownership of 2016 Certificates with original issue discount, including the treatment of purchasers who do not purchase such 2016 Certificates in the original offering to the public at the first price at which a substantial amount of such 2016 Certificates is sold to the public Certificates purchased, whether at original issuance or otherwise, for an amount greater than the principal amount with respect thereto payable at maturity (or, in some cases, at 63

72 their earlier call date) ( Premium Certificates ) will be treated as having amortizable premium. No deduction is allowable for the amortizable premium for obligations, like the Premium Certificates, the interest with respect to which is excludable from gross income for federal income tax purposes. However, a purchaser s basis in a Premium Certificate and, under Treasury Regulations, the amount of tax-exempt interest received will be reduced by the amount of amortizable premium properly allocable to such purchaser. Owners of Premium Certificates should consult their own tax advisors with respect to the proper treatment of amortizable premium in their particular circumstances. The Internal Revenue Code of 1986 (the Code ) imposes various restrictions, conditions, and requirements relating to the exclusion from gross income for federal income tax purposes of interest on or represented by obligations such as the 2016 Certificates. The Agency has covenanted to comply with certain restrictions designed to assure that interest with respect to the 2016 Certificates will not be included in federal gross income. Failure to comply with these covenants may result in such interest being included in federal gross income, possibly from the date of original delivery of the 2016 Certificates. The opinion of Special Counsel assumes compliance with these covenants. Special Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring) after the date of delivery of the 2016 Certificates may adversely affect the value of, or the tax status of the interest represented by, the 2016 Certificates. Although Special Counsel is of the opinion that interest represented by the 2016 Certificates is excludable from gross income for federal income tax purposes and is exempt from State of California personal income taxes, the ownership or disposition of 2016 Certificates, or the accrual or receipt of interest represented thereby, may otherwise affect an Owner s federal or state tax liability. The nature and extent of these other tax consequences will depend upon the particular tax status of the Owner or the Owner s other items of income or deduction. Special Counsel expresses no opinion regarding any such other tax consequences. In addition, no assurance can be given that any future legislation, including amendments to the Code, if enacted into law, or changes in interpretation of the Code, will not cause interest represented by the 2016 Certificates to be subject, directly or indirectly, to federal income taxation or otherwise prevent Owners of 2016 Certificates from realizing the full current benefit of the tax status of such interest. Prospective purchasers of 2016 Certificates should consult their own tax advisers regarding any pending or proposed federal tax legislation. Further, no assurance can be given that the introduction or enactment of any such future legislation, or any action of the Internal Revenue Service ( IRS ), including but not limited to regulation, ruling, or selection of the 2016 Certificates for audit examination, or the course or result of any IRS examination of the 2016 Certificates, or obligations that present similar tax issues, will not affect the market price or liquidity of the 2016 Certificates. Absence of Litigation There is no action, suit or proceeding known to be pending or threatened, restraining or enjoining the issuance or sale of the 2016 Certificates, the Installment Purchase Contract, the Trust Agreement or in any way contesting or affecting the validity of the foregoing or any proceedings of the Corporation or the Agency taken with respect to any of the foregoing. 64

73 CONCLUDING INFORMATION Continuing Disclosure The Agency has covenanted for the benefit of the holders and beneficial owners of the 2016 Certificates to provide (i) certain financial information and operating data relating to the Agency by not later than six months following the end of the Agency s fiscal year (which fiscal year currently ends on December 31), commencing with the report for the 2015 fiscal year (the Annual Report ) due by June 30, 2016; provided, however, that the first Annual Report due on June 30, 2016, shall consist solely of a copy of the Official Statement including the Agency s audited financial statements for fiscal year 2015 which is a part thereof, and (ii) notices of the occurrence of certain enumerated events ( Event Notices ). The Agency will file, or cause to be filed, the Annual Report and any Event Notices with the Municipal Securities Rulemaking Board. The specific nature of the information to be contained in the Annual Report or Event Notices is provided in APPENDIX D Form of Continuing Disclosure Certificate. These covenants have been made in order to assist the Purchaser in complying with S.E.C. Rule 15c2-12(b)(5) (the Rule ). The Agency has entered into a number of prior continuing disclosure undertakings pursuant to the Rule in connection with the issuance of other long-term obligations, and has provided annual reports and event notices in accordance with those undertakings. With the exception of a few instances, the Agency has filed its annual reports prior to the due date and has complied, in all material respects, with the requirements of its continuing disclosure undertakings in the past five years. The instances of noncompliance involved certain filings that were not timely made; however, the Agency has since made the necessary corrective filings and is up-to-date with its continuing disclosure obligations during the five-year period. The Agency has hired The Bank of New York Mellon Trust Company, N.A., as dissemination agent, to assist with its continuing disclosure undertakings, including with respect to the 2016 Certificates. Ratings Standard & Poor s Ratings Services, a division of the McGraw-Hill Companies, Inc. ( S&P ) and Moody s Investors Service ( Moody s ) have assigned the 2016 Certificates underlying ratings of AAA and Aa2, respectively. Such ratings express only the views of the rating agencies and are not a recommendation to buy, sell or hold the 2016 Certificates. There is no assurance that such ratings will continue for any given period of time or that they will not be revised, either downward or upward, or withdrawn entirely by the rating agencies, or either of them, if in their, or its, judgment, circumstances so warrant. Any such downward revision or withdrawal may have an adverse effect on the market price of the 2016 Certificates. 65

74 Underwriting The 2016 Certificates were sold at competitive sale held on May 3, 2016, pursuant to the terms set forth in an Official Notice of Sale for the 2016 Certificates, and were awarded to JPMorgan Securities LLC (the Purchaser ), whose proposal represented the lowest true cost to the Agency made by a responsible bidder submitting a conforming bid. The 2016 Certificates are being purchased by the Purchaser at a purchase price of $27,700,138.68, which represents the aggregate principal amount of the 2016 Certificates, plus net original issue premium of $3,002,616.55, less a purchaser s discount of $142, The Purchaser will be obligated to take and pay for all of the 2016 Certificates if any are taken. The Purchaser intends to offer and sell the 2016 Certificates to the public at the offering prices set forth on the inside cover page of this Official Statement. After the initial public offering, the public offering price may be varied from time to time by the Purchaser. Escrow Verification Grant Thornton LLP, Minneapolis, Minnesota (the Verification Agent ), upon execution and delivery of the 2016 Certificates, will deliver a report of the mathematical accuracy of certain computations, contained in schedules provided to them on behalf of the Agency, relating to the sufficiency of the anticipated amount of proceeds of the 2016 Certificates and other funds available to pay, when due, the principal upon prepayment, and interest requirements of the Refunded 2007 Certificates. The report of the Verification Agent will include the statement that the scope of its engagement is limited to verifying mathematical accuracy, of the computations contained in such schedules provided to them, and that it has no obligation to update its report because of events occurring, or data or information coming to their attention, subsequent to the date of its report. Municipal Advisor The Agency has retained Montague DeRose and Associate, LLC, Westlake Village, California, as municipal advisor (the Municipal Advisor ) in connection with the execution and delivery of the 2016 Certificates. The Municipal Advisor is not obligated to undertake, and has not undertaken, an independent verification or assume responsibility for the accuracy, completeness, or fairness of the information contained in this Official Statement. The Municipal Advisor is an independent financial advisory firm and is not engaged in the business of underwriting, trading or distributing municipal securities or other public securities. Miscellaneous References are made in this Official Statement to certain documents and reports, which are brief summaries thereof, and which do not purport to be complete or definitive, and reference is made to such documents and reports for a full and complete statement of the contents thereof. This Official Statement is not to be construed as a contract or agreement between the Agency and the purchasers or Owners of any of the 2016 Certificates. 66

75 The execution and delivery of this Official Statement have been duly authorized by the Board of Directors of the Agency. PLACER COUNTY WATER AGENCY By: /s/ Einar Maisch General Manager 67

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77 APPENDIX A PLACER COUNTY GENERAL DEMOGRAPHIC INFORMATION The following information is included only for the purpose of supplying general information regarding Placer County (the County ). This information is provided only for general informational purposes, and provides prospective investors limited information about Placer County and its economic base. The Bonds are not a debt of the County, the State or any of their respective political subdivisions, and none of the County, the State or any of their respective political subdivisions is liable therefor. General and Location The County, which covers an estimated area of 1,500 square miles, is bordered by the State of Nevada on the east, Nevada County on the north, Yuba and Sutter Counties on the west and by Sacramento and El Dorado Counties on the south. The County is included (along with Sacramento County and El Dorado County in the three-county Sacramento Metropolitan Statistical Area. There are six incorporated cities in the County, of which four (Auburn, Lincoln, Rocklin and Roseville) have populations of 10,000 or more, with Auburn being the County seat. Organization The California Legislature approved the formation of the County in 1851 from portions of what were then Sutter and Yuba Counties. The County is a charter county divided into five districts on the basis of registered voters and population. The County is governed by a five member, non-partisan Board of Supervisors who serves alternate four-year terms. The Supervisors elect one of the members as chairman annually and make program and policy decisions for the County. The County Administration includes appointed and elected officials, boards, commissions, and committees that assist the Board of Supervisors in making decisions. A wide range of services is provided by the County to its residents, including deputy sheriff and fire protection, medical and health services, education, library services, judicial institutions, a variety of public assistance programs and other programs. Additional services are provided to residents in specific areas by special districts and service or improvement areas. Some municipal services are provided to incorporated cities within the County boundaries on a contract basis. This permits cities to contract for services without incurring the cost of creating numerous city departments and facilities. Topography and Climate The County offers a great variety of elevations and terrain. From a minimum of 40 feet above sea level in the southwestern corner of the County near Roseville, the land rises to an elevation of 9,000 feet at the summit of the Sierra Nevada Mountains, near the County s northeastern boundary. The western portion of the County, an area of rolling foothills, provides the site for several large industrial areas and a major railroad marshaling and switching yard. To the northeast, the terrain becomes more mountainous, advancing from orchard land to high elevation timberland. The eastern side of the County, particularly the area surrounding Lake A-1

78 Tahoe, provides a setting for high-altitude winter sports and summer recreational activities. Over much of its length, the County is bounded by the American and Bear Rivers. The climate in the lower elevations is generally characterized by warm summers and mild winters. The higher elevations experience the extremes of winter typical of such climes. In the more populated areas, monthly averages of daily extreme temperatures range from 39 degrees Fahrenheit minimum to 52 degrees Fahrenheit maximum in January, and 58 degrees Fahrenheit and 90 degrees Fahrenheit in July. The average annual rainfall is 36 inches, with an average annual snowfall of 216 inches in the Lake Tahoe area. Approximately 90% of average annual rainfall occurs in the six-month period extending from November to April. Population The following table shows population estimates for the County and the State as of January 1 for the past five calendar years. Effective Buying Income PLACER COUNTY Population Estimates Calendar Years 2011 through 2015 Year Placer County State of California ,228 37,536, ,152 37,881, ,417 38,239, ,176 38,567, ,238 38,907,642 Source: California State Department of Finance. Effective buying income ( EBI ) is designated as personal income less personal tax and non-tax payments. Personal income is the aggregate of wages and salaries, other labor income (such as employer contributions to private pension funds), proprietor s income, rental income (which includes imputed rental income of Owner-occupants of non-farm dwellings), dividends paid by corporations, personal interest income from all sources, and transfer payments (such as pensions and welfare assistance). Deducted from this total are personal taxes (federal, state and local, non-tax payments (such as fines, fees, penalties), and personal contributions for social insurance. Effective buying income is a bulk measure of market potential. It indicates the general ability to buy and is essential in comparing, selecting and grouping markets on that basis. The following table demonstrates the growth in annual estimated EBI for the County, the State of California and the United States. A-2

79 The following table summarizes the total effective buying income for the County, the State and the United States for the period 2010 through Effective buying income data is not yet available for calendar year Effective Buying Income As of January 1, 2010 through 2014 Year Area Total Effective Buying Income (000 s Omitted) Median Household Effective Buying Income 2010 Placer County 9,455,123 56,109 California 801,393,028 47,177 United States 6,365,020,076 41, Placer County 9,797,178 55,993 California 814,578,458 47,062 United States 6,438,704,664 41, Placer County 9,955,120 55,173 California 864,088,828 47,307 United States 6,737,867,730 41, Placer County 9,811,843 56,393 California 858,676,636 48,340 United States 6,982,757,379 43, Placer County 10,287,888 58,583 California 901,189,699 50,072 United States 7,357,153,421 45,448 Source: The Nielsen Company (US), Inc. A-3

80 Employment and Industry The unemployment rate in the Sacramento-Roseville-Arden Arcade MSA was 5.5 percent in December 2015, unchanged from a revised 5.5 percent in November 2015, and below the year-ago estimate of 6.3 percent. This compares with an unadjusted unemployment rate of 5.8 percent for California and 4.8 percent for the nation during the same period. The unemployment rate was 5.3 percent in El Dorado County, 4.6 percent in Placer County, 5.6 percent in Sacramento County, and 6.6 percent in Yolo County. The following table summarizes the civilian labor force, employment and unemployment, as well as employment by industry, in the Sacramento Arden Arcade Rocklin Metropolitan Statistical Area (which is comprised of Sacramento, Placer and El Dorado Counties) for the years 2010 through Sacramento Arden Arcade Roseville Metropolitan Statistical Area (El Dorado, Placer, Sacramento, and Yolo Counties) Civilian Labor Force, Employment and Unemployment March 2014 Benchmark (Annual Averages) Civilian Labor Force (1) 1,048,500 1,044,400 1,049,500 1,046,800 1,049,200 Employment 918, , , , ,200 Unemployment 129, , ,300 90,800 75,100 Unemployment Rate 12.4% 11.8% 10.3% 8.7% 7.2% Wage and Salary Employment: (2) Agriculture 8,100 8,200 8,600 8,900 9,200 Mining and Logging Construction 38,400 36,900 38,400 43,300 45,500 Manufacturing 32,800 33,200 33,900 34,000 34,800 Wholesale Trade 22,800 23,700 25,200 25,000 24,700 Retail Trade 88,000 89,400 91,800 93,800 95,600 Transportation, Warehousing and 21,800 21,100 22,000 22,900 23,400 Utilities Information 17,200 16,300 15,600 14,800 13,700 Finance and Insurance 36,200 34,700 35,700 36,300 35,300 Real Estate and Rental and Leasing 12,200 12,000 12,500 13,100 13,400 Professional and Business Services 102, , , , ,100 Educational and Health Services 115, , , , ,900 Leisure and Hospitality 80,200 81,700 84,500 88,700 91,900 Other Services 28,100 28,000 28,600 29,000 30,400 Federal Government 14,700 14,000 13,700 13,500 13,500 State Government 110, , , , ,500 Local Government 104, ,900 99,600 99, ,400 Total, All Industries 833, , , , ,800 (1) Labor force data is by place of residence; includes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. (2) Industry employment is by place of work; excludes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. Source: State of California Employment Development Department. A-4

81 Major Employers The following table lists the largest manufacturing and non-manufacturing employers within the County as of March PLACER COUNTY Major Employers March 2015 Employer Name Location Industry Adventist Health Roseville Health Services Alpine Meadows Alpine Meadows Resorts AT&T Auburn Telephone Companies Composite Engineering Inc Roseville Engineers-Professional Kaiser Foundation Hospitals Roseville Hospitals Kw Commercial Roseville Real Estate Northstar-At-Tahoe Resort Truckee Resorts Oracle Rocklin Computer Software- Manufacturers Placer County Fire Dept Auburn Government Offices-County Placer County Food Stamps Auburn County Government- Social/Human Resources Placer County of Education Auburn Schools Placer County Sheriff Auburn Government Offices-County Resort At Squaw Creek Alpine Meadows Resorts Ritz-Carlton Truckee Hotels & Motels Roseville Golfland-Sun Splash Roseville Water Parks Roseville Toyota & Scion Roseville Automobile Dealers-New Cars Sheriff s Training Auburn Government Offices-County Sugar Bowl Ski Area Group Sls Norden Skiing Centers & Resorts Sutter Roseville Medical Ctr Roseville Hospitals Tami Saner & Assoc Roseville Real Estate TASQ Technology Roseville Importers (whls) Thunder Valley Casino & Resort Lincoln Casinos UNFI Western Region Div Rocklin Food Products (whls) Union Pacific Railroad Co Roseville Railroads Village Lodge-Sugar Bowl Norden Hotels & Motels Source: California Employment Development Department, extracted from The America s Labor Market Information System (ALMIS) Employer Database, nd Edition. A-5

82 Commercial Activity A summary of historic taxable sales within the County during the past five years in which data is available is shown in the following table. The total taxable sales during the first three quarters of the calendar year 2014 in the County were reported to be $5,945,101, a 4.70% increase over the total taxable sales of $5,678,212 reported during the first three quarters of the calendar year Annual figures for 2014 and 2015 are not yet available. Placer County Taxable Transactions Calendar Years 2009 through 2013 (Dollars in Thousands) Retail Stores Total All Outlets Number of Permits Taxable Transactions Number of Permits Taxable Transactions ,819 $4,453,186 11,135 $5,796, ,110 4,678,785 11,439 6,017, ,803 5,112,781 11,120 6,568, ,272 5,613,981 11,621 7,065, ,487 6,050,198 11,713 7,724,406 Source: California State Board of Equalization, Taxable Sales in California (Sales & Use Tax). A-6

83 Construction Permits The County s assessment roll totaled $63.4 billion as compared to the prior year s assessment roll of $58.2 billion, which reflected an 8.89% increase this year. These numbers over the last two years contrast with the real estate decline years of 2008 and after, where the County assessment roll experienced declines. The following table shows residential and non-residential building permits issued within the County for calendar years 2010 through Annual figures are not yet available for PLACER COUNTY Building Permit Valuation (Valuation in Thousands of Dollars) Permit Valuation New Single-family $272,263.0 $230,831.8 $431,611.6 $378,286.0 $523,638.2 New Multi-family 11, , , , ,645.5 Res. Alterations/Additions 50, , , , ,428.5 Total Residential $334,234.9 $299,537.1 $478,460.9 $435,722.7 $631,712.2 New Commercial $ 5,551.8 $ 7,014.3 $ 44,303.0 $70,876.0 $43,477.7 New Industrial , New Other 29, , , ,025.6 Com. Alterations/Additions 73, , , , ,977.7 Total Nonresidential $108,644.4 $108,626.5 $100,393.5 $170,678.5 $184,680.9 New Dwelling Units Single Family 1, ,209 1,249 1,620 Multiple Family TOTAL 1, ,320 1,476 1,996 Source: Construction Industry Research Board, Building Permit Summary. A-7

84 Transportation The County s transportation network is an integral part of its development. Centrally located in the State, the area is the hub of several major highways. Interstate 80 runs through the County, connecting San Francisco to New York. Highway 65 runs north from I-80 to Lincoln and Marysville. Interstate 5, which is west of the County, runs north to Seattle and south to Los Angeles. In the City, the major highways in the area are Interstate 80 and Interstate 5, and State Highways 65, 50, and 99. Union Pacific Railroad bought Southern Pacific in 1996 and the J.R. Davis Yard, located in the City, is the largest rail facility on the West Coast. Union Pacific owns and operates track in 23 states, primarily west of the Mississippi River. Amtrak provides passenger service daily to San Francisco and San Jose, and the California Zephyr connects the County to the Midwest and Chicago. Greyhound operates a station in the City, providing interstate destination services. Greyhound also operates throughout the County, with bus depots or regularly scheduled stops in most of the communities along major highways and roads. Sacramento International Airport serves the area in and around the City. Served by ten major carriers and several commuter airlines, as well as airfreight carriers, the airport handles passenger flights to over 140 cities with more than 130 scheduled departures per day and 4.3 million passengers annually. Nearby Auburn Municipal Airport serves charter and private aircraft for coastal, state and transcontinental flights. Executive air service is available as well. Auburn Municipal has an elevation of 1,520 feet and an east/west runway 3,100 feet in length. Several trucking companies serve the County, ranging from interstate lines to local haulers, and transporting a wide variety of goods. United Parcel Service, with a distribution center in Rocklin, offers freight transportation services as well. A-8

85 APPENDIX B SUMMARY OF PRINCIPAL LEGAL DOCUMENTS

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87 APPENDIX B SUMMARY OF PRINCIPAL LEGAL DOCUMENTS Table of Contents Page DEFINITIONS... 2 INSTALLMENT PURCHASE CONTRACT Installment Payments Obligation to Pay Pledge of Water Revenues Allocation of Water Revenues Rate Stabilization Fund Additional Contracts, Bonds and Obligations Particular Covenants of the Agency Against Additional Prior Lien Obligations Against Encumbrances Against Sale or Other Disposition of Property Maintenance and Operation of the Water System Insurance; Application of Net Revenues Amount of Rates and Charges Eminent Domain Proceeds Default Installment Purchase Contract Defaults and Acceleration of Maturities Application of Funds Upon Acceleration TRUST AGREEMENT Establishment of Funds and Accounts Certificate Fund Allocation of Installment Payments Application of Interest Fund Application of Principal Fund Funding and Application of Certificate Reserve Fund Application of Redemption Fund Issuance of Additional Series of Certificates Events of Default and Remedies of Owners Remedies on Default Acceleration of Maturities Application of Money Collected Trustee to Represent Owners Control by Owners Amendment of Trust Agreement Defeasance Discharge of Trust Agreement Discharge of Liability on Certificates Consents of Credit Providers Control of Remedies Consent to Amendments B-1

88 SUMMARY OF PRINCIPAL LEGAL DOCUMENTS The following is a summary of selected provisions of certain legal documents that are not described elsewhere in this Official Statement. These summaries do not purport to be comprehensive and reference should be made to the Installment Purchase Contract and the Trust Agreement (the Documents ) for a full and complete statement of their provisions. All capitalized terms not defined in this Official Statement have the meanings set forth in the Documents. DEFINITIONS Act means the Placer County Water Agency Act as set forth in Chapter 1234 of the Statutes of 1957 (West s Water Code Appendix Chapter 81; Deering s Water Uncodified Acts, Act 5935) of the State of California, as amended, and all laws amendatory thereof or supplemental thereto. Adjusted Net Water Revenues means, for any Fiscal Year, the Net Water Revenues for such Fiscal Year after adding thereto the Annual Debt Service on Obligations for such Fiscal Year. Alternate Credit Facility means any letter of credit, committed line of credit, surety bond, bond insurance policy or other instrument, or any combination thereof delivered to the Trustee that replaces a Credit Facility then in effect, under the terms of which the Trustee is authorized to receive payment of an amount sufficient to pay when and as due the principal and interest with respect to the Certificates or any Series thereof. The general unsecured obligations of the financial institution that issues any Alternate Credit Facility must have a long-term rating of A or better from S&P and of A2 from Moody's; provided that neither such rating shall be required to be better than the respective ratings then held by the general unsecured obligations of the Credit Provider whose Credit Facility is then in effect or the rating of any Credit Facility then in effect. Ancillary Obligations means any Liquidity Facility or Financial Products Agreement designated in a Supplemental Trust Agreement as an Ancillary Obligation for purposes of the Trust Agreement. Annual Debt Service means, when used with respect to Indebtedness, as of any date of calculation and with respect to any period of one year, the sum of (i) the interest payable on all such Indebtedness during such period (except to the extent that such interest is payable from moneys set aside and held in escrow with an independent trustee for such purpose), and (ii) the principal (or mandatory sinking fund or redemption fund or installment purchase price or lease rental or similar payment or deposit) payments on such Indebtedness required in such period (except to the extent that such principal is payable from moneys set aside and held in escrow with an independent trustee for such purpose); computed on the assumption that no portion of such Indebtedness shall cease to be outstanding in such period except by reason of the application of such scheduled payments; provided that, for purposes of such computation: (a) if Indebtedness is secured by an irrevocable letter of credit issued by a bank having a combined capital and surplus of at least $100,000,000, principal payments or deposits with respect to such Indebtedness nominally due in the last Fiscal Year in which such Indebtedness matures may, at the option of the Agency, be treated as if they were due as specified in any loan agreement or reimbursement agreement issued in connection with such letter of credit or pursuant to the repayment provisions of such letter of credit and interest on such Indebtedness after such Fiscal Year shall be assumed to be payable pursuant to the terms of such loan agreement or reimbursement agreement or repayment provisions; (b) if interest on Indebtedness is payable pursuant to a variable interest rate formula, the interest rate on such Indebtedness for periods when the actual interest rate cannot be yet determined B-2

89 shall be assumed to be equal to the greater of (a) the current interest rate calculated pursuant to the provisions of such agreement, (b) the average interest rate on such Indebtedness during the 36 months preceding the date of calculation for obligations of similar duration and interval, and(c) if such Indebtedness has not been outstanding for such 36-month period, such weekly average interest rate on comparable debt (as determined by the Agency subject to the approval of the Credit Providers), as set forth in a certificate filed with the Trustee and the Agency; and (c) (i) if any such Indebtedness bears interest at a variable rate and the payments received and made by the Agency under an Ancillary Obligation with respect to such Indebtedness is expected to produce a fixed rate to be paid by the Agency, then such Indebtedness together with the Ancillary Obligation shall be treated as a single obligation of the Agency that bears interest at such fixed rate; or (ii) if any such Indebtedness bears interest at a fixed rate and the payments received and made by the Agency under an Ancillary Obligation with respect to such Indebtedness is expected to produce a variable rate to be paid by the Agency, then such Indebtedness together with the Ancillary Obligation shall be treated as a single obligation of the Agency that bears interest at such variable rate. Bonds means all water revenue bonds or notes of the Agency authorized, executed, issued, and delivered by the Agency under and pursuant to the Act, the payments of which are on a parity with the Installment Payments and are secured by a pledge of and lien on the Water Revenues. Bonds does not include the Placer County Water Agency Middle Fork Project Revenue Bonds, Series A. Business Day means any day other than (1) 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, and (2) for purposes of payments and other actions relating to Certificates secured by a letter of credit or with respect to which a Liquidity Facility has been provided, a day upon which commercial banks in the city in which is located the office of the issuing bank at which demands for payment under the letter of credit or draws under a related Liquidity Facility are to be presented are authorized or obligated by law or executive order to be closed. Certificate Reserve Requirement means, as of any date of calculation, an amount equal to the least of (i) Maximum Annual Debt Service on all Certificates then Outstanding, (ii) 125% of average Annual Debt Service on all Certificates then Outstanding and (iii) 10% of the initial proceeds of each Series of the Certificates then Outstanding. Code means the Internal Revenue Code of 1986 and the regulations applicable to or issued thereunder. Contracts means the Installment Purchase Contract and all other contracts of the Agency authorized and executed by the Agency under which Installment Payments are to be made on a parity with the Installment Payments and are secured by a pledge of and lien on the Water Revenues. Contracts shall not include Obligations. Costs of Issuance means all items of expense directly or indirectly payable by or reimbursable to the Agency and related to the original authorization, execution, sale, and delivery of the Certificates, including but not limited to advertising and printing costs, costs of preparation and reproduction of documents, filing and recording fees, initial fees and charges of the Trustee, legal fees and charges, fees and disbursements of consultants and professionals, financial advisor fees and expenses, rating agency fees, fees and charges for preparation, execution, transportation and safekeeping of Certificates, and any other cost, charge, or fee in connection with the original delivery of Certificates. B-3

90 Credit Facility means the insurance policy, letter of credit, or other credit facility, or any Alternate Credit Facility, of the Credit Provider provided with respect to a Series of the Certificates. Credit Provider means any provider of a Credit Facility with respect to a Series of the Certificates and its successors and assigns. "Credit Providers" means, collectively, the providers of each Credit Facility with respect to the Certificates and their successors and assigns. Defeasance Securities means the following: (1) United States Treasury Certificates, Notes, and Bonds (including State and Local Government Series -- SLGS ). (2) Direct obligations of the Treasury that have been stripped by the Treasury itself. (3) The interest component of Resolution Funding Corp. (REFCORP) strips that have been stripped by request to the Federal Reserve Bank of New York in book-entry form. (4) Pre-refunded municipal bonds rated Aaa by Moody s and AAA by Standard & Poor s. If, however, the bonds are rated by Standard & Poor s but are not rated by Moody s, then the pre-refunded bonds must have been pre-refunded with cash, direct United States or United States-guaranteed obligations, or AAA-rated pre-refunded municipal bonds. (5) Obligations issued or guaranteed by the following agencies that are backed by the full faith and credit of the United States: (a) (b) (c) (d) (e) (f) U.S. Export-Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership Farmers Home Administration (FmHA) Federal Financing Bank General Services Administration Participation certificates U.S. Maritime Administration Guaranteed Title XI financing U.S. Department of Housing and Urban Development (HUD) Project Notes Local Authority Bonds New Communities Debentures - U.S. Government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. Government guaranteed public housing notes and bonds Financial Products Agreement means an interest rate swap, cap, collar, option, floor, forward or other hedging agreement, arrangement or security, however denominated, identified to the Trustee in a Statement of the Agency as having been entered into with a Qualified Provider not for investment purposes but with respect to Indebtedness (which Indebtedness shall be specifically identified in the Statement of the Agency) for the purpose of (1) reducing or otherwise managing the risk of interest rate changes or (2) effectively converting interest rate exposure, in whole or in part, from a fixed rate exposure to a variable rate exposure or from a variable rate exposure to a fixed rate exposure. Fiscal Year means the period beginning on January 1 of each year and ending on the next succeeding December 31 or any other twelve-month period selected and designated as the official fiscal year period of the Agency. B-4

91 Indebtedness means Contracts, Bonds, and Obligations. For purposes of calculating the Certificate Reserve Requirement, Indebtedness also refers to the Certificates. Installment Payments means the installment payments of interest and principal scheduled to be paid by the Agency under and pursuant to the Contracts. Installment Purchase Contract Default means an event described as such in the Installment Purchase Contract or any event of default under any other Contracts. Interest Payment Date with respect to Certificates of any Series means the date or dates specified in such Certificates on which installments of interest represented by such Certificates are due and payable. Investment Securities means the following: (1) Direct obligations of the United States of America (including obligations issued or held in book-entry form on the books of the Department of the Treasury, and CATS and TIGRS) or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America. (2) Bonds, debentures, notes, or other evidence of indebtedness issued or guaranteed by any of the following federal agencies, provided that such obligations are backed by the full faith and credit of the United States of America (stripped securities are only permitted if they have been stripped by the agency itself): (a) (b) (c) (d) (e) (f) (g) (h) U.S. Export-Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership Farmers Home Administration (FmHA) Certificates of beneficial ownership Federal Financing Bank Federal Housing Administration (FHA) Debentures General Services Administration Participation certificates Government National Mortgage Association (GNMA or Ginnie Mae) Guaranteed mortgage-backed bonds Guaranteed pass-through obligations U.S. Maritime Administration Guaranteed Title XI financing U.S. Department of Housing and Urban Development (HUD) Project Notes Local Authority Bonds New Communities Debentures - U.S. Government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. Government guaranteed public housing notes and bonds B-5

92 (3) Bonds, debentures, notes, or other evidence of indebtedness issued or guaranteed by any of the following non-full faith and credit U.S. government agencies (stripped securities are only permitted if they have been stripped by the agency itself): (a) (b) (c) (d) (e) (f) Federal Home Loan Bank System Senior debt obligations Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) Participation certificates Senior debt obligations Federal National Mortgage Association (FNMA or Fannie Mae) Mortgage-backed securities and senior debt obligations Student Loan Marketing Association (SLMA or Sallie Mae) Senior debt obligations Resolution Funding Corp. (REFCORP) obligations Farm Credit System Consolidated system-wide bonds and notes (4) Money market funds registered under the Federal Investment Company Act of 1940 the shares of which are registered under the Federal Securities Act of 1933 and that have ratings by Standard & Poor's of "AAAm-G," "AAA-m," or "AA-m" and, if rated by Moody's, ratings of "Aaa," "Aa1," or "Aa2," including any sweep account of the Trustee or its affiliates (or for which the Trustee or its affiliates provide investment advisory or other management services) that meets such requirements. (5) Certificates of deposit secured at all times by collateral described in clauses (1) and/or (2) above. Such certificates must be issued by commercial banks (including the Trustee and its affiliates), savings and loan associations, or mutual savings banks. The collateral must be held by a third party and the Owners must have a perfected first security interest therein. (6) Certificates of deposit, savings accounts, deposit accounts, or money market deposits (including those of the Trustee and its affiliates) that are fully insured by the Federal Deposit Insurance Corporation, including BIF and SAIF. (7) Investment agreements, including guaranteed investment contracts, forward purchase agreements and reserve fund put agreements approved by the Credit Providers. (8) Commercial paper rated, at the time of purchase, "Prime-1" by Moody's and "A-1" or better by Standard & Poor's. (9) Bonds or notes issued by any state or municipality that are rated by Moody's and Standard & Poor's in one of the two highest Rating Categories. (10) Federal funds or bankers' acceptances with a maximum term of one year of any bank that has an unsecured, uninsured, and unguaranteed obligation rating of "Prime-1" or "A3" or better by Moody's and "A-1" or A or better by Standard & Poor's. B-6

93 (11) Repurchase agreements that provide for the transfer of securities from a dealer bank or securities firm (seller/borrower) to the Agency (buyer/lender) and the transfer of cash from the Agency to the dealer bank or securities firm with an agreement that the dealer bank or securities firm will repay the cash plus a yield to the Agency in exchange for the securities at a specified date. Repurchase agreements that exceed 30 days must be approved by the Credit Providers. Repurchase agreements for 30 days or less must satisfy the following criteria: firm (a) Repurchase agreements must be between the Agency and a dealer bank or securities (i) Primary dealers on the Federal Reserve reporting dealer list that are rated "A" or better by Standard & Poor's and A2 or better by Moody's, or (ii) Moody's. Banks rated "A" or better by Standard & Poor's and A2 or better by (b) The written repurchase agreement contract must include the following: (i) Securities that are acceptable for transfer are: 1) Direct U.S. government obligations described in clause (1) above. 2) Federal agency obligations described in clause (2) above. 3) FHLMC and FNMA obligations. (ii) The term of the repurchase agreement may be up to 30 days. (iii) The collateral must be delivered to the Agency, Trustee (if Trustee is not supplying the collateral), or third party acting as agent for the Trustee (if the Trustee is supplying the collateral) before/simultaneous with payment (perfection by possession of certificated securities). (iv) The securities must be valued weekly, marked-to-market at current market price plus accrued interest. (v) The value of collateral must be equal to 104% of the amount of cash transferred by the Agency to the dealer bank or security firm under the repurchase agreement plus accrued interest. If the value of securities held as collateral falls below 104% of the value of the cash transferred by the Agency, then additional cash and/or acceptable securities must be transferred. If, however, the securities used as collateral are FNMA or FHLMC obligations, then the value of collateral must equal 105%. (c) A legal opinion must be delivered to the Agency to the effect that the repurchase agreement meets guidelines under state law for legal investment of public funds. (12) The Local Agency Investment Fund referred to in Section of the California Government Code to the extent held in the name and to the credit of the Trustee; B-7

94 (13) Shares of beneficial interest in the California Arbitrage Management Trust; provided that, so long as the Policy is in effect and the Credit Providers is not in default with respect to its payment obligations thereunder, any such investment must be approved by the Credit Providers. (14) Any securities approved in writing by the Credit Providers. Liquidity Facility means a commitment of a Liquidity Provider to provide liquidity for the purchase of a Series of the Certificates, or any Alternate Liquidity Facility, in form and substance satisfactory to the Credit Providers. A Liquidity Facility may be included as part of a Credit Facility. Liquidity Provider means any institution issuing a Liquidity Facility then in effect with respect to a Series of the Certificates. "Liquidity Providers" means, collectively, the institutions issuing each Liquidity Facility then in effect with respect to the Certificates. Maintenance and Operation Costs means the reasonable and necessary costs of maintaining and operating the Water System calculated in accordance with generally accepted accounting principles as applicable to governmental type organizations, including (without limitation) the costs of purchasing water, the reasonable expenses of management, repair and other expenses necessary to maintain and preserve the Water System in good repair and working order, and reasonable amounts for administration, overhead, insurance, taxes (if any), and other similar costs, but excluding in all cases (a) depreciation and obsolescence charges or reserves therefore, amortization of intangibles, losses or gains on subsidiaries accounted for on any equity basis, or other bookkeeping entries of a similar nature, (b) all costs paid from the proceeds of taxes received by the Agency, and (c) all interest charges and charges for the payment of principal or amortization of bonded or other indebtedness of the Agency. Mandatory Sinking Account Payment means, with respect to Certificates of any Series and maturity, the amount required by the Trust Agreement or a Supplemental Trust Agreement thereto to be deposited by the Agency in a Sinking Account for the payment of Term Certificates of such Series and maturity. Maximum Annual Debt Service means Annual Debt Service with respect to Indebtedness for the Fiscal Year in which such Annual Debt Service is largest. Moody s means Moody s Investors Service and its successors and assigns, except that if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, then the term Moody s shall be deemed to refer to any other nationally recognized securities rating agency selected by the Agency and approved by the Trustee. Net Proceeds means, when used with respect to any insurance or condemnation award, the proceeds from such insurance or condemnation award remaining after payment of all expenses (including attorneys fees) incurred in the collection of such proceeds. Net Water Revenues means, for any Fiscal Year, (i) the Water Revenues for such Fiscal Year, less (ii) the Maintenance and Operation Costs for such Fiscal Year, plus (iii) any amounts withdrawn from the Rate Stabilization Fund for inclusion in Water Revenues for such Fiscal Year, less (iv) any amounts withdrawn from Water Revenues for such Fiscal Year for deposit in the Rate Stabilization Fund. B-8

95 1963 Bond Resolution 1 means Resolution No adopted April 16, 1963, providing for the issuance of the Placer County Water Agency Middle Fork Project Revenue Bonds Contract 2 means the Installment Purchase Contract dated June 1, 1993, between the Corporation and the Agency, as amended and supplemented Trust Agreement 3 means the Trust Agreement dated June 1, 1993, between First Trust of California, National Association, the District, and the Corporation, as amended and supplemented. Obligation means any contract or lease for the purchase of water, facilities, properties, or structures, under which the final payments are due more than one year following the effective date thereof, so long as the payments in each such case thereunder constitute Maintenance and Operation Costs. Opinion of Bond Counsel means a written opinion of a law firm experienced in matters relating to obligations the interest on which is excluded from gross income for federal income tax purposes, selected by the Agency, and not objected to by the Trustee. Outstanding, when used as of any particular time with reference to Certificates, means all Certificates theretofore, or thereupon being, executed and delivered by the Trustee under the Trust Agreement except (1) Certificates theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation; (2) Certificates with respect to which all liability of the Agency shall have been discharged, including Certificates (or portions of Certificates) for which money is held by the Trustee; and (3) Certificates for the transfer or exchange of or in lieu of or in substitution for which other Certificates shall have been executed and delivered by the Trustee pursuant to the Trust Agreement. Owner or Certificateowner, whenever used with respect to a Certificate, means the person in whose name such Certificate is registered. Person means a 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 Payment Date with respect to Certificates of any Series means the date or dates specified in such Certificates on which installments of principal represented by such Certificates are due and payable or Mandatory Sinking Account Payments are due and payable. Project means any additions, betterments, extensions, or improvements to the Water System designated by the Board of Directors of the Agency as a designated Project, the acquisition and construction of which is to be paid for by the proceeds of any Contracts or Bonds. Qualified Provider means any financial institution or insurance company that is a party to a Financial Products Agreement. The general unsecured obligations of any Qualified Provider must have a long-term rating of A or better from S&P and of A2 from Moody's. Rating Category means (i) with respect to any long-term rating category, all ratings designated by a particular letter or combination of letters, without regard to any numerical modifier, plus or minus sign or other modifier and (ii) with respect to any short-term or commercial paper rating category, all ratings 1 The last of the bonds issued pursuant to the 1963 Bond Resolution were retired on January 1, 2013, and the Resolution has been discharged. 2 The 1993 Contract has been defeased. 3 The last of the Certificates of Participation issued pursuant to the 1993 Trust Agreement have been paid and the 1993 Trust Agreement has been defeased. B-9

96 designated by a particular letter or combination of letters and taking into account any numerical modifier, but not any plus or minus sign or other modifier. Redemption Price means, with respect to any Certificate (or portion thereof) the principal amount represented by such Certificate (or portion) plus the applicable premium, if any, payable upon redemption thereof pursuant to the provisions of such Certificate and the Trust Agreement. Regular Record Date for interest payable on any Interest Payment Date on the Certificates of any Series means the date specified in the provisions of the Trust Agreement creating such Series. Reserve Facility means any letter of credit, insurance policy, surety bond or other credit source deposited with the Trustee to satisfy the requirement to maintain the Certificate Reserve Fund at the Certificate Reserve Requirement. Serial Certificates means the Certificates, maturing in specified years, for which no Mandatory Sinking Account Payments are provided. Series, whenever used with respect to Certificates, means all of the Certificates designated as being of the same series, executed and delivered in a simultaneous transaction, regardless of variations in maturity, interest rate, redemption, and other provisions, and any Certificates thereafter executed and delivered upon transfer or exchange or in lieu of or in substitution for (but not to refund) such Certificates. Special Record Date for the payment of any defaulted interest represented by Certificates of any Series means a date fixed by the Trustee for such purpose. Standard & Poor s or S&P means Standard & Poor s and its successors and assigns, except that if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, then the term Standard & Poor s shall be deemed to refer to any other nationally recognized securities rating agency selected by the Agency and approved by the Trustee. Supplemental Trust Agreement means any Supplemental Trust Agreement duly executed and delivered, supplementing, modifying or amending the Trust Agreement, but only if and to the extent that such Supplemental Trust Agreement is specifically authorized under the Trust Agreement. Term Certificates means the Certificates payable at or before their specified maturity date or dates from Mandatory Sinking Account Payments established for that purpose and calculated to retire such Certificates on or before their specified maturity date or dates. Water Connection Charge means the charge or fee imposed by the Agency for new connections to the Water System and any similar charge or fee imposed for such purpose that may be placed in effect in the future. Water Revenues means all charges (including standby charges) received for and all other income and receipts derived by the Agency from the ownership or operation of the Water System or otherwise arising from the Water System, and, with respect to Water Revenues that constitute Revenues under the 1963 Bond Resolution 1, paid to the Agency pursuant to Section 4.02(e) of the 1963 Bond Resolution, together with any receipts derived from the Agency s Plant Expansion and Replacement Charge, including, without limiting the generality of the foregoing, (1) all income, rates, fees, charges, insurance proceeds, or other moneys derived by the Agency from the sale, furnishing, and supplying of water or other services, facilities, and commodities 1 The 1963 Bond Resolution has been discharged. B-10

97 sold, furnished, or supplied through the facilities of or in the conduct or operation of the business of the Water System, (2) the earnings on and income derived from the investment of such income, rates, fees, charges, or other moneys to the extent that the use of such earnings and income is limited to the Water System by or pursuant to law, (3) the payments received under a Financial Products Agreement, and (4) the proceeds derived by the Agency directly or indirectly from the sale, lease, or other disposition of a part of the Water System, but excluding in all cases (a) moneys derived from the levy or collection of taxes or assessments by the Agency, (b) hydroelectric revenues, and (c) customers deposits or any other deposits or advances subject to refund until such deposits or advances have become the property of the Agency. Water Service means the water furnished, made available, or sold by the Water System. Water System means the Agency s Zone No. 1, Zone No. 2, and Zone No. 3 water systems, consisting of the treatment, storage, and conveyance facilities and appurtenant works and equipment used to serve treated and irrigation water to the lands and inhabitants in the Agency s Zone No. 1, Zone No. 2, and Zone No. 3, together with all additions, betterments, extensions, and improvements thereto. INSTALLMENT PURCHASE CONTRACT The Installment Purchase Contract provides the terms of the sale of certain facilities by the Corporation to the Agency and the payment of the purchase price of such facilities in installments by the Agency to the Corporation, which Installment Payments are evidenced and represented by the Certificates. Certain of the provisions of the Installment Purchase Contract are summarized below. This summary does not purport to be complete of definitive and is qualified in its entirety by reference to the full terms of the Installment Purchase Contract. INSTALLMENT PAYMENTS The Agency will pay the Trustee, on behalf of the Corporation, the purchase price for the facilities in Installment Payments on the third Business Day preceding each Interest Payment Date for the payment of principal (whether at maturity or upon prepayment or acceleration), prepayment premium, if any, and interest represented by the Certificates, until the principal, prepayment premium, if any, and interest represented by the Certificates shall have been fully paid or provision for the payment thereof shall have been made in accordance with the Trust Agreement. OBLIGATION TO PAY The obligation of the Agency to make the Installment Payments from the Water Revenues is absolute and unconditional, and until such time as the purchase price for the facilities shall have been paid in full (or provision for the payment thereof shall have been made), the Agency will not discontinue or suspend any Installment Payments required to be made by it when due, whether or not the facilities or any part thereof is operating or operable or has been completed, or its use 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 conditional upon the performance or nonperformance by any party of any agreement for any cause whatsoever. PLEDGE OF WATER REVENUES The Agency has irrevocably pledged all Water Revenues to the payment of the Installment Payments, subject to the prior pledge and lien on such Water Revenues as constitute Revenues under the 1963 Bond B-11

98 Resolution 1 and the prior pledge and lien on the Water Revenues that secure payment of the installment payments under the 1993 Contract. 2 The pledge constitutes a lien on the Water Revenues for the payment of the Installment Payments, Maintenance and Operation Costs of the Water System, and all other Contracts, Obligations, and Bonds in accordance with the terms of the Installment Purchase Contract. ALLOCATION OF WATER REVENUES All Water Revenues will be received by the Agency in trust and deposited when and as received in the Placer County Water Agency Water Revenue Fund, which fund is to be held by the Agency. All moneys in the Water Revenue Fund will be applied to the purposes or set aside by the Agency in the following respective special funds (of which the Rate Stabilization Fund is to be held by the Agency) in the following order of priority: (a) the payment of all Maintenance and Operation Costs; (b) the payments required under the 1993 Contract 1 and the 1993 Trust Agreement 3 ; (c) payment to the Trustee of the interest due with respect to all Installment Payments, Contracts, and Bonds, without preference or priority, and in the event of any insufficiency of such moneys ratably without any discrimination or preference; (d) payment to the Trustee of the principal of all Installment Payments, Contracts, and Bonds, without preference or priority, and in the event of any insufficiency of such moneys ratably without any discrimination or preference; (e) payment to the Trustee of any required deposits to the Certificate Reserve Fund and deposits to any reserve fund or account as may be provided for Bonds or other Installment Payments, without preference or priority, and in the event of any insufficiency of such moneys ratably without any discrimination or preference; and (f) any other legal purpose of the Agency, including deposit to the Rate Stabilization Fund (to be held by the Agency). RATE STABILIZATION FUND From time to time, the Agency may deposit in the Rate Stabilization Fund such Net Water Revenues as the Agency shall determine are not needed to pay Installment Payments. Deposits for each Fiscal Year may be made until (but not after) the date that is 120 days after the end of such Fiscal Year. The Agency may withdraw amounts from the Rate Stabilization Fund only for inclusion in Water Revenues, such withdrawals to be made until (but not after) the date that is 120 days after the end of such Fiscal Year. All interest or other earnings upon deposits in the Rate Stabilization Fund shall be withdrawn therefrom and accounted for as Water Revenues. ADDITIONAL CONTRACTS, BONDS AND OBLIGATIONS The Agency may at any time execute any Contracts or issue any Bonds or execute any Obligations, as the case may be, provided: 1 The 1963 Bond Resolution has been discharged. 2 The 1993 Contract has been defeased. 3 The 1993 Trust Agreement has been defeased. B-12

99 (a) Debt Service Feasibility. Either: (1) a Project: Project Financings. With respect to the financing of the acquisition or construction of either: (i) Historic Test. The Net Water Revenues for a period of twelve (12) consecutive months during the eighteen (18) months immediately preceding the date of adoption by the Board of the resolution authorizing the execution of such Contracts or Obligations or the issuance of such Bonds, as the case may be, as evidenced by a calculation prepared by the Agency, shall have produced a sum equal to at least 120% of Maximum Annual Debt Service on all Outstanding Contracts and Bonds and the Contracts or Bonds to be executed or issued, and the Adjusted Net Water Revenues for the same twelve-month period, evidenced by a calculation prepared by the Agency, shall have produced a sum equal to at least 100% of Maximum Annual Debt Service on all Outstanding Contracts, Bonds, and Obligations and the Contracts, Bonds, or Obligations to be executed or issued; provided that in the calculations for this purpose: (A) If rates and charges in effect on the date upon which such Contracts, Bonds, or Obligations will become Outstanding will be greater than those in effect during the most recent Fiscal Year for which audited financial statements are available, then the Net Water Revenues for said Fiscal Year may be augmented by 95% of the estimated increase in Net Water Revenues computed to accrue to the Water System in the first twelve months during which such rates and charges shall be in effect; (B) Net Water Revenues may be augmented by 95% of the projected increase in annual Net Water Revenues to be provided by additional facilities under construction (financed from any source) or to be constructed with the proceeds of the Contracts, Bonds, or Obligations then being executed or issued computed to accrue to the Water System in the first twelve months during which such additional facilities are placed in operation; and (C) Net Water Revenues for this purpose shall not include Water Revenues anticipated to be used to pay principal and interest, if any, on the Placer County Water Agency Middle Fork Project Revenue Bonds, Series A; or: (ii) Projected Revenue Test. (A) Recent Year Compliance. The Net Water Revenues for a period of twelve consecutive months during the eighteen months immediately preceding the date of adoption by the Board of the resolution authorizing the execution of such Contracts or Obligations or the issuance of such Bonds, as the case may be, as evidenced by a calculation prepared by the Agency, shall have produced a sum equal to at least 120% of the Annual Debt Service for such twelve-month period on the Outstanding Contracts and Bonds, and the Adjusted Net Water Revenues for the same twelve-month period, evidenced by a calculation prepared by the Agency, shall have produced a sum equal to at least 100% of the Annual Debt Service for such twelve-month period on the Outstanding Contracts, Bonds, and Obligations; and B-13

100 (B) Projected Revenues. The estimated Net Water Revenues for the then current Fiscal Year and for each Fiscal Year thereafter to and including the first complete Fiscal Year after the latest Date of Operation of any uncompleted Project, as evidenced by an Engineer s Report on file with the Agency, plus (after giving effect to the completion of all uncompleted Projects) an allowance for estimated Net Water Revenues for each of such Fiscal Years arising from any increase in the rates and charges estimated to be fixed and prescribed for the Water Service and that are economically feasible and reasonably considered necessary based on projected operations for such period, as evidenced by an Engineer s Report on file with the Agency, shall produce a sum equal to at least 120% of the estimated Annual Debt Service for each of such Fiscal Years on the Contracts and Bonds to be Outstanding, and the estimated Adjusted Net Water Revenues for each of the same Fiscal Years, evidenced by similar documents (and using similar allowances) on file with the Agency, shall produce a sum equal to at least 100% of the estimated Annual Debt Service for each of such Fiscal Years on the Contracts, Bonds, and Obligations to be Outstanding after giving effect, in either case, to the execution of all Contracts and Obligations and the issuance of all Bonds estimated to be required to be executed or issued to pay the costs of completing all uncompleted Projects, assuming that all such Contracts and Obligations and Bonds have maturities, interest rates, and proportionate principal repayment provisions similar to the Contracts and Obligations last executed or then being executed or the Bonds last issued or then being issued for the purpose of acquiring and constructing any of such uncompleted Projects; and: (iii) Project Feasibility. The Project to be acquired and constructed with the proceeds of such Contracts or Obligations or such Bonds is technically feasible and the estimated cost of the acquisition and construction thereof is reasonable, and (in the event any of the facilities of such Project constitute facilities for the acquisition of water supplies) the cost of the water to be obtained therefrom is reasonable compared with other sources of water available to the Agency, as evidenced by an Engineer s Report (prepared at the time of the execution of the initial Contracts or Obligations or the issuance of the initial Bonds, as the case may be, for the purpose of acquiring and constructing such Project) on file with the Agency; or: (2) Refundings. If any such Contracts are executed or Bonds are issued for the purpose of discharging or defeasing Contracts or Bonds then unpaid and outstanding, upon such execution or issuance, a special report prepared by an Independent Certified Public Accountant is filed with the Agency to the effect that the Annual Debt Service for all future Fiscal Years following such discharge or defeasance shall be less than the Annual Debt Service for all future Fiscal Years if such discharge or defeasance did not occur; and (b) Reserve Funding. The Agency shall have on deposit in a reserve fund for such Contracts, Bonds, or Obligations an amount equal to the least of (i) Maximum Annual Debt Service on all Contracts, Bonds, and Obligations to be Outstanding, (ii) 125% of average Annual Debt Service on all Contracts, Bonds, and Obligations to be Outstanding, and (iii) 10% of the initial proceeds of Contracts, Bonds, and Obligations to be Outstanding, in each case as of such date; and (c) No Prior Lien on Water Revenues. The lien on any Water Revenues securing any additional Placer County Water Agency Middle Fork Revenue Bonds issued shall be on a parity with or subordinate to the lien created by this Installment Purchase Contract. B-14

101 PARTICULAR COVENANTS OF THE AGENCY Against Additional Prior Lien Obligations. The Agency will not incur any obligations pursuant to the terms of the 1993 Contract 1 that are secured by a pledge and lien on the Water Revenues that is senior to the pledge and lien on the Water Revenues provided in the Installment Purchase Contract. Against Encumbrances. The Agency will not make any pledge of or place any lien on the Water Revenues except as provided in the Installment Purchase Contract. The Agency may at any time, or from time to time, issue evidences of indebtedness for any lawful purpose that are payable from and secured by a pledge of and lien on any moneys transferred to other funds of the Agency, provided that such pledge and lien shall be subordinate in all respects to the pledge of and lien on the Water Revenues provided in the Installment Purchase Contract. Against Sale or Other Disposition of Property. The Agency will not sell, lease, or otherwise dispose of the Water System or any part thereof essential to the proper operation of the Water System or to the maintenance of the Water Revenues. The Agency will not enter into any agreement or lease that impairs the operation of the Water System or any part thereof necessary to secure adequate Water Revenues for the payment of the Installment Payments, or which would otherwise impair the rights of the Corporation with respect to the Water Revenues or the operation of the Water System. Any real or personal property that has become nonoperative or that is not needed for the efficient and proper operation of the Water System, or any material or equipment that has become worn out, may be sold at not less than the market value thereof if such sale will not reduce the Water Revenues and if the proceeds of such sale are deposited in the Water Revenue Fund. Maintenance and Operation of the Water System. The Agency will maintain and preserve the Water System in good repair and working order at all times and will operate the Water System in an efficient and economical manner and will pay all Maintenance and Operation Costs of the Water System as they become due and payable. Insurance; Application of Net Revenues. (a) The Agency will procure and maintain or cause to be procured and maintained insurance on the Water System with responsible insurers in such amounts and against such risks (including accident to or destruction of the Water System) as are usually covered in connection with water systems similar to the Water System so long as such insurance is available from reputable insurance companies. In the event of any damage to or destruction of the Water System caused by the perils covered by such insurance, the Net Proceeds thereof shall be applied to the reconstruction, repair, or replacement of the damaged or destroyed portion of the Water System. The Agency shall begin such reconstruction, repair, or replacement promptly after such damage or destruction shall occur; shall continue and properly complete such reconstruction, repair, or replacement as expeditiously as possible; and shall pay out of such Net Proceeds all costs and expenses in connection with such reconstruction, repair, or replacement so that the same shall be completed and the Water System shall be free and clear of all claims and liens. If such Net Proceeds exceed the costs of such reconstruction, repair, or replacement, then the excess Net Proceeds shall be applied in part to the prepayment of Installment Payments and in part to such other fund or account as may be appropriate and used for the retirement of Bonds, Contracts, and Obligations in the same proportion which the aggregate unpaid principal balance of Installment Payments then bears to the aggregate unpaid principal amount of such Bonds, Contracts, and Obligations. If such Net Proceeds are sufficient to enable the Agency to retire the entire obligation evidenced by the Installment Purchase Contract prior to the final due date of the Installment Payments as well as the entire obligations evidenced by Bonds, Contracts, and Obligations then remaining 1 The 1993 Contract has been defeased. B-15

102 unpaid prior to their final respective due dates, the Agency may elect not to reconstruct, repair, or replace the damaged or destroyed portion of the Water System, and thereupon such Net Proceeds shall be applied to the prepayment of Installment Payments and to the retirement of such Bonds, Contracts, and Obligations. (b) The Agency will procure and maintain such other insurance that it deems advisable or necessary to protect its interests and the interests of the Corporation, which insurance shall afford protection in such amounts and against such risks as are usually covered in connection with water systems similar to the Water System. (c) Any insurance required to be maintained pursuant to paragraph (a) above and any insurance maintained pursuant to paragraph (b) above may be maintained under a self-insurance or pooled risk program so long as such self-insurance or pooled risk program is maintained in the amounts and manner usually maintained in connection with water systems similar to the Water System. (d) All policies of insurance required to be maintained shall provide that the Corporation shall be given thirty days written notice of any intended cancellation thereof or reduction of coverage provided thereby. Amount of Rates and Charges. The Agency will fix, prescribe, and collect rates and charges for the Water Service that are reasonably fair and nondiscriminatory and that will be at least sufficient to yield during each Fiscal Year (a) Net Water Revenues (less any amounts thereof needed to pay debt service on the Placer County Water Agency Middle Fork Revenue Bonds, Series A) that, together with other revenues of the Agency (including property taxes, special taxes and assessments not pledged to debt service on other obligations of the Agency), are equal to 120% of the Annual Debt Service on Outstanding Contracts and Bonds for such Fiscal Year, (b) Adjusted Net Water Revenues (less any amounts thereof needed to pay debt service on the Placer County Water Agency Middle Fork Revenue Bonds, Series A) that, together with other revenues of the Agency (including property taxes, special taxes and assessments not pledged to debt service on other obligations of the Agency), are equal to 100% of the Annual Debt Service on Outstanding Contracts, Bonds, and Obligations for such Fiscal Year and (c) any amounts necessary to replenish the Certificate Reserve Fund and any similar reserve fund established with respect to any Bonds or Contracts to their required amounts. For purposes of this Section, the 1993 Contract 1 shall be deemed to be an Outstanding Contract. The Agency 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 Net Water Revenues and the Adjusted Net Water Revenues from such reduced rates and charges will at all times be sufficient to meet the requirements of this section. Eminent Domain Proceeds. If all or any part of the Water System shall be taken by eminent domain proceedings, the Net Proceeds thereof shall be applied as follows: (a) If (1) the Agency obtains and files with the Corporation an Engineer s Report showing (i) the estimated loss of annual Net Water Revenues, if any, suffered or to be suffered by the Agency by reason of such eminent domain proceedings, (ii) a general description of the additions, betterments, extensions, or improvements to the Water System proposed to be acquired and constructed by the Agency from such Net Proceeds, and (iii) an estimate of the additional annual Net Water Revenues to be derived from such additions, betterments, extensions, or improvements, and (2) the Agency, on the basis of such Engineer s Report filed with the Corporation, determines that the estimated additional annual Net Water Revenues will sufficiently offset the estimated loss of annual Net Water Revenues resulting from such eminent domain proceedings so that the ability of the Agency to meet its obligations under the Installment Purchase Contract will not be substantially 1 The 1993 Contract has been defeased. B-16

103 DEFAULT impaired (which determination shall be final and conclusive) then the Agency shall promptly proceed with the acquisition and construction of such additions, betterments, extensions, or improvements substantially in accordance with such Engineer s Report and such Net Proceeds shall be applied for the payment of the costs of such acquisition and construction, and any balance of such Net Proceeds not required by the Agency for such purpose shall be deposited in the Water Revenue Fund. (b) If (1) the Agency obtains and files with the Corporation an Engineer s Report containing an estimate of annual Net Water Revenues after the taking by eminent domain and (2) the Agency, on the basis of such Engineer s Report, determines that Net Water Revenues will equal at least 120% of Debt Service for each Fiscal Year in which Bonds, Contracts, and Obligations are Outstanding, then the Agency may use such Net Proceeds for any lawful purpose. (c) If the conditions of neither of the foregoing subsections are met, then such Net Proceeds shall be applied in part to the prepayment of Installment Payments and in part to such other fund or account as may be appropriate and used for the retirement of Bonds, Contracts, and Obligations in the same proportion as the aggregate unpaid principal balance of Installment Payments then bears to the aggregate unpaid principal amount of such Bonds, Contracts, and Obligations. Installment Purchase Contract Defaults and Acceleration of Maturities. If one or more of the following Installment Purchase Contract Defaults shall happen, that is to say: (1) if default shall be made in the due and punctual payment of any Installment Payment or any Contract, Bond, or Obligation when and as the same shall become due and payable; (2) if default shall be made in the due and punctual payment of the Purchase Price of any Certificate subject to tender; (3) if default shall be made by the Agency in the performance of any of the agreements or covenants required to be performed by it, and such default shall have continued for a period of sixty days after the Agency shall have been given notice in writing of such default by the Corporation; or (4) if the Agency shall file a petition or answer seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if a court of competent jurisdiction shall approve a petition filed with or without the consent of the Agency seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, 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 Agency or of the whole or any substantial part of its property; then and in each and every such case during the continuance of such Installment Purchase Contract Default specified in clause (1) above, the Corporation shall, and for any other such Installment Purchase Contract Default the Corporation may, by notice in writing to the Agency, declare the entire principal amount of the unpaid Installment Payments and the accrued interest thereon to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable. Such declaration however, is subject to the condition that if at any time after the entire principal amount of the unpaid Installment Payments and the accrued interest thereon shall have been so declared due and payable and before any judgment or decree for the payment of the moneys due shall have been obtained or entered the Agency shall deposit with the Corporation a sum sufficient to pay the unpaid principal amount of the Installment Payments B-17

104 or the unpaid payment of the 1993 Contract 1 or the unpaid payment of any other Contract, Bond or Obligation referred to in clause (1) above due prior to such declaration and the accrued interest thereon, with interest on such overdue installments, at the rate or rates applicable to the remaining unpaid principal balance of the Installment Payments, the 1993 Contract, or such Contract, Bond, or Obligation if paid in accordance with their terms, and the reasonable expenses of the Corporation, and any and all other defaults known to the Corporation (other than in the payment of the entire principal amount of the unpaid Installment Payments and the accrued interest thereon due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Corporation or provision deemed by the Corporation to be adequate shall have been made therefor, then and in every such case the Corporation, by written notice to the Agency, may rescind and annul such declaration and its consequences; but no such rescission and annulment shall extend to or shall affect any subsequent default or shall impair or exhaust any right or power consequent thereon. Application of Funds Upon Acceleration. All moneys in the Water Revenue Fund upon the date of the declaration of acceleration by the Corporation and all Water Revenues thereafter received shall be applied in the following order, subject to the prior payment of amounts payable as required under the 1993 Contract 2 : First, to the payment, without preference or priority, and in the event of any insufficiency of such moneys ratably without any discrimination or preference, of the costs and expenses of the Corporation and the Trustee, if any, in carrying out these provisions, including reasonable compensation to its accountants and counsel; and Second, to the payment of the Maintenance and Operation Costs of the Water System and to the payment of the entire principal amount of the unpaid Installment Payments and the unpaid principal amount of all Bonds and Contracts and the accrued interest thereon, with interest on the overdue installments at the rate or rates of interest applicable to the Installment Payments and such Bonds and Contracts if paid in accordance with their respective terms. TRUST AGREEMENT The Trust Agreement sets forth the terms of the Certificates, the nature and extent of the security therefor, various rights of the Certificateowners, the rights, duties, and immunities of the Trustee, and the rights and obligations of the Corporation and the Agency. Certain of the provisions of the Trust Agreement are summarized below; this summary does not purport to be complete of definitive and is qualified in its entirety by reference to the full terms of the Trust Agreement. ESTABLISHMENT OF FUNDS AND ACCOUNTS The Trust Agreement creates the Certificate Fund, the Interest Fund, the Principal Fund, the Redemption Fund, and the Certificate Reserve Fund, all of which are to be held by the Trustee. Certificate Fund. All Installment Payments will be deposited by the Trustee upon receipt in the Certificate Fund, which the Trustee will hold in trust and apply in accordance with the Trust Agreement. Allocation of Installment Payments. The Trustee will set aside the moneys in the Certificate Fund in the following respective funds or accounts in the following amounts, in the following order of priority, the requirements of each such fund (including the making up of any deficiencies in any such fund resulting from lack of moneys sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any deposit is made to any fund subsequent in priority: 1 The 1993 Contract has been defeased. 2 The 1993 Contract has been defeased. B-18

105 (1) Interest Fund. On each Interest Payment Date, the Trustee shall set aside in the Interest Fund an amount equal to the aggregate amount of interest becoming due and payable with respect to the Outstanding Certificates on such Interest Payment Date. (2) Principal Fund; Sinking Accounts. On each Principal Payment Date, the Trustee shall deposit in the Principal Fund an amount equal to (a) the aggregate amount of principal becoming due and payable with respect to the Outstanding Serial Certificates of all Series plus (b) the aggregate amount of the Mandatory Sinking Account Payments to be paid on such date into the respective Sinking Accounts for the Term Certificates of all Series for which Sinking Accounts have been created. (3) Redemption Fund. The Trustee, on the date specified in a Written Request of the Agency filed with the Trustee pursuant to the Installment Purchase Contract at the time that any prepaid Installment Payment is paid to the Trustee, shall deposit in the Redemption Fund that amount of moneys representing the portion of the Installment Payments designated as prepaid Installment Payments. Any moneys remaining in the Certificate Fund after the foregoing transfers, shall be transferred on the same Business Day to the Agency. The Agency may use and apply such moneys when received by it for any lawful purpose of the Agency, including the redemption of Certificates. Application of Interest Fund. All amounts in the Interest Fund shall be used and withdrawn by the Trustee solely for the purpose of paying interest represented by the Certificates as it shall become due and payable (including accrued interest represented by any Certificates purchased or redeemed prior to maturity pursuant to the Trust Agreement). Application of Principal Fund. All amounts in the Principal Fund shall be used and withdrawn by the Trustee solely for the purposes of paying the principal represented by the Certificates when due and payable, except that all amounts in the Sinking Accounts shall be used and withdrawn by the Trustee solely to purchase or redeem or pay at maturity Term Certificates. On the Business Day prior to any date upon which a Mandatory Sinking Account Payment is due, the Trustee shall transfer the amount of such Mandatory Sinking Account Payment from the Principal Fund to the applicable Sinking Account. With respect to each Sinking Account, on each Mandatory Sinking Account Payment date established for such Sinking Account, the Trustee shall apply the Mandatory Sinking Account Payment required on that date to the redemption (or payment at maturity, as the case may be) of Term Certificates of such Series and maturity for which such Sinking Account was established, upon the notice and in the manner provided in the Trust Agreement or in the Supplemental Trust Agreement pursuant to which such Series of Certificates was created; provided that, at any time prior to giving such notice of such redemption, the Trustee shall, upon receipt of a Request of the Agency, apply moneys in such Sinking Account to the purchase (in whole or in part) of Term Certificates of such Series and maturity at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Fund) as is directed by the Agency, except that the purchase price (excluding accrued interest) shall not exceed the principal amount represented thereby. If, during the twelvemonth period (or six-month period with respect to Certificates having semi-annual Mandatory Sinking Account Payments) immediately preceding said Mandatory Sinking Account Payment date, the Trustee has purchased Term Certificates of such Series and maturity with moneys in such Sinking Account, or, during said period and prior to giving said notice of redemption, the Agency has deposited Term Certificates of such Series and maturity with the Trustee, or Term Certificates of such Series and maturity were at any time purchased or redeemed by the Trustee from the Redemption Fund and allocable to said Mandatory Sinking Account Payment, such Term Certificates so purchased or deposited or redeemed shall be applied, to the extent of the full principal amount represented thereby, to reduce said Mandatory Sinking Account Payment. B-19

106 All Term Certificates purchased from a Sinking Account or deposited by the Agency with the Trustee in a twelve-month period ending June 30 (or in a six-month period ending June 30 or December 31 with respect to Certificates having semi-annual Mandatory Sinking Account Payments) shall be allocated first to the next succeeding Mandatory Sinking Account Payment for such Series and maturity of Term Certificates, then as a credit against such future Mandatory Sinking Account Payments for such Series and maturity of Term Certificates as may be specified in a Request of the Agency. All Term Certificates redeemed by the Trustee from the Redemption Fund shall be credited to such future Mandatory Sinking Account Payments for such Series and maturity of Term Certificates as may be specified in a Request of the Agency. Funding and Application of Certificate Reserve Fund. (A) The Trustee shall deposit as soon as possible in each month in the Certificate Reserve Fund, upon the occurrence of any deficiency therein, one-twelfth of the aggregate amount of each prior withdrawal from the Certificate Reserve Fund and one-fourth of the aggregate amount of any deficiency due to any required valuations of the investments in the Certificate Reserve Fund until the balance in the Certificate Reserve Fund is equal to the Certificate Reserve Requirement. (B) (1) In lieu of making the Certificate Reserve Requirement deposit in cash, or in replacement of moneys then on deposit in the Certificate Reserve Fund (which shall be transferred by the Trustee to the Agency), the Agency may deliver to the Trustee an irrevocable letter of credit issued by a financial institution having unsecured debt obligations rated in one of the two highest Rating Categories of Moody s and Standard & Poor s, in an amount, together with moneys, Investment Securities or other Reserve Facilities on deposit in the Certificate Reserve Fund, equal to the Certificate Reserve Requirement. Such letter of credit shall have a term no less than three years or, if less, the maturity of the Series of Certificates in connection with which such letter of credit was obtained and shall provide by its terms that it may be drawn upon as provided in the Trust Agreement. If a drawing is made on the letter of credit, the Agency shall make such payments as may be required by the terms of the letter of credit or any obligations related thereto (but no less than quarterly pro rata payments) so that the letter of credit shall, absent the delivery to the Trustee of another Reserve Facility satisfying the requirements described below in paragraph (C) or the deposit in the Certificate Reserve Fund of an amount sufficient to increase the balance in the Certificate Reserve Fund to the Certificate Reserve Requirement, be reinstated in the amount of such drawing within one year of the date of such drawing. (2) At least one year prior to the stated expiration of such letter of credit, the Agency shall either (i) deliver a replacement letter of credit, (ii) deliver an extension of the letter of credit for at least an additional year or, if less, the maturity of the Series of Certificates in connection with which such letter of credit was obtained, or (iii) deliver to the Trustee another Reserve Facility satisfying the requirements of the Trust Agreement. Upon delivery of such replacement letter of credit, extended letter of credit, or other Reserve Facility, the Trustee shall deliver the then-effective letter of credit to or upon the order of the Agency. If the Agency shall fail to deposit a replacement letter of credit, extended letter of credit or other Reserve Facility with the Trustee, the Agency shall immediately commence to make quarterly deposits with the Trustee so that an amount equal to the Certificate Reserve Requirement will be on deposit in the Certificate Reserve Fund no later than the stated expiration date of the letter of credit. If an amount equal to the Certificate Reserve Requirement as of the date following the expiration of the letter of credit is not on deposit in the Certificate Reserve Fund one week prior to the expiration date of the letter of credit (excluding from such determination the letter of credit), the Trustee shall draw on the letter of credit to fund the deficiency resulting therefrom in the Certificate Reserve Fund. (C) In lieu of making the Certificate Reserve Requirement deposit in cash, or in replacement of moneys then on deposit in the Certificate Reserve Fund (which shall be transferred by the Trustee to the Agency), the Agency may also deliver to the Trustee an insurance policy or surety bond securing an amount, together with moneys, Investment Securities or other Reserve Facilities on deposit in the Certificate Reserve B-20

107 Fund, no less than the Certificate Reserve Requirement issued by an insurance company whose unsecured debt obligations (or for which obligations secured by such insurance company s insurance policies) are rated in one of the two highest Rating Categories of Moody s and Standard & Poor s. Such insurance policy or surety bond shall have a term of no less than the maturity of the Series of Certificates in connection with which such insurance policy was obtained. In the event that such insurance policy for any reason lapses or expires, the Agency shall immediately implement the provisions described in (i) or (iii) of the preceding paragraph or make the required deposits to the Certificate Reserve Fund. (D) The Agency may at any time substitute cash for all or part of the amount available to be paid to the Trustee under any Reserve Facility delivered pursuant to this Section to satisfy the Certificate Reserve Requirement. (E) (1) All amounts in the Certificate Reserve Fund (including all amounts that may be obtained from Reserve Facilities on deposit in the Certificate Reserve Fund) shall be used and withdrawn by the Trustee solely for the purpose of making up any deficiency in the Interest Fund or the Principal Fund, or (together with any other moneys available therefor) for the payment or redemption of all Certificates then Outstanding, or for the payment of the final principal and interest payment with respect to a Series of Certificates if following such payment the amounts in the Certificate Reserve Fund (including the amounts that may be obtained from Reserve Facilities on deposit therein) will equal the Certificate Reserve Requirement. The Trustee shall, on a pro rata basis with respect to the portion of the Certificate Reserve Fund held in cash or Investment Securities and amounts held in the Reserve Facilities (calculated by reference to the maximum amounts of such Reserve Facilities), draw on or collect under each Reserve Facility issued with respect to the Certificate Reserve Fund, in a timely manner and pursuant to the terms of such Reserve Facilities to the extent necessary in order to obtain sufficient funds on or prior to the date such funds are needed to pay the principal and interest represented by the Certificates when due. (2) If the Trustee has notice that any payment of principal or interest represented by a Certificate has been recovered from a Certificateowner pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with the final, nonappealable order of a court having competent jurisdiction, the Trustee, pursuant to and provided that the terms of the Reserve Facilities, if any, securing the Certificates so provide, shall so notify the issuer thereof and draw on or collect under such Reserve Facilities to the lesser of the extent required or the maximum amount of such Reserve Facilities in order to pay to such Owners the principal and interest so recovered. If and to the extent that the Certificate Reserve Requirement is satisfied by a deposit of cash or Investment Securities and one or more Reserve Facilities (or any combination thereof), the Trustee shall first draw on the portion of the Certificate Reserve Fund held in cash or Investment Securities and then draw on or collect under such Reserve Facilities on a pro rata basis (calculated by reference to the maximum amounts of such Reserve Facilities). (3) If a drawing is made on a Reserve Facility, the Trustee shall use amounts deposited in the Certificate Reserve Fund by the Agency following such draw first to make the payments required by the terms of the Reserve Facility or related reimbursement or loan agreement so that the Reserve Facility shall, absent the delivery to the Trustee of a substitute Reserve Facility, acceptable to the Credit Providers, that satisfies the requirements of this Section or the deposit in the Certificate Reserve Fund of an amount sufficient to increase the balance in the Certificate Reserve Fund to the Certificate Reserve Requirement, be reinstated in the amount of such drawing within one year of the date of such drawing. After such reinstatement, the Trustee shall use amounts deposited in the Certificate Reserve Fund by the Agency for the replenishment of the portion of Certificate Reserve Fund held in cash or Investment Securities. (F) Any amounts in the Certificate Reserve Fund in excess of the Certificate Reserve Requirement shall be transferred by the Trustee to the Agency on the last business day of June and December of each year; provided that such amounts shall be transferred only from the portion of the Certificate Reserve B-21

108 Fund held in the form of cash or Investment Securities and further provided that the Agency is not then in default under the Trust Agreement. Application of Redemption Fund. All moneys deposited by the Agency with the Trustee for the purpose of optionally redeeming Certificates shall, unless otherwise directed by the Agency, be deposited in the Redemption Fund. All amounts deposited in the Redemption Fund shall be used and withdrawn by the Trustee solely for the purpose of redeeming Certificates of any Series, in the manner, at the times and upon the terms and conditions specified in the Supplemental Trust Agreement pursuant to which the Series of Certificates was created; provided that, at any time prior to giving such notice of redemption, the Trustee shall, upon receipt of a Request of the Agency, apply such amounts to the purchase of Certificates at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Account) as is directed by the Agency, except that the purchase price (exclusive of such accrued interest) may not exceed the Redemption Price then applicable to such Certificates. All Term Certificates purchased or redeemed from the Redemption Fund shall be allocated to Mandatory Sinking Account Payments applicable to such Series and maturity of Term Certificates as may be specified in a Request of the Agency. ISSUANCE OF ADDITIONAL SERIES OF CERTIFICATES The Agency may establish additional Series of Certificates secured equally and ratably with the Certificates, subject to the conditions precedent, among others, that no Installment Purchase Contract Default shall have occurred and be continuing and that the Agency have satisfied the requirements described under Installment Purchase Contract -- Additional Contracts, Bonds, and Obligations above. EVENTS OF DEFAULT AND REMEDIES OF OWNERS Remedies on Default. If an Installment Purchase Contract Default shall occur, then, and in each and every such case during the continuance of such Installment Purchase Contract Default, the Trustee or the Owners of not less than a majority in aggregate principal amount represented by the Certificates at the time Outstanding may, upon notice in writing to the Agency, exercise the remedies provided to the Corporation in the Installment Purchase Contract; provided that any Owner shall have the right to institute suit directly against the Agency to enforce payment of the obligation evidenced and represented by such Owner s Certificate. Acceleration of Maturities. If an Installment Purchase Contract Default shall occur, then, and in each and every such case during the continuance of such Installment Purchase Contract Default, the Trustee may or, upon the receipt of written instructions from the Owners of not less than a majority in aggregate principal amount represented by the Certificates at the time Outstanding, shall, upon notice in writing to the Agency, declare the principal and accrued interest represented by all of the Certificates to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in the Trust Agreement or in the Certificates contained to the contrary notwithstanding. Any such declaration, however, is subject to the condition that if, at any time after such declaration and before any judgment or decree for the payment of the moneys due shall have been obtained or entered, the Agency shall deposit with the Trustee a sum sufficient to pay all Installment Payments represented by Certificates due prior to such declaration, with interest on such overdue payments of principal components of such overdue Installment Payments at the interest rate with respect to the respective Certificates, and the reasonable charges and expenses of the Trustee, and any and all other defaults of which the Trustee has actual knowledge (other than in the payment of the Installment Payments due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor, then, and in every such case, if such declaration was B-22

109 made by the Trustee in accordance with written instructions of the Owners, the Trustee shall, upon receipt of written instructions of the Owners of not less than a majority in aggregate principal amount represented by the Certificates then Outstanding, by written notice to the Agency, or, if such declaration was made by the Trustee, the Trustee may, on behalf of the Owners of all of the Certificates, rescind and annul such declaration and its consequences and waive such default; but no such rescission and annulment shall extend to or shall affect any subsequent default or shall impair or exhaust any right or power consequent thereon. Application of Money Collected. If an Installment Purchase Contract Default shall occur and be continuing, the Trustee shall apply all funds then held or thereafter received by the Trustee under any of the provisions of the Trust Agreement (except as otherwise provided in the Trust Agreement) as described above under the caption Installment Purchase Contract Default - Application of Funds Upon Acceleration., Trustee to Represent Owners. Upon the occurrence and continuance of an Installment Purchase Contract Default or other occasion giving rise to a right in the Trustee to represent the Owners, the Trustee in its discretion may, and upon the written request of the Owners of not less than 25% in aggregate amount of principal represented by the Certificates then Outstanding (provided that, if more than one such request is received by the Trustee from Owners, the Trustee shall follow the written request executed by the Owners of the greatest percentage of principal represented by the Certificates then Outstanding in excess of 25%), and upon being indemnified to its satisfaction therefor, shall, proceed to protect or enforce its rights or the rights of such Owners by such appropriate action, suit, mandamus, or other proceedings as it shall deem most effectual to protect and enforce any such right, at law or in equity, either for the specific performance of any covenant or agreement contained in the Trust Agreement, or in aid of the execution of any power granted to the Trustee, or for the enforcement of any other appropriate legal or equitable right or remedy vested in the Trustee or in such Owners under the Trust Agreement, the Act, or any other law. Control by Owners. The Owners of a majority in aggregate amount of principal represented by the Certificates then Outstanding shall have the right, by an instrument or concurrent instruments in writing executed and delivered to the Trustee and upon furnishing the Trustee with indemnification satisfactory to it, to direct the method of conducting all remedial proceedings taken by the Trustee under the Trust Agreement, provided that such direction shall not be otherwise than in accordance with law and the provisions of the Trust Agreement, that the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction, and that the Trustee shall have the right to decline to follow any such direction that in the opinion of the Trustee would be unjustly prejudicial to Owners not parties to such direction. AMENDMENT OF TRUST AGREEMENT The Agency, the Corporation, and the Trustee may amend the Trust Agreement by a Supplemental Trust Agreement, without the consent of any Owners for certain purposes, including creating additional Series of Certificates, making modifications to accommodate Liquidity Facilities and Reserve Facilities, and amendments that do not adversely affect the interests of the Owners of the Certificates. With the written consent of the Owners of a majority in aggregate amount of principal represented by the Certificates, or with the written consents of each provider of a letter of credit or a policy of bond insurance for the Certificates (provided that the payment of all the principal and interest represented by all Outstanding Certificates is insured by a policy or policies of municipal bond insurance or payable under a letter of credit the provider of which is a financial institution or association having unsecured debt obligations rated, or insuring or securing other debt obligations rated on the basis of such insurance or letters of credit, in one of the two highest Rating Categories of Moody s and Standard and Poor s), the Agency, the Corporation and the Trustee may amend the Trust Agreement in any manner; provided that no such amendment shall (1) extend the fixed maturity of any Certificate, or reduce the amount of principal represented thereby, or extend the time of payment or reduce the amount of any Mandatory Sinking Account Payment provided for the payment of any Certificate, or reduce the rate of interest with respect thereto, or extend the time of payment of interest represented B-23

110 thereby, or reduce any premium payable upon the redemption thereof, without the consent of the Owner of each Certificate so affected, or (2) reduce the aforesaid percentage of principal the consent of the Owners of which is required to effect any such modification or amendment, or permit the creation of any lien on the Installment Payments and other assets pledged under the Trust Agreement prior to or on a parity with the lien created by the Trust Agreement, or deprive the Owners of the Certificates of the lien created by the Trust Agreement on such assets (in each case, except as expressly provided in the Trust Agreement), without the consent of the Owners of all of the Certificates then Outstanding. DEFEASANCE ways: Discharge of Trust Agreement. Any Certificate may be paid by the Agency in any of the following (a) by paying or causing to be paid the principal and interest represented by the Certificate, as and when the same become due and payable; (b) by depositing with the Trustee, an escrow agent or other fiduciary, in trust, at or before maturity, money or securities in the necessary amount to pay or redeem the Certificate; or (c) by delivering the Certificate to the Trustee for cancellation. If all Certificates then Outstanding have been paid and the Agency has also paid or caused to be paid all other sums payable under the Trust Agreement by the Agency, then and in that case, at the election of the Agency, and notwithstanding that any Certificates shall not have been surrendered for payment, the Trust Agreement, the pledge of assets made under the Trust Agreement, all covenants and agreements and other obligations of the Agency under the Trust Agreement, and the rights and interests created by the Trust Agreement (except as to any surviving rights of transfer or exchange of Certificates and rights to payment from moneys deposited with the Trustee) shall cease, terminate, become void, and be completely discharged and satisfied. Discharge of Liability on Certificates. Upon the deposit with the Trustee, escrow agent, or other fiduciary, in trust, at or before maturity, of money or Defeasance Securities in the necessary amount to pay or redeem any Outstanding Certificate (whether upon or prior to its maturity or the redemption date of such Certificate), provided that, if such Certificate is to be redeemed prior to maturity, notice of such redemption shall have been given or provision satisfactory to the Trustee shall have been made for the giving of such notice, then all liability of the Agency in respect of such Certificate shall cease, terminate, and be completely discharged, except that thereafter (i) the Owner thereof shall be entitled to payment of the principal, premium, if any, and interest represented by such Certificate by the Agency and the Agency shall remain liable for such payment, but only out of such money or securities deposited with the Trustee as aforesaid for their payment, and (ii) the Owner thereof shall retain its rights of transfer or exchange of Certificates. CONSENTS OF CREDIT PROVIDERS Unless its respective Credit Facility is no longer in effect, the following additional provisions shall be in effect and shall govern, notwithstanding anything to the contrary set forth in the Trust Agreement: B-24

111 Control of Remedies. The Credit Providers shall control and direct the enforcement of all rights and remedies granted to the Owners or to the Trustee for the benefit of the Owners of the Certificates insured by them. Consent to Amendments. No modification or amendment to the Trust Agreement or the Installment Purchase Contract that requires the consent of the Owners may become effective except upon obtaining the prior written consent of the Credit Providers. B-25

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113 APPENDIX C FORM OF OPINION OF SPECIAL COUNSEL

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115 APPENDIX C FORM OF OPINION OF SPECIAL COUNSEL Board of Directors Placer County Water Agency 144 Ferguson Road Auburn, CA [closing date] Re: $24,840,000 Placer County Water Agency Water Revenue Certificates of Participation Series 2016 Refunding (Final Approving Opinion) Members of the Board of Directors: We have acted as special counsel in connection with the execution and delivery by the Placer County Water Agency (the Agency ) of the Installment Purchase Contract dated May 1, 2005, as supplemented by the Fifth Supplemental Installment Purchase Contract dated May 1, 2016 (as so supplemented, the Installment Purchase Contract ), between the Agency and the Placer County Water Agency Public Facilities Corporation (the Corporation ). The Corporation has assigned certain of its rights under the Installment Purchase Contract, including the right to receive certain installment payments made by the Agency thereunder (the 2016 Installment Payments ), to the trustee (the Trustee ) under the Trust Agreement dated May 1, 2005, as supplemented by the Fifth Supplement to Trust Agreement dated May 1, 2016 (as so supplemented, the Trust Agreement ), between The Bank of New York Mellon Trust Company, N.A., the Agency, and the Corporation. Pursuant to the Trust Agreement, the Trustee has executed and delivered $24,840,000 aggregate principal amount of Water Revenue Certificates of Participation, Series 2016 Refunding (the Certificates ), evidencing proportionate interests of the owners thereof in the 2016 Installment Payments. In such capacity, we have examined such law and such certified proceedings, certifications, and other documents as we have deemed necessary to render this opinion. Regarding questions of fact material to our opinion, we have relied upon the representations of the Agency contained in the Installment Purchase Contract, the Trust Agreement, and the certified proceedings and other certifications of public officials and others furnished to us. In the course of our representation, nothing has come to our attention that caused us to believe that any of the factual representations upon which we have relied are untrue, but we have not undertaken to verify the same by independent investigation. Based upon the foregoing, we are of the opinion that, under existing law: 1. The Agency has been duly created and is validly existing as a public agency of the State of California, with full power and authority to execute and deliver the Installment Purchase Contract and the Trust Agreement and to perform the agreements on its part contained therein. 2. The Installment Purchase Contract and the Trust Agreement have been duly authorized, executed, and delivered by the Agency and, assuming due authorization, execution, and delivery by and enforceability against the other parties thereto, constitute valid and binding obligations of the Agency enforceable in accordance with their respective terms, except as enforcement is limited by bankruptcy, C-1

116 insolvency, reorganization, arrangement, fraudulent conveyance, moratorium, or other laws affecting the enforceability of creditors rights generally, by the application of equitable principles, by the possible unavailability of specific performance or injunctive relief, and by the limitations on legal remedies against public agencies in the State of California. 3. Subject to the terms and provisions of the Installment Purchase Contract, the 2016 Installment Payments are payable solely from funds of the Agency lawfully available therefor. The obligation of the Agency to make 2016 Installment Payments pursuant to the Installment Purchase Contract does not constitute a debt of the Agency or of the State of California or of any political subdivision thereof within the meaning of any constitutional or statutory debt limitation or restriction, and does not constitute an obligation for which the Agency is obligated to levy or pledge any form of taxation or for which the Agency has levied or pledged any form of taxation. 4. The obligations of the Agency under the Installment Purchase Contract are secured by a pledge of all of the Water Revenues (as that term is defined in the Installment Purchase Contract). The interest, principal, and redemption premiums, if any, with respect to the Certificates are payable solely from the Water Revenues, and the owners of the Certificates cannot compel the exercise of the taxing power by the Agency. The general fund of the Agency is not liable and the credit and taxing power of the Agency are not pledged for the payment of interest, principal, or redemption premiums, if any, with respect to the Certificates. The Certificates are not secured by legal or equitable pledge of or charge, lien, or encumbrance upon any property of the Agency or any of its income or receipts except the Water Revenues. 5. Assuming due authorization, execution, and delivery of the Trust Agreement by the Trustee and its enforceability against the Trustee and execution and delivery of the Certificates by the Trustee, by virtue of the Trust Agreement, the owners of the Certificates are entitled to receive their proportionate share of the 2016 Installment Payments in accordance with the terms and provisions of the Trust Agreement. 6. The portion of the 2016 Installment Payments designated as and constituting interest paid by the Agency and received by the owners of the Certificates is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, such interest is taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on certain corporations. The opinion set forth in the preceding sentence is subject to the condition that the Agency comply with all requirements of the Internal Revenue Code of 1986, as amended, that must be satisfied subsequent to the delivery of the Certificates in order that such interest be, and continue to be, excludable from gross income for federal income tax purposes. The Agency has covenanted to comply with all such requirements. Failure to comply with certain of such requirements may cause such interest to be included in gross income for federal income tax purposes retroactively to the date of delivery of the Certificates. We express no opinion regarding other federal tax consequences arising with respect to the accrual or receipt of such interest or the ownership of disposition of the Certificates. 7. The portion of the 2016 Installment Payments designated as and constituting interest paid by the Agency and received by the owners of the Certificates is exempt from State of California personal income taxes. The opinions set forth above are further qualified as follows: a. Our opinions are limited to the matters expressly set forth herein and no opinion is to be implied or may be inferred beyond the matters expressly so stated; C-2

117 b. We are licensed to practice law in the State of California; accordingly, the foregoing opinions only apply insofar as the laws of the State of California and the United States may be concerned, and we express no opinion with respect to the laws of any other jurisdiction; c. We express no opinion as to the state or quality of title to any of the real or personal property described in the Installment Purchase Contract, nor do we express any opinion as to the accuracy or sufficiency of the description of any such property contained therein; d. We express no opinion as to the enforceability under certain circumstances of contractual provisions respecting various summary remedies without notice or opportunity for hearing or correction, especially if their operation would work a substantial forfeiture or impose a substantial penalty upon the burdened party; e. We express no opinion as to the effect or availability of any specific remedy provided for in any agreement under particular circumstances, except that we believe such remedies are, in general, sufficient for the practical realization of the rights intended thereby; f. We express no opinion as to the enforceability of any remedies under the Installment Purchase Contract with respect to environmental matters to the extent that the exercise or application of such remedies is inconsistent with or in violation of California Code of Civil Procedure section or 736 or of California Civil Code section ; g. We express no opinion as to the enforceability of any indemnification, contribution, choice of law, choice of forum, or waiver provisions contained in the Installment Purchase Contract or the Trust Agreement; h. We express no opinion regarding the accuracy, adequacy, or completeness of the Official Statement or other offering material relating to the Certificates. Further, we express no opinion regarding tax consequences arising with respect to the Certificates other than as expressly set forth herein. i. This opinion is given as of the date hereof, and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention or any changes in law that may hereafter occur. Very truly yours, KRONICK, MOSKOVITZ, TIEDEMANN & GIRARD A Professional Corporation C-3

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119 APPENDIX D FORM OF CONTINUING DISCLOSURE CERTIFICATE Placer County Water Agency Second Series Water Revenue Certificates of Participation Series 2016 Refunding This Continuing Disclosure Certificate (the Disclosure Certificate ) is executed and delivered by the Placer County Water Agency (the Agency ) in connection with the execution and delivery of $24,840,000 Water Revenue Certificates of Participation, Series 2016 Refunding (the 2016 Certificates ). The 2016 Certificates will be executed and delivered pursuant to a trust agreement, dated as of May 1, 2005, as supplemented by a First Supplement to Trust Agreement, dated as of May 1, 2005, a Second Supplement to Trust Agreement dated as of October 1, 2007, a Third Supplement to Trust Agreement dated as of April 1, 2008, a Fourth Supplement to Trust Agreement dated as of June 1, 2013 and a Fifth Supplement to Trust Agreement dated as of May 1, 2016 (collectively, the Trust Agreement ), among the Agency, the Corporation and The Bank of New York Trust Company, N.A., as trustee (the Trustee ). The 2016 Certificates evidence and represent the proportionate interests of the registered owners (the Owners ) thereof in installment payments (the 2016 Installment Payments ) to be made by the Agency to the Placer County Water Agency Public Financing Corporation (the Corporation ), pursuant to an installment purchase contract dated as of May 1, 2005, as supplemented by a First Supplemental Installment Purchase Contract, dated as of May 1, 2005, a Second Supplemental Installment Purchase Contract dated as of October 1, 2007, a Third Supplemental Installment Purchase Contract dated as of April 1, 2008, a Fourth Supplemental Installment Purchase Contract dated as of June 1, 2013 and a Fifth Supplemental Installment Purchase Contract dated as of May 1, 2016 (collectively, the Installment Purchase Contract ), between the Agency and the Corporation. The Agency covenants and agrees as follows: Section 1. Purpose of this Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the Agency for the benefit of the holders and beneficial owners of the 2016 Certificates and in order to assist the Participating Underwriter in complying with the Rule (as defined herein). Section 2. Definitions. In addition to the definitions set forth above and in the Trust Agreement, 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 means any Annual Report provided by the Agency pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. Annual Report Date means the date that is six months after the end of the Agency s fiscal year (currently June 30 based on the Agency s fiscal year end of December 31). D-1

120 Dissemination Agent means The Bank of New York Mellon Trust Company, N.A. or any successor Dissemination Agent designated in writing by the Agency and which has filed with the Agency a written acceptance of such designation. Listed Events means any of the events listed in Section 5(a) of this Disclosure Certificate. MSRB means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule, or any other repository of disclosure information that may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future. Official Statement means the final official statement executed by the Agency in connection with the issuance of the 2016 Certificates. Participating Underwriter means any of the original underwriters of the 2016 Certificates required to comply with the Rule in connection with offering of the 2016 Certificates. Rule means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as it may be amended from time to time. Section 3. Provision of Annual Reports. (a) The Agency shall, or shall cause the Dissemination Agent to, not later than the Annual Report Date commencing June 30, 2016, with the report for the Fiscal Year ending December 31, 2015, provide to the MSRB, in an electronic format as prescribed by the MSRB, an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Certificate; provided, however, that the first Annual Report due on June 30, 2016, shall consist solely of a copy of the Official Statement including the Agency s audited financial statements for fiscal year 2015 which is a part thereof. Not later than 15 Business Days prior to the Annual Report Date, the Agency shall provide the Annual Report to the Dissemination Agent (if other than the Agency). If by 15 Business Days prior to the Annual Report Date the Dissemination Agent (if other than the Agency) has not received a copy of the Annual Report, the Dissemination Agent shall contact the Agency to determine if the Agency is in compliance with the previous sentence. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the Agency may be submitted separately from the balance of the Annual Report, and later than the Annual Report Date if not available by that date. If the Agency s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(b). The Agency shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by the Agency hereunder. The Dissemination Agent may conclusively rely upon such certification of the Agency and shall have no duty or obligation to review such Annual Report. (b) If the Agency does not provide (or cause the Dissemination Agent to provide) an Annual Report by the Annual Report Date, the Agency shall provide (or cause the Dissemination Agent to provide) to the MSRB, in an electronic format as prescribed by the MSRB, a notice in substantially the form attached as Exhibit A. D-2

121 (c) With respect to each Annual Report, the Dissemination Agent shall: (i) determine each year prior to the Annual Report Date the then-applicable rules and electronic format prescribed by the MSRB for the filing of annual continuing disclosure reports; and (ii) if the Dissemination Agent is other than the Agency, file a report with the Agency certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, and stating the date it was provided. Section 4. Content of Annual Reports. The Annual Report shall contain or incorporate by reference the following: (a) The Agency s audited financial statements prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the Agency s audited financial statements are not available by the Annual Report Date, the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. (b) Unless otherwise provided in the audited financial statements filed on or before the Annual Report Date, financial information and operating data with respect to the Agency for the preceding fiscal year, substantially similar to that provided in the corresponding statements and tables in the Official Statement: (i) Any material changes in the Agency s sources of water as described in the Official Statement and, for the most recently completed Fiscal Year, a description of: (A) water production (amount received from each raw water supply source), and (B) cost with respect to each source. (ii) A description of the numbers of customers in each group classification of the Water System for both treated water and raw water during the most recently completed Fiscal Year in substantially the forms of Tables Nos. 5 and 6 of the Official Statement. (iii) Total billings for treated water and raw water for the most recently completed Fiscal Year in substantially the form of Table No. 8 of the Official Statement. (iv) Total revenues from sales of treated water and raw water during the most recently completed Fiscal Year in substantially the form of Table No. 9 of the Official Statement. D-3

122 (v) Description of billings, collections and delinquencies during the most recently completed Fiscal Year in substantially the form of Table No. 11 of the Official Statement. (vi) Revenues and expenses of the Water System and debt service coverage with respect to the 2016 Certificates and any parity obligations for the most recently completed Fiscal Year in substantially the form of Table No. 12 of the Official Statement. (c) In addition to any of the information expressly required to be provided under provisions of this Disclosure Certificate, the Agency shall provide such further material information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading. (d) 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 Agency 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. The Agency shall clearly identify each such other document so included by reference. Section 5. Reporting of Listed Events. (a) The Agency shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to the 2016 Certificates: (i) (ii) (iii) difficulties. Principal and interest payment delinquencies. Non-payment related defaults, if material. Unscheduled draws on debt service reserves reflecting financial (iv) Unscheduled draws on credit enhancements reflecting financial difficulties. (v) Substitution of credit or liquidity providers, or their failure to perform. (vi) Adverse tax opinions, 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 security, or other material events affecting the tax status of the security. (vii) (viii) (ix) Modifications to rights of security holders, if material. Certificate calls, if material, and tender offers. Defeasances. (x) Release, substitution, or sale of property securing repayment of the securities, if material. D-4

123 (xi) (xii) Rating changes. Bankruptcy, insolvency, receivership or similar event of the Agency. (xiii) The consummation of a merger, consolidation, or acquisition involving the Agency or the sale of all or substantially all of the assets of the Agency, 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. (xiv) Appointment of a successor or additional trustee or the change of name of a trustee, if material. (b) Whenever the Agency obtains knowledge of the occurrence of a Listed Event, the Agency shall, or shall cause the Dissemination Agent (if not the Agency) to, file a notice of such occurrence with the MSRB, in an electronic format as prescribed by the MSRB, in a timely manner not in excess of 10 business days after the occurrence of the Listed Event. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(viii) and (ix) above need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Certificates under the Trust Agreement. (c) The Agency acknowledges that the events described in subparagraphs (a)(ii), (a)(vii), (a)(viii) (if the event is a certificate call), (a)(x), (a)(xiii), and (a)(xiv) of this Section 5 contain the qualifier if material and subparagraph (a)(vi) contains the qualifier material with respect to certain notices, determinations or other events affecting the tax status of the 2016 Certificates. The Agency shall cause a notice to be filed as set forth in paragraph (b) above with respect to any such event only to the extent that the Agency determines the event s occurrence is material for purposes of U.S. federal securities law. (d) For purposes of this Disclosure Certificate, any event described in paragraph (a)(xii) above is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the Agency 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 Agency, 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 said party. Section 6. Identifying Information for Filings with the MSRB. All documents provided to the MSRB under the Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB. Section 7. Termination of Obligation. The Agency s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the 2016 Certificates. If such termination occurs prior to the final maturity of the 2016 Certificates, the Agency shall give notice of such termination in the same manner as for a Listed Event under Section 5(b). D-5

124 Section 8. Dissemination Agent. The Agency may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any Dissemination Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be The Bank of New York Mellon Trust Company, N.A. Any Dissemination Agent may resign by providing 30 days written notice to the Agency. Section 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the Agency may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: (a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the 2016 Certificates, or type of business conducted; (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the 2016 Certificates, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver either (i) is approved by holders of the 2016 Certificates in the manner provided in the Trust Agreement for amendments to the Trust Agreement with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the 2016 Certificates. If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first Annual Report filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. If an amendment is made to this Disclosure Certificate modifying the accounting principles to be followed in preparing financial statements, the Annual Report for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the Agency to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of any amendment made pursuant to this Section 9 shall be filed in the same manner as for a Listed Event under Section 5. Section 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the Agency 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 Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the Agency chooses to D-6

125 include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the Agency shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Section 11. Default. If the Agency fails to comply with any provision of this Disclosure Certificate, the Participating Underwriter or any holder or beneficial owner of the 2016 Certificates may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Agency 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 Trust Agreement, and the sole remedy under this Disclosure Certificate in the event of any failure of the Agency to comply with this Disclosure Certificate shall be an action to compel performance. Section 12. Duties, Immunities and Liabilities of Dissemination Agent. (a) Article VIII of the Trust Agreement is hereby made applicable to this Disclosure Certificate as if this Disclosure Certificate were (solely for this purpose) contained in the Trust Agreement. The Dissemination Agent shall be entitled to the protections and limitations from liability afforded to the Trustee thereunder. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the Agency agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent s negligence or willful misconduct. The Dissemination Agent shall have no duty or obligation to review any information provided to it by the Agency hereunder, and shall not be deemed to be acting in any fiduciary capacity for the Agency, the 2016 Certificate holders or any other party. The obligations of the Agency under this Section shall survive resignation or removal of the Dissemination Agent and payment of the 2016 Certificates. (b) The Dissemination Agent shall be paid compensation by the Agency for its services provided hereunder in accordance with its schedule of fees as amended from time to time, and shall be reimbursed for all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the Agency, the Dissemination Agent, the Participating Underwriters and holders and beneficial owners from time to time of the 2016 Certificates, and shall create no rights in any other person or entity. Section 14. Counterparts. This Disclosure Certificate may be executed in several counterparts, each of which shall be regarded as an original, and all of which shall constitute one and the same instrument. D-7

126 Section 15. Governing Law. This Disclosure Certificate is to be construed in accordance with and governed by the laws of the State of California. Dated:, 2016 PLACER COUNTY WATER AGENCY By: General Manager ACKNOWLEDGED AND ACCEPTED BY: Agent THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Dissemination By: Authorized Officer D-8

127 EXHIBIT A NOTICE OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Placer County Water Agency Name of Issue: $24,840,000 Water Revenue Certificates of Participation, Series 2016 Refunding Date of Issuance:, 2016 NOTICE IS HEREBY GIVEN to the Municipal Securities Rulemaking Board that the Agency has not provided an Annual Report with respect to the above-named Certificates as required by that certain Continuing Disclosure Certificate, dated, The Agency anticipates that the Annual Report will be filed by. Dated: PLACER COUNTY WATER AGENCY By cc: Trustee Dissemination Agent D-9

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129 APPENDIX E AUDITED FINANCIAL STATEMENTS FOR THE AGENCY FOR THE YEAR ENDED DECEMBER 31, 2015

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131 PLACER COUNTY WATER AGENCY Auburn, California Basic Financial Statements For the year ended December 31, 2015

132 PLACER COUNTY WATER AGENCY For the year ended December 31, 2015 TABLE OF CONTENTS Independent Auditor s Report... 1 Management s Discussion and Analysis... 5 Basic Financial Statements: Proprietary Funds: Statement of Net Position Statement of Revenues, Expenses and Changes in Net Position Statement of Cash Flows Notes to Basic Financial Statements Required Supplementary Information Changes in Net Pension Liability and Related Ratios During the Measurement Period Schedule of Plan Contributions Supplementary Information Combining Schedule of Net Position Combining Schedule of Revenues, Expenses, and Changes in Net Position Combining Schedule of Cash Flows Independent Auditor s Report on Internal Controls over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards...71

133 Board of Directors Placer County Water Agency Auburn, California Report on the Financial Statements Independent Auditor s Report We have audited the accompanying financial statements of the Placer County Water Agency (Agency), as of and for the year ended December 31, 2015, and the related notes to the financial statements, which collectively comprise the Agency s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to an express opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 1

134 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the Placer County Water Agency, as of December 31, 2015, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As described further in Note 1 to the financial statements, during the year ended December 31, 2015, the Agency implemented Governmental Accounting Standards Board (GASB) Statement No. 68 resulting in a prior period adjustment. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis, the schedule of changes in net pension liability, and the schedule of plan contributions be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Agency s basic financial statements. The combining financial statements are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining financial statements are the responsibility of management and were derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining financial statements are fairly stated, in all material respects, in relation to the basic financial statements as a whole. 2

135 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated April 21, 2016 on our consideration of the Agency's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Agency s internal control over financial reporting and compliance. Irvine, California April 21,

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137 PLACER COUNTY WATER AGENCY Management s Discussion and Analysis December 31, 2015 This section presents management s analysis of the Placer County Water Agency s (the Agency) financial condition and activities as of and for the year ended December 31, Management s Discussion and Analysis (MDA) is intended to serve as an introduction to the Agency s basic financial statements. This information should be read in conjunction with the audited financial statements that follow this section. The Agency, as the primary governmental entity, includes, within the financial statements, the financial position and activities of the Placer County Water Agency Public Facilities Corporation (Corporation) as a component unit. The Corporation is a blended component unit and does not issue separate financial statements. The information in this MDA is presented under the following headings: Organization and Business Overview of the Basic Financial Statements Financial Analysis Capital Assets and Capital Investment Program Long-term Debt Requests for Information ORGANIZATION AND BUSINESS The Agency was created in 1957 under its own legislative act and since inception has been actively involved in Placer County s 1,500 square mile area on a variety of water and energy issues. The Agency provides treated and raw water services, produces hydroelectric power and provides stewardship over water and energy in Placer County. The Agency recovers cost of service through user fees. The Agency s general operations division titled Agency Wide holds extensive surface water entitlements for which water is sold wholesale to various water purveyors. Agency Wide interests and stewardship activities include water entitlements and energy resources throughout Placer County. The Agency s Power Division was established with the construction of the Middle Fork American River Hydroelectric Project (MFP) that began in 1963 and was completed in This Project constructed an integrated system of five interconnected hydroelectric power plants, two major storage reservoirs (French Meadows and Hell Hole), dams and tunnels with the capability of producing 1.1 million megawatt hours annually. During 2015, the Agency sold power to Pacific Gas & Electric (PG&E) through the California Independent System Operator (CAISO) under a Power Purchase Agreement (PPA). The electricity generated is metered by the CAISO and shadow settled, or validated, by the Agency. Under this agreement, PG&E buys all power generated & ancillary services provided by the MFP through December 31, The Agency s Water Division was established in 1968 with the acquisition of our first water system. The Agency operates an integrated treated and untreated (raw) water system that directly and indirectly serves over 300,000 people. Through 165 miles of canals, ditches, and flumes, as well as several small reservoirs, most of which was built in the gold rush era, the Agency serves raw water customers and transmits water for treatment. The Agency owns and operates 8 water treatment plants, 27 water tanks 5

138 PLACER COUNTY WATER AGENCY Management s Discussion and Analysis December 31, 2015 and 580 miles of treated water pipelines. Treated water is supplied to residential, commercial, industrial, and other governmental users in the cities and surrounding areas of Auburn, Colfax, Loomis, Rocklin, portions of Roseville and various unincorporated areas of Placer County. Agency treated water is also sold wholesale to the City of Lincoln and others who retail it directly to their customers. The Agency also utilizes groundwater for customers in a few areas of Placer County. On October 1, 2015, the Agency divested the Eastern Water System (Zone 4) to Northstar Community Services District, which is presented in note 12 to the basic financial statements. OVERVIEW OF THE BASIC FINANCIAL STATEMENTS The Agency s Basic Financial Statements are designed to provide readers with a broad overview of the finances of the Placer County Water Agency. There are three components to the Basic Financial Statements: (1) Financial Statements, (2) Notes to the Basic Financial Statements, and (3) Required Supplementary Information. Fund Financial Statements A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The Agency, like other special purpose governments, uses fund accounting to ensure and demonstrate compliance with financial related legal requirements. Proprietary Fund The Agency s proprietary (enterprise) fund consists of 3 divisions, Agency Wide, the Water Division and the Power Division. Proprietary funds are used to account for operations that are financed and operated in a similar manner to private business enterprises where the intent of the governing body is that the costs (including depreciation) of providing goods and services to the general public on a continuing basis be financed or recovered primarily through user charges. The Agency s proprietary fund statements include the following: The Statement of Net Position (Balance Sheet) presents information on the Agency s assets and liabilities, with the difference between the two reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the Agency is improving or deteriorating. While the balance sheet provides information about the nature and amount of resources and obligations at year-end, the Statement of Revenues, Expenses and Changes in Net Position presents the results of the Agency s operations over the course of the fiscal year ending December 31st and information as to how the net position changed during the year. This statement can be used as an indicator to determine the Agency s credit worthiness and the extent to which the Agency has successfully recovered its costs through user fees and other charges. All changes in net position are reported during the period in which the underlying event giving rise to the change occurs, regardless of the timing of the related cash flows. Thus, revenue and expense are reported in this statement for some items that will result in cash flow in future fiscal periods, such as delayed collection of operating revenue and the expense of employee earned but unused vacation leave. The Statement of Cash Flows presents changes in cash and cash equivalents resulting from operational, capital, noncapital and investing activities. This statement summarizes the annual flow of cash receipts and cash payments, without consideration of the timing of the event giving rise to the obligation or receipt and excludes noncash accounting measures of depreciation and amortization of assets. It also provides answers to such questions as where did cash come from, what was cash used for, and what was the change in cash balance during the reporting period. 6

139 PLACER COUNTY WATER AGENCY Management s Discussion and Analysis December 31, 2015 Notes to Basic Financial Statements The Notes provide additional information that is essential for a full understanding of the data provided in the basic financial statements. The Notes to Basic Financial Statements can be found on pages 23 through 60 of this report. Other Information: In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information and other supplementary information. Such required supplementary information regarding the Agency s funding of its obligation to provide pension benefits to its employees can be found on page 61 of this report. Other supplementary information can be found on pages 64 through 69 of this report. FINANCIAL ANALYSIS Our financial analysis introduces the accompanying financial statements. One of the most important questions to ask is the following: Is the Agency, as a whole, better off as a result of the year s activities? The statement of net position and the statement of revenues, expenses and changes in net position present financial information regarding the Agency s activities in a manner to answer that question. These two statements report the Agency s net position and the changes resulting from the year s activity. You can think of the Agency s net position the difference between assets and liabilities as one way to measure financial health or financial position. Over time, increases or decreases in the Agency s net position is one indicator of whether its financial health is improving or deteriorating. However, other considerations, both financial and non-financial factors such as changes in economic conditions, population growth, zoning, new or changed government legislation and others should also be evaluated. During 2015, the Agency remained in a strong financial position. The significant financial events are illustrated in the financial analysis below. FINANCIAL HIGHLIGHTS FOR 2015 On October 1, 2015, the Agency transferred its Eastern Water System (Zone 4) to Northstar Community Services District, resulting in reduction of Net Capital Assets of $23.7 million. The Agency adopted Governmental Accounting Standards Board (GASB) Statement No. 68, Accounting and Financial Reporting for Pensions, an Amendment of Statement No. 27, and Statement No. 71, Pensions Transition for Contributions Made Subsequent to the Measurement Date, an Implementation of GASB Statement No. 68. This adoption of these standards required a restatement of beginning net position totaling $29.7 million. Total liabilities increased $32.0 million primarily due to the implementation of GASB 68 recording a Net Pension Liability of $33.7 million. Operating revenue decreased $2.3 million or 3% reflecting the continuing California drought conditions and statewide mandatory water use restrictions. Operating expense increased $7.0 million or 10% to $78.6 million, primarily due to GASB 68 implementation. Non-operating revenues (expenses) decreased $16.1 million or 78% to $4.6 million. Capital contributions decreased $7.0 million or 49% to $7.2 million. 7

140 PLACER COUNTY WATER AGENCY Management s Discussion and Analysis December 31, 2015 Financial Position The Agency s net position decreased by $26.4 million to $683 million (see Table 1), which is a result of the transfer of Zone 4 and the implementation of GASB 68. The highlights of the $26.4 million decrease in net position are as follows: Non-current assets increased $19.4 million, which is the increase in investment activity. Capital assets decreased $13.3 million from the net of construction in progress capitalized, capital contributions and Zone 4 transfer. Liabilities increased $32.0 million primarily from recording the Net Pension Liability (GASB 68). Table 1 Net Position (In thousands) Variance % ASSETS: Current Assets $ 86,192 87,779 (1,587) -2% Non-Current Assets 98,071 78,612 19,459 25% Capital Assets 638, ,468 (13,292) -2% Total Assets 822, ,859 4,580 1% Deferred Outflow of Resources 6,322-6,322 LIABILITIES: Current Liabilities 18,032 15,637 2,395 15% Non-Current Liabilities 121,985 92,345 29,640 32% Total Liabilities 140, ,982 32,035 30% Deferred Inflow of Resources 5,266-5,266 NET POSITION: Net Investment in Capital Assets 547, ,982 (9,429) -2% Restricted 61,812 42,678 19,134 45% Unrestricted 74, ,217 (36,104) -33% Total Net Position $ 683, ,877 (26,399) -4% 8

141 PLACER COUNTY WATER AGENCY Management s Discussion and Analysis December 31, 2015 Results of Operations The Agency s 2015 total operating revenue of $70.1 million decreased $2.3 million when compared to the 2014 amount (see Table 2 on the following page). The total operating expense increased $7.0 million resulting in a net decrease to operating income of $9.3 million. Overall, the Agency s change in net position for the year, including capital contributions, increased by $3.3 million compared to the 2014 change in net position. The major components of this increase are as follows: Operating revenue decreased by $2.3 million or 3% to $70.1 million operating revenue at the fund level changed as follows: Agency Wide increased $0.3 million, Power Division increased $0.1 million and Water Division decreased $2.7 million. Power Division revenues reflect reimbursements of Agency s expenses related to the Middle Fork Project. In addition, there was enhanced water resource management as the Agency s hydrology was affected by the ongoing drought. Power sales revenue is subject to significant volatility due to variations in hydrology, energy market prices and other factors, thus the drought year continues to have a significant impact on power sales revenues. The decrease in Water Division revenues reflects conservation efforts during a drought year. Operating expense increased by $7.0 million or 10% to $78.6 million primarily due to GASB 68 implementation in Operating expense at the fund level changed from prior year as follows: Agency Wide increased $0.9 million, Power Division increased $1.7 million and Water Division increased $4.4 million. Non-operating revenues (expenses) decreased by $16.1 million or 78% to $4.6 million; this is a net change. Key components of this increase are a $15.6 million increase in Water Connection Charge revenue which reflects the improvement in the local housing industry, a $5.8 million decrease in out of county water sales and a $23.7 million loss on the transfer on capital assets to Zone 4. In 2015, the Agency transacted out of county water sales totaling $6 million pursuant to the Water Forum Agreement. Contributed capital, consisting of water system infrastructure contributed to the Agency upon project completion, totaled $7.2 million, which was comprised of various developer s agreement contributions. 9

142 PLACER COUNTY WATER AGENCY Management s Discussion and Analysis December 31, 2015 Table 2 shows changes in the Agency s net position for the year. Table 2 Changes in Net Position (In thousands) Variance % OPERATING REVENUES: Agency Wide $ 1, % Power Division 25,585 25, % Water Division 43,291 45,937 (2,646) -6% Total Operating Revenues 70,080 72,375 (2,295) -3% OPERATING EXPENSES: Purchased Water 3,054 2, % Pumping Plant and Wells 2,567 2, % Water Treatment 7,347 6, % Electrical Operations 2,256 2,344 (88) -4% Transmission and Distribution of Treated Water 2,840 2, % Transmission and Distribution of Raw Water 3,874 3, % Customer Service and Collections 4,456 3, % Repairs and Maintenance 2,361 2,556 (195) -8% Engineering 5,513 3,069 2,444 80% General and Administrative 14,870 13,176 1,694 13% Resource Development 1,793 2,887 (1,094) -38% Depreciation 23,337 22, % Other 4,351 3, % Total Operating Expenses 78,619 71,664 6,955 10% Net Operating Income (Loss) (8,539) 711 (9,250) -1301% NON-OPERATING REVENUES (EXPENSES): Water Connection Charges 24,997 9,386 15, % Water Sale 6,000 11,750 (5,750) -49% Costs Recovered from Other Agencies (377) -60% Interest Earnings 1,067 1, % Interest Expense (2,219) (3,712) 1,493-40% Other (25,474) 1,654 (27,128) -1640% Total Non-Operating Revenues (Expenses) 4,624 20,723 (16,099) -78% Income Before Capital Contributions (3,915) 21,434 (25,349) -118% Capital Contributions 7,221 14,265 (7,044) -49% Change in Net Position 3,306 35,699 (32,393) -91% Net Position, Beginning of Year 680, ,473 35,699 6% Net Position, End of Year $ 683, ,172 3,306 0% 10

143 Amended Budget versus Actual PLACER COUNTY WATER AGENCY Management s Discussion and Analysis December 31, 2015 Although not specifically prescribed by Statement of Governmental Accounting Standards 34, management has opted to present budgetary information. Annually, the Agency s Board of Directors adopts Operating and Capital Investment Program budgets. As stated in the Agency s Budget Policy, the budgets are considered flexible budgets which may be changed as activity levels change. Table 3 presents the 2015 Budget versus Actual. The fund level variances are discussed as follows: Agency Wide: Revenue was up with water sales higher than expected as outside Agency demands increased during the drought. Power Division: Operating expense was under budget because the new Federal Energy Regulatory Commission (FERC) license has not been issued, yet significant expenses were budgeted in anticipation of implementation costs in Correspondingly, the Power Division operating revenue, which reflects reimbursements of the Agency s expenses related to the Middle Fork Project is also under budget in Water Division: Operating expense was under budget due to reduced water availability because of the drought, hence reduced water purchase costs, as well as other drought related impacts such as deferral of certain projects and staff vacancies. The operating expense variance is primarily a result that only a small portion of depreciation is budgeted. The non-operating revenues (expenses) variance is a net amount with the change primarily due to additional water connection charge revenue received, reflecting the improvement in the local housing industry, and out of county water sales. Table Amended Budget and Actual (In thousands) 2015 Amended Budget 2015 Actual Variance REVENUES: Operating: Agency Wide $ 800 1, Power Division 37,558 25,585 (11,973) Water Division 48,191 43,291 (4,900) Total Operating Revenues 86,549 70,080 (16,469) EXPENSES: Operating: Agency Wide 1,555 1,781 (226) Power Division 22,590 18,273 4,317 Water Division 35,800 35, Depreciation 1,616 23,337 (21,721) Total Operating Expenses 61,561 78,619 (17,058) Net Operating Income (Loss) 24,988 (8,539) (33,527) Non-Operating Revenues (Expenses) (10,900) 4,624 15,524 Income Before Capital Contributions 14,088 (3,915) (18,003) Capital Contributions (Not Budgeted) - 7,221 7,221 Change in Net Position $ 14,088 3,306 (10,782) 11

144 PLACER COUNTY WATER AGENCY Management s Discussion and Analysis December 31, 2015 CAPITAL ASSETS AND CAPITAL INVESTMENT PROGRAM At the end of 2015, the Agency had invested $638 million (net of accumulated depreciation) in a broad range of infrastructure including; power facilities; water storage, transmission and distribution facilities; maintenance and administration facilities; vehicles; and equipment. The total decrease in the Agency s investment in capital assets for 2015 was $13.3 million, or 2%. This decrease is the net of the transfer of Zone 4 and capital additions. The summary of capital assets is presented in note 3 to the basic financial statements. Table 4 provides a summary of capital assets for years-ended 2015 and 2014 as follows: Table 4 Capital Assets (In thousands) Increase/ (Decrease) % Land $ 13,924 13,969 (45) 0% Utility Plant - Preliminary Survey % Utility Plant 728, ,551 12,972 2% Other Property and Equipment 105, ,533 2,667 3% Construction in Progress 85,068 95,838 (10,770) -11% Subtotal 933, ,669 4,824 1% Less Accumulated Depreciation 295, ,201 18,116 7% Total Capital Assets $ 638, ,468 (13,292) -2% 12

145 PLACER COUNTY WATER AGENCY Management s Discussion and Analysis December 31, 2015 This year s major capital expenditures included (in thousands): Agency Wide American River Water Rights Extension $ 1,022 Power MFPH Generator Excit Upgrade 1,446 Communications Upgrade 924 LL Anderson Gate 918 Water American River Supply System Improvements 2,941 Service Center Corp Yard 1,385 Whitney Ranch Intertie 1,135 Lincoln Station Hydropower 1,272 Rocklin Front Yard Pipeline Replacement 2,925 Total $ 13,968 The Agency s 2016 Budget includes a 2016 Capital Investment Program (CIP) budget totaling $32 million, which is presented below by fund. Capital Investment Program Budget (In thousands) Agency Wide $ 1,295 Power Division 12,618 Water Division 18,193 Total $ 32,106 LONG-TERM DEBT At December 31, 2015, the Agency had total long-term debt outstanding of $92 million excluding the $5.2 million in compensated absences payable. The outstanding amount decreased $3.9 million during the year primarily because of the following: The retirement of $2.8 million of Certificates of Participation. The net retirement of $1.1 million in loans payable. More detailed information about the Agency s long-term debt is presented in note 4 to the basic financial statements. 13

146 PLACER COUNTY WATER AGENCY Management s Discussion and Analysis December 31, 2015 The debt coverage ratio demonstrates the Agency s Western Water System financial strength and future borrowing capability which is calculated at 2.78 times annual debt service for the Western Water System at December 31, Table 5 presents the Western Water System s debt coverage ratio and exhibits both 2015 and 2014 ratios being greater than the 1.20 times debt indenture covenant requirement. Table 5 Debt Coverage Ratio - Western Water System (In thousands) Net Water Revenue, Excluding Depreciation $ 21,644 $ 24,528 Debt Service on Certificates and Other Parity Debt 7,789 7,531 Debt Coverage Ratio Debt Coverage Ratio Requirement Based on Debenture At December 31, 2015 the Agency had outstanding certificates of participation stemming from water system expansion projects (water connection charge projects) and replacement program projects, with varying maturities through The Agency s current weighted average cost of capital is 3.9% in outstanding debt as shown in the following table: Table 6 Cost of Capital (In thousands) Debt Balance Expansion Replacement Total Average Coupon Rate Certificates of Participation $ 49,328 20,137 69, % Loans Payable ,275 22, % Total $ 49,571 42,412 91, % REQUESTS FOR INFORMATION This financial report is designed to provide the Board of Directors, ratepayers and creditors with a general overview of the Agency s finances and demonstrate the Agency s accountability for the monies it receives. If you have questions about this report or need additional financial information, please contact: the Director of the Department of Financial Services, 144 Ferguson Road, Auburn, California, The report can also be found on the Agency s website at 14

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148 PLACER COUNTY WATER AGENCY STATEMENT OF NET POSITION DECEMBER 31, 2015 ASSETS Current assets: Cash and cash equivalents (note 2) $ 43,728,512 Restricted cash and cash equivalents (note 2) 22,703,996 Restricted cash and cash equivalents with fiscal agents (note 2) 6,870,569 Water service receivable, net 5,659,586 Accounts receivable 2,958,265 Interest receivable 262,220 Taxes receivable 787,744 Materials and supplies 1,058,767 Prepaid expenses 1,950,254 OPEB assets (note 11) 212,338 Total current assets 86,192,251 Noncurrent assets: Investments (note 2) 64,493,847 Restricted investments (note 2) 33,485,669 Notes receivable 88,907 Assessments receivable 2,140 Capital assets, non depreciable (note 3) 99,770,549 Capital assets, net of depreciation (note 3) 538,405,892 Total noncurrent assets 736,247,004 Total assets 822,439,255 DEFERRED OUTFLOWS OF RESOURCES Deferred outflow - pension contributions 3,176,605 Deferred outflow - pension actuarial 3,145,608 Total deferred outflows 6,322,213 (Continued) See accompanying notes to financial statements. 16

149 LIABILITIES AND NET POSITION Current liabilities: PLACER COUNTY WATER AGENCY STATEMENT OF NET POSITION DECEMBER 31, 2015 Accounts payable 6,402,831 Accrued salaries and benefits 499,632 Interest payable 1,651,980 Deposits 1,878,130 Other current liabilities 15,035 Current portion of long-term liabilities (note 4) 4,263,045 Compensated absences payable, current portion (note 4) 3,320,874 Total current liabilities 18,031,527 Non-current liabilities: Certificates of participation, net of premiums/discounts (note 4) 65,169,959 Loans payable (note 4) 21,190,174 Improvement district debt (note 4) 5,722 Unearned revenue 745 Compensated absences payable (note 4) 1,927,840 Net pension liability (note 7) 33,690,576 Total non-current liabilities 121,985,016 Total liabilities 140,016,543 DEFERRED INFLOWS OF RESOURCES NET POSITION Deferred inflows - pension actuarial 5,266,276 Total deferred inflows 5,266,276 Net investment in capital assets 547,553,264 Restricted (note 5): Water system expansion 61,596,818 Other 215,133 Total restricted net position 61,811,951 Unrestricted 74,113,434 Total net position $ 683,478,649 See accompanying notes to financial statements. 17

150 PLACER COUNTY WATER AGENCY STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION FOR THE YEAR ENDED DECEMBER 31, 2015 OPERATING REVENUES Water sales $ 30,961,345 Power sales 25,589,249 Renewal and replacement charges 11,413,820 Raw water surcharges 329,848 Engineer charges 816,141 Customer service charges 774,312 Other revenue 194,987 Total operating revenues 70,079,702 OPERATING EXPENSES Purchased water 3,054,297 Field administration 1,120,004 Pumping plants and wells 2,567,327 Water treatment 7,346,965 Electrical operations 2,255,878 Transmission and distribution of treated water 2,840,337 Transmission and distribution of raw water 3,874,436 Customer service and collections 4,455,896 Repairs and maintenance 2,361,196 Recreation 2,260,185 Automotive and equipment 969,403 Engineering 5,512,612 General and administrative 14,870,321 Resource development 1,792,614 Depreciation (note 3) 23,337,141 Total operating expenses 78,618,612 Operating income (loss) (8,538,910) (Continued) See accompanying notes to financial statements. 18

151 PLACER COUNTY WATER AGENCY STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION FOR THE YEAR ENDED DECEMBER 31, 2015 NONOPERATING REVENUES (EXPENSES) Water connection charges 24,996,971 Water sales 6,000,000 Costs recovered from other agencies 253,377 Interest earnings 1,066,989 Property taxes and assessments 850,127 Gain (loss) on disposal of assets (23,685,354) Program grant revenue 2,608,023 Interest expense (2,218,592) Rental income 704,556 Transfer to other agencies (note 12) (6,244,728) Other income (expense) 292,243 Total nonoperating revenues (expenses) 4,623,612 Net income before capital contributions (3,915,298) Contributions and transfers Capital contributions 7,221,675 Increase in net position 3,306,377 Net position, beginning of year (as restated, see note 1) 680,172,272 Net position, end of year $ 683,478,649 See accompanying notes to financial statements. 19

152 PLACER COUNTY WATER AGENCY STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2015 CASH FLOWS FROM OPERATING ACTIVITIES Cash received from customers $ 69,355,414 Cash paid to suppliers for goods and services (36,363,713) Cash paid to employees for services (24,409,528) Cash received (paid) for service level support 4,720,634 Net cash provided by (used for) operating activities 13,302,807 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Property taxes and assessments 850,127 Costs recovered from other agencies 253,377 Water sale - non operating 6,000,000 Program grant revenue 1,754,273 Net cash provided by (used for) noncapital financing activities 8,857,777 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition and construction of capital assets (24,942,618) Principal payment on debt (3,954,870) Interest payment on debt (3,846,935) Proceeds from loan 84,939 Water connection charges 24,955,278 Net cash provided by (used for) capital and related financing activities (7,704,206) CASH FLOWS FROM INVESTING ACTIVITIES Purchases of investments (61,250,000) Proceeds from maturity of investments 41,827,001 Investment income 1,001,355 Net cash flows from investing activities (18,421,644) Net increase (decrease) in cash and cash equivalents (3,965,266) Cash and cash equivalents, beginning of year 77,268,343 Cash and cash equivalents, end of year $ 73,303,077 (Continued) See accompanying notes to financial statements. 20

153 PLACER COUNTY WATER AGENCY STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2015 Reconciliation of operating income (loss) to net cash provided by (used for) operating activities: Operating income (loss) $ (8,538,910) Adjustments to reconcile operating income (loss) to cash flows provided by (used for) operating activities Depreciation and amortization 23,337,141 Other nonoperating income (5,247,929) Change in assets and liabilities: (Increase) decrease in accounts receivable (1,234,470) (Increase) decrease in materials and supplies (224,214) (Increase) decrease in prepaid expense (916) (Increase) decrease in deferred outflows (4,866,195) (Increase) decrease in notes receivable and assessment receivable 6,092 Increase (decrease) in accounts payable and other liablities 1,309,978 Increase (decrease) in unearned revenue (906) Increase (decrease) in salaries and benefits payable 461,849 Increase (decrease) in deposits 504,996 Increase (decrease) in net pension liability 2,530,015 Increase (decrease) in deferred inflows 5,266,276 Net cash provided by (used for) operating activities $ 13,302,807 Reconciliation to Statement of Net Position: Cash and cash equivalents $ 43,728,512 Restricted cash and cash equivalents 22,703,996 Restricted cash and cash equivalents with fiscal agent 6,870,569 Total cash and cash equivalents reported on Balance Sheet $ 73,303,077 Noncash investing, capital and financing activities: Noncash capital contributions $ 7,221,675 Loss on disposal of capital assets 23,707,338 Change in fair value of investments (190,484) See accompanying notes to financial statements. 21

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155 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, Summary of Significant Accounting Policies A. Description of the Primary Government and Reporting Entity The Placer County Water Agency (the Agency) was formed by a special act of the California State Legislature in 1957 for the purpose of developing adequate water supplies for the County of Placer (the County). The Agency is coterminous with the County, and until January 16, 1975, the Board of Supervisors of Placer County constituted the Board of Directors of the Agency. On July 1, 1975, the Placer County Water Agency was designated as successor to Placer County Water Works No. 1 and assumed all of its assets and obligations. The Agency is legally separate and fiscally independent of the County; hence, is not a component unit of the County. The Agency owns water rights on the Middle Fork of the American River, which are used for the generation of electricity, through its hydroelectric facilities and to supply water to Placer County. The Agency provides water treatment and the distribution of both raw and treated water to customers in Placer County. The Agency s generated power and ancillary services are presently sold to the Pacific Gas & Electric Company under a contractual agreement. The Agency s financial statements present the Agency and its one component unit, the Placer County Water Agency Public Facilities Corporation. B. Description of the Component Unit The Agency has one component unit, the Placer County Water Agency Public Facilities Corporation (the Corporation), which is considered a blended component unit as it meets the criteria to be classified as a blended component unit. Reporting for a component unit on the Agency s financial statements can be blended or discretely presented. A blended component unit, although a legally separate entity, is in substance, part of the Agency s obligations. A blended component unit is an extension of the Agency and so data from this unit is combined with data of the Agency. A discretely presented component unit, on the other hand, is reported in a separate column in the financial statements to emphasize it is legally separate from the Agency. The Agency s Board of Directors serves as the Corporation s Board of Directors. The purpose of the Corporation is to provide financial assistance to the Agency by financing the acquisition, construction, improvement, and remodeling of capital projects and facilities. Debt financed by the Corporation is reflected as debt of the Agency. The Corporation does not issue separate financial statements. C. Basis of Presentation The accounts of the Agency are organized and operated on a fund basis. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, deferred outflows of resources, liabilities, deferred inflows of resources, net position, revenues and expenses. 23

156 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, 2015 All activities of the Agency are accounted for within proprietary (enterprise) funds. Proprietary funds are used to account for operations that are (a) financed and operated in a manner similar to private business enterprises where the intent of the governing body is that the costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges; or (b) where the governing body has decided that periodic determination of revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability, or other purposes. D. Basis of Accounting Proprietary funds are accounted for on a flow of economic resources measurement focus, using the accrual basis of accounting. Under this method, all assets, and deferred outflows of resources; and liabilities and deferred inflows of resources associated with operations are included on the statement of net position, and revenues are recorded when earned and expenses are recorded at the time the liabilities are incurred. Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund s principal ongoing operation. The principal operating revenues of the Agency are charges to customers for sales and services. The Agency s operating revenues, such as charges for services or energy sales result from exchange transactions associated with the principal activities of the Agency. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses, and depreciation on assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. Statement of Net Position The statement of net position is designed to display the financial position of the Agency. The Agency s net position is segregated into three categories defined as follows: Net Investment in Capital Assets This component of net position consists of capital assets, including restricted capital assets, net of accumulated depreciation and deferred outflows of resources; reduced by the outstanding balances of debt and deferred inflows of resources that are attributable to the acquisition, construction or improvement of these assets. This investment in capital assets is considered non-expendable. Restricted Net Position This component of net position consists of constraints placed on net position used through external constraints imposed by creditors (such as through debt covenants), grantors, contributors or laws or regulations of other governments. It also pertains to constraints imposed by law or constitutional provisions or enabling legislation. 24

157 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, 2015 Unrestricted Net Position This component of net position consists of net position that do not meet the definition of restricted or net investment in capital assets. Amounts included as unrestricted net position are available for designation for specific purposes as established by the Agency s Board of Directors. Statement of Revenues, Expenses and Changes in Net Position The statement of revenues, expenses and changes in net position is the operating statement for proprietary funds. Revenues are reported by major source. These statements distinguish between operating and non-operating revenues and expenses and present a separate subtotal for operating revenues, operating expenses, and non-operating revenues (expenses). E. Cash and Cash Equivalents For purposes of the statement of cash flows, the Agency considers all highly liquid investments (including restricted assets) with original maturities of three months or less at the date of purchase to be cash and cash equivalents. F. Investments Investments are stated at fair value. Included in investment income (loss) is the net change in the fair value of investments, which consists of the realized gains and losses and the unrealized appreciation (depreciation) of those investments. Measurement of the fair value of investments is based upon quoted market prices, if available. The estimated fair value of investments that have no quoted market price is determined based on equivalent yields for such securities or for securities of comparable maturity, quality and type as obtained from market makers. G. Water Service Receivable Water service receivables are presented net of $106,181 in allowance for doubtful accounts as of December 31, Customer water meters are read on a cyclical basis throughout a monthly or bimonthly period. Revenue is recognized in the period that the water is used. H. Materials and Supplies Materials and supplies consist of water meters, pipe, valves and other items for system maintenance and are valued at cost using the weighted average cost method. I. Capital Assets The Agency s capital assets purchased or constructed are capitalized at historical cost, while contributed assets are recorded at estimated fair market value at the time received for assets with an individual cost of more than $5,000 and a useful life of one year or greater. 25

158 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, 2015 The Agency capitalizes interest costs, net of investment income earned from tax-exempt borrowings, on constructed assets that are specific to the borrowings incurred to construct those assets. During 2015, the Agency capitalized interest costs totaled $1,566,284. The purpose of depreciation is to spread the cost of capital assets over the life of the assets. The amount charged to depreciation expense each year represents that year s pro rata share of depreciable capital assets. Depreciation of all capital assets in service, excluding land, is charged as an expense against operations each year and the total amount of depreciation taken over the years, called accumulated depreciation, is a reduction in the book value of the capital assets. Capital assets are depreciated using the straight-line method of depreciation over the useful life of the asset. The Agency has assigned the useful lives listed below to capital assets: Dams, tunnels and waterways years Reservoirs 40 years Treatment and pumping plants, transmission and distribution 40 years Heavy equipment 10 years Vehicles, tools, shop and office equipment and furniture 5 years J. Compensated Absences Compensated absences are accrued and reported as a liability in the period earned. Amounts payable as of December 31, 2015 are included on the statement of net position. K. Property Tax Revenue Property tax in California is levied in accordance with Article XIIIA of the State Constitution. The property taxes are placed in a pool, and then allocated to the local governments. Property tax revenue is recognized in the year in which taxes are levied. The property tax calendar is as follows: Lien date: January 1 Levy date: July 1 Due date: First installment November 10 Second installment February 10 Delinquent date: First installment December 11 Second installment April 11 The Agency s property taxes are billed, collected and distributed to the Agency by the County. Starting with the tax year, the County implemented the Teeter Plan. As such, the Agency receives 100 percent of the secured property tax levied to which it is entitled, whether or not collected. The Agency accrues property tax revenues in the year levied and the County pays the property taxes to the Agency at the following proportions and months: 55% in December, 40% in April and 5% in June. 26

159 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, 2015 For the year ending December 31, 2015, the Agency s property tax revenue totaled $840,877 which is included in the Agency Wide fund. L. Water Connection Charge Water Connection Charges (WCC) are charged for service connection to the treated water system and are recorded as revenue when received. WCC revenues are restricted by California Government Code for expansion to the existing water system and are committed for payments on the certificates of participation. M. Water Sales and Water Zones The Agency has two types of water sales: 1) On-going retailed or wholesaled water sales of both treated and untreated water to customers connected to the Agency s water system infrastructure; 2) Individual contracted one-time water sales to other water providers or the environmental water bank. The on-going water sales are recorded as operating revenue and the one-time water sales are recorded as non-operating revenue. The Agency s Water Division was established with zones or service areas as the Agency acquired the territory. Zone 1 was established in 1968 and includes the area from just north of Auburn to Roseville. In Zone 1 the Agency serves treated and untreated water to approximately 39,000 and 3,500 customers, respectively. Zone 2 was established in 1979 and is a small area, about 100 acres, south of Roseville with less than 50 customers which are served only treated water. Zone 3 was established in 1982 and includes the area from Alta to Bowman (just north of Auburn). In Zone 3 the Agency serves treated and untreated water to approximately 1,500 and 500 customers, respectively. Zone 4 established in 1996 was transferred to Northstar Community Services District on October 1, In Zone 4 the Agency served treated water to approximately 1,500 customers in the Martis Valley and was known as the Agency s Eastern Water System. Zone 5 established in 1998 includes the agricultural area in western Placer County and is served untreated water to large agricultural farmers. N. Power Sales During 2015, the Agency sold power to Pacific Gas & Electric (PG&E) through the California Independent System Operator (CAISO) under a 2013 Power Purchase Agreement (PPA) that expires December 31, Under this agreement, PG&E buys all power generated & ancillary services provided by the Middle Fork Hydroelectric Project (See Footnote 9 Joint Powers Middle Fork Project Finance Authority). The electricity generated is metered by the CAISO and shadow settled by the Agency. O. Bond Discounts and Premiums Original issue discounts and premiums related to the 2007, 2008 and 2013 certificates of participation are amortized using the bonds outstanding method over the life of the debt. 27

160 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, 2015 P. Estimates The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Q. Pension For purposes of measuring the net pension liability, deferred outflows and inflows of resources related to pensions, pension expense, information about the fiduciary net position and additions to/deductions from the fiduciary net position have been determined on the same basis as they are reported by the Agency. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. Statement No. 68 of the Governmental Accounting Standards Board (GASB 68) requires that the reported results must pertain to liability and asset information within certain defined timeframes. For this report, the following timeframes are used: Valuation Date (VD) 6/30/2014 Measurement Date (MD) 6/30/2015 Measurement Period (MP) 6/30/2014 to 6/30/2015 R. Prior Period Adjustment With the implementation of GASB 68, the unfunded pension liability resulted in a prior period adjustment to net positions for $29,704,544. Net Position at December 31, 2014 $ 709,876,816 Adjustments (GASB 68) (29,704,544) Net Position at December 31, 2014, as restated $ 680,172,272 28

161 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, Cash and Investments Cash and investments as of December 31, 2015 are classified in the accompanying financial statements as follows: Statement of Net Position: Cash and Cash Equivalents $ 43,728,512 Restricted Cash and Cash Equivalents 22,703,996 Restricted Cash and Cash Equivalents with Fiscal Agents 6,870,569 Investments 64,493,847 Restricted Investments 33,485,669 Total $ 171,282,593 Cash and investments as of December 31, 2015 consist of the following: Cash on Hand $ 3,300 Deposits with Financial Institutions 6,019,414 Investments 165,259,879 Total $ 171,282,593 29

162 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, 2015 Cash and Investments Restricted for Debt Service Cash and investments restricted for debt service and cash held at third party fiscal agent as of December 31, 2015 are as follows: Power Division: Held with Fiscal Agent Middle Fork Project Revenue Bonds, Series A Debt Reserve - Restricted for Series A debt service $ 5,000 Total Power Division 5,000 Water Division: Held with Fiscal Agent 2007 COP Debt Reserve - Restricted for 2007 COP debt service 629, /2013 COP Debt Reserve - Restricted for 2008/2013 debt service 4,849,555 Auburn Water Treatment Plant Debt Reserve - Restricted for Auburn Water Treatment Plant debt service 1,362,371 Electric Street Tank Debt Reserve - Restricted for Electric Street Tank debt service 24,449 Total Water Division 6,865,569 Total Held with Fiscal Agent 6,870,569 Held at the Agency King/Delmar Debt Reserve Restricted for King/Delmar debt service 19,545 Applegate Debt Restricted for Applegate debt service 36,427 Alta/Monte Vista (SWTR) Debt Restricted for Alta/Monte Vista debt service 37,830 Auburn Water Treatment/Electric Street (SRF) Loans Restricted future Fiscal Agent debt service reserve payments 354,457 County Service Area 29 Restricted for Zone 5 improvements 112,880 City of Lincoln Pipeline Restricted for City of Lincoln pipeline 174,730 Sunset Ranchos Restricted for Regional Water Use Efficiency 3,707 ID No. 36 Restricted for Hwy 174 debt service 6,880 Total Held at the Agency 746,456 Total $ 7,617,025 30

163 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, 2015 Agency Investments Authorized by the California Government Code and the Agency s Investment Policy The California Government Code and the Agency s Investment Policy allow the Agency to invest in the following authorized and permitted investment types provided the approved percentage and maturities limits are not exceeded. Authorized Investment Type Maximum Maturity Maximum in Portfolio* Maximum Investment in One Issuer U.S. Treasury Securities 5 years 100% No limit U.S. Government Agencies and Instrumentalities 5 years 100% No limit State of California Notes/Bonds 5 years 25% No limit Banker's Acceptances 180 days 25% 5% Commercial Paper 270 days 25% 10% Negotiable Certificates of Deposit 1 year 20% No limit Collateralized Certificates of Deposit 2 years 30% No limit Repurchase Agreements 7 days 20% No limit Corporate Notes 5 years 30% 5% Money Market Mutual Funds N/A 20% 10% Passbook/Public Deposits N/A 100% No limit Local Agency Investments Fund (LAIF) N/A $50 million No limit Local Municipal Bonds 5 years 30% No limit Placer County Treasurer s Pooled Investments (PCTPI) N/A 100% No limit *Excluding amounts held by bond trustee that are restricted by debt agreement rather than California Government Code restrictions. Investments of debt proceeds or reserve funds held by debt trustees or fiscal agents are governed by the provisions of debt agreements and are addressed in the following section. 31

164 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, 2015 Investments held by Debt Trustees Are Authorized by Debt Agreements The Agency must maintain required amounts of cash and investments with trustees or fiscal agents under the terms of certain debt issues. These funds are unexpended bond proceeds or are pledged reserves to be used if the Agency fails to meet its obligations under these debt issues. The California Government Code requires these funds to be invested in accordance with Agency resolutions, bond indentures or State statutes. The table below identifies the investment types that are authorized for investments held by debt trustees and certain provisions of these debt agreements. Authorized Investment Type Maximum Maturity Maximum in Portfolio* Maximum Investment in One Issuer U.S. Treasury Securities None 100% No limit U.S. Government Agencies and Instrumentalities None 100% No limit Banker's Acceptances 1 Year 100% No limit Commercial Paper None 100% No limit Money Market Mutual Funds N/A 100% No limit Investment Contracts Maturity of debt 100% No limit Local Agency Investments Fund (LAIF) None 100% No limit Repurchase Agreements 30 days 100% No limit California Arbitrage Management Trust None 100% No limit 32

165 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, 2015 Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Normally, the longer an investment s maturity, the greater the sensitivity of its fair value to changes in market interest rates. The Agency s investment policy states that interest rate risk will be mitigated by: (a) Structuring the Agency s portfolio so that securities mature to meet the Agency s cash requirements for ongoing obligations, thereby reducing the possible need to sell securities on the open market and incurring a possible loss prior to their maturity to meet those requirements; and (b) Managing the overall average maturity of the portfolio on a shorter term to maturity basis, not to exceed 2 ½ years. Information about the sensitivity of the fair values of the Agency s investments (including investments held by bond trustees) to market interest rate fluctuations is provided by the following table that shows the distribution of the Agency s year-end investments by maturity: Remaining Maturity Fair 12 Months 13 to to 36 Investment Type Value Or Less Months Months U.S. Treasury Securities $ 5,942,100 2,975,160 2,966,940 U.S. Government Agencies: FFCB 41,667,566 2,992,080 20,769,596 17,905,890 FHLB 32,337,973 8,987,880 17,361,763 5,988,330 FMAC 2,967,870 2,967,870 PEFCO 1,669,827 1,669,827 TVA 3,030,300 3,030,300 Corporate Notes 9,013,110 6,008,220 3,004,890 PCTPI 16,199,163 16,199,163 CA State Municipalities 1,350,769 1,350,769 LAIF 44,210,632 44,210,632 Subtotal 158,389,310 81,418,571 41,106,519 35,864,220 Fiscal Agent Accounts: Money Market 6,870,569 6,870,569 Total Investments $ 165,259,879 88,289,140 41,106,519 35,864,220 Acronyms references: FFCB - Federal Farm Credit Bank FHLB - Federal Home Loan Bank FMAC - Farmer Mortgage Corporation PEFCO - Private Export Funding Corporation TVA - Tennessee Valley Authority PCTPI- Placer County Treasurer's Pooled Investments LAIF - Local Agency Investment Fund * Percentage of portfolio % * 53.4% 24.9% 21.7% 33

166 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, 2015 Credit Risk Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of credit quality ratings by a nationally recognized statistical rating organization. Presented below is the minimum authorized rating requirement at the time of purchase, where applicable, by the California Government Code, the Agency s investment policy, or debt agreements. Also, presented below are the December 31, 2015, actual credit quality ratings for each investment type as provided by Moody s Investor Services, Inc. Minimum Rating as of Year-End Fair Authorized Not Investment Type Value Rating Aaa** Aa2, Aa3 Rated U.S. Treasury Securities $ 5,942,100 5,942,100 U.S. Government Agencies: FFCB 41,667,566 N/A 41,667,566 FHLB 32,337,973 N/A 32,337,973 FMAC 2,967,870 N/A 2,967,870 PEFCO 1,669,827 N/A 1,669,827 TVA 3,030,300 N/A 3,030,300 Corporate Notes 9,013,110 Aa 9,013,110 PCTPI 16,199,163 N/A 16,199,163 CA State Municipalities 1,350,769 N/A 1,350,769 LAIF 44,210,632 N/A 44,210,632 Held by bond trustee: Money Market 6,870,569 * 6,870,569 Total $ 165,259,879 91,518,335 10,363,879 63,377,665 * Collateralized ** Includes Standard & Poor's AAA rating of Money Market Funds (AAAm) The Agency s investment policy states that credit risk will be mitigated by: (a) Limiting investments to only the most creditworthy types of securities; (b) Pre-qualifying the financial institutions with which the Agency will do business; and (c) Diversifying the investment portfolio so that the potential failure of any one issue or issuer will not place an undue financial burden on the Agency. Concentration of Credit Risk Concentration of credit risk is the risk of loss attributed to the magnitude of an entity s investment in a single issuer. The Agency s investment policy follows California Government Code regarding limitations on the amount that can be invested in any one investment type and does not further limit investments in any one issuer. Agency investments in the securities of any individual issuer, other 34

167 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, 2015 than U.S. Treasury securities, LAIF, County Treasurer and mutual funds that represent 5% or more of total Agency investments are as follows: Investment Percent of Reported Issuer Type Portfolio Amount U.S. Government Agencies: Federal Farm Credit Bank Federal agency securities 25.21% $ 41,667,566 Federal Home Loan Bank Federal agency securities 19.57% 32,337,973 The Agency had no other investments in any one issuer exceeding 5% or more of total investments. Custodial Credit Risk Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g., broker-dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. California Law and the Agency s investment policy require banks and savings & loan institutions to pledge government securities with a market value of 110% of the Agency s cash on deposit as collateral for deposits. The third party bank trustee agreement must comply with California Government Code, which requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. The Agency s investment policy states all securities owned by the Agency shall be held in safekeeping by a third party bank trust department acting as an agent of the Agency under the terms of the custody agreement. The Agency invests in individual investments and in two investment pools (LAIF and the PCTPI). Individual investments are evidenced by specific identifiable securities instruments, or by an electronic entry registering the Agency as the owner in the book entry recording system. In order to increase security, the Agency employs the Trust Department of a bank or trustee as the custodian. The Agency s deposits with financial institutions in excess of the Federal Depository Insurance Corporation limits total $14,868,538 which is collateralized at a rate of 110% with securities held by the pledging financial institution s Trust Department but not in the Agency s name. Investment in State Investment Pool Local Agency Investment Fund The California State Treasurer maintains an investment pool in a special fund through which local governments may pool investments. The investment pool is named the Local Agency Investment Fund (LAIF). The Agency is a voluntary participant in the LAIF that is regulated by the California Government Code Section under the oversight of the Treasurer of the State of California and 35

168 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, 2015 the Local Investment Advisory Board (Advisory Board). The Advisory Board consists of five members as designated by State Statute. The Agency reports its investment in LAIF at the fair value provided by LAIF, which is the same as the value of the pool share. The balance available for withdrawal is the Agency s proportionate share of its investment in the LAIF, which amounted to $44,210,632 at December 31, Included in the LAIF s investment portfolio at December 31, 2015, are collateralized mortgage obligations, mortgaged backed securities, and other asset-back securities, structured notes, loans to certain state funds, and floating rate securities issued by federal agencies, government-sponsored enterprises, U.S. Treasury Notes and Bills and corporations. At December 31, 2015, the amount invested by all public agencies in the LAIF totaled $65,567,969,782, which includes asset-backed securities totaling $0.955 billion (1.4%). At December 31, 2015, the LAIF investments mature in an average of 179 days. Investment in Placer County Treasurer s Pooled Investments The Placer County Treasurer-Tax Collector maintains an investment pool in a special fund through which local agencies may pool investments. The investment pool is named the Placer County Treasurer s Pooled Investments (PCTPI). The Agency is a voluntary participant in the PCTPI that is regulated by the California State and Federal Laws and Regulations and under the oversight of the Treasurer s Review Panel. The Treasurer s Review Panel consists of four members as designated by Placer County Treasurer s Statement of Investment Policy. PCWA reports its investment in the PCTPI at the value provided by the Placer County Treasurer-Tax Collector, which is valued at amortized cost. The balance available for withdrawal is the Agency s proportionate share of its investment in the Placer County Treasury Pool, which amounted to $16,199,163 at December 31, The investment of money on deposit in the PCTPI is limited to those investments specified by California Government Code Section and Included in the PCTPI at December 31, 2015, are securities issued by federal agencies, structured notes, and floating rate securities issued by federal agencies, government-sponsored enterprises, U.S. Treasury Notes and Bills and corporations. At December 31, 2015, the amount invested by all public agencies in the PCTPI totaled $1,319,547,053 which includes Federal Agency Coupons totaling $540 million (40.95%) and corporate medium term notes totaling $280 million (21.22%). At December 31, 2015, the average days to maturity was 1,448 days. 36

169 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, Summary of Capital Assets The following is a summary of capital assets as of December 31, 2015: Agency Wide: Capital Assets, Not Being Depreciated: Balance 12/31/14 Additions Retirements Transfers Balance 12/31/15 Land $ 4,054,187 4,054,187 Construction in Progress 7,403,594 2,135,818 (301,032) 9,238,380 Total Capital Assets, Not Being Depreciated 11,457,781 2,135,818 - (301,032) 13,292,567 Capital Assets, Being Depreciated: Utility Plant 3,403,198 3,403,198 Other Property and Equipment 8,530, ,795 (6,404) 586,468 9,241,253 Total Capital Assets, Being Depreciated: 11,933, ,795 (6,404) 586,468 12,644,451 Less Accumulated Depreciation for: Utility Plant (1,509,988) (61,347) (1,571,335) Other Property and Equipment (2,625,108) (524,233) 6,404 (3,142,937) Total Accumulated Depreciation (4,135,096) (585,580) 6,404 - (4,714,272) Total Capital Assets, Being Depreciated, Net 7,798,496 (454,785) - 586,468 7,930,179 Total Capital Assets - Agency Wide 19,256,277 1,681, ,436 21,222,746 Power Division: Capital Assets, Not Being Depreciated: Preliminary Survey 12,500 12,500 Construction in Progress 46,815,393 7,327,243 (3,637,987) 50,504,649 Total Capital Assets, Not Being Depreciated 46,827,893 7,327,243 - (3,637,987) 50,517,149 Capital Assets, Being Depreciated: Utility Plant 206,107,459 62,186 3,518, ,687,810 Other Property and Equipment 7,600, ,667 (82,665) 280,129 8,517,733 Total Capital Assets, Being Depreciated: 213,708, ,853 (82,665) 3,798, ,205,543 Less Accumulated Depreciation for: Utility Plant (82,046,836) (3,990,863) (86,037,699) Other Property and Equipment (4,434,482) (813,272) 82,665 (5,165,089) Total Accumulated Depreciation (86,481,318) (4,804,135) 82,665 - (91,202,788) Total Capital Assets, Being Depreciated, Net 127,226,743 (4,022,282) - 3,798, ,002,755 Total Capital Assets - Power Division, Net 174,054,636 3,304, , ,519,904 37

170 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, 2015 Balance 12/31/14 Additions Retirements Transfers Balance 12/31/15 Water Division: Capital Assets, Not Being Depreciated: Land 9,915,036 (73,712) 28,826 9,870,150 Preliminary Survey 765, ,114 Construction in Progress 41,619,048 16,526,975 (32,820,453) 25,325,570 Total Capital Assets, Not Being Depreciated 52,299,198 16,526,975 (73,712) (32,791,627) 35,960,834 Capital Assets, Being Depreciated: Utility Plant 506,040,407 6,229,870 (28,368,460) 31,530, ,431,884 Other Property and Equipment 86,402, ,591 (450,826) 815,817 87,441,185 Total Capital Assets, Being Depreciated: 592,443,010 6,903,461 (28,819,286) 32,345, ,873,069 Less Accumulated Depreciation for: Utility Plant (148,937,971) (13,514,865) 4,695,271 (157,757,565) Other Property and Equipment (37,646,789) (4,432,561) 436,803 (41,642,547) Total Accumulated Depreciation (186,584,760) (17,947,426) 5,132,074 - (199,400,112) Total Capital Assets, Being Depreciated, Net 405,858,250 (11,043,965) (23,687,212) 32,345, ,472,957 Total Capital Assets - Water Division, Net 458,157,448 5,483,010 (23,760,924) (445,743) 439,433,791 Total Capital Assets, Net $ 651,468,361 10,469,004 (23,760,924) - 638,176,441 38

171 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, Long-Term Obligations The Agency generally incurs long-term debt to finance projects or purchase assets, which will have useful lives equal to or greater than the related debt. The long-term debt as of December 31, 2015 including interest rates and maturities are as follows: Year of Balance at Fiscal year Interest final December 31, Description issued rates maturity 2015 Certificates of Participation: 2007 Certificates % % 2037 $ 28,355, Certificates % % ,355, Certificates % % ,755,000 Certificates outstanding 69,465,000 Loans Payable: California Department of Water Resources Loans: Alta/Monte Vista (SWTR) % ,007 King/Delmar % ,443 Applegate % ,737 State Water Resources Control Board Auburn Water Treatment Plant % ,469,806 Electric Street Tank % ,644,579 Loans outstanding 22,516,572 Improvement District (ID) Debt: ID No. 10 Aquilar Road % - 6.5% ,134 * ID No. 11 Lakeshore % ,195 * ID No. 36 Highway % ,041 Improvement District debt outstanding 12,370 Subtotal debt outstanding 91,993,942 Compensated Absences 5,248,714 Total Less: Unamortized bond discounts and premiums 97,242,656 (1,365,042) Total long-term debt $ 95,877,614 * ID No. 10 & 11 warrants have reached maturity, yet certain warrants have not been presented for payment, hence they remain as a liability. 39

172 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, 2015 The following is a summary of changes in long-term obligations for the year ended December 31, 2015: Amounts Balance Balance Due Within 1/1/2015 Additions Retirements 12/31/2015 One Year Certificates of Participation $ 72,270,000 2,805,000 69,465,000 2,930,000 Loans Payable 23,625,344 34,450 1,143,222 22,516,572 1,326,398 Improvement District Debt 18,836 6,466 12,370 6,647 Subtotal 95,914,180 34,450 3,954,688 91,993,942 4,263,045 Compensated Absences 4,888,499 2,273,835 1,913,620 5,248,714 3,320,874 Totals $ 100,802,679 2,308,285 5,868,308 97,242,656 7,583,919 Certificates of Participation All outstanding Certificates issuances represent undivided fractional interests in installment payments made, between the Agency and the Placer County Water Agency Public Facilities Corporation (Corporation) as the purchase price for certain additions and improvements as specified below in the individual Certificate issues. Pursuant to the terms of each Certificate purchase contract, the Agency has pledged, on a parity basis, the water revenues of the Agency s Western Water System to the payment of the 2007, 2008 and 2013 Certificates and other parity debt Certificates On October 2, 2007, Certificates of Participation (2007 Certificates) with interest rates ranging from 4.00% to 4.75% were issued by the Agency in the amount of $33,580,000. The 2007 Certificates were issued to finance: 1) the construction of the Auburn Ravine Tunnel Pump Station, an addition to the water system in the amount of approximately $20 million, and 2) the rehabilitation of existing water system infrastructure including portions of the Boardman canal, Bowman canal siphon and other projects in the amount of approximately $13 million. The principal outstanding at December 31, 2015 is $28,355, Certificates On April 24, 2008, Certificates of Participation (2008 Certificates) were issued by the Agency in the amount of $40,385,000. The 2008 Certificates were issued to refinance the outstanding 2005 Certificates. The 2008 Certificate proceeds were used entirely to refinance the 2005 Certificates (originally issued in 1998 to fund the Cross Basin Pipeline II), fund the $3.4 million debt service reserve, pay the termination cost of the interest rate swap and pay the associated issuance costs. The 2008 Certificates have an average coupon rate of 4.55% and a fixed rate coupon range from 3.0% to 4.75%. The principal outstanding at December 31, 2015 is $34,355,

173 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, Certificates On June 19, 2013, Certificates of Participation (2013 Certificates) were issued by the Agency in the amount of $8,100,000 with a reoffering premium of $1,304,896 to refund the outstanding $9,170, Certificates (originally issued in 1993 to fund the Foothill Water Treatment Plant upgrade to 27 million gallons per day (MGD), a 10 MGD clearwell and refinance the Series B). The 2013 Certificates were issued with an average coupon of 4.65% and a fixed coupon range from 4.0% to 5.0%. The 2013 Certificate proceeds were entirely to refund the 2003 Certificates and pay the associated issuance costs. The principal outstanding at December 31, 2015 is $6,755,000. Certificates of Participation Debt Covenants The Certificates of Participation purchase contracts require the Agency to ensure that: (1) the net water revenues shall be at least 120% of debt service on all outstanding contracts and bonds, (2) the net water revenues shall be at least 100% of debt service on all outstanding contracts and bonds plus the obligation service for all outstanding obligations, and (3) the certificates reserve requirements shall be met. Pursuant to the Agency s rate covenant within the debt documents, in calculating net water revenue, no deduction for depreciation or amortization is to be made. The following calculation indicates the Agency s compliance with these criteria for the year ended December 31, Data related to Western Water System Area (excluding Improvement Districts): 1. Annual Debt Service Coverage 2015 Net Water Revenues excluding Depreciation $ 21,643,996 Debt Service on Certificates and Other Parity Debt $ 7,789,271 Debt Service Coverage Obligation Service Coverage Net Water Revenues excluding Depreciation as Adjusted by Water Purchases $ 24,698,293 Obligation Service $ 12,660,216 Obligation Service Coverage Certificate Reserve Requirement Minimum Reserve Requirement $ 5,269,764 Reserves Held at Agency 448,259 Actual Trustee Reserve Balance 5,300,656 Total Reserve Balance $ 5,748,915 Reserve Requirement Coverage

174 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, 2015 Loans Payable California Department of Water Resources Loan Dutch Flat Terrace In 1990, the Agency entered into an agreement with the Department of Water Resources for a Safe Drinking Water Bond Law of 1984 for a grant totaling $400,000 and a loan totaling $31,990, (plus a 4 percent administration fee). The purpose of the loan was to finance the installation of a major treated water transmission line and associated appurtenances in Zone 3 service area. Principal and interest are payable from Water System revenue. During 2015, the loan was paid in full. California Department of Water Resources Loan Alta/Monte Vista In 1995, the Agency entered into an agreement with the Department of Water Resources for a grant totaling $400,000 and a loan not to exceed $539,000 (plus a 5 percent administration fee). The purpose of the loan was to finance water system improvements to meet the safe drinking water standards in Zone 3 service area. Principal and interest are payable from Water System revenue. The principal outstanding at December 31, 2015 is $37,007. California Department of Water Resources Loan King/Delmar In 1996, the Agency entered into an agreement with the Department of Water Resources for a grant totaling $125,000 and a Safe Drinking Water Bond Law of 1986 loan amount not to exceed $325,000 (plus a 5 percent administration fee). The purpose of the loan was to finance the construction of water system improvements to meet the safe drinking water standards for the domestic water supply. The principal and interest are payable from Water System revenue. The principal outstanding at December 31, 2015 is $122,443. California Department of Water Resources Loan Applegate In 1997, the Agency entered into an agreement with the Department of Water Resources for a grant totaling $400,000 and a loan not to exceed $605,000 (plus a 5 percent administration fee). The purpose of the loan was to finance water system improvements to meet the safe drinking water standards in Zone 3 service area. The principal and interest are payable from Water System revenue. The principal outstanding at December 31, 2015 is $242,737. California Department of Health Services Loan Auburn Water Treatment Plant In 2007, the Agency entered into a loan agreement with the Department of Health Services in an amount not to exceed $20,000,000. The purpose of the loan was to finance the upgrades to the Auburn Water Treatment Plant. The principal and interest are payable from Water System revenue. The principal outstanding at December 31, 2015 is $14,469,806. California Department of Health Services Loan Electric Street In 2012, the Agency entered into a loan agreement with the Department of Health Services in an amount not to exceed $7,801,000. The purpose of the loan was to finance the upgrades to the Electric 42

175 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, 2015 Street Water Tank. The principal and interest are payable from Water System revenue. The principal outstanding at December 31, 2015 is $7,644,579. Improvement District Debt From time to time, in order to finance water system construction and improvements, property owners have formed improvement districts. Upon request and approval of the affected property owners, which are deemed to benefit from the improvements, the properties are issued special assessment warrants and special assessments are levied. The warrants are the responsibility of the individual improvement district and the principal and interest are payable solely from the property assessments levied. The following summarizes the individual improvement districts with debt outstanding and warrants payable balances at December 31, 2015: Improvement District No. 10 (Aquilar Road) In 1977, warrants totaling $77,400 were issued for the purpose of financing the installation of pipeline, fire hydrants and other facilities on Aquilar Road. Final maturity of the warrants was July However, not all warrants have been presented for payment, and therefore, these unpresented amounts are carried as a liability in the financial statements. The unpresented and outstanding warrants principal balance at December 31, 2015 is $1,134. Improvement District No. 11 (Lakeshore) In 1978, warrants totaling $178,044 were issued for the purpose of financing improvements to Lakeshore Mutual Water Company s water system. Final maturity of the warrants was July However, not all warrants have been presented for payment, and therefore, these unpresented amounts are carried as a liability in the financial statements. The unpresented and outstanding warrants principal balance at December 31, 2015 is $1,195. Improvement District No. 36 (Highway 174) In 1996, Improvement District No. 36 was formed and funded through a California Safe Drinking Water Bond Law of 1986 grant totaling $306,000 and a loan totaling $100,000, (plus a 5 percent administration fee), for the purpose of financing the Highway 174 water system improvements. The principal outstanding at December 31, 2015 is $10,

176 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, 2015 Debt Service Requirements As of December 31, 2015, annual debt service requirements (excluding matured debt and compensated absences) to maturity are as follows: Improvement District Year Ending Certificates of Participation Loans Payable Debt December 31: Principal Interest Principal Interest Principal Interest 2016 $ 2,930,000 3,129,813 1,326, ,685 6, ,050,000 3,012,613 1,319, ,745 5, ,150,000 2,890,613 1,350, , ,305,000 2,756,862 1,381, , ,425,000 2,616,462 1,414, , ,850,000 10,676,506 7,426,838 1,409, ,640,000 5,477,975 6,284, , ,265,000 2,014,650 2,012,942 99, ,850, ,675 $ 69,465,000 32,837,169 22,516,572 4,284,354 12, Future Water Revenues Pledged The pledge of future Water Revenues ends upon repayment of the Senior, Second Senior, and Parity long-term debt obligations with remaining debt service as of December 31, 2015, totaling $129.1 million as follows: Senior obligations with remaining debt service totaling $0.4 million for the State Department of Water Resources Loans for Alta/Monte Vista, Applegate and King/Delmar, which is scheduled to be repaid in 2023 Second Senior obligations with remaining debt service totaling $102.3 million for the 2007, 2008 and 2013 Certifications of Participation, which is scheduled to be repaid in 2037 Parity debt obligations with remaining debt service totaling $26.4 million for the California Department of Health Services Auburn Water Treatment Plant and Electric Street Tank loans, which is scheduled to be repaid in As disclosed in the 2013 certificates offering statement, projected net revenues are expected to provide coverage over debt service of 2.07 over the life of the bonds. For fiscal year 2015, Water Fund Revenues including operating and non-operating revenues amounted to $56.4 million and operating costs including operating expenses, but not interest, depreciation or amortizations amounted to $34.8 million represented coverage of 2.78 over the $7.8 million in debt service. 44

177 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, 2015 Operating Leases The Agency has entered into various operating leases for buildings and equipment with lease terms in excess of one year. None of these agreements contain purchase options. Future minimum lease payments under these agreements as of December 31, 2015, are as follows: Year Ending Lease December 31, Payments 2016 $ 55, , ,036 Total $ 97,030 Total costs of such leases were $72,174 for the year ended December 31, Restricted Net Position As of December 31, 2015 the Agency, including improvement districts, had the following restrictions to net position: Agency Wide Division: IRS Section 125 Reserve for employees Section 125 account $ 12,714 Water Resource Development Restricted for Water Resource Development Fund Activities 197,419 Total Agency Wide 210,133 Power Division: Cash and Investments with Fiscal Agent -Outstanding Bearer Bonds 5,000 Total Power 5,000 Wate r Division: Cash and Investments with Fiscal Agent Restricted for Debt Service 6,865,569 Water Connection Charges Restricted for water system expansion 54,633,118 Improvement Districts Restricted for Debt Service 98,131 Total Water 61,596,818 Total All Fund Restricted Net Position $ 61,811,951 45

178 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, Water Supply Contracts The Agency obtains its water supply from several sources: Up to 100,400 acre-feet (AF) of water per year from its Western Water Supply contract with PG&E, which is almost exclusively gravity fed; Up to 25,000 AF of water per year from its Zone 3 Water Supply contract with PG&E, which is gravity fed; Up to 120,000 AF of water per year from appropriated water rights developed through construction of the Agency s 1963 Middle Fork Project, which is gravity fed and pumped; Up to 35,000 AF of water per year from the U.S. Bureau of Reclamation s Central Valley Project pursuant to a 1970 contract, amended in The Agency has never drawn on this source. Up to 2,000 AF of water per year from wells in Western Placer County. The 2014 drought continued into In 2014, based on the lack of precipitation, primarily snowpack, Pacific Gas & Electric (PG&E) notified the Agency that water supplies were limited and expect less than half of the contracted water supply. On February 6, 2014, the Placer County Water Agency Board of Directors heard a staff report on the impacts of the dry conditions on local water supply, held a public hearing to receive input, and then adopted a resolution declaring a water shortage emergency condition was the fourth consecutive dry year in California; as a result, the California State Water Resources Control Board mandated water reduction levels across the State. The Agency s mandated target for was 32% water savings over 2013 baseline. With water use efficiency, education and increased public outreach, the Agency achieved as much as 38% conservation in the summer months and approximately 30% for the State s compliance period. Western PG&E Water Supply Contract (Formerly Zone 1) The Western Water Supply is from PG&E pursuant to the 1968 Zone 1 Water Supply contract under which water is provided to the Agency from the Yuba and Bear Rivers through PG&E s Drum- Spaulding Project. The Drum-Spaulding Project consists of several reservoirs and a series of canals, tunnels and hydroelectric generation facilities. Nearly all of the water PCWA delivers to its treated and untreated water customers in Zone 1 comes from PG&E. The Western Water Supply contract was originally executed on June 18, 1968 with PG&E and allowed the Agency to take delivery of up to a maximum of 100,400 AF per year from specified diversion points along the canal system at prices ranging from $1.45 to $3.93 per AF. The Agency and PG&E approved an agreement that extended the term of the 1968 agreement at a new price of $30 per AF effective January 1, 2014 and $40 per AF effective January 1, The agreement contains an annual price escalator based on the Consumer Price Index. 46

179 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, 2015 To cover the additional cost for purchased water, in the spring of 2013 the Agency initiated the California Proposition 218 process for a proposed rate adjustment. On August 8, 2013, the Placer County Water Agency Board held a public hearing to consider new water rates and charges for water delivery and service in Zone 1, which would help offset the estimated $3.8 million rise in wholesale water purchases from PG&E and cover increasing general operating costs. At the same meeting, after the public hearing, the Agency Board adopted a new 5 year water rate and fee structure that included an inflationary index. Zone 3 PG&E Water Supply Contract In 1982, the Agency entered into its Zone 3 Water Supply contract with PG&E to acquire treated and raw water systems serving the portion of upper Placer County that is adjacent to Interstate 80 from Alta, down through Colfax, to the Eastern boundary of Zone 1, just above Auburn. Along with the acquired treated and raw water systems, the Agency acquired the right to purchase up to 25,000 AF annually from PG&E for use within Zone 3. This water, like the Western PG&E Water Supply contract, is sourced from PG&E s Drum-Spaulding Project. Deliveries to the Agency under the Zone 3 Water Supply contract are made at Alta Tailrace and Alta Forebay. The Agency incurs no charge for deliveries made available by PG&E of 13,000 AF or less in any water year. For water deliveries of more than 13,000 AF, the water price is set by the California Public Utilities Commission. Middle Fork Project Water Rights In addition to the two PG&E water supply contracts, the Agency has up to 120,000 AF of water available annually from appropriated water rights developed through the construction of the 1963 Middle Fork Project on the American River. The Middle Fork Project consist of two storage reservoirs and five diversion dams, five power plants, diversion and water transmission facilities, five tunnels and related facilities. Middle Fork Project water can be diverted into the western water system through the American River Pump Station to Auburn tunnel and from Folsom Reservoir. In addition to serving the western water system, this source can be sold to out of county water purveyors pursuant to a 2000 Water Forum Agreement. 7. Defined Benefit Pension Plan Plan Description The Agency contributes to the California Public Employees Retirement System (CalPERS), an agent multiple-employer public employee retirement system defined benefit pension plan that acts as a common investment and administrative agent for participating public entities within the State of California. Copies of CalPERS annual financial report may be obtained from their Executive Office: 400 P Street, Sacramento, California All qualified permanent and probationary employees are eligible to participate in the Local Government s separate Safety (police and fire) and Miscellaneous (all other) Plans, agent multipleemployer defined benefit pension plans administered by the California Public Employees Retirement 47

180 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, 2015 System (CalPERS), which acts as a common investment and administrative agent for its participating member employers. Benefit provisions under the Plans are established by State statute and Local Government resolution. CalPERS issues publicly available reports that include a full description of the pension plans regarding benefit provisions, assumptions, and membership information that can be found on the CalPERS website. Benefits Provided CalPERS provides service retirements and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service, equal to one year of full time employment. The Public Employees Pension Reform Act (PEPRA) of 2013 was created with the passing of Assembly Bill 340 (AB 340) signed by the Governor on September PEPRA implemented new benefit formulas, final compensation period and new contribution requirements for new employees hired on or after January 1, 2013, who meet the definition of new member under this bill. Funding Policy The Agency makes contributions required of Agency employees on their behalf and for their account. The rates are set by statute and therefore, generally remain unchanged from year to year. The present actuarially determined rates of annual covered payroll are as follows: Classic Member Rates as a PEPRA Member Rates as a Category Percentage of Wages Percentage of Wages Local miscellaneous members 8.00% 6.25% The contribution requirements of the plan members are established by State statutes and the employer contribution rate is established and may be amended by CalPERS. The table below reflects the Plans provision and benefits in accordance with PEPRA at June 30, 2015, are summarized as follows: Hire Date Prior to January 1, 2013 On or after January 1, 2013 Benefit formula Benefit vesting schedule 5 year service 5 year service Benefit payments monthly for life monthly for life Retirement age Monthly benefits, as a % of eligible compensation 2.0% to 2.7% 1.0% to 2.5% Required employee contribution rates 8% 6.25% Required employer contribution rates 21.28% 12.50% 48

181 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, 2015 Employees Covered As of June 30, 2014, the following employees were covered by the benefit terms for each Plan: Inactive employees or beneficiaries currently receiving benefits 157 Inactive employees entitled to but not yet receiving benefits 54 Active employees 196 Totals 407 Contribution Description Section 20814(c) of the California Public Employees Retirement Law (PERL) requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on July 1 following notice of a change in the rate. The total plan contributions are determined through the CalPERS annual actuarial valuation process. The actuarially determined rate is the estimated amount necessary to finance any unfunded accrued liability. The employer is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. For the measurement period ending June 30, 2015, the average active employee contribution rate is 8.1 percent of annual pay, and the average employer s contribution rate is percent of annual payroll. Employer contribution rates may change if plan contracts are amended. It is the responsibility of the employer to make necessary accounting adjustments to reflect the impact due to any Employer Paid Member Contributions or situations where members are paying a portion of the employer contribution. Actuarial Methods and Assumptions used to determine Total Pension Liability For the measurement period ending June 30, 2015, the total pension liability was determined using the following actuarial method and assumptions: Actuarial Cost Method Entry Age Normal in accordance with the requirements of GASB Statement No. 68 Market Value of Assets Asset Valuation Method Actuarial Assumptions Discount Rate 7.65% Inflation 2.75% Payroll Growth 3.00% Investment Rate of Return 7.50% Net of Pension Plan Investment and Administrative Expenses: includes Inflation All other actuarial assumptions used in the June 30, 2014 valuation were based on the results of an actuarial experience study for the period from 1997 to 2011, including updates to salary increase, 49

182 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, 2015 mortality and retirement rates. The Experience Study report can be obtained at the CalPERS website under Forms and Publications. Discount Rate The discount rate used to measure the total pension liability was 7.65 %. To determine whether the municipal bond rate should be used in the calculation of a discount rate for each plan, CalPERS stress tested plans that would most likely result in a discount rate that would be different from the actuarially assumed discount rate. Based on the testing, none of the tested plans run out of assets. Therefore, the current 7.65 % discount rate is adequate and the use of the municipal bond rate calculation is not necessary. The long term expected discount rate of 7.65 % will be applied to all plans in the PERF. The stress test results are presented in a detailed report called GASB Crossover Testing Report that can be obtained at the CalPERS website under the GASB 68 section. According to Paragraph 30 of Statement 68, the long-term discount rate should be determined without reduction for pension plan administrative expense. The 7.50 percent investment return assumption used in this accounting valuation is net of administrative expenses. Administrative expenses are assumed to be 15 basis points. An investment return excluding administrative expenses would have been 7.65 percent. Using this lower discount rate has resulted in a slightly higher Total Pension Liability and Net Pension Liability. CalPERS checked the materiality threshold for the difference in calculation and did not find it to be a material difference. CalPERS is scheduled to review all actuarial assumptions as part of its regular Asset Liability Management (ALM) review cycle that is scheduled to be completed in February Any changes to the discount rate will require Board action and proper stakeholder outreach. For these reasons, CalPERS expects to continue using a discount rate net of administrative expenses for GASB 67 and 68 calculations through at least the fiscal year. CalPERS will continue to check the materiality of the difference in calculation until such time as we have changed our methodology. The long-term expected rate of return on pension plan investments was determined using a buildingblock method in which best-estimate ranges of expected future real rate of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. In determining the long-term expected rate of return, staff took into account both short-term and longterm market return expectations as well as the expected pension fund cash flows. Using historical returns of all the funds asset classes, expected compound returns were calculated over the short-term (first 10 years) and the long-term (11-60 years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both shortterm and long-term returns. The expected rate of return was then set equivalent to the single equivalent rate calculated above and rounded down to the nearest one quarter of one percent. 50

183 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, 2015 The table below reflects long-term expected real rate of return by asset class. The rate of return was calculated using the capital market assumptions applied to determine the discount rate and asset allocation. These rates of return are net of administrative expenses. Asset Class New Strategic Real Return Real Return Allocation Years 1-10[1] Years 11+[2] Global Equity 51.0% 5.25% 5.71% Global Fixed Income Inflation Sensitive Private Equity Real Estate Infrastructure and Forestland Liquidity [1] An expected inflation of 2.5% used for this period [2] An expected inflation of 3.0% used for this period Pension Plan Fiduciary Net Position The plan fiduciary net position (assets) disclosed in the Agency s GASB report may differ from the plan assets reported in the actuarial valuation report due to several reasons, First, CalPERS must keep Reserves for Deficiencies and Fiduciary Self Insurance. These amounts are excluded for rate setting purposes in the actuarial valuation report while required to be included for GASB reporting purposes. In addition, differences may result from early CAFR closing and final reconciled reserves. 51

184 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, 2015 Changes in Net Pension Liability The following table shows the changes in net pension liability recognized over the measurement period. Balance at: 6/30/2014 (VD) Changes Recognized for the Measurement Period: Service Cost Interest on the Total Pension Liability Changes of Benefit Terms Changes of Assumptions - Differences between Expected and Actual Experience Plan to Plan Resource Movement Contributions - Employer Contributions - Employees Net Investment Income Benefit Payment, including Refunds of Employee Contributions Administrative Expense Net Changes during Balance at: 6/30/2015 (MD) Total Pension Liability (a) Sensitivity of the Net Pension Liability to Changes in the Discount Rate Increase (Decrease) Plan Fiduciary Net Position (b) Net Pension Liability (c) =(a) - (b) $ 104,662,381 $ 73,501,819 $ 31,160,562 2,727,255-2,727,255 7,786,985-7,786, (1,854,615) (1,854,615) (112,172) - (112,172) ,189,090 (3,189,090) - 1,248,234 (1,248,234) - 1,664,520 (1,664,520) (4,537,117) (4,537,117) - - (84,405) 84,405 4,010,336 1,480,322 2,530,014 $ 108,672,717 $ 74,982,141 $ 33,690,576 The following presents the net pension liability of the Plan as of the Measurement Date, calculated using the discount rate of 7.65 percent, as well as what the net pension liability would be if it were calculated using a discount rate that is 1 percentage-point lower (6.65 percent) or 1 percentage-point higher (8.65 percent) than the current rate: Plan s Net Pension Liability/ (Asset) Discount Rate 1% (6.65%) Current Discount Rate (7.65%) Discount Rate + 1% (8.65%) $47,878,629 $33,690,576 $21,888,826 Subsequent Events There were no subsequent events that would materially affect the results presented in this disclosure. 52

185 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, 2015 Recognition of Gains and Losses Under GASB 68, deferred inflows and deferred outflows of resources related to pensions are recognized in pension expense systematically over time. The first amortized amounts are recognized in pension expense for the year the gain or loss occurs. The remaining amounts are categorized as deferred inflows and deferred outflows to be recognized in future pension expense. The amortization period differs depending on the source of the gain or loss: Difference between projected and actual earnings All other amounts 5 years straight-line amortization Straight-line amortization over the average expected remaining service lives of all members that are provided with benefits (active, inactive, and retired as of the beginning of the measurement period). The expected average remaining service lifetime (EARSL) is calculated by dividing the total future service years by the total number of plan participants (active, inactive, and retired). The EARSL for the Plan was 4.4 years, which was obtained by dividing the total service years of 1,782 (the sum of remaining service lifetimes of the active employees) by 407 (the total number of participants). Note that inactive employees entitled to but not receiving benefits and inactive employees receiving benefits have remaining service lifetimes equal to 0. Pension Expense and Deferred Outflows and Deferred Inflows of Resources Related to Pensions As of the start of the measurement period (June 30, 2014), the NPL is $31,160,562. For the measurement period ending June 30, 2015 (measurement date), the Agency recognized a pension expense of $2,530,014 for the Plan. As of December 31, 2015, the Agency reports other amounts for the Plan as deferred outflow and deferred in flow of resources related to pensions as follows: 53

186 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, 2015 Deferred outflows of Resources De ferred inflows of Resources Pension contributions subsequent to measurement date $ 3,176,605 Differences between Expected and Actual Experience (86,678) Changes of Assumption (1,433,112) Net Difference between Projected and Actual Earnings on Pension Plan Investments 3,145,608 (3,746,486) Total $ 6,322,213 $ (5,266,276) $3,176,604 reported as deferred outflows of resources related to employer contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended December 31, Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows: Deferred Measurement period Outflows/(Inflows) Ended June 30: of Resources 2016 $ (909,423) 2017 (909,423) 2018 (909,423) , Thereafter 0 54

187 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, Risk Management The Agency has various operating exposures not limited to legal liability, tortious acts, injury to employees, and loss to physical property. In response to these exposures the Agency purchases insurance through a broker. The Agency is a member of the Association of California Water Agencies-Joint Powers Insurance Authority (ACWA-JPIA), and participates in the property program for the water systems. Coverage includes but is not limited to: Coverage Deductible Limits Workers Compensation first-dollar Statutory Water CGL/Auto $10,000 $3,000,000 Power CGL/Auto $5,000 $2,000,000 Umbrella Underlying policies X $10M & X $15M Water Property $10,000 $100,000,000 Power Property $100,000 $184,923,021 The Power Division carries Commercial Property, Boiler & Machinery and Business Interruption Coverage with scheduled and varying limits and deductibles. There are various other policies covering Public Officials, and Crime and other exposures. Because the Agency s policies have relatively small deductibles rather than self-insured retentions, no actuarial studies are required, and the Agency has no additional liability accrued at December 31, 2015, based upon the requirements of GASB Statement No. 10 which requires that a liability for claims be reported if information prior to the issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the financial statements and that the loss can be reasonably estimated. 9. Joint Powers American River Authority On June 8, 1982, the Agency entered into a joint powers agreement with Placer County, El Dorado County and the El Dorado County Water Agency. In 1996, San Joaquin County also entered into the joint powers agreement. The agreement called for the formation of the American River Authority. The purpose of this agreement is to provide for a joint exercise, through the authority of powers common to each of the parties, to study, develop, design, finance, acquire, construct, operate, maintain and replace dams, reservoirs, tunnels, conduits, hydroelectric facilities and any and all works related and incidental thereto on the American River between the Placer County Water Agency s Middle Fork American River Project and the Folsom Reservoir. In 2015, the Agency s dues for were $0 for the American River Authority s fiscal year July to June. Cumulative contributions since inception have been $262,957. The future financial impact of this agreement to the Agency is not currently known. Complete audited financial statements are available at the Agency s finance office. 55

188 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, 2015 Association of California Water Agencies Joint Power Insurance Authorities As discussed in Note 8, the Agency is a member of the Association of California Water Agencies Joint Power Insurance Authority (JPIA). The JPIA s members have pooled funds to be self-insured for liability, property, underground storage tanks (UST), pollution liability, and workers compensation insurance. Placer County Water Agency is one of 290 member districts and participates in the property program only. Complete audited financial statements can be obtained at the JPIA s Office at 2100 Professional Drive, Roseville, California Middle Fork Project Finance Authority On January 10, 2006, the Agency entered into a Joint Powers Agreement (JPA) with the County. The agreement called for the formation of the Middle Fork Project Finance Authority (MFPFA). The purpose of this agreement is to establish an Authority to serve the mutual interests of the Agency and the County, exclusively, to provide for the financing of studies, programs, procedures, projects, services, improvements, modifications, and other costs that may be required to obtain a new Federal Energy Regulatory Commission (FERC) license or which may be completed under the current or subsequent FERC license of the Middle Fork Hydroelectric Project by the Agency, to approve Future Electrical Energy Sales, and to distribute revenues from Future Electrical Energy Sales. In March 2006, the Middle Fork Project Finance Authority issued the Middle Fork Project Finance Authority Revenue Bond, Series 2006 (Bond) in the amount of $100 million to provide funds for relicensing costs and related expenses. Payment of principal and interest on the Bond commenced on October 1, 2015 from Middle Fork Project (Project) hydroelectric revenue received by the Authority. The Bond is secured by a pledge of Middle Fork Project hydroelectric revenue received and matures on April 1, On May 1, 2013, under a new Power Purchase Agreement (PPA) the Authority began receiving electrical energy revenues and reimbursed the Agency s expenses related to the Project pursuant to the JPA. Reimbursements for 2015 Agency expenses totaled $25,581,655 which the Agency recorded as Power Sales Revenue as this is payment for energy the Agency sold under the terms of the new PPA. Complete audited financial statements are available at the Agency s finance office. 10. Construction Commitments At December 31, 2015 the Agency had ongoing construction commitments that totaled approximately $12.5 million. 11. Post-Employment Health Benefits Plan Description. The Placer County Water Agency Retiree Healthcare Plan is a single-employer defined benefit healthcare plan administered by the Agency. The plan provides healthcare benefits to certain employees who retire from the Agency on or after attaining age 50 with at least five years of service, or retire for disability in accordance with State statutes and with various Agency Employee Associations Memoranda of Understanding (MOU). The Agency provides retiree medical benefits 56

189 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, 2015 through the California Public Employees Retirement System healthcare program (PEMHCA). Benefits are summarized below: Eligibility Retire directly from the Agency under CalPERS. Medical Benefit The Agency contributes the larger of the Public Employees Medical and Hospital Care Act (PEMHCA) and MOU benefit. PEMHCA Benefit under unequal method equal to 5% of active contribution times years in PEMHCA (maximum increase of $100) MOU benefit > 10 years of Agency service: equal to 5% of Agency service up to 100% of the employer share of the active employee plus one premium at time of retirement Based on Memoranda of Understanding between the Agency and the employees union, retirees may purchase health coverage with unused sick leave. The cost to the Agency for the year ended December 31, 2015 was $21,651. The Agency also provides health care benefits to its retirees through PERS. The cost to the Agency in the year ended December 31, 2015 was $731,647. In 2015, 98 retirees received post-retirement benefits ranging from $ to $1, (PEMHCA cap) per month. During fiscal year 2008, the Agency implemented the provisions of Governmental Accounting Standards Board Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. This Statement establishes uniform financial reporting standards for employers providing postemployment benefits (OPEB). As part of the implementation, the Agency elected to participate in an irrevocable trust to provide a funding mechanism for the OPEB and to apply the provisions of the statement on a prospective basis. The Trust, California Employers Retiree Benefit Trust (CERBT), is administrated by CalPERS and managed by a separately appointed board which is not under the control of the Agency Board. CERBT is not considered a component unit by the Agency and has been excluded from these financial statements. CERBT is a tax-qualified irrevocable trust organized under Internal Revenue Code Section 115 and established to pre-fund retiree healthcare benefits. CERBT, an agent multipleemployer trust, issues a publicly available financial report including GASB 43 disclosure information in aggregate with the other CERBT participating employers. That report can be obtained from the CalPERS website at Funding Policy. The Agency s policy is to prefund these benefits by accumulating assets in CERBT discussed above pursuant to Agency Board Resolution. The contribution requirements of the plan members and the Agency are established by and may be amended by the Agency. The Agency prefunds plan benefits through the CERBT by contributing at least 100% of the annual required contribution (ARC). The annual required contribution is an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year and amortize any unfunded actuarial 57

190 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, 2015 liabilities (or funding excess) over a period not to exceed 30 years. As of December 31, 2015, there were 22-years remaining in the initial 30-year amortization period. Actuarial Methods and Assumptions. The annual required contribution (ARC) was determined as part of a June 30, 2015 actuarial valuation using the entry age normal actuarial cost method. This is a projected benefit cost method, which takes into account those benefits that are expected to be earned in the future as well as those already accrued. The actuarial assumptions included (a) 7.25% investment rate of return, (b) 3.25% projected annual salary increase, (c) 3% health inflation increases and healthcare costs will increase by 7.0% for Non-Medicare retirees and 7.2% for Medicare retirees in 2015 and (d) 3.0% general inflation rate assumption. Projections of benefits for financial reporting purposes are based on the substantive plan in effect at the time of each valuation and on the pattern of sharing of costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that smooth the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets. Actuarial calculations reflect a long-term perspective and actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events far into the future. Actuarially determined amounts are subject to revision at least biannually as results are compared to past expectations and new estimates are made about the future. The Agency s OPEB unfunded actuarial accrued liability is being amortized as a level percentage of projected payroll on a closed basis using a 30 year amortization period that began January 1, Annual OPEB Cost and Net OPEB Obligation. Generally accepted accounting principles permit assets to be treated as OPEB assets and deducted from the Actuarial Accrued Liability when such assets are placed in an irrevocable trust or equivalent arrangement. During the fiscal year ended December 31, 2015, the Agency contributed the ARC to the Plan as presented below: Annual required contribution (ARC) and Annual OPEB cost $ 1,977,000 Contribution made: Agency portion of current year premiums paid 731,646 Prefunding Contributions to CERBT 1,245,354 Total contributions 1,977,000 Contributions in excess of the ARC - Net OPEB Asset at December 31, ,338 Net OPEB Asset at December 31, 2015 $ 212,338 58

191 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, 2015 The Agency s annual required contributions and actual contribution for the years ended December 31 are set forth below: Percentage Net OPEB Annual OPEB Annual of OPEB Asset Year End Cost Contribution Cost (Obligation) 12/31/2013 $ 1,963,000 $ 2,105, % $ 110,836 12/31/2014 1,897,000 1,998, % 212,338 12/31/2015 1,977,000 1,977, % 212,338 Funded Status. The Post-Employment Health Benefits Schedule of Funding Progress presents trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. Trend data from the June 30, 2015 actuarial study is presented below: (In thousands) Entry Age UAAL as Actuarial Actuarial Unfunded/ Annual a % of Actuarial Accrual Value of (Overfunded) Funded Covered Covered Valuation Liability Assets Liability Ratio Payroll Payroll Date (a) (b) (a-b) (b/a) (c) [(a-b)/c] 6/30/2011 $ 20,099 $ 5,268 $ 14, % $ 12, % 6/30/ ,503 9,402 13, % 12, % 6/30/ ,031 14,077 12, % 15, % 12. Eastern Water System (Zone 4) Transfer Pursuant to a Memorandum of Understanding between the Agency and Northstar Community Services District (NCSD) dated November 7, 2013, both agencies agreed it is in the public s best interest to seek to transfer the Agency s Eastern Water System (Zone 4) to NCSD to be the owner and service provider of potable water. Zone 4 was established in 1996 to enable the Agency to provide water service within the Martis Valley, near Truckee, CA. Zone 4 was distant from the Agency s much larger Western Water System and its Administrative offices located in Auburn, CA. Zone 4 represented less than 2% of the Agency s entire water system revenue. Since 2009, the Agency had contracted Zone 4 s day-to-day operations to NCSD. Through a joint application to the Placer Local Agency Formation Commission (LAFCO) both Agency and NCSD desired that NCSD annex the Agency s Eastern Water System. Thus, after several LAFCO public hearings, the annexation process was complete and the transfer became effective on October 1, Pursuant to a transfer agreement, within 60 days of the effective date the Agency was to transfer assets and funds, which resulted in a transfer (reduction) of capital assets, cash and net water sales receivables totaling $23.7 million, $6 59

192 PLACER COUNTY WATER AGENCY Notes to Basic Financial Statements For the year ended December 31, 2015 million and $0.3 million, respectively resulting in a reduction to the Agency s Net Position totaling $30 million. 13. Subsequent Event On February 18, 2016, the Agency rescinded its water shortage emergency condition and restrictions on delivery and consumption of water ( Drought Emergency ) originally adopted on April 10, 2014 and amended through June 4,

193 PLACER COUNTY WATER AGENCY Required Supplementary Information For the year ended December 31, 2015 CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS DURING THE MEASUREMENT PERIOD Measurement Period * TOTAL PENSION LIABILITY: Service Cost $ 2,727,255 Interest on Total Pension Liability 7,786,985 Changes of Benefit Terms - Changes of Assumptions (1,854,615) Difference between Expected and Actual Experience (112,172) Benefit Payments, Including Refunds of Employee Contributions (4,537,117) Net Change in Total Pension Liability 4,010,336 Total Pension Liability - Beginning 104,662,381 Total Pension Liability - Ending (a) $ 108,672,717 PLAN FIDUCIARY NET POSITION Contributions - Employer $ 3,189,090 Contributions - Employee 1,248,234 Net Investment Income 1,664,520 Other Miscellaneous Income - Benefit Payments, Including Refunds of Employee Contributions (4,537,117) Plan to Plan Resource Movement - Administrative Expense (84,405) Other Changes in Net Fiduciary Position - Net Change in Fiduciary Net Position 1,480,322 Plan Fiduciary Net Position - Beginning 73,501,819 Plan Fiduciary Net Postion - Ending (b) 74,982,141 Plan Net Pension Liability / (Asset) - (a)-(b) $ 33,690,576 Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 69.00% Covered-Employee Payroll $ 15,428,271 Plan Net Pension Liability as a Percentage of Covered-Employee Payroll % *Information is not available for 10 years Notes to Schedule: Benefit Changes: There were no changes to benefit terms specific to the plan. Changes of Assumptions: There were no changes in assumptions. 61

194 PLACER COUNTY WATER AGENCY Required Supplementary Information For the year ended December 31, 2015 Schedule of Plan Contributions Actuarially Determined Contribution $ 3,305,299 Contributions in Relation to the Actuarially Determined Fiscal Year 2015* Contribution (3,305,299) Contribution Deficiency (Excess) $ - Covered Payroll $ 15,494,093 Contributions as a Percentage of Covered Payroll 21.33% *Information is not available for 10 years Notes to Schedule: The actuarial methods and assumptions used to set the actuarially determined contributions for the year ended December 31, 2015 were from the June 30, 2012 and June 30, 2013 public agency valuations. Actuarial Cost Method Entry Age Normal Amortization Method/Period For details, see June 30, 2012 and June 30, 2013 Funding Valuation Reports Asset Valuation Method Actuarial Value of Assets. For details, see June 30, 2012 and June 30, 2013 Funding Valuation Reports Inflation 2.75% Payroll Growth 3.00% Investment Rate of Return 7.50% Net Pension Plan Investment Expenses, including Inflation. Retirement Age The probabilities of Retirement are based on the 2010 CalPERS Experience Study for the period from 1997 to Mortality The probabilities of mortality are based on the 2010 CalPERS Experience Study for the period from 1997 to Pre-retirement and Post-retirement mortality rates include 5 years of projected mortality improvement using Scale AA published by the Society of Actuaries. 62

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196 PLACER COUNTY WATER AGENCY COMBINING STATEMENT OF NET POSITION DECEMBER 31, 2015 ASSETS Agency Wide Power Division Water Division Total Current assets: Cash and cash equivalents $ 9,682, ,225 33,922,101 43,728,512 Restricted cash and cash equivalents 84,906-22,619,090 22,703,996 Restricted cash and cash equivalents with fiscal agents - 5,000 6,865,569 6,870,569 Water service receivable, net - - 5,659,586 5,659,586 Accounts receivable 104,309 1,241,948 1,612,008 2,958,265 Interest receivable 80, , ,220 Taxes receivable 787, ,744 Materials and supplies 16,818-1,041,949 1,058,767 Due from other funds 1,250, ,250,000 Prepaid expenses 500, , ,477 1,950,254 OPEB assets 125,738 17,344 69, ,338 Total current assets 12,632,343 2,026,865 72,783,043 87,442,251 Noncurrent assets: Investments 14,280,063-50,213,784 64,493,847 Restricted investments 125,226-33,360,443 33,485,669 Notes receivable ,907 88,907 Assessments receivable - - 2,140 2,140 Capital assets, not depreciable 13,292,566 50,517,149 35,960,834 99,770,549 Capital assets, net of depreciation 7,930, ,002, ,472, ,405,892 Total noncurrent assets 35,628, ,519, ,099, ,247,004 Total assets 48,260, ,546, ,882, ,689,255 DEFERRED OUTFLOWS OF RESOURCES Deferred outflow - pension contributions 571, ,853 1,905,963 3,176,605 Deferred outflow - pension actuarial 566, ,034 1,887,365 3,145,608 Total deferred outflows 1,137,998 1,390,887 3,793,328 6,322,213 (Continued) 64

197 PLACER COUNTY WATER AGENCY COMBINING STATEMENT OF NET POSITION DECEMBER 31, 2015 LIABILITIES AND NET POSITION Agency Wide Power Division Water Division Total Current liabilities: Accounts payable 586,241 1,602,872 4,213,718 6,402,831 Accrued salaries and benefits 100, , , ,632 Interest payable - - 1,651,980 1,651,980 Deposits - 5,000 1,873,130 1,878,130 Other current liabilities 15, ,035 Current portion of long-term liabilities - - 4,263,045 4,263,045 Compensated absences payable, current portion 651, ,635 2,059,624 3,320,874 Due to other funds - 1,250,000-1,250,000 Total current liabilities 1,353,318 3,586,681 14,341,528 19,281,527 Non-current liabilities: Certificates of participation, net of premiums/discounts (note 4) ,169,959 65,169,959 Loans payable ,190,174 21,190,174 Improvement district debt - - 5,722 5,722 Unearned revenue Compensated absences payable 386, ,948 1,229,028 1,927,840 Net pension liability 6,064,304 7,411,927 20,214,345 33,690,576 Total non-current liabilities 6,451,168 7,723, ,809, ,985,016 Total liabilities 7,804,486 11,310, ,151, ,266,543 DEFERRED INFLOWS OF RESOURCES NET POSITION Deferred inflows - pension actuarial 947,930 1,158,581 3,159,765 5,266,276 Total deferred inflows 947,930 1,158,581 3,159,765 5,266,276 Net investment in capital assets 21,222, ,519, ,810, ,553,264 Restricted: Water system expansion ,596,818 61,596,818 Other 210,133 5, ,133 Total restricted net position 210,133 5,000 61,596,818 61,811,951 Unrestricted 19,213,081 (9,056,385) 63,956,738 74,113,434 Total net position $ 40,645, ,468, ,364, ,478,649 65

198 PLACER COUNTY WATER AGENCY COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION FOR THE YEAR ENDED DECEMBER 31, 2015 OPERATING REVENUES Agency Wide Power Division Water Division Total Water sales $ 1,017,430-29,943,915 30,961,345 Power sales - 25,581,655 7,594 25,589,249 Renewal and replacement charges ,413,820 11,413,820 Raw water surcharges , ,848 Engineer charges 13 1, , ,141 Customer service charges , ,312 Other revenue 186,228 1,453 7, ,987 Total operating revenues 1,203,671 25,584,998 43,291,033 70,079,702 OPERATING EXPENSES Purchased water - - 3,054,297 3,054,297 Field administration - - 1,120,004 1,120,004 Pumping plants and wells - - 2,567,327 2,567,327 Water treatment - 6,428 7,340,537 7,346,965 Electrical operations - 2,255,878-2,255,878 Transmission and distribution of treated water - - 2,840,337 2,840,337 Transmission and distribution of raw water - - 3,874,436 3,874,436 Customer service and collections - - 4,455,896 4,455,896 Repairs and maintenance - 2,361,196-2,361,196 Recreation - 2,260,185-2,260,185 Automotive and equipment , ,403 Engineering - 1,661,074 3,851,538 5,512,612 General and administrative 1,780,862 7,935,619 5,153,840 14,870,321 Resource development - 1,792,614-1,792,614 Depreciation (note 3) 585,580 4,804,135 17,947,426 23,337,141 Total operating expenses 2,366,442 23,077,129 53,175,041 78,618,612 Operating income (loss) (1,162,771) 2,507,869 (9,884,008) (8,538,910) (Continued) 66

199 PLACER COUNTY WATER AGENCY COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION FOR THE YEAR ENDED DECEMBER 31, 2015 Agency Wide Power Division Water Division Total NONOPERATING REVENUES (EXPENSES) Water connection charges ,996,971 24,996,971 Water sales 6,000, ,000,000 Costs recovered from other agencies 103, , ,377 Interest earnings 178, ,896 1,066,989 Property taxes and assessments 840,877-9, ,127 Gain (loss) on disposal of assets - 21,984 (23,707,338) (23,685,354) Program grant revenue - - 2,608,023 2,608,023 Interest expense - - (2,218,592) (2,218,592) Rental income 550,280 1, , ,556 Transfer to other agencies (note 12) - - (6,244,728) (6,244,728) Other income (expense) (79,023) , ,243 Total nonoperating revenues (expenses) 7,593,577 24,264 (2,994,229) 4,623,612 Net income before capital contributions 6,430,806 2,532,133 (12,878,237) (3,915,298) Contributions and transfers Capital contributions - - 7,221,675 7,221,675 Transfers in 445,744 5,934,077 4,922,980 11,302,801 Transfers out (10,857,057) - (445,744) (11,302,801) Increase in net position (3,980,507) 8,466,210 (1,179,326) 3,306,377 Net position, beginning of year (as restated, see note 1) 44,626, ,002, ,543, ,172,272 Net position, end of year $ 40,645, ,468, ,364, ,478,649 67

200 CASH FLOWS FROM OPERATING ACTIVITIES PLACER COUNTY WATER AGENCY COMBINING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2015 Agency Wide Power Division Water Division Total Cash received from customers $ 1,094,086 24,343,050 43,918,278 69,355,414 Cash paid to suppliers for goods and services (816,045) (12,377,850) (23,169,818) (36,363,713) Cash paid to employees for services (4,726,024) (5,213,076) (14,470,428) (24,409,528) Cash received (paid) for service level support 4,842,934 (103,891) (18,409) 4,720,634 Net cash provided by (used for) operating activities 394,951 6,648,233 6,259,623 13,302,807 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Property taxes and assessments 840,877-9, ,127 Costs recovered from other agencies 103, , ,377 Water sale - non operating 6,000, ,000,000 Program grant revenue - - 1,754,273 1,754,273 Transfers in 445,744 5,934,077 4,922,980 11,302,801 Transfers out (5,083,287) (5,773,770) (445,744) (11,302,801) Due to/from funds (1,250,000) 1,250, Net cash provided by (used for) noncapital financing activities 1,056,684 1,410,307 6,390,786 8,857,777 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition and construction of capital assets (2,552,049) (8,269,404) (14,196,734) (25,018,187) Proceeds from disposal of capital assets 21,984 53,585 75,569 Principal payment on debt - - (3,954,870) (3,954,870) Interest payment on debt - - (3,846,935) (3,846,935) Proceeds from loan ,939 84,939 Water connection charges ,955,278 24,955,278 Net cash provided by (used for) capital and related financing activities (2,552,049) (8,247,420) 3,095,263 (7,704,206) CASH FLOWS FROM INVESTING ACTIVITIES Purchases of investments (7,320,167) - (53,929,833) (61,250,000) Proceeds from maturity of investments 6,148,568-35,678,433 41,827,001 Investment income 161, ,928 1,001,355 Net cash flows from investing activities (1,010,172) - (17,411,472) (18,421,644) Net increase (decrease) in cash and cash equivalents (2,110,586) (188,880) (1,665,800) (3,965,266) Cash and cash equivalents, beginning of year 11,877, ,105 65,072,560 77,268,343 Cash and cash equivalents, end of year $ 9,767, ,225 63,406,760 73,303,077 (Continued) 68

201 PLACER COUNTY WATER AGENCY COMBINING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2015 Reconciliation of operating income (loss) to net cash provided by Agency Wide Power Division Water Division Total (used for) operating activities: Operating income (loss) $ (1,162,771) 2,507,869 (9,884,008) (8,538,910) Adjustments to reconcile operating income (loss) to cash flows provided by (used for) operating activities Depreciation and amortization 585,580 4,804,135 17,947,426 23,337,141 Other nonoperating income 471,257 2,280 (5,721,466) (5,247,929) Change in assets and liabilities: (Increase) decrease in accounts receivable (107,245) (1,241,948) 114,723 (1,234,470) (Increase) decrease in materials and supplies (12,020) - (212,194) (224,214) (Increase) decrease in prepaid expense 121,384 (103,891) (18,409) (916) (Increase) decrease in deferred outflows (875,915) (1,070,563) (2,919,717) (4,866,195) (Increase) decrease in notes receivable and assessment receivable - - 6,092 6,092 Increase (decrease) in accounts payable and other liablities 71,890 (304,663) 1,542,751 1,309,978 Increase (decrease) in unearned revenue - - (906) (906) Increase (decrease) in salaries and benefits payable (98,202) 339, , ,849 Increase (decrease) in deposits (2,340) - 507, ,996 Increase (decrease) in net pension liability 455, ,604 1,518,008 2,530,015 Increase (decrease) in deferred inflows 947,930 1,158,581 3,159,765 5,266,276 Net cash provided by (used for) operating activities $ 394,951 6,648,233 6,259,623 13,302,807 Reconciliation to Statement of Net Position: Cash and cash equivalents $ 9,682, ,225 33,922,101 43,728,512 Restricted cash and cash equivalents 84,906-22,619,090 22,703,996 Restricted cash and cash equivalents with fiscal agent - 5,000 6,865,569 6,870,569 Total cash and cash equivalents reported on Balance Sheet $ 9,767, ,225 63,406,760 73,303,077 Noncash investing, capital and financing activities: Noncash capital contributions $ - - 7,221,675 7,221,675 Loss on disposal of capital assets ,707,338 23,707,338 Change in fair value of investments (28,001) - (162,483) (190,484) 69

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203 Board of Directors Placer County Water Agency Auburn, California Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards Independent Auditor s Report We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of as of and for the year ended December 31, 2015, and the related notes to the financial statements, which collectively comprise Placer County Water Agency s (Agency) basic financial statements, and have issued our report thereon dated April 21, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Agency s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Agency s internal control. Accordingly, we do not express an opinion on the effectiveness of the Agency s control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. As a service to you, we identified during our audit the following matters that provide an opportunity for the Agency s to enhance its existing internal controls. These matters are as follows: (1) Enhancing Controls over Construction in Progress During our review of capital assets, we selected a sample of projects in Construction in Progress for evaluation. As part of our evaluation, we interviewed engineering staff and inquired as to the status of the projects. As a result of our review, we noted two projects which were placed in service during the fiscal year however remained in Construction in Progress in the accounting records. The Finance Department currently has a Request for Change in Project Status form that the engineering department must fill out, which includes the option of labeling a project as completed or in use. However, the form was not completed accurately. An audit adjustment was recorded to move the two projects out of Construction in Progress so depreciation on the projects could begin. 71

204 Placer County Water Agency Page 2 (1) Enhancing Controls over Construction in Progress Recommendation The Finance Department staff currently meet with Engineering Department staff on a regular basis as part of their evaluation of capital assets. We recommend as part of their regular meeting, the Finance staff provide additional guidance on how to complete the Request for Change in Project Status form accurately to allow the Finance Department to properly account for the project. Management s Response Regarding Corrective Action Taken or Planned Management concurs with the recommendation Compliance and Other Matters As part of obtaining reasonable assurance about whether Placer County Water Agency s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Irvine, California April 21,

205 APPENDIX F DTC AND THE BOOK-ENTRY ONLY SYSTEM The following description of the Depository Trust Company, New York, New York ( DTC ), the procedures and record keeping with respect to beneficial ownership interests in the certificates described in this Official Statement (the Certificates ), payment of principal, interest and other payments on the Certificates to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the Certificates and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be. Neither the issuer of the Certificates (the Issuer ) nor the trustee, fiscal agent or paying agent appointed with respect to the Certificates (the Agent ) take any responsibility for the information contained in this Appendix. No assurances can be given that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Certificates, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Certificates, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Certificates, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current Rules applicable to DTC are on file with the Securities and Exchange Commission and the current Procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. 1. DTC will act as securities depository for the Certificates (the Securities ). The Securities 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 Security certificate will be issued for each maturity of the Securities in the aggregate principal amount of such maturity, and will be deposited with DTC. If, however, the aggregate principal amount of any issue exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount, and an additional certificate will be issued with respect to any remaining principal amount of such issue. 2. DTC, the world s largest securities depository, 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 F-1

206 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 is rated AA+ by Standard & Poor s. 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 3. Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC s records. The ownership interest of each actual purchaser of each Security ( 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 Securities 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 Securities, except in the event that use of the book-entry system for the Securities is discontinued. 4. To facilitate subsequent transfers, all Securities 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 Securities 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 Securities; DTC s records reflect only the identity of the Direct Participants to whose accounts such Securities 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. 5. 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. Beneficial Owners of Securities may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. 6. Redemption notices shall be sent to DTC. If less than all of the Securities within a maturity are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. 7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Securities unless authorized by a Direct Participant in accordance with DTC s F-2

207 MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Issuer 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 Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy). 8. Principal, redemption price and interest payments on the Securities 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 Issuer or the Agent, on 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, the Agent, or the Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, redemption price and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Issuer or the Agent, 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. 9. If applicable, a Beneficial Owner shall give notice to elect to have its Securities purchased or tendered, through its Participant, to tender/remarketing agent, and shall effect delivery of such Securities by causing the Direct Participant to transfer the Participant s interest in the Securities, on DTC s records, to tender/remarketing agent. The requirement for physical delivery of Securities in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Securities are transferred by Direct Participants on DTC s records and followed by a book-entry credit of tendered Securities to tender/remarketing agent s DTC account. 10. DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to the Issuer or the Agent. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered. 11. The Issuer may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered to DTC. F-3

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209 APPENDIX G DEBT SERVICE RESERVE POLICY

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211 FINANCIAL SECURITY ASSURANCE MUNICIPAL BOND DEBT SERVICE RESERVE INSURANCE POLICY ISSUER: BONDS: Placer County Water Agency (California) $33,580,000 in aggregate principal amount of S.econd Senior Water Revenue Certificates of Participation, Series 2007, the Series 2005 Certificates (as defined in the Bond Document) and any other Certificates (as defined in the Bond Document) issued pursuant to the Bond Document Policy No.: R Effective Date: October 2,2007 Premium: $39, FINANCIAL SECURITY ASSURANCE INC. ("Financial Security"), for consideration received, hereby UNCONDITIONALLY AND IRREVOCABLY agrees to pay to the trustee (the "Trustee") or paying agent (the "Paying Agent") as set forth in the documentation (the "Bond Document") providing for the issuance of and securing the Bonds, for the benefit of the Owners, subject only to the terms of this Policy (which includes each endorsement hereto), that portion of the principal of and interest on the Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer. Financial Security will make payment as provided in this Policy to the Trustee or Paying Agent on the later of the Business Day on which such principal and interest becomes Due for Payment or the Business Day next following the Business Day on which Financial Security shall have received Notice of Nonpayment, in a form reasonably satisfactory to it. A Notice of Nonpayment will be deemed received on a given Business Day if it is received prior to 1 :00 p.m. (New York time) on such Business Day; otherwise, it will be deemed received on the next Business Day. If any Notice of Nonpayment received by Financial Security is incomplete, it shall be deemed not to have been received by Financial Security for purposes of the preceding sentence and Financial Security shall promptly so advise the Trustee, Paying Agent or Issuer, as appropriate, who may submit an amended Notice of Nonpayment. Payment by Financial Security to the Trustee or Paying Agent for the benefit of the Owners shall, to the extent thereof, discharge the obligation of Financial Security under this Policy. Upon such payment, Financial Security shall become entitled to reimbursement of the amount so paid (together with interest and expenses) pursuant to the Bond Document. Upon disbursement in respect of a Bond, Financial Security shall become the owner of the Bond, any appurtenant coupon to the Bond or right to receipt of payment of principal of or interest on the Bond and shall be fully subrogated to the rights of the Owner, including the Owner's right to receive payments under the Bond and all insurance policies in respect of the Bond, to the extent of any payment by Financial Security hereunder. The amount available under this f'lolicy for payment shall not exceed the Policy Limit. The amount available at any particular time to be paid to the Trustee or Paying Agent under the terms of this Policy shall automatically be reduced by any payment under this Policy. However, after such payment, the amount available under this Policy shall be reinstated in full or in part, but only up to the Policy Limit, to the extent of the reimbursement of such payment (exclusive of interest and expenses) to Financial Security by or on behalf of the Issuer. Within three Business Days of such reimbursement, Financial Security shall provide the Trustee, the Paying Agent and the Issuer with notice of the reimbursement and reinstatement. Payment under this Policy shall not be available with respect to (a) any Nonpayment that occurs prior to the Effective Date or after the Termination Date of this Policy or (b) Bonds that are not outstanding under the Bond Document. If the amount payable under this Policy is also payable under another insurance policy or surety bond insuring the Bonds, payment first shall be made under this Policy to the extent of the amount available under this Policy up to the Policy Limit. In no event shall Financial Security incur duplicate liability for the same amounts owing with respect to the Bonds that are covered under this Policy and any other insurance policy or surety bond that Financial Security has issued. Except to the extent expressly modified by an endorsement hereto, the following terms shall have the meanings specified for all purposes of this Policy. "Business Day" means any day other than (a) a Saturday or Sunday or (b) a day on which banking institutions in the State of New York are, or the Insurer's Fiscal Agent is, authorized or required by law or executive order to remain closed. "Due for Payment" means (a) when referring to the principal of a Bond, payable on the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity unless Financial Security shall elect, in its sole discretion, to pay such principal due G-1

212 Page 2 of2 Policy No R upon such acceleration together with any accrued interest to the date of acceleration and (b) when referring to interest on a Bond, payable on the stated date for payment of interest. "Nonpayment" means, in respect of a Bond, the failure of the Issuer to have provided sufficient funds to the Paying Agent for payment in full of all principal and interest that is Due for Payment on such Bond. "No!lpayment" shall also include, in respect of a Bond, any payment of principal or interest that is Due for Payment made to an Owner by or on behalf of the Issuer that has been recovered from such Owner pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final, nonappealable order of a court having competent jurisdiction. "Notice" means telephonic or telecopied notice, subsequently confirmed in a signed writing, or written notice by registered or certified mail, from the Issuer, the Trustee or the Paying Agent to Financial Security which notice shall specify (a) the person or entity making the claim, (b) the Policy Number, (c) the claimed amount and (d) the date such claimed amount became Due for Payment. "Owner" means, in respect of a Bond, the person or entity who, at the time of Nonpayment, is entitled under the terms of such Bond to payment of principal or interest thereunder, except that "Owner" shall not include the Issuer or any person or entity whose direct or indirect obligation constitutes the underlying security for the Bonds. "Policy Limit" shall be the dollar amount of the debt service reserve fund required to be maintained for the Bonds by the Bond Document from time to time (the "Debt Service Reserve Requirement"), but in no event shall the Policy Limit exceed $2,058, The Policy Limit shall automatically and irrevocably be reduced from time to time by the amount of each reduction in the Debt Service Reserve Requirement, as provided in the Bond Document. ''Termination Date" means the earlier of July 1,2037 and the date the Bonds_are no longer outstanding under the Bond Document. Financial Security may appoint a fiscal agent (the "Insurer's Fiscal Agent") for purposes of this Policy by giving written notice to the Trustee and the Paying Agent specifying the name and notice address of the InsuJer's Fiscal Agent. From and after the date of receipt of such notice by the Trustee and the Paying Agent, (a) copies of all notices required to be delivered to Financial Security pursuant to this Policy shall be simultaneously delivered to the Insurer's Fiscal Agent and to Financial Security and shall not be deemed received until received by both and (b) all payments required to be,made by Financial Security under' this Policy may be made directly by Financial Security or by the Insurer's Fiscal Agent on behalf of Financial Security: The Insurer's Fiscal Agent is the agent of Financial Security only and the Insurer's Fiscal Agent shall in no event be liable to any Owner for any act of the Insurer's Fiscal Agent or any failure of Financial Security to deposit or cause to be deposited sufficient funds to make payments due under this Policy.. To the fullest extent permitted by applicable law, Financial Security agrees not to assert, and hereby waives, only, for the benefit of each OWner, all rights (whether by counterclaim, setoff or otherwise) and defenses (including, without limitation, the defense of fraud), whether acquired by subrogation, assignment or otherwise, to the extent that such rig~ts and defenses may be available to Financial Security to avoid payment of its obligations und~r this Pplicy in accordance with the express provisions of this Policy. This Policy sets forth in full the undertaking of Financial Security, and shall not be modified, altered or affected by any other agreement or instrument, including any modification or amendment thereto. Except to the extent expressly modified by an endorsement hereto, (a) any premium paid in respect of this Policy is nonrefundable for any reason whatsoever, including payment, or provision being made for payment, of the Bonds prior to maturity and (b) this Policy may not be canceled or revoked. THIS POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW. In witness whereof, FINANCIAL SECURITY ASSURANCE INC. has caused this Policy to be executed on its behalf by its Authorized Officer. FINANCIAL SECURITY ASSURANCE INC. A subsidiary of Financial Security Assurance Holdings Ltd. 31 West 52 nd Street, New York, N.Y By ~~~~~ ~ ~ (212) Form 501 B NY (8/96) G-2