Modesto Irrigation District

This Preliminary Official Statement and the information contained herein are subject to completion and amendment. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or a solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration, qualification or filing under the securities laws of any such jurisdiction. York byFastAutomatedSecurities Transfer(FAST)onoraboutApril6,2021. Bonds. Itisexpectedthatthe 2021BondswillbeavailablefordeliverythroughtheDTC book-entrysysteminNewYork, PFM FinancialAdvisorsLLC isservingasmunicipaladvisortotheDistrictinconnection withthedeliveryof2021 by theDistrict’sGeneralCounsel andfortheUnderwriterbyStradlingYoccaCarlson &Rauth,aProfessionalCorporation. District the for upon passed be will matters Certain District. the to Counsel Bond LLP, Sutcliffe Herrington & Orrick, by the to pledged is District) the (including thereof subdivision political payment oftheprincipalof,premium,ifany,orinterest on,the2021Bonds. any or California of State the of power System Revenues and certain other funds as provided in the Indenture). Neither the faith and credit nor the taxing Electric from solely District the than (other thereon interest or any, if premium, principal, the pay to obligated be shall thereof subdivision political any nor California of State the neither and thereof subdivision political any or certain other funds as provided in the Indenture. The 2021 Bonds do not constitute a debt of the State of California principal thereof and any premiums upon the redemption of any thereof, solely from Electric System Revenues and Bonds). TheDistrictmayhereafterissueorincuradditional ParityObligationspursuanttothetermsofIndenture. the 2021Bonds.See“TAXMATTERS.” any othertaxconsequencesrelatedtotheownershipordispositionof,amount,accrualreceiptofintereston, preference itemforpurposesofthefederalalternativeminimumtax.BondCounselexpressesnoopinionregarding California personalincometaxes.InthefurtheropinionofBondCounsel,intereston2021Bondsisnotaspecific for federalincometaxpurposesunderSection103oftheInternalRevenueCode1986andisexemptfromState representations andcompliancewithcertaincovenants,interestonthe2021Bondsisexcludedfromgrossincome existing laws,regulations,rulingsandcourtdecisions,assuming,amongothermatters,theaccuracyofcertain * Dated: ______, 2021 Dated: DateofDelivery Parity Obligations, in the aggregate principal amount of $466.010 million (of which $75.525 had outstandingbonds,rentalpaymentsandinstallmentpayablefromElectricSystemRevenues,allconstituting debt service on the 2021 Bonds and other Parity Obligations in accordance with their terms. As of February 1, 2021, the District System Electric the of (including Costs certain take-or-pay obligations Operation of the and District under contracts Maintenance with joint powers pay agencies) and to are then applied applied to pay first are Revenues System Electric Indenture, the to by, apledgeofandlienonElectricSystemRevenuestheDistrictcertainotherfundsasprovidedinIndenture. Pursuant secured and from, payable are Bonds 2021 The “Trustee”). (the trustee as Association, National Bank, Fargo Wells and District disbursement tothebeneficialownersof2021Bonds,asdescribedherein. by the Trustee to DTC, which is obligated in turn to remit suchprincipal and interest to its DTC Participants for subsequent $5,000 principalamountoranyintegralmultiplethereof.Paymentsofof,andintereston,the2021Bondsare payable act as securities depository of the 2021 Bonds. Individual purchases will be made in book-entry form only, in denominations of will DTC (“DTC”). York New York, New Company, Trust Depository The of nominee as Co., Cede & of name the in registered be will delivered, when and, form registered fully in delivered being are Bonds 2021 The 2021. July 1, commencing year, each “PLAN OFREFUNDING.” See herein. described further as Bonds, 2021 the of issuance of costs (iii) pay and Bonds, 2021 the for fund reserve bond a of funding the for (ii) provide 2011C, Series Bonds, Revenue Refunding System Electric outstanding of amount principal million the of portion a or all (i) refund District’s $43.075millionprincipalamountofoutstandingElectricSystemRefundingRevenueBonds,Series2011Aand $32.450 to moneys, available other with together funds, providing of purpose the for Bonds”) “2021 otherwise definedshallhavethemeaningssetforthherein. essential tothemakingofaninformedinvestmentdecision.Capitalizedtermsusedonthiscoverpageandnot the security or terms of this issue. Investors are advised to read the entire Official Statement to obtain information NEW ISSUE –FULLBOOK-ENTRYONLY

Preliminary, subjecttochange. The 2021Bondswillbeofferedwhen,asandifissued receivedbytheUnderwriter,subjecttoapprovaloflegality thereon, interest the to as payable are and District the of obligations limited special, are Bonds 2021 The The 2021 Bonds are being issued pursuant to an Indenture, dated as of April 1, 2021 (the “Indenture”), by and between the between and by “Indenture”), (the 2021 April 1, of as dated Indenture, an to pursuant issued being are Bonds 2021 The The 2021Bondsarenotsubjecttoredemptionpriortheirmaturity. of July 1 and January 1 on payable be will Bonds 2021 the on Interest delivery. of date their dated be will Bonds 2021 The The ModestoIrrigationDistrict(the“District”)isissuingitsElectricSystemRefundingRevenueBonds,Series2021 (the This coverpagecontainscertaininformationforgeneralreferenceonly.Itisnotintendedtobeasummaryof In theopinionofOrrick,Herrington&SutcliffeLLP,BondCounseltoDistrict,baseduponananalysis PRELIMINARY OFFICIAL STATEMENT DATED MARCH 11, 2021

ELECTRIC SYSTEMREFUNDINGREVENUEBONDS, MODESTO IRRIGATION DISTRICT

$49,115,000 SERIES 2021 Citigroup * Due: July 1,asshownontheinsidecover RATINGS: See“RATINGS”herein. * millionisbeingrefundedbythe2021

MATURITY SCHEDULE*

$49,115,000* MODESTO IRRIGATION DISTRICT ELECTRIC SYSTEM REFUNDING REVENUE BONDS, SERIES 2021

Maturity Date Principal Interest CUSIP (July 1) * Amount* Rate Yield Number† 2021 $3,420,000 2022 6,985,000 2023 3,435,000 2024 3,605,000 2025 7,855,000 2026 4,890,000 2027 3,430,000 2028 3,595,000 2029 3,775,000 2030 3,965,000 2031 4,160,000

* Preliminary, subject to change. † CUSIP® is a registered trademark of the American Bankers Association. CUSIP data herein are provided by CUSIP Global Services, managed on behalf of the American Bankers Association by S&P Global Market Intelligence. CUSIP numbers have been assigned by an independent company not affiliated with the District and are included solely for the convenience of the holders of the 2021 Bonds. None of the District, its Municipal Advisor or the Underwriter is responsible for the selection or use of these CUSIP numbers and no representation is made as to their correctness on the 2021 Bonds or as indicated above. The CUSIP number for a specific maturity is subject to being changed after the issuance of the 2021 Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part of such maturity or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of the 2021 Bonds.

MODESTO IRRIGATION DISTRICT 1231 Eleventh Street P.O. Box 4060 Modesto, California 95352 (209) 526-7373 ______

DISTRICT BOARD OF DIRECTORS

Paul Campbell, President John Mensinger, Vice President Larry Byrd Stu Gilman Nick Blom ______

DISTRICT STAFF

Bill Schwandt General Manager

Scott Van Vuren Treasurer and Assistant General Manager, Finance

James McFall Assistant General Manager, Electric Resources

Ed Franciosa Assistant General Manager, Transmission and Distribution

Jill De Jong Controller

______

PROFESSIONAL SERVICES

Atkinson, Andelson, Loya, Ruud & Romo, Orrick, Herrington & Sutcliffe LLP a Professional Law Corporation San Francisco, California Sacramento, California Bond Counsel General Counsel

PFM Financial Advisors LLC Wells Fargo Bank, National Association Los Angeles, California San Francisco, California Municipal Advisor Trustee

No dealer, broker, salesperson or other person has been authorized by the District or the Underwriter to give any information or to make any representations other than those contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized by the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the 2021 Bonds in any jurisdiction in which it is unlawful to make such offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers of the 2021 Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact.

The information set forth herein has been furnished by the District and other sources which are believed to be reliable, but it is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation by, the Underwriter. The information and expressions of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District since the date hereof. This Official Statement, including any supplement or amendment hereto, is intended to be deposited with the Municipal Securities Rulemaking Board through the Electronic Municipal Market Access (EMMA) website.

The Underwriter has provided the following two paragraphs for inclusion in this Official Statement:

The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applicable to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information.

IN CONNECTION WITH THE OFFERING OF THE 2021 BONDS THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE 2021 BONDS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. ______CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS IN THIS OFFICIAL STATEMENT

Certain statements included or incorporated by reference in this Official Statement and the Appendices hereto constitute “forward-looking statements.” Such statements are generally identifiable by the terminology used such as “plan,” “expect,” “estimate,” “budget” or other similar words. Such forward-looking statements include, but are not limited to, certain statements contained in the information under the captions “MODESTO IRRIGATION DISTRICT,” “RATE REGULATION,” and “CERTAIN FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY” in this Official Statement. Forward-looking statements in this Official Statement are subject to risks and uncertainties, including particularly those relating to natural gas costs and availability, wholesale and retail electric energy and capacity prices, federal and state legislation and regulations, industry restructuring, developments associated with the ongoing COVID–19 pandemic, and the economy of the service area of the District.

The achievement of any results or the realization of other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The District does not plan to issue any updates or revisions to those forward-looking statements.

The District maintains a website. However, the information presented therein is not part of this Official Statement and should not be relied upon in making investment decisions with respect to the 2021 Bonds. References to website addresses presented herein are for informational purposes only and may be in the form of a hyperlink solely for the reader’s convenience. Unless specified otherwise, such websites and the information or links contained therein are not incorporated into, and are not part of, this Official Statement for purposes of, and as that term is defined in, S.E.C. Rule 15c2-12(b)(5).

TABLE OF CONTENTS

Page

INTRODUCTION ...... 1 Purpose; Authority for Issuance ...... 1 The District ...... 1 Security and Sources of Payment for the 2021 Bonds ...... 1 Rate Covenant ...... 3 Bond Reserve Fund ...... 3 Continuing Disclosure ...... 3 Other Matters ...... 3 Additional Information ...... 4 PLAN OF REFUNDING ...... 4 ESTIMATED SOURCES AND USES OF FUNDS ...... 5 THE 2021 BONDS ...... 5 General ...... 5 No Redemption ...... 6 SECURITY AND SOURCES OF PAYMENT FOR THE 2021 BONDS ...... 6 Pledge of Electric System Revenues ...... 6 Rate Covenant ...... 7 Bond Reserve Fund ...... 8 Allocation of Electric System Revenues ...... 9 Outstanding Electric System Revenue Obligations of the District ...... 10 Additional Electric System Revenue Obligations of the District ...... 11 Investment of Funds ...... 12 Limitations on Remedies ...... 13 MODESTO IRRIGATION DISTRICT ...... 13 Introduction ...... 13 Governance ...... 14 Management ...... 14 COVID-19 Pandemic ...... 16 Power Supply Resources ...... 18 Generating Facilities ...... 20 Joint Powers Agency Resources ...... 23 Purchased Power ...... 26 Energy Efficiency Programs ...... 29 Future Power Supply Resources ...... 30 Fuel Supply ...... 30 Transmission Resources ...... 31 Interconnections, Local Transmission and Distribution Facilities ...... 33 Wildfire Mitigation Measures ...... 34 Wholesale Power ...... 34 Risk Management Program ...... 34 Cybersecurity Program ...... 35 Insurance ...... 36 Rates and Charges ...... 36 Comparison of Selected Monthly Electric Bills ...... 38 Major Customers ...... 39 Customers, Energy Sales, Billed Revenues and Demand ...... 40

TABLE OF CONTENTS (continued)

Page Capital Requirements ...... 41 Employees and Employee Benefit Plans ...... 42 Indebtedness ...... 47 Financial Management Policies ...... 49 Condensed Historical Operating Results and Balance Sheet Information ...... 50 Litigation Affecting the Electric System ...... 52 RATE REGULATION ...... 53 CERTAIN FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY ...... 54 Federal Energy and Environmental Policies and Legislation ...... 54 State Legislation and Regulatory Proceedings ...... 56 Changing Laws and Requirements Generally ...... 61 PG&E Bankruptcy ...... 62 Other Factors ...... 63 CONSTITUTIONAL LIMITATIONS IN CALIFORNIA AFFECTING FEES AND CHARGES ...... 64 Proposition 218 and Proposition 26 ...... 64 Other Initiatives ...... 65 TAX MATTERS...... 65 LITIGATION ...... 67 CONTINUING DISCLOSURE ...... 67 RATINGS ...... 68 MUNICIPAL ADVISOR ...... 68 INDEPENDENT AUDITORS...... 68 UNDERWRITING ...... 68 CERTAIN RELATIONSHIPS ...... 69 CERTAIN LEGAL MATTERS ...... 69 EXECUTION AND DELIVERY ...... 69

APPENDIX A AUDITED FINANCIAL STATEMENTS OF THE DISTRICT AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 ...... A-1 APPENDIX B GENERAL ECONOMIC AND DEMOGRAPHIC INFORMATION ABOUT THE DISTRICT’S SERVICE AREA ...... B-1 APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE ...... C-1 APPENDIX D BOOK-ENTRY ONLY SYSTEM ...... D-1 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE ...... E-1 APPENDIX F PROPOSED FORM OF OPINION OF BOND COUNSEL ...... F-1 APPENDIX G DISTRICT DEBT SERVICE SCHEDULE ...... G-1

OFFICIAL STATEMENT

$49,115,000* MODESTO IRRIGATION DISTRICT ELECTRIC SYSTEM REFUNDING REVENUE BONDS, SERIES 2021 ______

INTRODUCTION

This Introduction is subject in all respects to the more complete information contained elsewhere in this Official Statement, and the offering of the 2021 Bonds to potential investors is made only by means of the entire Official Statement. Terms used in this Introduction or otherwise in this Official Statement and not otherwise defined herein shall have the respective meanings assigned to them in Appendix C hereto.

Purpose; Authority for Issuance

The purpose of this Official Statement, which includes the cover page and appendices hereto, is to set forth certain information concerning the issuance and sale of $49,115,000* principal amount of Modesto Irrigation District Electric System Refunding Revenue Bonds, Series 2021 (the “2021 Bonds”). The 2021 Bonds are being issued pursuant to Articles 10 and 11, Chapter 3, Part 1, Division 2, Title 5 of the Government Code of the State of California (the “Refunding Act”), and an Indenture, dated as of April 1, 2021 (the “Indenture”), by and between the District and Wells Fargo Bank, National Association, as trustee (the “Trustee”).

The 2021 Bonds are being issued for the purpose of providing funds, together with other available moneys, to (i) refund all or a portion of the District’s $43.075 million principal amount of outstanding Electric System Refunding Revenue Bonds, Series 2011A (the “Series 2011A District Refunding Bonds”) and $32.450 million principal amount of outstanding Electric System Refunding Revenue Bonds, Series 2011C (the “Series 2011C District Refunding Bonds,” and together with the Series 2011A District Refunding Bonds being refunded, the “Refunded 2011 Bonds”), (ii) provide for the funding of a bond reserve fund for the 2021 Bonds, and (iii) pay costs of issuance of the 2021 Bonds, as further described herein. See “PLAN OF REFUNDING.”

The District

The District is a California irrigation district organized and existing under the provisions of the Irrigation District Law, Division 11 of the Water Code of the State of California (the “Irrigation District Law”). The District has the powers under the Irrigation District Law to, among other things, provide irrigation and electric service. See “MODESTO IRRIGATION DISTRICT.”

Security and Sources of Payment for the 2021 Bonds

The 2021 Bonds are payable from, and secured by, a pledge of and lien on Electric System Revenues of the District and certain other funds as provided in the Indenture. Pursuant to the Indenture, Electric System Revenues are first applied to pay Maintenance and Operation Costs of the Electric System and are then applied to pay debt service on the 2021 Bonds and other Parity Obligations in accordance with their terms.

As of February 1, 2021, the District had outstanding approximately $66.8 million principal amount of obligations which constitute Maintenance and Operation Costs of the Electric System and consist of obligations of the District related to debt of the joint powers agencies in which it participates and are payable from Electric System Revenues prior to the 2021 Bonds and other Parity Obligations (“Obligations” as more fully defined in Appendix C). The District may incur future Obligations pursuant to its agreements with joint

* Preliminary, subject to change.

powers agencies in which it now, or in the future may, participate, and such Obligations may constitute Maintenance and Operation Costs of the Electric System. Pursuant to the Indenture, the District has covenanted, however, that it will not incur any other future obligations, bonds, installment payments, contracts or other liabilities of the District secured by a pledge, lien, security interest, encumbrance or charge of any kind on or in the Electric System Revenues which is senior in priority and superior to the lien of the Indenture on or in such Electric System Revenues (“Senior Lien Obligations”). There are no Senior Lien Obligations outstanding.

As of February 1, 2021, the District had outstanding Parity Obligations in an aggregate principal amount of approximately $466.010 million, comprised of (a) approximately $233.425 million principal amount payable under lease agreements and an installment purchase contract relating to bonds issued by MIDFA, consisting of (i) $48.095 million principal amount of MIDFA Taxable Electric System Revenue Bonds (Capital Improvements) Series 2010A (Build America Bonds) (the “2010A MIDFA Bonds”); (ii) $67.690 million principal amount of MIDFA Electric System Revenue Bonds Series 2015A (the “2015A MIDFA Bonds”); (iii) $25.650 million principal amount of MIDFA Electric System Refunding Revenue Bonds Series 2015B (the “2015B MIDFA Bonds”); (iv) $47.355 million principal amount of MIDFA Electric System Revenue Bonds Series 2019A (the “2019A MIDFA Bonds”); and (v) $44.635 million principal amount of MIDFA Electric System Refunding Revenue Bonds, Series 2019B (the “2019B MIDFA Bonds,” and together with the 2019A MIDFA Bonds, the 2015B MIDFA Bonds, the 2015A MIDFA Bonds and the 2010A MIDFA Bonds, the “MIDFA Bonds”), and (b) approximately $232.585 million principal amount of refunding revenue bonds of the District, consisting of (i) the $43.075 million principal amount of Series 2011A District Refunding Bonds (which are being refunded in full by the 2021 Bonds); (ii) the $32.450 million principal amount of Series 2011C District Refunding Bonds (which are being refunded in full by the 2021 Bonds); (iii) $67.275 million principal amount of the District’s Electric System Refunding Revenue Bonds, Series 2012A (the “Series 2012A District Refunding Bonds”); (iv) $54.865 million principal amount of the District’s Electric System Refunding Revenue Bonds, Series 2016 (the “Series 2016 District Refunding Bonds”); and (v) $34.920 million principal amount of the District’s Electric System Refunding Revenue Bonds, Series 2020 (the “Series 2020 District Refunding Bonds,” and collectively with the Series 2016 District Refunding Bonds, the Series 2012A District Refunding Bonds, the Series 2011C District Refunding Bonds and the Series 2011A District Refunding Bonds, the “District Refunding Bonds”). The District Refunding Bonds and the rental payments and installment payments to be made by the District under the lease agreements and installment purchase contract relating to MIDFA Bonds to remain outstanding upon the delivery of the 2021 Bonds constitute Parity Obligations under the Indenture, payable from Electric System Revenues on a parity with the 2021 Bonds. See “PLAN OF REFUNDING.”

The District may hereafter issue or incur additional Parity Obligations payable from Electric System Revenues on a parity with the 2021 Bonds and the outstanding Parity Obligations subject to the terms of the Indenture.

See “SECURITY AND SOURCES OF PAYMENT FOR THE 2021 BONDS – Outstanding Electric System Revenue Obligations of the District” and “– Additional Electric System Revenue Obligations of the District.”

The 2021 Bonds are special, limited obligations of the District and are payable as to the interest thereon, principal thereof and any premiums upon the redemption of any thereof, solely from Electric System Revenues and certain other funds as provided in the Indenture. The 2021 Bonds do not constitute a debt of the State of California or any political subdivision thereof and neither the State of California nor any political subdivision thereof shall be obligated to pay the principal, premium, if any, or interest thereon (other than the District solely from Electric System Revenues and certain other funds as provided in the Indenture). Neither the faith and credit nor the taxing power of the State of California or any political subdivision thereof (including the District) is pledged to the payment of the principal of, premium, if any, or interest on, the 2021 Bonds.

Rate Covenant

The District has covenanted pursuant to the Indenture that for each Fiscal Year, it will fix, prescribe and collect rates and charges for Electric Service which are reasonably fair and nondiscriminatory and which, together with other lawfully available funds of the District budgeted by the District for the payment of Maintenance and Operation Costs of the Electric System or debt service during such Fiscal Year, will be at least sufficient to yield during such Fiscal Year an amount not less than the sum of: (A) the Maintenance and Operation Costs of the Electric System (not including Obligation Service) for such Fiscal Year; plus (B) 1.10 times Debt Service and Obligation Service for such Fiscal Year, including payments on the 2021 Bonds and any Parity Obligations for such Fiscal Year, in each case only to the extent they are then unpaid or are not discharged in accordance with their respective terms. See “SECURITY AND SOURCES OF PAYMENT FOR THE 2021 BONDS – Rate Covenant.”

Bond Reserve Fund

A Bond Reserve Fund is established pursuant to the Indenture in an amount equal to the Reserve Requirement. In lieu of funding any portion of the Bond Reserve Fund with cash, the District may provide for all or a portion of the Bond Reserve Fund by an insurance policy, letter of credit or surety bond or a letter of credit or other credit facility meeting the requirements of the Indenture (a “Bond Reserve Fund Facility”). Upon the delivery of the 2021 Bonds, there will be deposited in the Bond Reserve Fund from a portion of the proceeds of the 2021 Bonds an amount equal to the Reserve Requirement (initially, $______upon the delivery of the 2021 Bonds). All money in the Bond Reserve Fund shall be used and withdrawn by the Trustee solely for the purpose of paying the interest on and principal of the 2021 Bonds as such interest and principal becomes due and payable in the event the money in the Bond Redemption Fund is at any time insufficient for such purpose. The Bond Reserve Fund secures only the 2021 Bonds and is not available for the payment of any other Parity Obligations of the District and no reserve fund or account securing any other Parity Obligations of the District is available for the payment of the 2021 Bonds. See “SECURITY AND SOURCES OF PAYMENT FOR THE 2021 BONDS – Bond Reserve Fund.”

Continuing Disclosure

Other Matters

This Official Statement includes summaries of the terms of the 2021 Bonds, the Indenture, the Escrow Agreements, the Continuing Disclosure Certificate and certain contracts and other arrangements for the supply of capacity and energy. The summaries of and references to all documents, statutes, reports and other instruments referred to herein do not purport to be complete, comprehensive or definitive, and each such summary and reference is qualified in its entirety by reference to each document, statute, report or instrument. The capitalization of any word not conventionally capitalized, or otherwise defined herein, indicates that such word is defined in a particular agreement or other document and, as used herein, has the meaning given it in such agreement or document.

Copies of the Indenture, the Escrow Agreements and the Continuing Disclosure Certificate are available for inspection at the offices of the District in Modesto, California, and will be available upon request and payment of duplication costs from the Trustee.

Additional Information

Additional information regarding the Official Statement may be obtained by contacting the Trustee or:

Treasurer and Asst. General Manager, Finance Modesto Irrigation District 1231 Eleventh Street Modesto, California 95354 (209) 526-7373

PLAN OF REFUNDING

The 2021 Bonds are being issued for the purpose of providing funds, together with other available moneys, to (i) refund all of the Refunded 2011 Bonds, (ii) provide for the funding of a bond reserve fund for the 2021 Bonds, and (iii) pay costs of issuance of the 2021 Bonds.

The refunding of the Refunded 2011 Bonds is being undertaken to achieve net present value and debt service savings. The following table details the Series, maturity dates and principal amounts of the outstanding Series 2011A District Refunding Bonds and Series 2011C District Refunding Bonds which comprise the Refunded 2011 Bonds to be refunded. All refunded bonds, maturities, dates and amounts are subject to change by the District in its sole discretion.

Refunded 2011 Bonds*

Series and Maturity Outstanding Payment or Date of Refunded Original CUSIP† Principal Interest Redemption Redemption 2011 Bonds Issue Date Number Amount Rate Date Price Series 2011A District Refunding Bonds 07/28/2011 Base: 607763 07/01/2021 BW8 $12,875,000 5.000% 07/01/2021 N/A 07/01/2021 BL2 1,300,000 4.000 07/01/2021 N/A 07/01/2022 BX6 7,300,000 5.000 07/01/2021 100.0% 07/01/2022 BM0 945,000 3.750 07/01/2021 100.0 07/01/2023 BY4 4,320,000 5.000 07/01/2021 100.0 07/01/2023 BN8 430,000 4.000 07/01/2021 100.0 07/01/2024 BZ1 4,980,000 5.000 07/01/2021 100.0 07/01/2025 CA5 9,300,000 5.000 07/01/2021 100.0 07/01/2026 CB3 1,625,000 5.000 07/01/2021 100.0 Subtotal $43,075,000

Series 2011C District Refunding Bonds 10/05/2011 Base: 607763 07/01/2026 CD9 $ 4,780,000 5.000% 07/01/2021 100.0% 07/01/2027 CE7 5,020,000 5.000 07/01/2021 100.0 07/01/2028 CF4 5,265,000 5.000 07/01/2021 100.0 07/01/2029 CK3 3,030,000 5.000 07/01/2021 100.0 07/01/2029 CG2 2,500,000 4.500 07/01/2021 100.0 07/01/2030 CH0 1,150,000 5.000 07/01/2021 100.0 07/01/2030 CL1 4,645,000 4.500 07/01/2021 100.0 07/01/2031 CJ6 6,060,000 5.000 07/01/2021 100.0 Subtotal $32,450,000

* Preliminary, subject to change. † CUSIP® is a registered trademark of the American Bankers Association. CUSIP data herein are provided by CUSIP Global Services, managed on behalf of the American Bankers Association by S&P Global Market Intelligence. Neither the District nor the Underwriter is responsible for the selection or correctness of the CUSIP numbers set forth herein.

The refunding of the Refunded 2011 Bonds will be effected by depositing a portion of the proceeds of the 2021 Bonds, together with other available moneys, into the respective escrow funds (each, an “Escrow Fund”) created and established under the terms of the Escrow Agreements related to such Refunded 2011 Bonds, each dated as of April 1, 2021 (each, an “Escrow Agreement” and together, the “Escrow Agreements”), by and between the District and Wells Fargo Bank, National Association, as escrow agent. Amounts deposited into the respective Escrow Funds will be held as cash and will be sufficient to pay, on July 1, 2021, the principal or redemption price (i.e., 100% of the principal amount), as applicable, of the Refunded 2011 Bonds to which such Escrow Fund relates.

Upon such deposit, the agreements, covenants and other obligations of the District to the owners of the Refunded 2011 Bonds under the indentures pursuant to which such Refunded 2011 Bonds were issued shall thereupon, cease, terminate and become void except that the owners of the Refunded 2011 Bonds will be entitled to payment thereof solely from the amounts on deposit in the related Escrow Fund held by the escrow agent therefor.

ESTIMATED SOURCES AND USES OF FUNDS

The estimated sources and uses of funds in connection with the 2021 Bonds (rounded to the nearest dollar), are as follows:

Sources: Principal Amount of 2021 Bonds $ Original Issue Premium Transfer from Refunded 2011 Bonds Funds and Accounts(1) Total Sources $

Uses: Deposit to Escrow Funds $ Deposit to Bond Reserve Fund Costs of Issuance (2) Total Uses $

(1) Includes amounts contributed by the District for the July 1, 2021 debt service payment. (2) Includes Underwriter’s discount, legal fees, fees of the Trustee and Escrow Agent, municipal advisory fees, rating agency fees, printing costs and other miscellaneous expenses.

THE 2021 BONDS

The following is a summary of certain provisions of the 2021 Bonds. Reference is made to the 2021 Bonds for the complete text thereof and to the Indenture for a more detailed description of such provisions. The discussion herein is qualified by such reference. See “APPENDIX C – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE.”

General

The 2021 Bonds will be issued in the aggregate principal amount set forth on the inside cover page of this Official Statement. The 2021 Bonds are being delivered in fully registered form, and when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). DTC will act as securities depository for the 2021 Bonds. Principal and interest on the 2021 Bonds are payable by the Trustee to DTC, which is obligated in turn to remit such principal and interest to its DTC participants for subsequent disbursement to the beneficial owners of the 2021 Bonds. See “APPENDIX D – BOOK-ENTRY ONLY SYSTEM.”

The 2021 Bonds will be dated the date of delivery thereof. Ownership interests in the 2021 Bonds will be in $5,000 denominations or any integral multiple thereof. Interest on the 2021 Bonds is payable on January 1 and July 1 of each year, commencing July 1, 2021, and will be computed on the basis of a 360-day year consisting of twelve 30-day calendar months. The 2021 Bonds will mature on the respective dates and in the principal amounts, and the interest thereon shall be computed at the per annum interest rates, all as set forth on the inside cover page of this Official Statement.

No Redemption

The 2021 Bonds are not subject to redemption by the District prior to their respective stated maturity dates.

SECURITY AND SOURCES OF PAYMENT FOR THE 2021 BONDS

Pledge of Electric System Revenues

The 2021 Bonds are payable from and secured by a pledge of and lien on Electric System Revenues of the District and certain other funds as provided in the Indenture. Under the Indenture, Electric System Revenues are first applied to pay Maintenance and Operation Costs of the Electric System (including Obligations under agreements with joint powers agencies in which the District participates) and are then applied to pay the 2021 Bonds and other Parity Obligations in accordance with their terms. See “– Outstanding Electric System Revenue Obligations of the District – Outstanding JPA Obligations” below. The District may incur future Obligations pursuant to its agreements with joint powers agencies in which it now, or in the future may, participate, and such Obligations may constitute Maintenance and Operation Costs of the Electric System. Pursuant to the Indenture, the District has covenanted, however, that it will not incur any other future obligations, bonds, installment payments, contracts or other liabilities of the District secured by a pledge, lien, security interest, encumbrance or charge of any kind on or in the Electric System Revenues which is senior in priority and superior to the lien of the Indenture on or in such Electric System Revenues (as hereinabove defined, “Senior Lien Obligations”). There are no Senior Lien Obligations outstanding.

The obligation of the District to pay the 2021 Bonds is payable from and secured solely by a pledge of and lien on Electric System Revenues on a parity with the obligation of the District to make rental payments under certain lease agreements (the “Leases” as more fully defined in Appendix C) and to make installment payments under an installment purchase contract (the “Installment Purchase Contract-2010” as more fully defined in Appendix C) relating to MIDFA Bonds, and to pay debt service on District Refunding Bonds, in an aggregate principal amount of $390.485* million to remain outstanding upon delivery of the 2021 Bonds, which constitute Parity Obligations (see “– Outstanding Electric System Revenue Obligations of the District – Parity Obligations” below). The District may issue or incur additional Parity Obligations payable from Electric System Revenues on a parity with the 2021 Bonds and the outstanding Parity Obligations subject to the terms of the Indenture. See “– Outstanding Electric System Revenue Obligations” and “– Additional Electric System Revenue Obligations of the District” below.

“Electric System Revenues” as defined in the Indenture consist of all income, rents, rates, fees, charges, and other moneys derived by the District from the ownership or operation of the Electric System, including, without limiting the generality of the foregoing, (1) all income, rents, rates, fees, charges, insurance proceeds or other moneys derived by the District from the sale, furnishing and supplying of the electric capacity or energy or other services, facilities and commodities sold, furnished or supplied through the facilities of or in the conduct of operation of the business of the Electric System, (2) the earnings on and income derived from the investment of such income, rents, rates, fees, charges, or other moneys to the extent that the use of such earnings and income is limited to the Electric System by or pursuant to law, and (3) such other income, charges, revenue or moneys as the District may specify in a Written Order of the District filed with the Trustee, but excluding in all cases (A) customers’ deposits or any other deposits or advances subject

* Preliminary, subject to change.

to refund until such deposits or advances have become the property of the District; and (B) such other income, charges, revenue or moneys as the District may specify in a Written Order of the District filed with the Trustee, provided that such Written Order of the District confirms that, following the filing of such Written Order of the District, (i) the requirements of the rate covenant shall be satisfied; and (ii) the income, charges, revenue or moneys specified in such Written Order of the District shall be accounted for separately from the Electric System Revenues. The 2010A MIDFA Bonds were issued as “Build America Bonds” that are “qualified bonds” under the provisions of the American Recovery and Reinvestment Act of 2009. As specified in a Written Order of the District filed with the Trustee in connection with the issuance of the outstanding 2010A MIDFA Bonds, the Direct BABs Subsidy Payments expected to be received from the U.S. Treasury in connection with such MIDFA Bonds constitute Electric System Revenues. See, however, “– Outstanding Electric System Revenue Obligations of the District – Sequestration of Direct Subsidy Payments” below.

“Maintenance and Operation Costs of the Electric System” is defined in the Indenture to mean all costs paid or incurred by or on behalf of the District and determined by the District to be reasonable and necessary to maintain and operate the Electric System and to sell, exchange or otherwise dispose of electrical capacity or output, including all costs of electricity generated or purchased by the District for resale through the Electric System, all reasonable expenses of management and repair and other expenses necessary to maintain and preserve the Electric System in good repair and working order, and all administrative costs of the District that are charged directly or apportioned to the operation of the Electric System, such as salaries and wages of employees, overhead, taxes (if any) and insurance premiums, and including all other reasonable and necessary costs of the District or charges required to be paid by it to comply with the terms of the Indenture or any resolution authorizing the execution of Parity Obligations or of Parity Obligations, such as compensation, reimbursement and indemnification of the trustee for Parity Obligations and fees and expenses of Independent Certified Public Accountants and consulting engineers, and all payments owed by the District under the M-S-R Agreement, the TANC Agreement and any other Obligations, so long as the payments in each such case thereunder constitute Maintenance and Operation Costs of the Electric System; but excluding in all cases depreciation, replacement and obsolescence charges or reserves of the District therefor and amortization of intangibles. See “– Outstanding Electric System Revenue Obligations of the District” below. See also “MODESTO IRRIGATION DISTRICT – Indebtedness.”

Rate Covenant

The District has covenanted in the Indenture that for each Fiscal Year, it will fix, prescribe and collect rates and charges for Electric Service which are reasonably fair and nondiscriminatory and which, together with other lawfully available funds of the District budgeted by the District for the payment of Maintenance and Operation Costs of the Electric System or debt service during such Fiscal Year, will be at least sufficient to yield during such Fiscal Year an amount not less than the sum of: (A) the Maintenance and Operation Costs of the Electric System for such Fiscal Year (not including Obligation Service); plus (B) 1.10 times Debt Service and Obligation Service for such Fiscal Year, including payments on the 2021 Bonds and any Parity Obligations for such Fiscal Year, in each case only to the extent they are then unpaid or are not discharged in accordance with their respective terms.

Bond Reserve Fund

General. Pursuant to the Indenture the Bond Reserve Fund is required to be maintained by the Trustee. Upon the delivery of the 2021 Bonds, there will be deposited in the Bond Reserve Fund from a portion of the proceeds of the 2021 Bonds an amount equal to the Reserve Requirement (initially, $______upon the delivery of the 2021 Bonds). The Indenture defines the Reserve Requirement to be, as of any date of calculation, an amount equal to the Maximum Annual Debt Service on the 2021 Bonds, unless on the date of calculation a Written Order of the District is on file with the Trustee to the effect that moneys in an amount at least equal to one half (1/2) Maximum Annual Debt Service on the 2021 Bonds are on deposit in unrestricted funds of the District and are available to pay Maintenance and Operation Costs of the Electric System as well as Installment Payments, Rental Payments and Debt Service payments of the District (as defined in Appendix C), in which case the term “Reserve Requirement” means an amount equal to one half (1/2) the Maximum Annual Debt Service on the 2021 Bonds. All money in the Bond Reserve Fund shall be used and withdrawn by the Trustee solely for the purpose of paying the interest on and principal of the 2021 Bonds as such interest and principal becomes due and payable in the event the money in the Bond Redemption Fund is at any time insufficient for such purpose.

The District may provide for all or a portion of the Bond Reserve Fund by a Bond Reserve Fund Facility, issued by a municipal bond insurance company the claims paying ability of which is rated at the time of issuance of such instrument not lower than the then-current rating on the 2021 Bonds by Moody’s Investors Service, Inc. (“Moody’s”) and S&P Global Ratings, a Standard & Poor’s Financial Services LLC business (“S&P”), or by a Bond Reserve Fund Facility issued by a bank or other financial institution the obligations of which are rated at the time of issuance of such Bond Reserve Fund Facility not lower than the then-current rating on the 2021 Bonds by Moody’s Investors Service and S&P at the time of their delivery, in each case, if such rating agency is then rating the 2021 Bonds, if the District receives an opinion of Bond Counsel that such action will not affect the exclusion of the interest on the 2021 Bonds from federal gross income or the exemption of the interest on the 2021 Bonds from State of California personal income tax. The Indenture provides that at any time one or more Bond Reserve Fund Facilities are on deposit in the Bond Reserve Fund, the Trustee shall: (i) withdraw and use all cash, if any, on deposit in the Bond Reserve Fund prior to using and withdrawing any amounts derived from payments under any Bond Reserve Fund Facilities; and (ii) draw on all Bond Reserve Fund Facilities on a pro rata basis based on the draw limit of each such Bond Reserve Fund Facility, if there is more than one Bond Reserve Fund Facility on deposit in the Bond Reserve Fund.

If at any time the amount on deposit in the Bond Reserve Fund is less than the Reserve Requirement, the District is obligated, pursuant to the Indenture to transfer to the Trustee from available Electric System Revenues amounts necessary to replenish the Bond Reserve Fund to the Reserve Requirement as described under “– Allocation of Electric System Revenues” below. The Indenture provides that in replenishing the Bond Reserve Fund, the Trustee will apply amounts received from the District for such purpose first to make any payment that is due under a guaranty agreement or similar instrument relating to a Bond Reserve Fund Facility on deposit in or credited to the Bond Reserve Fund prior to depositing any such funds in the Bond Reserve Fund.

If at any time the amount on deposit in the Bond Reserve Fund exceeds the Reserve Requirement and if the District is not then in default under the Indenture, the Trustee shall withdraw the amount of such excess from the Bond Reserve Fund and shall deposit such amount in the Bond Redemption Fund or as may otherwise be directed in a Written Request of the District filed with the Trustee. For purposes of determining the amount on deposit in the Bond Reserve Fund, the Trustee shall make a valuation of the Bond Reserve Fund as of July 1 in each year. Except for such withdrawals, all moneys in the Bond Reserve Fund shall be used and withdrawn by the Trustee solely for the purpose of paying the principal of and interest on the 2021 Bonds in the event that no other moneys of the District are available therefor.

The Bond Reserve Fund secures only the 2021 Bonds and is not available for the payment of any other Parity Obligations of the District and no reserve fund or account securing any other Parity Obligations of the District is available for the payment of the 2021 Bonds.

See “APPENDIX C – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE – Bond Reserve Fund.”

Allocation of Electric System Revenues

In order to carry out and effectuate the pledge of and lien on the Electric System Revenues contained in the Indenture, the Indenture requires the District to deposit all Electric System Revenues when and as received by the District in the Modesto Irrigation District Electric System Revenue Fund (the “Revenue Fund”), which fund the District agrees and covenants to maintain so long as any Obligations remain unpaid or are not discharged in accordance with their respective terms, and all moneys in the Revenue Fund shall be held in trust and applied, and used as provided in the Indenture.

(1) Maintenance and Operation Fund. On or before the last day of each month, the District shall, from the moneys in the Revenue Fund transfer such amounts to the Maintenance and Operation Fund as are sufficient to pay all Maintenance and Operation Costs of the Electric System (including amounts reasonably required to be set aside in contingency reserves for Maintenance and Operation Costs of the Electric System, the payment of which is not then immediately required).

(2) Bond Redemption Fund. Following such application and use, all remaining Electric System Revenues shall be applied, but only to the extent they are required for such purpose on an Interest Payment Date to provide for an amount on deposit in the Bond Redemption Fund (hereinafter described) which is sufficient, together with the other amounts on deposit therein, to fulfill the terms and obligations of the Indenture. The application of remaining Electric System Revenues as provided in the Indenture shall be made proportionately with the application of such remaining Electric System Revenues for the payment of all other payments due and payable on other Parity Obligations.

On or before each Interest Payment Date, the District shall, from the moneys in the Revenue Fund, transfer to the Trustee for deposit (on a parity with the deposits for the payment of all other Parity Obligations) in the Bond Redemption Fund, the amount of interest becoming due on the 2021 Bonds on the next succeeding Interest Payment Date, as the case may be, plus, if a principal payment is due on such succeeding Interest Payment Date, the amount of principal becoming due on the 2021 Bonds on the next succeeding July 1.

No deposit need be made in the Bond Redemption Fund if the amount available and contained therein is at least equal to the amount of interest becoming due on the 2021 Bonds on the next succeeding January 1 or July 1, as the case may be, plus, if a principal payment is due on such succeeding Interest Payment Date, the amount of principal becoming due hereunder on the next succeeding July 1.

All money in the Bond Redemption Fund shall be used and withdrawn by the Trustee solely for the purpose of paying the interest on and principal of the 2021 Bonds as such interest and principal becomes due and payable.

(3) Bond Reserve Fund. On or before the last day of each month, the District shall, from the remaining moneys in the Revenue Fund, thereafter transfer to the Trustee for deposit (on a parity with the deposits for the reserve funds for all other Parity Obligations) in the Bond Reserve Fund that sum, if any, necessary to restore the Bond Reserve Fund to an amount equal to the Reserve Requirement or to replenish any Bond Reserve Fund Facility issued in lieu thereof.

No deposit need be made in the Bond Reserve Fund if the amount available and contained therein is at least equal to the Reserve Requirement.

All money in the Bond Reserve Fund shall be used and withdrawn by the Trustee solely for the purpose of paying the interest on and principal of the 2021 Bonds as such interest and principal

becomes due and payable in the event the money in the Bond Redemption Fund is at any time insufficient for such purpose.

(4) Surplus Funds. On the day following each Interest Payment Date, all remaining moneys in the Revenue Fund shall be deposited by the District in the General Fund for expenditure for any lawful purpose of the District.

Outstanding Electric System Revenue Obligations of the District

Outstanding JPA Obligations. As of February 1, 2021, the District had outstanding Obligations of the District under agreements with joint powers agencies in which it participates in the aggregate principal amount of approximately $66.8 million related to debt of the joint powers agencies in which it participates, which Obligations constitute Maintenance and Operation Costs of the Electric System payable from Electric System Revenues of the District prior and superior to the payment of the 2021 Bonds. See “MODESTO IRRIGATION DISTRICT – Indebtedness.”

Parity Obligations. As of February 1, 2021, the District had outstanding obligations under Leases and the Installment Purchase Contract-2010 relating to MIDFA Bonds and outstanding obligations to pay debt service on District Refunding Bonds in the aggregate principal amount of $466.010 million, consisting of (i) $233.425 million principal amount of MIDFA Bonds, and (ii) $232.585 million principal amount of District Refunding Bonds (of which $75.525* million principal amount is being refunded by the 2021 Bonds). The 2010A MIDFA Bonds are secured by (a) rental payments to be made by the District pursuant to a Lease Agreement–2010, dated as of June 1, 2010, by and between the District and MIDFA and (b) installment payments to be made by the District pursuant to an Installment Purchase Contract–2010, dated as of June 1, 2010, by and between the District and MIDFA. The 2015A MIDFA Bonds and 2015B MIDFA Bonds are secured by rental payments to be made by the District pursuant to a Lease Agreement–2015, dated as of July 1, 2015, by and between the District and MIDFA. The 2019A MIDFA Bonds and the 2019B MIDFA Bonds are secured by rental payments to be made by the District pursuant to a Lease Agreement–2019, dated as of July 1, 2019, by and between the District and MIDFA. The Series 2011A District Refunding Bonds (which are being refunded by the 2021 Bonds) were issued pursuant to an Indenture, dated as of July 1, 2011, by and between the District and Wells Fargo Bank, National Association, as trustee. The Series 2011C District Refunding Bonds (which are being refunded by the 2021 Bonds) were issued pursuant to an Indenture, dated as of October 1, 2011, by and between the District and Wells Fargo Bank, National Association, as trustee. The Series 2012A District Refunding Bonds were issued pursuant to an Indenture, dated as of October 1, 2012, by and between the District and Wells Fargo Bank, National Association, as trustee. The Series 2016 District Refunding Bonds were issued pursuant to an Indenture, dated as of September 1, 2016, by and between the District and Wells Fargo Bank, National Association, as trustee. The Series 2020 District Refunding Bonds were issued pursuant to an Indenture, dated as of August 1, 2020, by and between the District and Wells Fargo Bank, National Association, as trustee. The rental payments under the Lease Agreement–2010, the installment payments under the Installment Purchase Contract–2010, the rental payments under the Lease Agreement– 2015 and the rental payments under the Lease Agreement–2019 and the District Refunding Bonds are payable from and secured by a pledge of and lien on Electric System Revenues on a parity with the pledge of and lien thereon for the payment of the 2021 Bonds. The Lease Agreement–2010, the Installment Purchase Contract– 2010, the Lease Agreement–2015, the Lease Agreement–2019 and District Refunding Bonds constitute Parity Obligations pursuant to the Indenture.

Sequestration of Direct Subsidy Payments. On September 14, 2012 the United States Office of Management and Budget (“OMB”) delivered a report to Congress (the “OMB Report”) that provided estimates of cuts to federal programs that were necessary to reduce spending to levels under the congressionally- mandated sequestration process of the Budget Control Act of 2011. The cuts identified in the OMB Report included cuts to the subsidy payments to be made by the federal government to issuers of “direct-pay” tax credit bonds, such as Build America Bonds (“BABs”). The first cuts required under sequestration took effect

* Preliminary, subject to change.

in federal fiscal year ending September 30, 2013 and as subsequently extended, such cuts will continue through and including the federal fiscal year 2030, absent further Congressional action (the “Sequester Cuts”). The $48.095 million outstanding 2010A MIDFA Bonds were issued as BABs. For federal fiscal year ended September 30, 2021 the direct subsidy payments are reduced by 5.7% due to Sequester Cuts. The District estimates that MIDFA, on behalf of the District, will receive approximately $68,351 less in direct subsidy payments than it otherwise expected during federal fiscal year 2021. The District is obligated to make all rental payments and installment payments under the Lease Agreement–2010 and Installment Purchase Contract–2010 without regard to the receipt of any federal subsidy payments by MIDFA or the District.

The District believes that the current reductions in federal subsidies will not materially adversely affect the financial condition of the District or the District’s ability to meet any of its outstanding electric system revenue obligations. At this time the District can make no representations as to whether the Sequester Cuts will increase in the future.

Additional Electric System Revenue Obligations of the District

No Senior Lien Obligations. Pursuant to the Indenture, the District has covenanted that it will not issue or incur any future Senior Lien Obligations and the District’s senior lien has been closed. The District may, however, incur future Obligations pursuant to its agreements with joint powers agencies in which it now, or in the future may, participate (as described below).

Take-or-Pay Power Sales Contracts; Additional Obligations. As described herein, the District has entered into certain power sales contracts for the purchase of energy and certain other agreements for the payment of its share of the costs of certain projects in which it is participating through joint powers agencies, including the M-S-R Agreement and the TANC Agreement (as such terms are defined in Appendix C hereto), which constitute Obligations as defined herein. See “MODESTO IRRIGATION DISTRICT – Power Supply Resources – Joint Powers Agency Resources.” Obligations of the District under its M-S-R Agreement and TANC Agreement, including obligations for the payment of debt service costs on indebtedness issued by such joint powers agencies, constitute a portion of the Maintenance and Operation Costs of the Electric System, are Obligations as defined under the Indenture, and are payable from Electric System Revenues on a basis that is senior to the lien securing the payment of the 2021 Bonds and any Parity Obligations. The District may incur additional obligations pursuant to its agreements with such joint powers agencies in which it participates or enter into other contracts or leases for the purchase of facilities, properties, structures or works or electrical output, capacity or other electrical services for the Electric System the final payments under which are due more than one year following the effective date thereof which are Maintenance and Operation Costs of the Electric System and which constitute Obligations as defined in the Indenture, subject to the satisfaction by the District of the rate covenant contained in the Indenture.

The 2010 MIDFA Bonds were issued for the purpose, among others, of financing the District’s estimated share of the costs of construction of the Lodi Energy Center, a power generation plant constructed and operated by the Northern California Power Agency (“NCPA”). As described herein, the District has entered into an LEC Power Sales Agreement (as hereinafter defined) with NCPA, pursuant to which the District has purchased from NCPA, on the terms and conditions set forth in the LEC Power Sales Agreement, an entitlement share of the capacity and energy of the Lodi Energy Center. The District has certain payment obligations under the NCPA LEC Power Sales Agreement in connection with the Lodi Energy Center project which will constitute Maintenance and Operation Costs of the Electric System. However, the District will have no obligation with respect to debt service costs on bonds issued by NCPA on behalf of the other LEC Project Participants to finance their respective shares of the construction costs of the Lodi Energy Center. See “MODESTO IRRIGATION DISTRICT – Power Supply Resources – Purchased Power – Lodi Energy Center Project.”

Additional Parity Obligations. In addition to the outstanding Leases and the Installment Purchase Contract-2010 relating to the MIDFA Bonds, the outstanding District Refunding Bonds and the 2021 Bonds, pursuant to the Indenture, the District may enter into or issue any contract, bond, Bond Enhancement

Agreement or obligation of the District that is classified as a liability on the financial statements of the District in accordance with generally accepted accounting principles and is secured by a pledge, lien or encumbrance on Electric System Revenues on a parity with the lien on Electric System Revenues created pursuant to the Indenture (“Parity Obligations” as defined herein) provided that the District has filed a Written Order of the District with the Trustee to the effect that:

(a) no Event of Default exists as of the date of entering into or incurring such Parity Obligations; and

(b) either (i) the Net Electric System Revenues for the most recent Fiscal Year or for any twelve (12) consecutive month period during the most recent eighteen (18) month period ended not more than one month prior to entering into or incurring such Parity Obligations, or (ii) the estimated Net Electric System Revenues for the Fiscal Year commencing three (3) full Fiscal Years after such Parity Obligations were issued, plus, in either case, any or all of the amounts described in subparagraphs (1) or (2) of the immediately succeeding paragraph, shall be not less than 1.10 times Maximum Annual Debt Service, including the Parity Obligations to be issued.

The following amounts may, at the option of the District and upon filing a Written Order of the District with the Trustee confirming such amounts, be included in the calculations described in the preceding paragraph:

(1) an allowance for any increase in Net Electric System Revenues (including, without limitation, a reduction in Maintenance and Operation Costs of the Electric System), which may arise from any additions, extensions or improvements to the Electric System to be made or acquired with the proceeds of the additional Parity Obligations or from any other source but which, during all or any part of such Fiscal Year or such 12- month period within such 18-month period, were not in service, all in an amount equal to the estimated additional average annual net revenues to be derived from such additions, extensions or improvements during the first thirty-six (36) month period in which each addition, extension or improvement is respectively placed in service; and

(2) an allowance for earnings arising from any increase in the charges made for use of the Electric System which has become effective prior to entering into or incurring the additional Parity Obligations but which, during all or any part of such Fiscal Year or such 12-month period within such 18-month period, was not in effect, all in an amount equal to the amount by which Net Electric System Revenues would have been increased if such increase in charges had been in effect during the whole of such Fiscal Year or such 12- month period within such 18-month period.

On the date of delivery of such Parity Obligations, the amount of any reserve fund for such additional Parity Obligations shall be not less than the amount, if any, required to be on deposit therein in accordance with the indenture, lease, installment sale agreement or other instrument pursuant to which such Parity Obligations are issued or incurred. The contract, indenture, resolution, Bond Enhancement Agreement or trust agreement providing for the issuance of, or constituting, a Parity Obligation shall set forth the terms and provisions for the application of Electric System Revenues to the payment of principal of, redemption premium, if any, and interest due with respect to such Parity Obligations.

Subordinate Obligations. Nothing in the Indenture shall limit the ability of the District to issue or incur obligations which are secured by a pledge or lien on Electric System Revenues which is junior and subordinate to the pledge and lien on Electric System Revenues securing payment of the outstanding Parity Obligations and the 2021 Bonds.

Investment of Funds

The Bond Redemption Fund, the Bond Reserve Fund and all other funds held under the Indenture are required to be invested in certain Permitted Investments as provided under the Indenture. See

“APPENDIX C – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE – Definitions” for a summary of the definition of Permitted Investments.

Funds held by the District are invested by the District in accordance with the District’s Investment Policy as authorized by Section 53600 et seq. of the Government Code of the State of California. Allowable investments under the Investment Policy are those authorized by California Government Code Sections 53601 and 53630. The Investment Policy is amended or updated no less than annually. The current Investment Policy was approved by the District’s Board of Directors on February 9, 2021.

The Investment Policy may be changed at any time at the discretion of the Board of Directors (subject to the State law provisions relating to authorized investments) and as the State law is amended. There can be no assurance, therefore, that the State law and/or the Investment Policy will not be amended in the future to allow for investments which are currently not permitted under such State law or the Investment Policy, or that the objectives of the District with respect to investments will not change. All investments, including the Permitted Investments and those authorized by law from time to time for investments by public agencies, contain a certain degree of risk. Such risks include, but are not limited to, a lower rate of return than expected and loss or delayed receipt of principal. The occurrence of these events with respect to amounts held under the Indenture, or other amounts held by the District, could have a material adverse effect on the District’s finances.

Limitations on Remedies

The rights of the owners of the 2021 Bonds are subject to the limitations on legal remedies against public agencies in the State. Additionally, enforceability of the rights and remedies of the owners of the 2021 Bonds, and the obligations incurred by the District, may become subject to the following: the federal Bankruptcy Code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors’ rights generally, now or hereafter in effect; equity principles which may limit the specific enforcement under State law of certain remedies; the exercise by the United States of America of the powers delegated to it by the Constitution; and the reasonable and necessary exercise, in certain exceptional situations, of the police powers inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose. Bankruptcy proceedings, or the exercise of powers by the federal or State government, if initiated, could subject the owners of the 2021 Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation, or modification of their rights.

MODESTO IRRIGATION DISTRICT

Introduction

The District is a California irrigation district organized in 1887 under the provisions of the Irrigation District Law. The District has the powers under the Irrigation District Law to, among other things, provide irrigation and electric service. In connection therewith, the District has the powers of eminent domain, to contract, to construct works, to fix rates and charges for commodities or services furnished, to lease its properties and to incur indebtedness.

The District is located in the San Joaquin Valley in Central California, approximately 90 miles east of San Francisco, California. The District began providing electric service in 1923, and since 1940 has provided all electric service within its original 160 square mile service area, which includes the major portion of Stanislaus County. Beginning in 1996, the District has also provided electric service on a competitive basis in portions of the service area of Pacific Gas & Electric Company (“PG&E”). California Assembly Bill 2638 (“AB 2638”), effective on January 1, 2001, added the 7.5 square mile Mountain House Community Services District in western San Joaquin County to the District’s exclusive electric service area and also designated a 400 square mile area in Southern San Joaquin County, Northern Stanislaus County and western Tuolumne County as the District’s non-exclusive electric service area. This non-exclusive service area currently accounts for approximately 9% of the District’s annual electricity deliveries. Pursuant to AB 2638, other than as set

forth therein, the District is further prohibited from providing electric transmission or distribution service to retail customers in the service territory of PG&E. See also “– Comparison of Selected Monthly Electric Bills” below. For the year ended December 31, 2020, the District served approximately 131,601 customers, had total retail sales of approximately 2.588 billion kWh and a peak demand of 702 MW.

To provide electric service within its service area, the District owns and operates the Electric System, which includes generation, transmission and distribution facilities. The District also purchases and sells power and transmission service and participates in pooling and other utility arrangements.

The District also supplies water for irrigation use in a portion of Stanislaus County and owns and operates a water treatment plant which supplies treated domestic water on a wholesale basis to the City of Modesto. The District’s irrigation system, as well as revenues from the sale of treated water, is operated and accounted for separately from the Electric System. The Electric System has no claim on the revenues of the irrigation or treated water systems and hence funds of the irrigation and treated water systems are not pledged to, nor available for, the payment of debt service on the 2021 Bonds.

Governance

The District is governed by a Board of Directors, the five members of which are elected from separate electoral divisions of the District for staggered four-year terms. The present members of the Board of Directors are as follows:

LARRY BYRD, Division 1 (southeast area including southeast Modesto, Empire, Waterford and Roberts Ferry), was elected to the Board of Directors in 2011. Mr. Byrd retired from the District in 2006 after 35 years of service. He was born and raised on a farm in west Modesto and is a cattle rancher and almond grower in Waterford.

JOHN MENSINGER, Division 2 (central Modesto), was elected to the Board of Directors in 2013. He was born and raised in Modesto and has a bachelor’s degree in Psychology from Stanford University and a Masters of Business Administration from Harvard Business School. He is a third generation owner of American Lumber Company, where he has worked for more than 25 years. Mr. Mensinger is active in community service with Modesto Rotary, Modesto Sister Cities and the Modesto Chamber of Commerce. Mr. Mensinger is the Board Vice President for 2021.

PAUL CAMPBELL, Division 3 (northeast area), was elected to the Board of Directors in 2013. Mr. Campbell is a retired U.S. Air Force veteran and a business owner with more than 25 years of experience. He is a graduate of California State University, Stanislaus. He is involved with Modesto Rotary and participates in many community service activities. Mr. Campbell is the Board President for 2021.

STU GILMAN, Division 4 (northwest area including northwest Modesto, Salida and Wood Colony area), was elected to the Board of Directors in 2017. He has more than 30 years of successful software consulting experience and has been involved in several technology-related start-ups, including serving as founder and president of External Resources. Mr. Gilman has assisted in a variety of local economic development efforts and is active in a number of community and faith-based organizations.

NICK BLOM, Division 5 (southwest area), was elected to the Board of Directors in 2011. He was born and raised in west Modesto and graduated from California State University, Fresno with a degree in Agriculture Education. Mr. Blom owns and operates a farm with his brother. He is active in numerous community organizations.

Management

District operations are carried out from its headquarters in Modesto under the direction of the General Manager who is in charge of the District’s operations in accordance with the Board of Directors’ directives and

policies. The following are biographical summaries of senior management of the District involved in Electric System operations:

BILL SCHWANDT, General Manager. Mr. Schwandt was appointed the District’s General Manager effective December 1, 2020. He leads the District’s day-to-day operations and more than 400 employees. Mr. Schwandt joined the District following a 35-year career with Moorhead Public Service, a publicly-owned electric and water utility in Moorhead, Minnesota. Mr. Schwandt previously served as General Manager of Moorhead Public Service for 28 years. In that position, he led strategic planning, critical infrastructure planning, development and management, and long-term water supply, power supply and transmission agreements and negotiations. He also served as Vice President of the Missouri River Energy Services Board of Directors, Vice President of the Midwest Electric Consumers Association Board of Directors and President of the Western Minnesota Municipal Power Agency Board of Directors. Mr. Schwandt received his bachelor’s degree in electrical and electronic engineering from North Dakota State University and a master’s degree in business administration from Minnesota State University Moorhead. He is a registered professional engineer in Minnesota.

SCOTT VAN VUREN, Assistant General Manager of Finance/Treasurer. Mr. Van Vuren has served as the District’s Assistant General Manager of Finance/Treasurer since 2013. He oversees the activities and operations of the District’s Finance, Customer Service, Energy Services and General Services departments. These activities and operations include treasury, payroll, accounts payable, investments, retirement funds, budget and rates, customer services, energy efficiency and rebates and general services (risk and property, environmental compliance, purchasing, fleet and building services). Mr. Van Vuren joined the District in 1998 as Risk Administrator, developing and administering the District’s risk management program for hedging power and fuel costs. He began his career at the Los Angeles Department of Water and Power (“LADWP”), where he held positions in engineering, regulatory affairs and energy trading. Mr. Van Vuren received engineering degrees from Calvin College and University of California, Irvine and a master’s degree in business administration from Heriot-Watt University. He is a registered professional engineer and a Chartered Financial Analyst (CFA®) charterholder.

JAMES MCFALL, Assistant General Manager of Electric Resources. Mr. McFall was selected as the District’s Assistant General Manager of Electric Resources in 2016 following 11 months of serving in such role in an interim capacity. Since joining the District in 1990 as an Engineering Technician, Mr. McFall has also served as Power Scheduling Supervisor and as Resource Planning and Development Manager. As Assistant General Manager of Electric Resources, Mr. McFall is responsible for planning and acquiring power supply to serve the present and future needs of District customers; building, maintaining and operating the District’s power plants; overseeing long-term and short-term arrangements to buy power and secure transmission access; and managing legislative and regulatory requirements related to wholesale power supply and natural gas. Mr. McFall holds a bachelor’s degree in mathematics from University of California, Riverside.

ED FRANCIOSA, Assistant General Manager of Transmission and Distribution. Mr. Franciosa has served as the District’s Assistant General Manager of Transmission and Distribution since 2014 and recently returned to this role after his selection and service as the District’s Interim General Manager from April to December 2020. He currently oversees the District’s electrical engineering, substation, metering, line construction, line maintenance, and trouble departments. Mr. Franciosa joined the District in 1997 as a Senior Electrical Engineer. During his tenure, he has also served as Senior Electrical Engineer, Interim Trouble Supervisor and Electrical Engineering Manager. Prior to his employment at the District, he worked in various capacities at the Sacramento Municipal Utility District (“SMUD”), LADWP and the California Energy Commission (the “CEC”).

JILL DE JONG, Controller. Ms. De Jong was named the District’s Controller in 2017. Prior to being named Controller, she served as an Accountant and Senior Accountant at the District for 16 years. She currently serves on the Audit/Budget Committee for the Transmission Agency of Northern California (“TANC”). She also serves as an alternate representative to the Reclamation Investment Committee and the

Decommissioning Investment Committee representing M-S-R Public Power Agency. Ms. De Jong holds a bachelor’s degree in accounting and business administration from Dordt College.

COVID-19 Pandemic

The spread of the novel strain of coronavirus and the disease it causes (now known as COVID-19) is having significant negative impacts throughout the world, including in the State of California (hereinafter sometimes referred to as the “State” or “California”). The World Health Organization declared the outbreak of COVID-19 to be a pandemic, and states of emergency have been declared in the United States and in the State. Local states of emergency and/or public health emergencies have also been declared by numerous cities and counties throughout the State. On March 11, 2020, a local emergency was declared by the Stanislaus County executive officer and a local health emergency was declared by the Stanislaus County public health officer, a major portion of which county comprises the electric service area of the District. On March 16, 2020, the Board of Directors of the District declared an emergency in response to COVID-19. The purposes behind these declarations were to initiate emergency response protocols, coordinate and formalize emergency actions across federal, state and local governmental agencies, and to proactively prepare for and respond to the anticipated wider spread of the virus.

Governmental actions in response to the COVID-19 outbreak have included the implementation of “stay-at-home” (or “safer-at-home”) orders by the State and local governments requiring citizens to remain at home except for certain essential purposes, and except as needed to maintain continuity of operation of certain critical sectors. A statewide stay-at-home order was issued by Governor Newsom on March 19, 2020, and on March 31, 2020, the Stanislaus County public health officer issued a stay-at-home order in Stanislaus County to further implement the Governor’s executive order and to reduce the spread of COVID-19. These orders and restrictions on mass gatherings resulted in the widespread temporary closings of businesses, universities and schools.

The Governor of the State of California has taken a variety of actions and issued a number of executive orders addressing issues relating to the pandemic response. On May 4, 2020, the Governor issued an executive order informing local health jurisdictions and industry sectors that they could gradually re-open under modifications and guidance provided by the State. On May 12, 2020, the Stanislaus County public health officer rescinded its prior stay-at-home order (and subsequent amendments) to align Stanislaus County with the State orders. On August 28, 2020, the Governor announced a new, four-tiered color-coded statewide system (or “blueprint”) with revised criteria for loosening and tightening restrictions on activities based upon the prevalence of COVID-19 in each county and the extent of community spread. A phased re-opening of various sectors has been underway in accordance with the Governor’s four-tiered plan. Pursuant to the re- opening plan, some of the restrictions on activities have been eased; however, certain restrictions have been re- imposed in various jurisdictions (including in Stanislaus County) from time to time as local conditions warrant. Such restrictions may be modified, lifted, or reinstated, from time to time, as the COVID-19 pandemic continues. It is widely expected that global, national, and local economies will continue to be negatively affected by the pandemic, at least for some period of time.

The District’s Electric System is in a federally designated critical infrastructure sector with exemptions under the California Governor’s State-wide stay-at-home order and the local orders, as needed to maintain continuity of operations. The District has implemented a variety of measures with respect to essential workers, remote employees and back-up operations designed to maintain its business functions and to protect the public health and the health of its employees. The District’s ability to provide electric service has not been impaired.

The COVID-19 pandemic and the governmental actions to respond to it have materially altered the behavior of people and disrupted business activity, and have resulted in a significant contraction of the national, state and local economies. Employment data released since the imposition of the restrictions showed a dramatic increase in unemployment rates and, while some recovery of jobs has occurred, unemployment rates remain significantly above pre-pandemic levels. In addition, stock markets in the U.S. and globally

experienced sharp declines in market value following the onset of the outbreak that were attributed to COVID-19 concerns and, although rebounds in the market have since occurred, increased volatility in the financial markets remains. It is widely expected that global, national and local economies will continue to be negatively affected by the COVID-19 pandemic, at least for some period of time. On June 9, 2020, the National Bureau of Economic Research determined that the United States had entered into a recession during the prior months.

The District is monitoring the COVID-19 pandemic but is not yet able to predict the full effect it will have on the District’s financial performance or operations. From the limited data the District has, the District’s retail electricity deliveries increased by approximately 4% for the calendar year 2020 compared to calendar year 2019. The District estimates that billed revenues derived from electric sales were approximately 5% (approximately $18 million) higher in 2020 than in 2019. The District’s analysis indicates commercial sector electric use fell while residential sector use increased, as might be expected with many retail establishments being closed and people staying home. The overall increase in load was driven by the District’s large industrial sector customers, many of which are food and beverage related businesses. The increased electric use by these large customers reflects plant expansions and consumer demand for their products versus the prior period, and may be temporary. Going forward, reduced economic activity as a result of COVID-19 and its associated impacts, such as business closures, increased unemployment, housing foreclosures and/or other economic consequences, may reduce demands for electricity in the region. To the extent a load reduction occurs as the COVID-19 pandemic progresses, Electric System Revenues would be reduced from past actuals and previous forecasts. Although a decline in load would result in certain reduced commodity expenses, such reductions would not be expected to be sufficient to fully offset the decline in revenues.

The District also expects that as a result of the economic impacts to the service area, an increased number of the District’s retail customers may face financial challenges in paying their utility bills. The District implemented customer protections for residential and small business customers on March 16, 2020, which were made retroactive to March 4. The measures include no disconnections for non-payment of electric bills and no late fees or penalties. The District has not yet announced when these customer protections will end, effectively providing these customers an ongoing opportunity to defer payments. Based upon preliminary data through December 31, 2020, the District’s electric accounts in arrears by 61 to 360 days totaled approximately $9.0 million as of December 31, 2020, representing approximately 12% of the District’s more than 131,000 accounts, an increase of 294% in the number of past due accounts as of the same date in 2019. The District expects that, as a result of economic factors related to the COVID-19 pandemic and such customer protection measures, increased delinquencies and more non-payment of utility bills than normal and forecasted will continue. However, the District is unable to predict at this time the potential magnitude of any such increased delinquencies and past due account that may ultimately become uncollectible.

The District has experienced, and expects to continue to experience, an increase in certain categories of Maintenance and Operation Costs as a result of COVID-19 related activities. These include increased technology costs to accommodate telecommuting and increased costs to clean and sanitize District equipment and facilities. Based upon preliminary data for calendar year 2020, Maintenance and Operation Costs were approximately 6% (approximately $17 million) higher in calendar year 2020 than in calendar year 2019, which reflects these increased expenditures, as well as higher commodity expenses associated with the increase in load noted above. Future costs could also be increased in the event that a sustained deterioration in global stock market values occurs negatively impacting the market value of assets held to fund the District’s pension and other post-employment benefit plans, requiring future unanticipated increases in required plan contributions. See “– Employees and Employee Benefit Plans.” See also “– Condensed Historical Operating Results and Balance Sheet Information” for additional information regarding the District’s preliminary financial results for 2020.

The COVID-19 pandemic and related consequences have also disrupted supply chains and some construction activities. While the District continued to perform essential work to maintain operations throughout the emergency periods and stay-at-home orders, construction work on non-essential capital projects was paused for employee safety at the time of the District’s emergency declaration. On or around

June 1, 2020, the District resumed its construction activities where the work can be done in keeping with best practices for pandemic safety. Continued or future disruptions in supply chains or delayed construction schedules could adversely impact the timing of capital projects, including capital projects designed to further renewable energy and carbon reduction goals and requirements.

The degree of impact to the District’s finances and operations is difficult to predict due to the evolving nature of the COVID-19 pandemic, and uncertainties relating thereto. The extent of the fiscal impacts on the District will depend on, among other things, (i) the duration of the stay-at-home orders and the extent of the disruption to or decline in the local and global economies and financial markets; (ii) the effectiveness of and ability to reach wide spread distribution of vaccines and the period therefor; (iii) the ramifications of future actions that may be taken or required by governmental authorities to contain and respond to the pandemic, including additional stimulus efforts by the federal government; and (iv) the pace at which the economy can re- open and the speed of the economic recovery. If the COVID-19 pandemic and/or the economic recovery is prolonged, the likelihood or magnitude of potential adverse impacts to the District’s finances or operations from the factors discussed herein or from other factors, could be increased. No assurances can be given that the District’s financial results or operations will not be materially and adversely affected by the COVID-19 pandemic and its consequences.

Power Supply Resources

The following table sets forth information concerning the District’s power supply resources and the energy supplied by each during the year ended December 31, 2020.

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MODESTO IRRIGATION DISTRICT POWER SUPPLY RESOURCES Historical - Year Ending December 31, 2020 Capacity Actual Energy Percent of Total Source Available (MW) (GWh) Energy Generating Facilities: Don Pedro/Stone Drop (Hydro) ...... 62.3 106.2 4.0% Woodland 1 (Combustion Turbine)...... 49.0 55.5 2.1 Woodland 2 (Combustion and Steam Turbines) ...... 83.0 350.2 13.1 Woodland 3 (Reciprocating Engine) ...... 49.0 49.9 1.9 Ripon Generation Station ...... 96.0 18.1 0.7 McClure (Combustion Turbine, 2 units) ...... 122.0 2.6 0.1 Total(1) ...... 461.3 582.5 21.9% Purchased Power: Lodi Energy Center(2) ...... 30.0 75.7 2.8 Renewables Wind(3) ...... 206.2 505.4 19.0 New Hogan(4) ...... 2.1 4.4 0.2 Methane Digester(5) ...... 0.8 3.7 0.1 SB 859 Biomass(6) ...... 1.0 0.0 0.0 Solar(7) ...... 137.5 106.7 4.0 Western Area Power Administration (WAPA)(8) ...... 2.1 18.8 0.7 Other Purchases(9) ...... 224.4 1,368.7 51.3 Total(1) ...... 604.1 2,083.3 78.1% Total Energy Resources (Generation + Load Reduction + Purchases) ...... 1,065.4 2,665.8 100.0% Load: District System Requirement for Retail ...... 702.4 2,588.1 99.8% Wholesale Power Sales:(10) Other Sales ...... 0.0 6.0 0.2% Total Capacity and Energy Sold at Wholesale ...... 0.0 6.0 0.2% Total (Retail + Wholesale)(1)(11) ...... 1,065.4 2,594.1 100.0%

(1) Totals may not add due to rounding. (2) The District’s share of the output of the Lodi Energy Center is sold into the CAISO (hereinafter defined) energy markets. Replacement energy is purchased for delivery to the District as needed. (3) Capacity shown is total contract capacity. Represents energy sold to the District at the project bus from the High Winds Project (50 MW), the Big Horn Project (25 MW), the Star Point Wind Project (98.7 MW) and the Big Horn II Project (32.5 MW). Actual capacity delivery at the project will be less than the total contract capacity. Currently, energy from the High Winds Project is sold into the CAISO energy markets and replacement energy is purchased for delivery to the District as necessary. (4) Delivery of output for the District’s benefit from the New Hogan Project commenced on June 1, 2010 and is scheduled similarly to the wind projects that are located within the CAISO. Although the plant has two generators with 3 MW of capacity, only 2.1 MW is shown because both units cannot operate at the same time (2.1 MW is the capacity of the larger unit). (5) Amounts represent the output of a biomass facility located within the District’s service territory that is purchased by the District. (6) Amounts represent the output from a facility that utilizes biomass fuel that complies with SB 859 requirements. (7) Capacity and energy shown in the actual column is from McHenry Solar, the Blythe Solar IV Project (62.5 MW), and the Mustang Two Project (50 MW). The energy from the Blythe Solar IV Project and the Mustang Two Project are sold into the CAISO energy markets and replacement energy will be purchased for delivery to the District as necessary. (8) WAPA capacity represents the estimated available capacity. (9) Other Purchases include firm and non-firm resources from various sources such as Avangrid, BPA, Morgan Stanley Capital Group, and Powerex, among others. Also includes reserves consistent with prudent utility practices. Direct load control (10 MW) and interruptible retail contracts (18 MW) count towards planning reserves. (10) Wholesale sales from the District system are made on a short-term basis. This does not include sales made from Lodi Energy Center, High Winds or New Hogan as output from those resources is sold directly to the CAISO energy markets. (11) Total capacity available includes planning reserves to meet the District load. It is important to note that not all contracts are available year-round. Source: Modesto Irrigation District.

Generating Facilities

Don Pedro Hydroelectric Project. The District, together with Turlock Irrigation District (“Turlock”), a California irrigation district, also formed under the Irrigation District Law, owns a hydroelectric generating plant located at the Don Pedro reservoir on the Tuolumne River which has four turbine generators with a combined rating of approximately 199 MW (the “Don Pedro Project”). The Don Pedro Project is operated by Turlock. Three turbine generators have been in operation since May 1971 and the fourth unit was completed in April 1989. The District’s ownership share of 31.54% of the Don Pedro Project equates to approximately 62 MW during average water years and 45 MW during adverse water years based on the installed capacity of 199 MW. The District’s estimated share of generation from the Don Pedro Project for 2020 was 105.9 GWh (resulting from below average water conditions), and is projected to be 166.0 GWh for 2021. All water stored at Don Pedro is owned by the District and Turlock.

The Don Pedro Project is operated pursuant to a 50-year license (and related amendments) issued by the Federal Energy Regulatory Commission (“FERC”), which among other things, requires minimum instream fish flows. These requirements will, from time to time, affect the monthly hydroelectric generating capacity available at the Don Pedro Project until a new license is issued for the project. The original 50-year license expired on April 30, 2016, and the Don Pedro Project has been operating pursuant to an annual license issued by FERC, which renews automatically until a new license is issued. The operational requirements under an annual license are the same as the requirements of the original license and related amendments.

The District and Turlock are in the process of re-licensing the Don Pedro Project, which is a multi- year process that is open to public participation (FERC License P-2299). It is estimated it will cost approximately $50 million to complete the re-licensing process, which costs will be split between the District and Turlock, according to their respective shares, as well as with the City and County of San Francisco (“CCSF”).

In accordance with FERC’s Integrated Licensing Process (“ILP”), the District and Turlock conducted over 35 studies of the direct and cumulative effects that the generation of hydroelectric power may have on a host of economic, terrestrial, aquatic, botanical, cultural and other resources. All but two of the studies were completed in 2014. An initial final license application was filed with FERC on April 28, 2014, and an extension was granted to file the final license application after the completion of the pending studies.

On October 11, 2017, the District and Turlock submitted their amended final license application for Don Pedro to FERC. At this time, there has been no change in the license conditions associated with the generation of hydroelectric power at Don Pedro. However, the written comments of the State and federal resource agencies and certain non-governmental organizations requested that FERC include conditions on any new license which are significantly more onerous than the current conditions, including increased instream flows for the benefit of aquatic resources.

On July 7, 2020, FERC issued a Final Environmental Impact Statement (“FEIS”) for the Don Pedro Project. FERC staff recommended flow measures for the new license in the FEIS that are generally consistent with the flow measures proposed by the District and Turlock in the amended final license application and consistent with flows and flow-related concepts discussed among the District, Turlock, and State agencies as part of the voluntary agreement process (discussed below). As in the DEIS, the FEIS does not recommend the construction and operation of fish passage facilities. However, consistent with FERC’s standard practice where migratory fish are present in the river, FERC staff has recommended inclusion in the license of a provision reserving NMFS’ authority to prescribe fishways in the future. Notably, because FERC staff agreed that upstream and downstream fishways are not feasible at this time, FERC staff did not recommend inclusion in the license of NMFS’ 10(j) recommendations requiring a comprehensive study plan and pilot program for fish passage and reintroduction. In addition, while FERC staff disagreed with the need for a whitewater takeout facility at Wards Ferry, the FEIS recognizes that the condition will be included in the license because it is a mandatory condition. At the appropriate time, the District and Turlock have the right to oppose, before FERC or in court, if necessary, the imposition of any onerous conditions included in the license. The District is

unable to predict at this time the outcome of the re-licensing process or whether any future license conditions affecting operations of the project will be imposed in a manner so as to limit or otherwise adversely affect the production of hydroelectric energy at the Don Pedro Project.

The State Water Resources Control Board (the “SWRCB”) is engaged in ongoing regulatory proceedings for the adoption of new flow objectives for the Stanislaus, Tuolumne and Merced Rivers. These objectives are to be implemented through amendments to the Water Quality Control Plan for the San Francisco Bay/Sacramento-San Joaquin Delta Estuary, which establishes the water quality objectives and the proposed flow regime of the estuary. On December 12, 2018, the SWRCB completed Phase 1 of the Water Quality Control Plan proceedings, adopting the Water Quality Control Plan amendments and approving and adopting the environmental documents to support new flow objectives for the Stanislaus, Tuolumne and Merced Rivers. The new flow criteria will substantially reduce water storage in Don Pedro Reservoir. Given the drawdown in storage, there will be less water available for diversion to irrigation in below normal, dry and critical years. The SWRCB is expected to determine the entities responsible for ensuring the Phase 1 flow requirements are met and the measures by which they will be met as part of Phase 3 of the Water Quality Control Plan proceedings. The SWRCB’s plan of implementation contemplates that the Phase 1 requirements are to be implemented fully by 2022. The District is a member of San Joaquin Tributary Authority (“SJTA”), which has filed litigation against the SWRCB challenging the Water Quality Control Plan amendments, representing the common interests of its members. The District has also filed a separate lawsuit against the SWRCB challenging the adoption of the Water Quality Control Plan amendments under the California Environmental Quality Act and provisions of the United States and California Constitutions. The District and other public water agencies, with the support of the Governor, are working with the California Department of Water Resources (“CDWR”) and the California Department of Fish and Wildlife to continue developing voluntary agreements to facilitate a more flexible implementation of the Water Quality Control Plan. To be implemented, any voluntary agreement package of agreed upon flow and non-flow measures would need to be reviewed by the SWRCB and formally considered and adopted as part of a comprehensive update to the Water Quality Control Plan. If adopted, the voluntary agreement provisions would replace the obligations for the Tuolumne River adopted as part of the Phase 1 proceedings and resolve the litigation filed by SJTA and the District. The voluntary agreement process has been stalled since the end of 2019 due to the issuance of new biological opinions regarding the impact of the operation of the Central Valley Project and State Water Project on threatened and endangered fish species. These biological opinions support new operations for both the Central Valley Project and the State Water Project that will change the rate, quantity and timing of water in the various tributaries and Bay-Delta from those assumed in the voluntary agreement process. The biological opinions are the subject of ongoing litigation. On January 20, 2021, President Joseph R. Biden Jr. issued the Executive Order on Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis. Pursuant to such Executive Order, the President, among other things, directed all executive departments and agencies to immediately review certain actions undertaken by the previous administration, which included among the list of specific agency actions to be reviewed by the heads of the relevant agencies, the 2019 biological opinions. It is unlikely that the voluntary agreement process can proceed until the lawsuits concerning and the mandated federal review of the biological opinions are resolved.

On January 15, 2021, the SWRCB purported to issue a water quality certificate in accordance with Section 401 of the federal Clean Water Act. This certificate includes 45 proposed conditions which the SWRCB believes are necessary to insure that the conditioned generation of hydroelectric power at Don Pedro complies with applicable water quality requirements. Many of these conditions are onerous and costly, and the flow requirements exceed those called for in the Water Quality Control Plan. If this certification becomes final after all appeals have been exhausted, FERC is required to include them as part of any license for Don Pedro. The District and Turlock have filed an administrative appeal of the 401 water quality certificate with the SWRCB and, if that is unsuccessful, will vigorously challenge it in court. Relatedly, on January 19, 2021, FERC rejected a request by the District and Turlock to find that the SWRCB had waived its right to issue a 401 water quality certificate as a matter of federal law. Again, the District and Turlock have filed an administrative appeal with FERC and, if that is unsuccessful, will vigorously challenge the decision in court. If this challenge is successful, either before FERC or in court, FERC will not be required to include any 401

conditions in the license, but will use its discretion under the Federal Power Act to consider which 401 conditions, if any, will be included.

Woodland Generation Station Project. The District constructed and placed into operation in October 1993 a 49.0 MW simple cycle electric power generation plant known as the Woodland Generation Station 1 Project. In June 2003, the District placed into commercial operation its Woodland Generation Station 2 Project which added 83 MW of generation to the project in a combined cycle gas turbine configuration. The Woodland Generation Station facilities include a steam-injected combustion turbine generator for the Woodland Generation Station 1 Project and a water–injection system for the Woodland Generation Station 2 Project in combined cycle configuration with a steam turbine, together with a switching station, transmission upgrades and Selective Catalytic Reduction systems and carbon monoxide catalysts to reduce nitrous oxide and carbon monoxide emissions. The Woodland Generation Station projects are located on Woodland Avenue in the City of Modesto, on a site owned by the District within the District’s electric service area. Natural gas is delivered to the project by PG&E, the local gas distribution company. The District did not experience any disruptions in fuel delivery as a result of the PG&E bankruptcy proceedings. See “CERTAIN FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY – PG&E Bankruptcy.” The Woodland Generation Station 1 Project utilizes a General Electric (“GE”) LM5000 gas turbine as the prime turbine generator, which is no longer manufactured by GE. During 2017, the District procured a previously used LM5000 gas turbine that will be kept as a spare engine for the Woodland Generation Station 1 Project. The spare engine will provide a reliable back up to the original engine and can be placed in operation within a week if necessary. The Woodland Generation Station projects provide the District with operational flexibility. Over time, the Woodland Generation Station 1 Project has been used primarily as an intermediate and peaking unit while the Woodland Generation Station 2 Project is typically used as a baseload resource. At a burner tip natural gas price of $4.00/MMBtu, inclusive of distribution utility charges, the Woodland Generation Station 1 and 2 Projects are able to generate electricity at a total operating cost of approximately $37/MWh and $35/MWh, respectively. In 2020, the estimated combined energy production from both units at the Woodland Generation Station was 405.8 GWh, and is projected to be 452.5 GWh for 2021.

Woodland 3 Project. The 49.6 MW (Net) Woodland 3 Generation Project is a peaking plant consisting of six individual 8.4 MW (Gross) Wartsila 20V34SG reciprocating engine generators, each of which can be dispatched independently. The natural gas-fired plant provides flexible, fast starting peaking-to- intermediate generation to complement the District’s existing portfolio of gas turbine engine generators. The facility provides reliability support and firms up intermittent renewable wind and solar resources as the entire plant output can be brought up to full load in under ten minutes with a low minimum load point of 4 MW

The reciprocating engine peaking plant is located on a 2.5-acre parcel adjacent to the District’s existing Woodland Generation Plant on the southeast corner of Woodland Avenue and Graphics Drive. The Woodland 3 Project was placed into commercial operation in July 2011. For capacity planning purposes, the facility’s net installed capacity is rounded down to 49 MW. The estimated production of the Woodland 3 Project in 2020 was 49.9 GWh, and is projected to be 36.4 GWh for 2021.

Ripon Generation Station Project. The District constructed and placed into commercial operation in June 2006, a nominal 96 MW two unit simple cycle power plant, designated by the District as its “Ripon Generation Station.” The project facilities include two natural gas-fired combustion turbines, a water injection system, transmission upgrades, and Selective Catalytic Reduction systems and carbon monoxide catalysts to reduce nitrous oxide and carbon monoxide emissions. The generation station has zero liquid discharge with water supplied by the City of Ripon from non-potable water wells. Natural gas is provided to the facility from a number of suppliers and delivered by PG&E. The District did not experience any disruptions in fuel delivery as a result of the PG&E bankruptcy proceedings. See “CERTAIN FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY – PG&E Bankruptcy.” The Ripon Generation Station provides a long-term hedge against market volatility and industry uncertainty when meeting the District’s native load requirements. At a burner tip natural gas price of $4.00/MMBtu, inclusive of distribution utility charges, the Ripon Generation Station units are able to generate electricity at a total operating cost of $41/MWh each, based upon the units’

efficiency rating. During 2020, the estimated production at the Ripon Generation Station was 18.1 GWh, and is projected to be 46.5 GWh for 2021.

McClure Turbine Generating Units. The District owns two dual fuel (natural gas and fuel oil) combustion turbine generating units (McClure Stations 1 and 2). These units were placed in service in 1980 and 1981, each having a nameplate rating of 61 MW. The McClure units operate under permits issued by the San Joaquin Valley Air Pollution Control District (“SJVAPCD”), using water injection for emissions control. The District completed a retrofit to the McClure turbine-generating units to meet the higher federal emission standards in 2006. The District also purchased additional emission reduction credits (ERCs) that would offset emissions and allow for each unit’s operating hours to be extended from 1,500 hours to approximately 3,000 hours on an annual basis. The District utilizes this facility as a peaking generation facility during the summer months and as an emergency response facility to meet the District’s native load requirements.

New Hogan Hydroelectric Project. The New Hogan hydroelectric project, which has a nameplate rating of 2.9 MW and was placed in service in 1986, is located on the Calaveras River in Calaveras County, California and is owned by the Calaveras County Water District (“CCWD”). The District operates the New Hogan hydroelectric project under an agreement which expires with the FERC license in 2032. Pursuant to this agreement, the District maintains and operates the New Hogan hydroelectric project and is entitled to the output thereof. Since June 1, 2010, the entire output of the New Hogan hydroelectric project has been sold into the California Independent System Operator Corporation (“CAISO”) market and the renewable energy credits (“RECs”) have been tracked to count the energy output towards the District’s Renewable Portfolio Standard. In 2020, the estimated production at the New Hogan hydroelectric project was approximately 4.4 GWh, and is projected to be approximately 9.7 GWh for 2021.

Joint Powers Agency Resources

In 1980, the District, along with the City of Redding, California (“Redding”) and the City of Santa Clara, California (“Santa Clara”), formed a California joint powers agency known as the M-S-R Public Power Agency (“M-S-R PPA”). A portion of the District’s power supply resources are provided through its participation in M-S-R PPA. The District’s resources acquired through M-S-R PPA previously included an entitlement to a portion of the output of Unit No. 4 of the coal-fired San Juan Generating Station. M-S-R PPA divested its ownership interest in San Juan Unit No. 4 in December 2017 but the District retains cost responsibility for its share of certain environmental and decommissioning obligations of M-S-R PPA in connection with this resource, which are described in more detail below. In light of the divesture of it active ownership interest in San Juan Unit No. 4, the majority of M-S-R PPA activities are currently related to renewables (including the Big Horn I and Big Horn II wind projects described below). Coordinating, regulatory, and compliance services costs of M-S-R PPA are shared among the M-S-R PPA members as follows: the District – 40%; Santa Clara – 40%; and Redding – 20%. Renewable administrative services, electric product, delivery and environmental attribute rights benefits and costs are shared in accordance with contracted participation ratios described below.

M-S-R PPA Purchased Power–San Juan. On December 31, 1983, M-S-R PPA purchased a 28.8% (approximately 146 MW) ownership interest in Unit No. 4 of the San Juan Generating Station (the “M-S-R PPA San Juan Unit No. 4 Interest”). The San Juan Unit No. 4 is a coal-fired steam electric generating unit with a net generating capability of 507 MW (as of December 31, 2017), located in San Juan County, New Mexico, which was constructed and is currently operated by the Public Service Company of New Mexico. The San Juan Unit No. 4 was one of four generating units which, at the time of M-S-R PPA’s acquisition of the M-S-R PPA San Juan Unit No. 4 Interest, together made up the San Juan Generation Station. M-S-R PPA financed the acquisition of its M-S-R PPA San Juan Unit No. 4 Interest, and certain costs of related transmission arrangements, through the issuance of San Juan Project revenue bonds, of which $51.6 million principal amount remained outstanding as of February 1, 2021.

The District purchased from M-S-R PPA, on a take-or-pay basis, a 50% entitlement share in the M-S-R PPA San Juan Unit No. 4 Interest pursuant to a power sales agreement (the “M-S-R PPA Agreement”),

among M-S-R PPA and its members. The M-S-R PPA San Juan Unit No. 4 Interest was initially purchased to provide baseload power to the M-S-R PPA members and to act as a hedge against the rising costs of wholesale power purchases. M-S-R PPA began dispatching power from the San Juan Ownership Interest in May 1995. The District utilized its entitlement share of capacity and associated energy from the M-S-R PPA San Juan Unit No. 4 Interest from May 1995 through December 2017 either in its own system or for lay-offs or other transactions with third parties. M-S-R PPA divested its M-S-R PPA San Juan Unit No. 4 Interest on December 31, 2017, although it retains certain liabilities for a share of the costs of plant decommissioning and mine reclamation, as described below.

In July 2015, the M-S-R PPA Commission approved a number of agreements (the “San Juan Restructuring Agreements”) between and among the San Juan Generation Station owners (the “San Juan Participants”) to provide for the interests of M-S-R PPA and certain other San Juan Participants (the “Exiting Participants”) in the San Juan Generation Station to be transferred to the remaining San Juan Participants effective December 31, 2017. In addition to the ownership divesture, the San Juan Restructuring Agreements provide for, among other things, the allocation of ongoing responsibility for decommissioning costs, mine reclamation costs and any environmental remediation obligations among the Exiting Participants and the remaining San Juan Participants, and the establishment and funding of mine reclamation and plant decommissioning trust funds. The San Juan Restructuring Agreements became effective on January 31, 2016 and the divestiture of M-S-R PPA’s interests in San Juan Unit No. 4 was completed on December 31, 2017.

Pursuant to the San Juan Restructuring Agreements, M-S-R PPA and the other Exiting Participants retain certain liabilities for a share of the costs of San Juan Generation Station decommissioning and pre-exit date mine reclamation costs. Under the San Juan Restructuring Agreements, M-S-R PPA was required to maintain a balance of approximately $15.9 million in the mine reclamation trust funds as of December 31, 2020 to fund its currently expected share of ongoing and final reclamation costs, which requirement has been met by a year-end balance of approximately $17.2 million. In addition, under the San Juan Restructuring Agreements, M-S-R PPA will be required to maintain a balance of approximately $2.3 million in the decommissioning trust fund as of December 31, 2022 to fund its currently expected share of the initial work for known asset removal and remediation activities in connection with decommissioning of the San Juan Generation Station. Funds currently on deposit in the decommissioning trust fund of approximately $2.2 million plus interest earnings thereon, are expected to be sufficient to provide for such required balance. However, M-S-R PPA’s final total proportionate share of San Juan Generation Station decommissioning and mine reclamation costs cannot yet be determined and will depend on a number of factors, including, among other things, the date the San Juan Generation Station is ultimately retired from service. Additional deposits to the trust funds may be required in the future if trust earnings are below expectations or if determined necessary by future decommissioning and reclamation costs study updates or applicable requirements (including, for example, if greenfield or brownfield restoration is determined to be required after final cessation of plant operations, which would significantly increase costs of remediation and restoration) and no assurance can be given that additional contributions will not be required from the M-S-R PPA members, including the District, to fund such amounts due.

Pursuant to the M-S-R PPA Agreement, the District is unconditionally obligated thereunder to pay its entitlement share of all of M-S-R PPA’s costs associated with the M-S-R PPA San Juan Unit No. 4 Interest, including debt service on M-S-R PPA’s San Juan Project revenue bonds which were issued to finance the acquisition of the M-S-R PPA San Juan Unit No. 4 Interest and any remaining liabilities for decommissioning and mine reclamation of the plant associated with the M-S-R PPA San Juan Unit No. 4 Interest. The District’s payments to M-S-R PPA under the M-S-R PPA Agreement constitute Maintenance and Operation Costs of the District’s Electric System. The District’s obligations to make payments under the M-S-R PPA Agreement are not dependent upon the operation of the San Juan Unit No. 4 and are not subject to reduction. Pursuant to the M-S-R PPA Agreement, upon failure of any M-S-R PPA member to make any payment thereunder which failure constitutes a default under the M-S-R PPA Agreement, the participation percentage of each non- defaulting member automatically shall be increased for the remaining term of the M-S-R PPA Agreement in proportion to its participation percentage; provided, however, that the sum of such increase for any non- defaulting member shall not exceed 25% of its original participation percentage.

The District has replaced, and expects to continue to replace, the energy previously provided by the M-S-R PPA San Juan Unit No. 4 Interest through short-term purchases and renewable resources.

M-S-R PPA Purchased Power–Big Horn Project. In 2005, M-S-R PPA entered into a series of power purchase agreements with Avangrid Renewables, Inc. (originally PPM Energy, Inc. and formerly Iberdrola Renewables, Inc.) (“Avangrid”), certain of which agreements have been assigned to Avangrid’s subsidiary, Big Horn I, LLC) for the purchase of energy from the Big Horn wind energy project (the “Big Horn Project”) located near the town of Bickleton, in Klickitat County, Washington. The 199.5 MW project consists of 133 1.5 MW GE wind turbines. The District participates in the purchase of a 12.5% share of the output from the Big Horn Project through M-S-R PPA. The District’s share equates to approximately a 25 MW share of the project output. Power deliveries commenced on October 1, 2006, and will continue for a term of 20 years through September 30, 2026. Through an amendment of the original agreements M-S-R PPA has an obligation to continue to take the same output through September 30, 2031 or, if the Big Horn Project is repowered, M-S-R PPA will have a right of first offer to negotiate a long-term power purchase for such repowered project. The District uses a portion of its transfer capability of the California-Oregon Transmission Project to provide for transmission of the output from the Big Horn Project from the California-Oregon border. The Big Horn Project is operated within the Avangrid balancing authority (which began operating in mid- 2018) and delivered through the Bonneville Power Administration (“BPA”) balancing authority area. On October 1, 2009, BPA began imposing a wind integration charge for the purpose of recovering its costs to provide within-hour generation balancing services for wind generators. Pursuant to a series of amendments of the power purchase agreements between M-S-R PPA and Avangrid effective September 18, 2019, M-S-R PPA agreed to pay to Avangrid, following the effective date of operation of the Avangrid balancing authority on July 31, 2018, in lieu of responsibility for payment of any wind integration charges to BPA, a wind integration charge of $1.10/kW month through December 31, 2018 and $1.01/kW month thereafter. Through a collaborative effort between Avangrid and M-S-R PPA, the Big Horn Project has obtained California Renewables Portfolio Standard (“RPS”) Certification as an eligible renewable resource by the CEC. The Big Horn Project has been registered with the Western Renewable Energy Generation Information System (“WREGIS”) by Avangrid with BPA acting as the Qualified Reporting Entity. The RECs are transferred from Avangrid, the originator, to M-S-R PPA and finally to the members of M-S-R PPA, for either retirement or wholesale sales by such members.

M-S-R PPA subsequently negotiated a 25-year agreement with Avangrid for the purchase of the output from a 50 MW expansion of the Big Horn Project, the Big Horn II Project. The District started taking 65.0% of the output from the Big Horn II Project, approximately 33 MW, commencing on November 1, 2010. Similarly as described above, in accordance with M-S-R PPA’s power purchase agreement with Avangrid and amendments thereto, Avangrid has agreed to impose, and M-S-R PPA agreed to pay, a fixed wind integration charge of $1.10/kW month through December 31, 2018 and $1.05/kW month thereafter. M-S-R PPA will reimburse the cost of necessary BPA transmission services to Avangrid to deliver the output from the Big Horn II Project to a northern California market trading hub.

BPA establishes rates to be charged for power and transmission services in biennial formal evidentiary hearing processes. Changes in BPA rates indirectly affect Big Horn Project costs through formulaic adjustments to prices paid to Avangrid and directly affect Big Horn II Project costs through requirements to reimburse Avangrid for BPA ancillary and transmission services. On December 1, 2020, BPA published notice in the Federal Register of its “Fiscal Year (FY) 2022–2023 Proposed Power and Transmission Rate Adjustments Public Hearing and Opportunities for Public Review and Comment.” This proposal, referred to as the BP-22 rate case, encompasses the rates to be imposed by BPA starting in the 2022 federal fiscal year (which begins October 1, 2021) and continuing through the 2023 federal fiscal year (ending September 30, 2023), and reflects a requested 11.6% average weighted increase for transmission and ancillary services components. The procedural schedule for this rate case anticipates a Draft Record of Decision to be issued by June 11, 2021 and a Final Record of Decision to be issued by July 28, 2021. The proposed rates will not become final and are subject to further modification until the rate case proceeding is concluded.

See also “– Purchased Power – Renewable Resources; District Renewable Portfolio Standard” below.

Purchased Power

Lodi Energy Center Project. The District is a participant in the Lodi Energy Center, which was constructed, and is owned and operated, by the Northern California Power Agency (“NCPA”). The Lodi Energy Center is a natural gas-fired, combined-cycle nominal 302 MW power generation plant located in the City of Lodi, California (“Lodi”) which was placed into commercial operation on November 27, 2012. The cost of construction of the Lodi Energy Center was approximately $385.7 million, of which the District’s share was approximately $41.3 million.

In 2010, the District entered into a Lodi Energy Center Power Sales Agreement (the “LEC Power Sales Agreement”), by and among NCPA, the District, the California cities of Azusa, Biggs, Gridley, Healdsburg, Lodi, Lompoc, Santa Clara and Ukiah, Plumas-Sierra Rural Electric Cooperative, the Power and Water Resources Pooling Authority, the San Francisco Bay Area Rapid Transit District and the California Department of Water Resources (“CDWR,” and such entities other than NCPA, the “LEC Project Participants”), pursuant to which the District has purchased from NCPA, on the terms and conditions set forth in the LEC Power Sales Agreement, a 10.7143% generation entitlement share of the capacity and energy of the Lodi Energy Center and is responsible for the payment of 10.7143% of the costs of construction of the Lodi Energy Center.

The Lodi Energy Center is operated and maintained by NCPA under the general direction of the LEC Project Participants pursuant to the LEC Power Sales Agreement and the Lodi Energy Center Project Management and Operations Agreement (the “LEC PMOA”), among NCPA and the LEC Project Participants, relating to the Lodi Energy Center.

In addition to its obligation to provide its share of the costs of construction of the Lodi Energy Center, under the LEC Power Sales Agreement, the District (and each of the other LEC Project Participants) is also obligated to provide for its share of the costs of construction of all capital improvements to the Lodi Energy Center and to pay its share of the total monthly power costs, including, among other things, an operating cost component (for all operation and maintenance expenses of the Lodi Energy Center), a fuel cost component (for all fuel costs of the Lodi Energy Center) (unless an alternate billing procedure is included in the LEC PMOA as provided in the LEC Power Sales Agreement, in which case each LEC Project Participant will be billed for fuel costs as provided in the LEC PMOA) and a non-financed capital cost component (for all costs of construction of capital improvements to the Lodi Energy Center which are to be paid by contributions in aid of construction) based on its respective generation entitlement percentage. In the event of a payment default by another LEC Project Participant which causes a deficiency in the amount available to pay all operation and maintenance expenses of the Lodi Energy Center then due, the District will be obligated to increase its payments with respect to the operating and maintenance expenses of the Lodi Energy Center by its pro rata share (based on its generation entitlement share) of the amount of the deficiency. The District is obligated to make all payments required to be made by it under the LEC Power Sales Agreement whether or not the Lodi Energy Center or any part thereof is developed, constructed, is operable, operating or retired, and whether or not any capacity or energy is made available or furnished to the District at all times or at all, and notwithstanding the suspension, interruption, interference, reduction or curtailment of the Lodi Energy Center output in whole or in part for any reason whatsoever. The District’s payment obligations under the LEC Power Sales Agreement (other than its obligation to make capital contributions or contributions in aid of construction) constitute Maintenance and Operation Costs of the District’s Electric System.

On January 16, 2020, the Lodi Energy Center experienced a critical mechanical failure that resulted in the replacement of the combustion turbine. The LEC Project Participants elected to replace the combustion turbine with a newer model, which will increase the LEC’s capabilities and remove several key risk factors that may have led to the failure of the original turbine. Replacement costs have been covered by the facility’s insurance policy. The Lodi Energy Center returned to operation on June 19, 2020.

Hetch Hetchy Purchased Power. The 1913 Raker Act, a federal law that enabled construction of the Hetch Hetchy Project in the Yosemite National Park, also endows the District with the ability to purchase from

CCSF electric energy generated by the Hetch Hetchy Project. Pursuant to the Raker Act, the District is eligible to purchase such energy, as available, to supply the District’s municipal and water pumping loads. The Raker Act further mandates that the energy rate be calculated such that it reimburses CCSF for its costs of developing, maintaining, and transmitting such energy to the District. The energy sales agreement that describes the calculation methodology of the energy rate and defines the terms of sale and purchase of energy from the Hetch Hetchy Project would have reached the end of its term in June 2015, but was extended through December 31, 2017 to allow discussion of several items for consideration in connection with a successor long- term contract. While a successor contract has not been executed, the Raker Act grants the District the right to continue to purchase energy from the Hetch Hetchy Project.

WAPA Purchased Power. In 2000, the District entered into an agreement with the Western Area Power Administration (“WAPA”) for the purchase of a share of the output from the Central Valley Project (“CVP”) starting in 2005 through 2024. The CVP is a series of federal hydroelectric facilities in Northern California operated by the United States Bureau of Reclamation, for which WAPA serves as marketing agency. The District’s current allocation of this output is 0.49% (rounded). The District is obligated under its contract with WAPA to pay for its allocated share of costs, whether or not it receives any power. The contract may be terminated if the District opposes new rate changes, which the District has not challenged to date. In addition, the District participates in additional opportunities and receives additional energy on an as available basis. WAPA’s new marketing plan process is underway whereby the District has the opportunity to evaluate the potential additional acquisition or surrender of its current share of CVP power. WAPA has provided an initial estimate that indicates that the District’s allocation of CVP power could increase to approximately 0.78% (rounded), subject to final allocation adjustments for new and existing customers. The new contract developed under the new power marketing plan includes the option for customers to reduce or terminate their CVP allocation up to six months prior to the effective date for the new contracts of January 1, 2025. The District has entered into a new WAPA contract and will continue to participate in power customer engagement workshops to evaluate its options.

Renewable Resources; District Renewable Portfolio Standard. Over the last several years, the District has taken numerous steps towards satisfying the RPS targets set forth in State legislation. See “CERTAIN FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY – State Legislation and Regulatory Proceedings – California Renewables Portfolio Standard.” The District’s current renewable power purchases include output from four wind generation projects: the Big Horn Project and Big Horn II Project output purchased through M-S-R PPA (see “– Joint Powers Agency Resources – M-S-R PPA Purchased Power–Big Horn Project” above) and the High Winds and Star Point Wind Project output purchased by the District from Avangrid. The District also currently purchases renewable energy from a digester gas project and a solar project. In addition, the District has contracted for renewable energy from a biomass facility and from two recently constructed solar photovoltaic projects. Most recently, in 2020, the District contracted for capacity and energy from a solar project to be constructed, which project will also include battery storage. These renewable resources are further described below.

In 2004, the District entered into a 10-year agreement with Avangrid for the purchase of the output from 25 MW of the 162 MW High Winds Project located near Rio Vista in Solano County, California. Scheduling of this resource originally commenced on June 1, 2004. Pursuant to an extension of the agreement the District receives a 50 MW share from this project through June 30, 2028. Under the extended agreement for the 50 MW of output, the price paid by the District includes an escalated component for the extension and the increased amount.

In 2009, the District entered into a 20-year agreement with Avangrid for the purchase of the output from the 98.7 MW Star Point Wind Project located in Sherman County, Oregon. The District began taking deliveries from this project on June 1, 2010. As a result of Avangrid establishing its own balancing authority area effective on July 31, 2018, in accordance with the District’s power purchase agreement with Avangrid and amendments to such agreement, Avangrid and the District have agreed to replace the previous BPA charge pass-through of the wind integration charge with a fixed rate structure. The District is required to reimburse

Avangrid for the cost of necessary BPA transmission services for the delivery of the output from the facility to a northern California market trading hub.

In 2009, the District also procured the output from a 750 kW digester gas renewable energy project at the Fiscalini Dairy, which is located within the District’s service territory. The terms of the agreement include options to extend, and the agreement has subsequently been extended through December 31, 2027. The District obtains all RECs associated with the project output, which are tracked through the WREGIS for the term of the agreement.

In 2010, the District entered into a 25-year power purchase agreement with SunPower Corporation for the purchase of the output from a local 25 MW solar photovoltaic project (the “McHenry Solar Project”). The project was subsequently sold to its current owner, Axium Infrastructure. Deliveries from the McHenry Solar Project commenced in July 2012.

In 2017, the District executed two power purchase agreements for the energy output, capacity, and associated environmental attributes from two solar photovoltaic projects: the Mustang Two Barbaro and Blythe Solar IV projects. The Mustang Two Barbaro project is a 50 MW portion of the 150 MW Mustang Two Project, which is located just west of Lemoore, in Kings County, California. This facility was developed by Idemitsu Renewables America Inc., the US-based renewable energy business of Idemitsu Kosan Co., Ltd., and reached commercial operation on November 18, 2020. The District has also agreed to purchase the output from a 62.5 MW portion of the 125 MW Blythe Solar IV Project, which is located near Blythe, in Riverside County, California. This facility was developed by NextEra Energy and reached commercial operation on November 20, 2020. Both power purchase agreements have a term of 20 years starting from the commercial operation date. The District pays a fixed price for the output from these projects. The projects are interconnected to the CAISO balancing authority and the output is managed similarly to other facilities within the CAISO balancing authority area as described above.

In February 2020, the District entered into a 20-year agreement with Consolidated Edison and Development, Inc. for the purchase of the energy output, capacity, and associated environmental attributes from a 52.5 MW portion of its 105 MW Mesquite Solar 4 Project with 12.5 MW of battery storage. The District subsequently amended the agreement to reduce the battery storage capacity from 12.5 MW to 10 MW in exchange for a lower fixed rate than originally negotiated. The project will be located just south of Tonopah, within Maricopa County, Arizona and is expected to reach commercial operation by July 1, 2023. This project will also be interconnected to the CAISO balancing authority and the output will be managed similarly to other facilities within the CAISO balancing authority area as described above.

The adoption of California Senate Bill 859 (“SB 859”) at the end of the 2016 legislative session requires the State’s electric service providers that serve more than 100,000 customers, including publicly- owned utilities, to obtain a cumulative total of 125 MW of capacity through a five-year minimum commitment from biomass facilities that incinerate biomass fuel. See “CERTAIN FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY – State Legislation and Regulatory Proceedings – Biomass Legislation.” In 2017, the District, as part of a group of other affected publicly-owned utilities in California, in an effort coordinated through the Southern California Public Power Authority (“SCPPA”), secured a 0.994 MW share of the 18 MW output from the Loyalton Biomass Project. The Loyalton Biomass Project is located in the City of Loyalton, in Sierra County, California, and was previously owned and operated by ARP-Loyalton Biomass, LLC, a California limited liability company, and an affiliate of American Renewable Power, LLC. The project reached commercial operation on April 20, 2018. Under the power purchase agreement for the Loyalton Biomass Project output, the cost of the energy output, capacity, and associated environmental attributes from this five-year agreement is fixed. The output is managed similarly to the other projects that are located within the CAISO balancing authority area as described above. In February 2020, the purchasers under the power purchase agreement were notified that the project operator and its parent company, American Renewable Power, LLC, filed for Chapter 11 bankruptcy. Subsequently, the filing was converted to a Chapter 7 bankruptcy. Under this process, the facility was purchased by Sierra Valley Enterprises, LLC on May 7, 2020. It is unclear at this time whether the power purchase agreement will continue through its term. A decision by

the bankruptcy trustee to reject, assume, assign or otherwise dispose of the power purchase agreement is still pending. The District, together with the same group of publicly-owned utilities, has entered into a purchase agreement with Roseburg Forest Products Co. to meet their remaining SB 859 obligations. The agreement obligates Roseburg Forest Products Co. to use the required forest fuels in its existing 11 MW biomass power plant. All parties executed the agreement in February 2021.

The District adopted a Renewable Portfolio Standard Procurement Plan on November 12, 2013 to comply with the CEC adopted regulations establishing a mandate for the District to meet 33% of the District’s retail load with renewable energy by 2020. In accordance with SBX1-2, signed into law by the Governor on April 12, 2011, the District satisfied the specified RPS target for procuring renewable energy resources to satisfy an average of 20% of its retail sales over the first compliance period (January 1, 2011 to December 31, 2013), with the portion of the District’s energy portfolio supplied from renewable resources over such period. The District further satisfied the RPS target under SBX1-2 for the second compliance period (January 1, 2014 to December 31, 2016), meeting a total of 20% of 2014 retail sales, 20% of 2015 retail sales and 25% of 2016 retail sales satisfied with renewable resources over such period. The RPS target under SBX1-2 for the third compliance period (January 1, 2017 to December 31, 2020) provides for the procurement of renewable energy resources to satisfy a total equal to 27% of 2017 retail sales, 29% of 2018 retail sales, 31% of 2019 retail sales, and 33% of 2020 retail sales. The District purchased enough renewable energy to serve approximately 20%, 22%, 21% and approximately 24% of its retail energy sales from renewable energy resources in 2017, 2018, 2019, and 2020, respectively. The District expects to meet its required RPS targets of 27% for 2017, 29% for 2018, 31% for 2019, and 33% for 2020, through the use of banked RECs from prior excess procurement. Legislation enacted in 2018, California Senate Bill 100 (“SB 100”), requires that the amount of electricity generated each year from eligible renewable energy resources be increased to at least 60% by December 31, 2030. The District adopted its first revision to its Renewable Portfolio Standard Procurement Plan with the updated renewable energy procurement targets included in SB 100 on November 13, 2018. See “CERTAIN FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY – State Legislation and Regulatory Proceedings – California Renewables Portfolio Standard.”

The District intends to meet its RPS compliance obligations by banking and carrying forward excess procurement from grandfathered and new renewable energy resources to future compliance periods whenever possible and by negotiating extensions or replacing existing renewable energy resources to maintain compliance with the District’s RPS targets.

Other Power Purchases. As described under “–Interconnections, Local Transmission and Distribution Facilities” below, the District is part of the Balancing Authority of Northern California (“BANC”). The District schedules power purchases to meet its native load requirements through the CAISO as exports to the BANC balancing authority at NP15, delivered at the District’s Westley Substation. In addition, the District schedules purchases from other suppliers in the Pacific Northwest through the use of its COTP scheduling entitlement. In 2020, the District made purchases from Avangrid, BPA, Powerex, and Tacoma Power, among others.

Energy Efficiency Programs

Pursuant to various State legislative and regulatory initiatives (e.g., AB 2021, SB 1037, AB 2227, SB 350), electric utilities in California are required to aggressively implement programs to acquire energy efficiency savings from their customers. Since the early 1980’s, the District has operated customer-based, energy efficiency programs and program targets are now set on a quadrennial cycle. On September 26, 2017, the District’s Board of Directors approved its current 10-year energy efficiency targets covering the period from 2018 to 2027. In 2021, the District will approve 10-year targets for the period from 2022 to 2031. The targets are quantified via a modeling methodology vetted with the CEC. The targets represent new, additional savings for each program year. As such, they are incremental to the residual savings from prior program years and additional to the energy savings that result from State energy efficiency codes and standards (Title-24 buildings, Title-20 appliances). As of the end of 2020, the District had approximately 130 GWh in energy savings from its energy efficiency programs (equipment still within its estimated useful life).

Future Power Supply Resources

The District’s current resource mix is anticipated to provide the District with sufficient capacity reserves in the near term. Following the divesture by M-S-R PPA of its ownership interest in San Juan Unit No. 4 on December 31, 2017, the District offset its energy need from that resource through short-term purchases and renewable resources. The District expects to continue procuring additional resources as needed in order to meet its RPS requirements while contributing to its capacity and long-term procurement requirements through at least 2030.

Fuel Supply

The District’s Natural Gas Acquisition Activities. Each of the District’s Woodland Generation Station 1 and 2 Projects, Woodland 3 Generation Project, Ripon Generation Station Project and McClure Turbine Generating Units are fueled by natural gas. The District’s natural gas activities are undertaken consistent with the Risk Management Program (the “RMP”) approved by the District’s Board of Directors (see “– Risk Management Program” below). The RMP prescribes risk limits for staff to follow while trying to achieve the District’s financial and operational goals in the natural gas market.

The Board policy is to maintain Value at Risk (a measure of the risk of loss on a specific portfolio of financial assets) below $3.4 million over a 10-day holding period where natural gas and electric power price are combined. The District also has a policy of hedging at least 60% of its natural gas one year ahead, 40% two years ahead, and 20% three years ahead. The District was within its Value at Risk and percent exposure limits at December 31, 2020.

The District has built a portfolio of futures, swaps, and forward contracts to hedge the gas price risk related to its generating stations. New hedges are put on as contracts mature. The total fair value of the District’s natural gas price swap agreements and natural gas commodity futures positions, and physical forward contracts, net at December 31, 2019 was $0.03 million (the most recent valuation currently available).

In addition, in 2009, the District entered into a long-term natural gas prepayment transaction through M-S-R Energy Authority as described under “– M-S-R Energy Authority–Gas Prepay” below.

In 2015, the District took advantage of historically low natural gas prices to lock in a fixed price for a 10-year physical gas supply for a quantity totaling 10% of the District’s expected annual natural gas requirements. The contract term extends from January 1, 2016 to December 31, 2025.

Beginning in December 2015, the District used Mercuria Energy Group Ltd. (“Mercuria”) for scheduling and balancing the natural gas requirements of its generating stations. Mercuria also acts as the default supplier, ensuring that a source of gas is available at a variable, index-based price. Since September 2016, these services have been provided to the District by EDF Trading North America, LLC (“EDF”) pursuant to a novation agreement among the District, Mercuria and EDF under which EDF assumed the rights and obligations of Mercuria under the District’s prior contractual arrangements for such services.

M-S-R Energy Authority–Gas Prepay. The M-S-R PPA participants have formed a joint powers authority known as the M-S-R Energy Authority (“M-S-R EA”). The M-S-R EA was created for the purpose of entering into contracts and issuing bonds to assist the M-S-R EA participants in financing the acquisition of supplies of natural gas for use in each participant’s respective electrical generation stations. In 2009, the District participated in the M-S-R EA Gas Prepay Project. The Gas Prepay Project provides to the District, through a Natural Gas Supply Agreement with M-S-R EA, a secure and long-term supply of natural gas of 5,000 MMBtu daily or 1,831,000 MMBtu annually through September 2039. The agreement provides this supply at a discounted price below the spot market price (the PG&E Citygate index). As of February 1, 2021, bonds issued by M-S-R EA to finance the District’s share of the Gas Prepay Project were outstanding in the principal amount of $200.1 million. M-S-R EA will bill the District for actual quantities of natural gas delivered each month on a “take-and-pay” basis. M-S-R EA has contracted with Citigroup Energy, Inc.

(“CEI”) to use the proceeds of the Gas Prepay bond issue to prepay CEI for natural gas. The obligations of CEI are guaranteed by Citigroup Inc. Responsibility for the repayment of the bonds issued by M-S-R EA is non-recourse to the District. Moreover, any default by the other Gas Prepay Project participants, Santa Clara and Redding, is also non-recourse to the District.

Transmission Resources

TANC California–Oregon Transmission Project. The District, together with fourteen other northern California cities and districts and one rural electric cooperative, is a member, or associate member, of a California joint powers agency known as TANC. TANC, together with Redding, WAPA, two California water districts, and PG&E (collectively, the “COTP Participants”) own the California–Oregon Transmission Project (“COTP”), a 339-mile long, 1,600 MW, 500 kV transmission project between southern Oregon and central California. The COTP was placed in service on March 24, 1993, at an original cost of approximately $430 million. TANC financed its interest in the COTP through the issuance of California-Oregon Transmission Project Revenue Bonds, of which approximately $172.0 million principal amount of revenue bonds was outstanding as of February 1, 2021. See “– Indebtedness” below.

In April 2008, TANC purchased the COTP transmission assets (approximately 121 MW) of Vernon Light & Power of the City of Vernon, California (“Vernon”), one of the original owners of the COTP. The District participated in the acquisition of an increased share of transfer capability of the COTP in connection with the acquisition from Vernon by TANC. TANC utilized a combination of cash and the issuance of commercial paper (which was subsequently refunded with bonds) to fund the acquisition of Vernon’s COTP transmission assets (the “Vernon acquisition debt”). The District, as well as the other acquiring TANC members, began scheduling the acquired COTP transmission transfer capability on April 8, 2008.

Pursuant to Project Agreement No. 3 for the COTP (the “TANC Agreement”), TANC has agreed to provide to the District and 12 other members of TANC (the “TANC Member-Participants”) a participation percentage of TANC’s entitlement of COTP transfer capability. In return, each TANC Member-Participant has severally agreed to pay TANC a corresponding percentage of TANC’s share of the COTP construction costs, including debt service on TANC’s outstanding revenue bonds and other obligations issued by TANC to finance its ownership share of the COTP. A TANC Member-Participant’s obligations to make payments to TANC are not dependent upon the operation of the COTP and are not subject to reduction. Upon an unremedied default by one TANC Member-Participant in making a payment required under the TANC Agreement, the non-defaulting TANC Member-Participants are required to increase pro-rata their participation percentage by the amount of the defaulting TANC Member-Participant’s entitlement share, provided that no such increase can result in a greater than 25% increase in the participation percentage of the non-defaulting TANC Member-Participants.

Effective February 1, 2009, the District along with Turlock and SMUD entered into a long-term layoff agreement (the “2009 LTLA”) to utilize a portion of the City of Palo Alto and City of Roseville (“Roseville”) entitlements in TANC’s entitlement to COTP transfer capability for a 15-year period. Pursuant to the 2009 LTLA, the District secured the right to use additional transfer capability (approximately 9 MW) as it utilized its existing TANC entitlement to COTP transfer capability, including for the posting of its acquired transfer capability on the TANC Open Access Same-time Information System (“OASIS”). In exchange for the increase in transfer capability the District agreed to pay the pro rata TANC operation and maintenance and COTP debt service costs associated with the additional 9 MW (approximately 0.65% of TANC’s costs). Effective July 1, 2014, the layoff from Roseville was terminated and the associated entitlement to transfer capability was returned to Roseville.

Effective July 1, 2014, the District along with Turlock and SMUD entered into a long-term layoff agreement (the “2014 LTLA”) to utilize all or a portion of the entitlements of the Cities of Alameda, Healdsburg, Lodi, Lompoc, Santa Clara and Ukiah and of the Plumas-Sierra Rural Electric Cooperative (collectively, the “Layoff Entities”) in TANC’s entitlement to COTP transfer capability for a 25-year period (subject to certain rights of the Layoff Entities to recall, and certain rights of the District, Turlock and/or

SMUD to return, up to 50% of their respective shares of the entitlement amount laid off). Pursuant to the 2014 LTLA, the District has the right to use additional transfer capability (approximately 25 MW) as it utilizes its existing TANC entitlement to COTP transfer capability, including for the posting of its acquired transfer capability on OASIS. In exchange for the increase in transfer capability the District agreed to pay the pro rata TANC operation and maintenance and COTP debt service costs associated with the additional 25 MW (approximately 1.80% of TANC’s costs).

Pursuant to the TANC Agreement (and the effect of the layoff agreements described above), the District is obligated to pay 23.5087% of TANC’s COTP operating and maintenance expenses and a 23.983% share of TANC’s debt service. The District is entitled to 23.5087% of TANC’s share of COTP transfer capability (approximately 320 MW net of third-party layoffs) on an unconditional take-or-pay basis. The District’s payments to TANC, including debt service on TANC’s revenue bonds, constitute Maintenance and Operation Costs of the Electric System.

The District uses a portion of its share of the project transfer capability of the COTP to provide transmission of capacity and energy purchased from the Big Horn Project and the Star Point Wind Project (hereafter described), BPA and other generation resources. The District makes use of its remaining share of this transmission capacity to import firm capacity and economic energy purchases from the Pacific Northwest. The District also participates with other TANC Members in offering unused and unencumbered transfer capability for use by other entities in an open and efficient manner in accordance with TANC posted tariffs.

To utilize the full transfer capability of the COTP and the Intertie (described below) on a firm basis between the Pacific Northwest and California, it is necessary to coordinate the operation of all three transmission lines. The Pacific AC Intertie (the “Intertie”) is a two-line system which, like the COTP, connects California utilities with those in the Pacific Northwest. The Intertie lines are owned by PG&E, PacifiCorp and WAPA and are operated by the CAISO. Rate schedules are on file with FERC to accomplish this coordination. The three-line system comprised of the COTP and the Intertie is collectively referred to as the California-Oregon Intertie (“COI”).

As the 339-mile COTP transmission line runs from Kamath County in Southern Oregon to the Tesla Substation located south of the City of Tracy in San Joaquin County, in central California, approximately 34% of the transmission line runs through the “elevated” Tier 2 fire risk zone and 1% runs through the “extreme” Tier 3 fire risk zone as identified on the CPUC’s Fire Threat Map. TANC employs an extensive, longstanding fire risk management plan to mitigate its wildfire risk exposure that includes semi-annual aerial inspections; a series of annual ground inspections; a rigorous vegetation management program; as well as limiting crops and vegetation height in orchard areas. The COTP is constructed entirely of steel lattice towers or single pole steel structures which includes a 200 foot right-of-way for the majority of the COTP that is kept clear of trees and large vegetation. The COTP Participants formed a wildfire committee to ensure compliance with recently enacted laws, strengthen existing practices, and monitor relevant legislative and regulatory activities. TANC maintains $35 million in wildfire insurance and is not the subject of any pending litigation on wildfires (including any inverse condemnation actions). On May 11, 2020, TANC submitted the Wildfire Mitigation Plan for the COTP (accompanied by an Independent Evaluator Report) to the California Wildfire Safety Advisory Board as required by California Senate Bill 901 (“SB 901”). See “CERTAIN FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY – State Legislation and Regulatory Proceedings – Legislation Relating to Wildfires; Related Risks.”

The COTP is operated within the BANC balancing authority area. See “–Interconnections, Local Transmission and Distribution Facilities” below. Under BANC, the District enjoys the benefits of direct scheduling energy transactions over the COTP within the balancing authority area, free of the CAISO tariff, charges, congestion and encumbrances. The District has retained its existing firm transmission rights and continues to use its allocation of COTP transfer capability for firm and non-firm power transactions.

TANC Tesla–Midway Transmission Service. The southern physical terminus of the COTP is near PG&E’s Tesla Substation near Tracy, California. The COTP is connected to WAPA’s Tracy and Olinda

Substations. PG&E provides TANC and certain of the TANC members with 300 MW of firm, bi-directional transmission service on its transmission system from its Midway Substation near Buttonwillow, California (the “Tesla-Midway Service”) to those members under a long-term agreement known as the South of Tesla Principles. The District’s share of Tesla-Midway Service is 102 MW. The District has used, and anticipates continuing to use, its share of the TANC Tesla–Midway Service to provide access to power supplies located in the southwest.

Interconnections, Local Transmission and Distribution Facilities

On December 1, 2005, the District joined the SMUD–WAPA balancing authority area. A balancing authority performs a balancing function in which customer usage and resources are matched on a moment-by- moment basis. A balancing authority also operates the transmission and generation system, monitoring power lines to ensure they are operated within reliable limits and coordinates its system operations with neighboring balancing authorities. Prior to joining the SMUD–WAPA Balancing authority area, the District operated within the balancing authority area of the CAISO and PG&E.

The District, together with SMUD, Redding and Roseville executed a joint exercise of powers agreement creating BANC on May 8, 2009 to consolidate balancing authority activities. The transition to operation of the BANC occurred on May 1, 2011, at which time the operations of the SMUD balancing authority were turned over to BANC. Since that time, the Trinity Public Utilities District and the City of Shasta Lake have also become members of BANC. SMUD acts as the balancing authority operator under contract and performs balancing authority functions on behalf of the BANC. BANC is the third largest balancing authority in California, balancing peak electricity demand of approximately 5,000 MW, serving 763,000 retail customers within an area that includes more than 1,700 miles of high voltage transmission lines. The District represents approximately 17% of the total BANC member load.

On April 3, 2019, SMUD, the largest BANC member, began its participation in the CAISO Energy Imbalance Market (“EIM”), a real-time wholesale power trading market that operates in parts of eight western states, including Washington, Oregon, California, Nevada, Idaho, Wyoming, Utah, and Arizona. In addition to modest economic benefits, participation in the EIM is expected to enhance BANC members’ ability to integrate renewable energy, provide additional sources of real-time supply to augment reliability resources, increase regional resource diversity, and maintain access to a robust pool of resources and counterparties.

The remaining BANC members, including the District, have decided to participate in the EIM and are working on implementation with the goal of commencing participation in the EIM in March 2021.

The District’s Electric System is directly interconnected with the systems of Turlock (two 69 kV lines, two 230/115 kV transformers and two 230 kV lines), CCSF (four 115 kV lines) and PG&E (two 230 kV lines). In addition, there are two 230 kV lines connecting the District to WAPA and the COTP project and two 69 kV lines connecting WAPA to the District’s Mountain House load. In May 2008, the District completed the Westley/Rosemore Transmission Project, which includes two 230 kV transmission lines and two 230/69 kV transformers which increased the District’s import capability by approximately 400 MW. The Westley/Rosemore Transmission Project’s two lines extend approximately 17 miles, connecting the Westley Switching Station eastward to the western edge of the District’s service territory, thereby increasing the import capability from the west side of the Central Valley towards the District’s load on the east side of the Central Valley.

Facilities owned by the District for the distribution of electric power include approximately 384 miles of transmission lines, approximately 1,854 miles of distribution lines and 44 substations. The District’s system experiences approximately 7 minutes of outage time per customer per year. This compares favorably with other utilities with reliability factors in the range of 1 to 3 hours of outage time per customer per year.

Wildfire Mitigation Measures

The District’s service area is not in a geographical area classified by the CPUC’s Fire Threat Map as a “Tier 2” or “Tier 3” fire-threat area (i.e., it is not in an area of elevated or extreme risk from utility-associated wildfires). The District owns a limited number of remote transmission assets, including but not limited to, wires, poles and other equipment to deliver power generated from generation assets located outside the District’s service area. In these remote assets, a very small portion (1.55 miles) of the District’s power lines fall within the Tier 2 High Fire Threat area (elevated risk). In connection with the operation of its facilities and equipment, the District currently has in place a number of safety and emergency response measures. These measures include periodic inspection of overhead electric facilities, ongoing vegetation clearance and management activities, and the ability to eliminate the automatic restoration function on certain transmission lines to require that power to a tripped line is only restored after manual inspection and confirmation that it may be operated safely. The District also has established protocols and procedures for operations for emergency preparedness and response. Pursuant to the requirements of SB 901, the District’s Board approved the District’s Wildfire Mitigation Plan on November 12, 2019. The District’s Wildfire Mitigation Plan (accompanied by an Independent Evaluator Report) was submitted to the California Wildfire Safety Advisory Board on March 27, 2020. See also “CERTAIN FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY – State Legislation and Regulatory Proceedings – Legislation Relating to Wildfires; Related Risks” and “– Insurance” below.

Wholesale Power

The District remains active in the wholesale energy markets as indicated in the table entitled “Power Supply Resources” above. Since generation and transmission resources available in any given year do not perfectly match annual load requirements, in addition to making market purchases when economical, the District also sells excess capacity and energy that is surplus to that needed to serve its retail load. The District’s wholesale power activities are backed up by its generation and transmission assets. The objectives of the wholesale power program are to capture the maximum value of these assets and to minimize the net cost of purchased power. The District is a price taker in the wholesale market and does not assume positive net revenues from wholesale activities for purposes of financial forecasting. Over the three years 2018 through 2020, wholesale sales generated on average approximately $12.9 million in gross revenue annually.

Risk Management Program

The District’s Board of Directors maintains the RMP, most recently revised on May 24, 2016, which provides controls for the operational, price and credit risks of the District’s power trading and natural gas acquisition operations. The policy document addresses roles and responsibilities, authorized and prohibited transactions, exposure limits, transaction and market data collection procedures, and reporting requirements. Day-to-day risk management activities are carried out by a Risk Management Oversight Committee and a Pricing/Risk Management Administrator. The District is actively engaged in identifying opportunities and negotiating contracts for electricity and natural gas. See “– Fuel Supply – The District’s Natural Gas Acquisition Activities” above. Such contracts may be entered into by the District in the future. Under the RMP, such contracts with a term of less than four years may be entered into by District staff whereas longer term contracts must be specifically approved by the District’s Board of Directors. The District generally uses industry standard agreements to document contracts to hedge its exposure to power and natural gas prices. These contracts may include swaps, options, futures and forward contracts, which generally include netting provisions, whereby if the District and the counterparty owe each other a payment, the party owing the greater amount pays the net, and collateral posting provisions, under which the “out-of-the money” party may be required to post cash, letters of credit, or other pre-agreed liquidity securities to the extent the marked-to- market values of their position with a given counterparty exceeds a threshold value. Such thresholds are negotiated individually with counterparties, and the netting provisions include rights to set off against posted collateral. Consistent with the District’s RMP, the District seeks to spread transactions across counterparties, which decreases the likelihood that the threshold value will be exceeded. As of February 1, 2021, the District did not have any collateral posted with any counterparties to its bilateral hedging contracts and did not hold

any collateral posted by its counterparties. The District does post margin on exchanged traded futures positions. No assurance can be given that the District will not be required to post additional collateral in the future. While the posting of collateral is not an expense for the District, it does encumber unrestricted cash balances and may reduce the District’s liquidity.

Cybersecurity Program

The federal Energy Policy Act of 2005 (“EPAct 2005”) gave FERC authority to oversee the reliability of the bulk power system. This includes authority to approve mandatory cybersecurity reliability standards. The North American Electric Reliability Corporation (“NERC”), which FERC has certified as the nation’s Electric Reliability Organization, developed Critical Infrastructure Protection (“CIP”) cybersecurity reliability standards. The District has implemented a robust cybersecurity program that complies with FERC Order No. 791, which approved NERC’s Version 5 CIP Reliability Standards.

The District’s cybersecurity program is audited by the Western Electricity Coordinating Council (“WECC”) under the direction of NERC and addresses the following general cybersecurity areas:

• Cyber System Categorization; • Cyber Security Management Controls; • Electronic Security Perimeters; • Physical Security of Cyber Systems; • Supply Chain Risk Management; • Cyber System Security Management; • Cyber Incident Reporting and Response Planning; • Cyber System Recovery Plans; • Configuration Change Management and Vulnerability Assessments; and • Information Protection.

The District’s cybersecurity program consists of policies, procedures, and technical controls that address each of the identified areas to ensure the secure and reliable operation of the District’s critical infrastructure. The District self-certifies its compliance with the above standards annually, and is audited every three years by WECC.

In addition, the District’s Information Technology Department has assessed the District’s program against established industry standards, such as the SANS Institute’s Critical Security Controls list of top 20 controls and the National Institute of Standards and Technology (NIST) Special Publication 800-53, and has developed an ongoing process to continuously improve its cybersecurity measures. The pillars of the District’s cybersecurity program include, among other things: (i) enhanced boundary defense; (ii) rapid detection of intrusions; (iii) blocking data exfiltration; (iv) controlling unauthorized access; (v) workstation and server hardening; (vi) development of security skills; (vii) validation of security profiles; and (viii) security management/governance. Through the process of continuous improvement, the District follows a cycle of assessment and gap analysis, roadmap development, and implementation. The District is committed to protecting its critical cyber systems and assets and continues to validate, evolve and improve its cyber security plan.

Although the District has a variety of security measures and safeguards in place as described above, no assurances can be given that any existing or additional safety and security measures will prove adequate in the event that cyberattacks or military conflicts or terrorist activities, including cyber terrorism, are directed against the District’s systems technology or the assets of the Electric System. Cyberattacks are becoming more

sophisticated and certain cyber incidents, such as surveillance, may remain undetected for an extended period. United States government agencies have in the past issued warnings indicating that critical infrastructure sectors such as the electric grid may be specific targets of cybersecurity threats. Attacks directed at critical electric sector operations could damage generation, transmission or distribution assets, cause operational malfunctions and outages, and result in costly recovery and remediation efforts. The costs of security measures or of remedying damage from security breaches could be greater than presently anticipated.

See also “CERTAIN FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY – Federal Energy and Environmental Policies and Legislation – Federal Policy on Cybersecurity.”

Insurance

The District’s insurance program currently consists of a combination of commercial insurance policies and self-insurance. Substantially all of the District’s assets are insured against possible losses from fire and other risks. The District does not insure its physical plants against the risk of physical loss or damage due to earthquakes.

The District is self-insured for general and liability claims up to $1.0 million. The District carries multiple layers of commercial insurance to cover general liability claims in excess of $1.0 million. The first layer provides insurance coverage for liability claims up to $35 million per occurrence with a $70 million general aggregate. The second layer provides insurance coverage for liability claims in excess of $35 million per occurrence up to an additional $25 million per occurrence with a $25 million general aggregate.

The District has wildfire insurance coverage under its first excess liability policy described above. This insurance policy provides the District 50% coverage for wildfires up to $35 million.

The District also maintains certain cyber liability coverage.

The District records liabilities for unpaid claims when they are probable of occurrence and the amount can be reasonably estimated. The District periodically evaluates its insurance program and may modify the current configuration of commercial insurance and self-insurance with respect to the Electric System. Limits maintained by the District are subject to change depending on insurance market conditions and assessments by the District as to risk exposure.

Rates and Charges

The District’s Board of Directors has full and independent power to establish revenue levels and rate schedules for all electric service provided by the District. The District is not subject to rate regulation by any State or federal regulatory body, and is empowered to set rates effective at any time.

State law requires that the District spend approximately 2.85% of annual retail revenue (approximately 10.6 million in 2020) on public benefit programs. The District is recovering its public benefit revenue as part of its normal rates.

The District’s Electric System has a number of base rate schedules. The base electric rates were last revised by the District’s Board of Directors in November 2010. This action increased the base electric rates by 2% overall effective January 1, 2011. In addition, on November 23, 2010, the District’s Board of Directors approved the implementation of a Green Energy Adjustment, set initially to $0.0063/kWh for a total increase in rates of 7%, effective on January 1, 2011. The Green Energy Adjustment was designed to be trued up annually (on or about March 1) to reflect the above market cost component of renewable energy.

On November 8, 2011, the District’s Board of Directors approved an effective rate increase of 2.3%, effective on January 1, 2012, comprised of two additional rate adjustments: (i) a Capital Infrastructure Adjustment; and (ii) a Greenhouse Gas Adjustment. The Capital Infrastructure Adjustment was initially set to

$0.0028/kWh or 2%, and it is currently maintained at such rate. The Capital Infrastructure Adjustment is designed to reduce long-term debt by funding routine capital costs through rates. The Greenhouse Gas Adjustment was initially set to $0.0004/kWh or 0.3% and was designed to help recover the costs related to greenhouse gas regulatory mandates (i.e., purchasing emissions credits, taxes on emissions, and legal and administrative costs).

In 2013, the District’s Board of Directors approved combining the Green Energy Adjustment with the Greenhouse Gases Adjustment into a new Environmental Energy Adjustments (“EEA”) charge. Recognizing that the mandates are interrelated and both adjustments fall under the State’s Climate Change Scoping Plan, the new EEA component of rates reflects both the costs of complying with the renewable energy and greenhouse gas mandates. The EEA is trued up annually (on or about March 1) to reflect the actual cost of compliance with regulatory mandates. In 2020, the EEA is set at $0.0064/kWh.

In November 2015, the District’s Board of Directors approved changes to the residential electric rates. These changes, which took effect on January 1, 2016, included an increase in the monthly fixed charge from $12.50 to $20 and a corresponding reduction in the energy charge to make this change revenue neutral to the District. This residential electric rate change is designed to more equitably and appropriately allocate costs among the various rate components.

As noted above, there have not been any increases to the District’s base rates since January 1, 2011.

The District offers an economic development discount contract option and a public agency discount contract option. The District previously offered contract rate options for large industrial customers (over 1 MW with high load factors). Industrial customers with loads over 1 MW have been served on the District’s standard applicable electric rate schedule since January 1, 2008.

Beginning January 2021, the District adopted a pilot time of use rate for residential customers with eligible electric vehicles (“EVs”). The District’s EV-D rate allows customers with EV’s to be billed for their electric usage at different prices depending on the time of day. With this time of use rate, customers are encouraged to do more energy intensive activities, such as charging their EV, during off-peak periods when prices are lower.

The District is currently conducting a voluntary pilot program of a residential customer billing option, referred to as “PowerUp,” which, if implemented, would provide certain residential customers with the option of managing their electric service account electronically and prepaying for energy prior to use.

Electric services are generally billed in monthly billing cycles. Electric service may be discontinued if the bill for such service has not been paid by the designated due date, which will be no less than 19 days from the billing date, and remains unpaid by the scheduled disconnect date (no less than 10 days after the due date). Prior to restoration of service all fees, charges, penalties and the entire delinquent balance is required to be paid. Unpaid final bills will be transferred to the customer’s current account or may be transferred to a collection agency for appropriate action. As discussed under “– COVID-19 Pandemic,” the District has implemented certain customer protections for residential and small business customers in light the potential economic impacts of the COVID-19 response actions. The measures include the suspension of disconnections for non-payment of electric bills and no late fees or penalties.

The District recognizes an estimate of uncollectible accounts for its customer accounts receivable related to electric service based upon its historical experience with collections. As of December 31, 2020, the District maintained an allowance for doubtful accounts for its retail customers for electric services of $3,493,000. The District’s net expense relating to doubtful accounts for all accounts is included in the statement of revenues, expenses and changes in net assets in its audited financial statements as an offset to operating revenues. As a result of economic impacts to the service area arising from the ongoing COVID-19 pandemic, an increased number of the District’s retail customers may face financial challenges in paying their electric bills. The District expects that these economic factors, in conjunction with the customer protection

measures implemented by the District, will likely lead to increased delinquencies and more non-payment of electric bills than normal and forecasted will continue while such measures are in place. However, the District is unable to predict at this time the potential ultimate magnitude of any such increase in delinquencies and non- payments. See also “– COVID-19 Pandemic” above.

Two class action lawsuits, filed against the District in March 2016 and December 2018, challenging the District’s electric rates are currently pending. The basis for these lawsuits stem from Proposition 26, which California voters approved on November 2, 2010. See “– Litigation Affecting the Electric System – Litigation Challenging Electric Rates” below for a discussion of this pending litigation and the status thereof.

Comparison of Selected Monthly Electric Bills

Comparison of Rates. The District’s rates continue to be below PG&E’s rates (for other than baseline (subsidized) residential service). The following table shows a comparison of selected monthly electric bills for regional utilities of as of February 2021.

COMPARISON OF SELECTED MONTHLY ELECTRIC BILLS (as of February 2021) Residential 850 kWh 1,500 kWh Average Monthly Average Monthly PG&E $242.73 $455.91 Modesto Irrigation District 149.99 261.73 Redding 146.84 247.65 Palo Alto 146.11 271.99 Turlock 130.40 228.66 SMUD 133.08 217.83 Silicon Valley Power 110.70 196.42

Commercial and Industrial 150 kW + 1,200 kW + 60,000 kWh 650,000 kWh Average Monthly Average Monthly PG&E $12,479.13 $94,250.73 Palo Alto 10,429.20 90,946.50 Redding 9,140.00 89,140.00 Silicon Valley Power 8,506.00 87,643.22 SMUD 8,243.95 79,345.68 Modesto Irrigation District 7,861.80 70,201.10 Turlock 7,533.51 72,042.63

Notes: Excludes state surcharge and taxes, if any. Industrial rates calculated are at secondary voltage service. Industrial rates are calculated using non-contract rate schedules. Differences in time-of-use periods and rate adjustments make exact comparisons difficult. Source: Modesto Irrigation District.

CPUC Cost Responsibility Surcharge. On July 10, 2003 (as later modified and refined by decisions issued on August 21, 2003, November 19, 2004, December 16, 2004 and July 21, 2005), the CPUC adopted a decision that would impose on certain municipal utility customers a “cost responsibility surcharge” for a share of the costs incurred by CDWR and the California investor-owned utilities (“IOUs”) during the energy crisis. The cost responsibility surcharge is comprised of several components, including a CDWR bond charge, a

CDWR power charge (subsequently replaced with the power charge indifference adjustment) and a competition transition charge (“CTC”). Effective October 1, 2020, the collection of the CDWR bond charge concluded; such charge has been replaced with the Wildfire Fund Charge described in the next paragraph. The cost responsibility surcharge (similar to the surcharge mechanism imposed on certain direct access customers) is applied on “municipal departing load” customers (i.e., customers in the service territories of the IOUs either that took bundled electric service from an IOU on or after February 1, 2001 but subsequently departed to be served by a municipal utility, or that thereafter located in the service area of an IOU but took service from a municipal utility in the first instance). As previously noted, the District provides electric service within a portion of a 400 square mile area designated by State law as the District’s non-exclusive service territory, which area is also within the service territory of PG&E. The CPUC has established exemptions to certain components of the cost responsibility surcharge. Transferred load served by the District up to an amount included in prior forecasts by PG&E of load expected to transfer to the District (190,220 MWh) is exempt from certain components of the cost responsibility surcharge (but not the CTC or the prior CDWR bond charge). New load served by the District is likewise exempt from certain components of the cost responsibility surcharge (but not the prior CDWR bond charge). The CPUC authorized PG&E in 2007 to begin billing the District’s customers for the surcharge. To the extent the remaining components of the cost responsibility surcharge are imposed on customers served by the District, the surcharge will lessen the difference between the District’s rates and those charged by PG&E, and, in certain limited cases, eliminate any rate benefit from the District electric service. The District is unable to assess the impact the surcharge may have on its ability to attract new customers. As a response to the CPUC authorizing PG&E to impose charges on customers of the District, the District adopted its Schedule Investment Recovery Charge (“IRC”). Under Schedule IRC, customers of the District who depart to take service from another provider will be obligated to pay the District for the costs incurred by the District to serve the departing customer.

State Wildfire Fund Charge. On October 24, 2019, pursuant to California Public Utilities Code Section 3289, the CPUC issued a decision imposing a non-bypassable charge on ratepayers of IOUs that elect to participate in the State Wildfire Fund. Effective October 1, 2020, the non-bypassable Wildfire Fund Charge is collected from IOU ratepayers in the same manner as the prior CDWR bond charge (discussed above). As previously noted, the District provides electric service within a portion of a 400 square mile area designated by State law as the District’s non-exclusive service territory, which area is also within the service territory of PG&E. PG&E has elected to participate in the Wildfire Fund. The Wildfire Fund charge will apply to customers that depart bundled electric service from PG&E to take service from a municipal utility or that locate in the service area of an IOU but take service from a municipal utility in the first instance. To the extent the non-bypassable charge is imposed on customers served by the District, the surcharge will lessen the difference between the District’s rates and those charged by PG&E. The District is unable to assess the impact the new non-bypassable Wildfire Fund Charge may have on its ability to attract new customers.

Major Customers

The ten largest customers of the District’s Electric System for the twelve months ended December 31, 2020 accounted for approximately 22.9% of total kWh sales and approximately 15.4% of total energy sales revenues for such period. The largest customer accounted for 11.6% of total kWh sales and approximately 6.7% of total energy sales revenues. No other customer accounted for more than 2.3% of total kWh sales or more than 1.7% of total energy sales revenues. The ten largest customers of the District’s Electric System, in terms of GWh usage, for the twelve months ended December 31, 2020 are shown in the following table. See “– Rates and Charges” above.

MODESTO IRRIGATION DISTRICT LARGEST ELECTRIC CUSTOMERS (as of December 31, 2020)

Name Business GWh Usage E & J Gallo Winery Wine 299.5 Foster Farms Dairy Products 58.9 Con Agra Grocery Products Food Processing 42.0 Sutter Gould (includes Memorial Hospital) Medical 36.9 City of Modesto Municipal Government 33.3 Plastipak Packaging Packaging 27.0 Frito Lay, Inc. Food Processing 25.3 Graham Packaging Company Packaging 24.7 Diamond Pet Food Processor Pet Food Processor 24.5 Mercer Foods Food Processing 21.3 Total 593.4

Source: Modesto Irrigation District.

Customers, Energy Sales, Billed Revenues and Demand

The District’s number of customers, kWh sales and billed revenues derived from sales, by classification of service, as well as peak demand during the past five calendar years, are listed below.

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MODESTO IRRIGATION DISTRICT CUSTOMERS, ENERGY SALES, BILLED REVENUES AND DEMAND

Year Ended December 31, Preliminary 2015 2016 2017(2) 2018(3) 2019 2020 Number of Customers: Residential 96,583 97,471 97,935 99,191 100,189 101,915 Commercial 12,596 12,518 12,490 12,616 12,693 12,869 Industrial 156 159 156 147 130 139 Other 8,524 11,467 12,153 16,676 16,630 16,678 Total 117,859 121,615 122,734 128,630 129,642 131,601 Kilowatt-Hour Sales (000)(1): Residential 857,416 852,076 911,922 897,849 920,560 992,119 Commercial 722,612 717,227 733,670 698,465 702,304 668,793 Industrial 774,286 804,829 794,624 759,636 741,475 790,461 Other 128,416 128,995 121,805 129,852 122,056 136,735 Total 2,482,730 2,503,127 2,562,021 2,485,803 2,486,395 2,588,109 Revenues from Sale of Energy (000): Residential $153,964 $154,583 $162,406 $155,320 $159,953 $178,537 Commercial 103,807 103,917 103,690 100,127 101,287 96,024 Industrial 77,520 81,220 80,256 76,518 76,897 79,573 Other 17,306 17,094 16,117 16,679 15,801 17,848 Total $352,597 $356,816 $362,468 $348,644 $353,938 $371,983 Peak Demand (MW) 652 662 697 649 671 702

(1) After transmission and distribution line losses. (2) 2017 customer counts are as of August 31, 2017 and derived from the District’s legacy billing system. As of September 1, 2017, the District converted to a new billing system and year-end customer count information is not available. (3) Beginning in 2018, customer counts are based on the District’s new billing system. Source: Modesto Irrigation District.

Capital Requirements

As shown in the table below, the District expects capital requirements for its Electric System for 2021 and the next four years to aggregate approximately $172.2 million. The capital requirements are for the expansion of distribution facilities and other generation facility improvements and district improvements. Approximately $50.6 million of these requirements in 2021 are expected to be funded with proceeds of the MIDFA 2019A Bonds. It is expected that the remaining requirements will be funded from the District’s revenues and from future financings. See also “– COVID-19 Pandemic” above, for a discussion of certain impacts and potential impacts on the timing of District capital improvement plans due to the ongoing COVID-19 pandemic.

MODESTO IRRIGATION DISTRICT ELECTRIC SYSTEM CAPITAL IMPROVEMENT PLAN SUMMARY (Dollar amounts in millions)

Year Ending Projected Capital December 31 Requirements 2021 $40.1 2022 33.7 2023 34.4 2024 35.6 2025 28.4 Total: $172.2

Source: Modesto Irrigation District.

Employees and Employee Benefit Plans

General. As of January 1, 2021, the District had 428 full time employees. Of the District’s 428 full- time employees, it is estimated that 374 are represented by the International Brotherhood of Electrical Workers (“IBEW”). The current contract with IBEW became effective on January 1, 2018 and expires on December 31, 2022. There have been no work interruptions in the District’s history.

The District maintains two retirement plans and a retiree healthcare plan for its eligible employees. The Retirement Committee, appointed by the District’s Board of Directors, oversees the plans. Plan administrative functions are performed by the District’s Human Resources Department. All funds of the plans are separate assets of the plans and are not assets of the District.

Additional information regarding the District’s retirement plans and other post-employment benefits can be found in Notes 9 and 10 to the District’s audited financial statements for the years ended December 31, 2019 and 2018, which are included in Appendix A to this Official Statement.

Basic Retirement Plan. The Basic Retirement Plan is a single-employer defined benefit pension plan for eligible employees. The plan provides retirement, disability and death benefits to plan members and beneficiaries. The District issues publicly available stand-alone financial statements and required supplementary information for the Basic Retirement Plan that may be obtained by contacting the District.

The District has established, and may amend, the contribution requirements for plan members and the District. The terms of the Basic Retirement Plan empower the Retirement Committee of the District to make, at reasonable intervals, an analysis of the funding requirements of the plan for the payment of retirement benefits and expenses based on reasonable actuarial assumptions and methods which take into account the experience of the plan and the reasonable expectations, and on the basis of the analysis, to establish a funding policy for the plan. The District makes contributions to the Basic Retirement Plan at an actuarially determined rate. Prior to 2019, the District’s annual recommended contribution was determined in accordance with the projected unit credit actuarial method. Effective in 2019, the Entry Age Normal (“EAN”) cost method is used to determine the normal cost and actuarial accrued liabilities of the Basic Retirement Plan. Under the EAN cost method, the rate at which benefits are considered to be earned throughout a participant’s career increases in a stable manner, by the assumed annual salary scale. The annual normal cost is determined as a level percentage of pay necessary to fund a participant’s benefits over the entire period of active participation in the plan. The actuarial accrued liability is the excess of the present value of future benefits over the present value of future normal costs. The total actuarial accrued liability for all plan participants less the actuarial value of plan assets is the unfunded actuarial accrued liability. This calculation is performed as of each valuation date. Deviations in actual experience from the experience anticipated by the actuarial assumptions result in actuarial gains and losses, which reduce or increase, respectively, the unfunded actuarial accrued liability. The actuarial

value of assets is based on fair market valuations prepared by a brokerage service with gains and losses arising from the difference between the actual investment return and the assumed rate of return on plan assets recognized over three years (three-year smoothing) with no corridor. This means that the actuarial value of assets is equal to the market value of assets on the valuation date reduced by the sum of (i) 66.67% of gains and losses of the prior year and (ii) 33.33% of gains and losses of the second prior year. Contribution amounts under the EAN cost method are equal to the normal cost, plus amortization payments on unfunded actuarial accrued liabilities.

In August 2018, the Retirement Committee approved a funding policy that establishes a target funding level of 100% that is to be reached by the year 2039 and maintained at such level in subsequent years. By setting this target funding level, the Retirement Committee adopted a closed 20-year amortization period for the Basic Retirement Plan’s unfunded liability, starting in Fiscal Year ending December 31, 2019. As the end of the 20-year amortization period approaches, the volatility of contribution levels may increase. At such time, the Retirement Committee may consider adopting a smoothing mechanism that appropriately addresses the end-of-period issues consistent with conditions prevailing at the time. The terms of the Basic Retirement Plan state that, subject to the Board of Directors’ right to suspend or reduce contributions to the plan at any time, the District shall contribute to the plan at least once a year, the amounts necessary to maintain the plan on a sound actuarial basis, in a manner consistent with the funding policy established by the Retirement Committee.

The District is the sole participating employer and contributing sponsor for the Basic Retirement Plan. Prior to 1989, participants were allowed to make voluntary contributions, and prior to 1977, participating employees were required. The plan was amended as of January 1, 2013; new member employees are required to contribute an amount equal to one-half of the defined benefits’ normal cost through payroll deductions.

The table below sets forth the District’s actuarial determined contribution amounts, its actual employer contributions to the Basic Retirement Plan, and its contributions as a percentage of covered payroll for the five years ended December 31, 2015 through 2019 (the most recent final full year information available).

MODESTO IRRIGATION DISTRICT BASIC RETIREMENT PLAN CONTRIBUTIONS (Dollars in millions)

Actuarial Contributions as Year Ended Determined District Actual a percentage of December 31 Contribution Amount Contribution(1) Covered Payroll 2015 $12.057 $12.120 32% 2016 11.781 11.854 30 2017 12.833 13.155 32 2018 12.825 12.883 31 2019 18.261 75.862(2) 180

(1) The District made contributions in excess of the actuarially determined contribution in each year. (2) In December 2019, the District’s Board authorized pension contributions beyond the actuarial minimums in order to improve the funding status of the Basic Retirement Plan and reduce the cost to the District of carrying the unfunded liability. Such liability reducing contributions may occur in years in which the District reduces the outstanding principal of its bond debt, does not raise electrical rates, and expects year-end treasury reserves to exceed $200 million. Source: Modesto Irrigation District.

For the year ended December 31, 2020, the actuarially determined recommended contribution amount for the District’s employer contribution was $13.353 million. The District made a contribution of $16.2 million to the Basic Retirement Plan on January 2, 2020 in satisfaction of this contribution.

The actuarial value of assets of the Basic Retirement Plan as of January 1, 2020 (based on the most recent actuarial report available) was $353.510 million and the actuarial accrued liability was $417.291 million, resulting in a total unfunded actuarial accrued liability for the District for the Basic Retirement Plan of $63.781 million and a funded ratio of 84.7%. The market value of assets of the Basic Retirement Plan as of January 1, 2020 was $365.730 million.

Many assumptions are used to estimate the ultimate liability of pensions and the contributions that will be required to meet those obligations. One of the most significant factors used in determining the liability and the funding requirements is the assumed rate of return that investments will yield prior to making payments. The District’s Basic Retirement Plan currently utilizes an assumed rate of return of 6.90%, which is used in determining the actuarial accrued liability and funding requirements. If it is determined in the future that a lesser rate of return is more appropriate, there may be a significant increase in the unfunded liability and the contributions required to meet those obligations.

The market value of assets referred to above is based upon the most recent actuarial valuation as of January 1, 2020. Declines in the stock markets in the U.S. and globally occurred following the onset of the COVID-19 pandemic, and although some rebounds have occurred, significant volatility in the financial markets has continued. See also “– COVID-19 Pandemic.” The January 1, 2021 valuation report (which is expected to be available in April 2021) will be used to establish the recommended contribution requirements for the year ended December 31, 2021. The market value as of that date is not expected to have declined significantly, however, significant losses in market value or failure to achieve projected investment returns as a result of market conditions in the future could substantially increase unfunded pension liabilities and future pension costs. The asset valuation method utilized for the Basic Retirement Plan in determining the actuarial recommended contribution amounts is a smoothed fair market method as described above. As a result, the immediate fiscal impact of any one year’s negative return on the District’s contribution rates is moderated.

Effective January 1, 2015, the District implemented Governmental Accounting Standards Board (“GASB”) Statement No. 68, affecting the reporting of pension liabilities for accounting purposes. Under GASB Statement No. 68, the District is required to report the Net Pension Liability in its financial statements. GASB Statement No. 68 is for financial reporting only and does not affect funding requirements. When measuring pension liability for GASB Statement No. 68 reporting purposes, GASB uses the same actuarial cost method (EAN method) and the same expected return on assets as the District uses for funding. This means that the Total Pension Liability measure for financial reporting is determined on the same basis as the District’s actuarially accrued liability measure for funding. The actuarial value of assets (referred to as the Plan Fiduciary Net Position for GASB Statement No 68 reporting purposes) is equal to the market value of the assets as of measurement date. The Net Pension Liability is equal to the difference between the Total Pension Liability and the Plan’s Fiduciary Net Position. The significant assumptions used to determine the reported pension expense and pension liabilities for GASB Statement No. 68 reporting purposes may be found in Note 9 to the District’s audited financial statements as of and for the years ended December 31, 2019 and 2018.

The table below summarizes certain information relating to the Net Pension Liability of the Basic Retirement Plan as of the years ended December 31, 2015 through December 31, 2019. For financial reporting purposes, there is a one year lag in the measurement date used to record pension liabilities in the District’s financial statements. Therefore, the information provided for the year ended December 31, 2018 in the table below is the same as that reported in the District’s audited financial statements as of December 31, 2019.

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MODESTO IRRIGATION DISTRICT BASIC RETIREMENT PLAN PENSION LIABILITY INFORMATION (Dollars in millions)

Net Position Net Pension Plan as a % of Liability as a Year Ended Total Pension Fiduciary Net Net Pension Total Pension % of Covered December 31(1) Liability Position Liability(1) Liability Payroll 2015 $322.159 $228.712 $ 93.447 70.99% 244.56% 2016 337.887 241.913 95.974 71.60 245.38 2017 356.431 276.164 80.267 77.48 194.47 2018 372.412 256.128 116.284 68.78 282.48 2019 417.291 365.730 51.561 87.64 122.20

(1) The District uses a one year lag in its measurement date to record its pension liabilities in its financial statements. Therefore, the information as of December 31, 2018 above is the same as that reported in the District’s audited financial statements as of December 31, 2019. Source: Modesto Irrigation District.

Supplemental Plan. In addition to the Basic Retirement Plan, eligible employees also participate in the District’s Supplemental Plan, which is a defined contribution plan and serves as a partial or full replacement of social security for participants, depending on the date of employment. Participants contribute 5% of their compensation on a pre-tax basis which contributions the District wholly matches.

MODESTO IRRIGATION DISTRICT SUPPLEMENTAL PLAN CONTRIBUTIONS (Dollars in millions)

Year Ended District December 31(1) Contribution Amount 2015 $1.895 2016 2.092 2017 2.205 2018 2.273 2019 2.335

Retiree Medical Plan. The District also provides health care benefits to qualified retirees and their spouses through its Retiree Medical Plan, which constitute other post-employment benefits (“OPEB”). The Retiree Medical Plan is a single-employer defined benefit healthcare plan. Plan provisions and contribution requirements are established, and may be amended, by the District’s Board.

The District contributes the full cost of coverage for employees who retired before 1992; employees who retired in 1992 and thereafter pay a portion of the monthly premium for eligible dependent coverage and the District pays the remainder of the cost of the plan. Covered retirees are also responsible for personal deductibles and co-payments. The District pays for post-retirement dental and vision care for retirees only to age 65. The terms of the Retiree Medical Plan Agreement grants the authority to establish and amend the benefit terms to the Retirement Committee.

The terms of the Retiree Medical Plan Agreement grants the authority to establish and amend the contribution requirements of the District and the Retiree Medical Plan members to the Retirement Committee. The Retiree Medical Plan Agreement directs the District to make contributions based on an actuarially determined rate. The District reserves the right to suspend or reduce the contributions otherwise payable to the Retiree Medical Plan by the District.

In accordance with GASB Statement Nos. 74 and 75, the normal cost of the OPEB plan is determined under the Individual Entry Age cost method. For each active employee, the discounted present value of all future post-employment benefits is determined using various assumptions, including among other things, a discount rate and assumed rate of return. The District’s OPEB plan currently utilizes an assumed rate of return of 6.90%. The total actuarial accrued liability for all OPEB plan participants less the actuarial value of plan assets is the unfunded actuarial accrued liability. This calculation is performed as of each valuation date. Deviations in actual experience from the experience anticipated by the actuarial assumptions result in actuarial gains and losses, which reduce or increase, respectively, the unfunded actuarial accrued liability. For purposes of the actuarially determined contribution, the unfunded actuarial accrued liability in 2020 is amortized over 17 years (decreasing annually from 30 years in 2007). The actuarial value of assets is equal to the market value of assets on the valuation date reduced by the sum of (i) 66.67% of gains and losses of the prior year and (ii) 33.33% of gains and losses of the second prior year.

The table below sets forth the District’s actuarial determined trust contribution amounts, its actual contributions to the Retiree Medical Plan Trust, and its contributions as a percentage of covered payroll for the years ended December 31, 2017 through December 31, 2019. The actuarially determined contribution amount is the sum of the normal cost, the expense load, and the amortization of the unfunded liability. Funds contributed by the District go to the Trust and to directly paid healthcare benefits. The funding policy of the Retiree Medical Plan calls for funds to be accumulated in the Trust until the Plan has a funded ratio of greater than 80%, at which time benefits will begin to be paid from the Trust. During the accumulation phase, when the District is paying benefit costs directly to health care providers, the annual Trust contribution will be the excess, if any, of the Actuarial Determined Employer Contribution (“ADEC”) over the amount of the directly paid benefit costs, and will be no less than the normal cost. Currently, the healthcare benefits directly paid by the District exceed the ADEC, so the District is required to contribute the normal cost amount into the Trust.

MODESTO IRRIGATION DISTRICT RETIREE MEDICAL PLAN TRUST CONTRIBUTIONS (Dollars in millions)

Actuarial Contributions as Year Ended Determined District Actual a percentage of December 31 Contribution Amount Contribution Covered Payroll 2017 $1.646 $1.839 4.51% 2018 2.426 2.426 5.76 2019 2.092 2.093 4.77

Source: Modesto Irrigation District.

Although, in most instances, the employer does not pay for retiree health benefits until after an employee has retired, the total anticipated OPEB cost must be recognized during the employees working years, in accordance with GASB Statement Nos. 74 and 75 (discussed below). For the year ended December 31, 2020, the actuarially determined recommended contribution amount for the District’s employer contribution to the OPEB plan is $6.136 million, reflecting an end-of year normal cost of $2.195 million and an end-of year amortization of the unfunded actuarial liability over 17 years of $3.940 million. In addition to paying direct healthcare benefits that will exceed $6.136 million, the District made contributions to the Retiree Medical Plan Trust of $1.901 million on January 2, 2020 and $0.158 million on July 1, 2020.

The actuarial value of assets of the Retiree Medical Plan Trust as of January 1, 2020 was $62.157 million and the actuarial accrued liability was $112.899 million, resulting in a total unfunded actuarial accrued liability for the District for the plan of $50.742 million and a funded ratio of 55.0%. The market value of assets of the Retiree Medical Plan Trust as of January 1, 2020 was $64.634 million.

As noted above, the COVID-19 pandemic and related economic consequences have disrupted financial markets. Following its onset, significant stock market declines were experienced and substantial

volatility in the market continues. Declines in the market value of the OPEB plan trust fund or failure to achieve projected investment returns could negatively affect the funding status of the trust fund and increase actuarial determined contribution amounts in the future. See also “– COVID-19 Pandemic.”

In June 2015, GASB approved Statements No. 74 and No. 75 affecting the reporting of OPEB liabilities for accounting purposes. GASB Statement No. 74 generally applies to defined benefit and defined contribution OPEB plans that are administered through trusts that meet certain specified criteria. GASB Statement No. 74 requires the establishment of a net OPEB liability of the trust to be measured as the total OPEB liability, less the amount of the OPEB plan’s fiduciary net position. GASB Statement No. 75 applies to employers that sponsor OPEB plans. GASB Statement No. 75 establishes standards for employers for recognizing and measuring net OPEB liabilities, along with deferred inflows and outflows of resources, and expenses/expenditures related to the other postemployment liability. GASB Statement No. 74 replaces GASB Statements No. 43 and No. 57 and GASB Statement No. 75 replaces GASB Statement No. 45. GASB Statement No. 74 was first recognized in the District’s financial statements for Fiscal Year ended December 31, 2017, and GASB Statement No. 75 was first recognized in District’s financial statements for Fiscal Year ended December 31, 2018. The significant assumptions used to determine the reported OPEB liabilities for GASB Statement No. 75 reporting purposes may be found in Note 9 to the District’s audited financial statements as of and for the years ended December 31, 2019 and 2018. GASB Statements No. 74 and No. 75 do not affect funding requirements.

The table below summarizes certain information relating to the Net OPEB Liability of the Retiree Medical Plan as of the years ended December 31, 2017 through December 31, 2019. For financial reporting purposes, there is a one year lag in the measurement date used to record OPEB liabilities in the District’s financial statements. Therefore, the information provided for the year ended December 31, 2018 in the table below is the same as that reported in the District’s audited financial statements as of December 31, 2019.

MODESTO IRRIGATION DISTRICT OPEB LIABILITY INFORMATION (Dollars in millions)

Net Position Net OPEB Plan as a % of Liability as a Year ended Total OPEB Fiduciary Net Net OPEB Total OPEB % of Covered December 31(1) Liability Position Liability(1) Liability Payroll 2017 $179.652 $52.180 $127.472 29.05% 312.41% 2018 148.946 51.676 97.270 34.69 230.99 2019 142.122 64.633 77.489 45.48 176.56

(1) The District uses a one year lag in its measurement date to record its Net OPEB Liability in its financial statements. Therefore, the information as of December 31, 2018 above is the same as that reported in the District’s audited financial statements as of December 31, 2019. Source: Modesto Irrigation District.

Indebtedness

Electric System Revenue Obligations. As of February 1, 2021, the District had outstanding approximately $466.010 million in aggregate principal amount (i) payable under lease agreements and an installment purchase contract relating to revenue bonds issued for the District by the Modesto Irrigation District Financing Authority (the “MIDFA Bonds”) and (ii) payable with respect to revenue refunding bonds issued by the District (the “District Refunding Bonds”). Obligations of the District under and with respect to such lease agreements, installment purchase contract and District Refunding Bonds are payable from Electric System revenues of the District after payment of Maintenance and Operation Costs of the District’s Electric System. The outstanding MIDFA Bonds and District Refunding Bonds are summarized in the table below.

MODESTO IRRIGATION DISTRICT OUTSTANDING ELECTRIC SYSTEM INDEBTEDNESS (as of February 1, 2021)

Original Principal Principal Amount Name of Issue Amount Outstanding

MIDFA Bonds Revenue Bonds, Series 2010A(1) $ 60,325,000 $ 48,095,000 Revenue Bonds, Series 2015A 67,690,000 67,690,000 Revenue Bonds, Series 2015B 30,190,000 25,650,000 Revenue Bonds, Series 2019A 47,355,000 47,355,000 Refunding Revenue Bonds, Series 2019B 48,495,000 44,635,000 District Refunding Bonds Refunding Revenue Bonds, Series 2011A(2) 125,380,000 43,075,000 Refunding Revenue Bonds, Series 2011C(2) 32,840,000 32,450,000 Refunding Revenue Bonds, Series 2012A 90,065,000 67,275,000 Refunding Revenue Bonds, Series 2016 95,240,000 54,865,000 Refunding Revenue Bonds, Series 2020 34,920,000 34,920,000 Total $632,500,000 $466,010,000

(1) Taxable Build America Bonds. (2) The outstanding Series 2011A and 2011C District Refunding Bonds are expected to be refunded in full with proceeds of the 2021 Bonds. See “PLAN OF REFUNDING.” Source: Modesto Irrigation District.

Water Obligations. As of February 1, 2021, the District had outstanding approximately $104.5 million in revenue obligations (“Water Obligations”) which were issued to finance the District’s Modesto Regional Water Treatment Plant used to treat water owned by the District and sold to the City of Modesto. The City of Modesto is the single wholesale customer. The Water Obligations are payable from municipal water services charges to be paid by the City of Modesto pursuant to the Treatment and Delivery Agreement for the treatment and use of potable water in its municipal water system. The District has covenanted, however, that in the event treatment and delivery revenues received from the City of Modesto are insufficient to pay in full any amount then due on the Water Obligations, due to the suspension of the City of Modesto’s obligation to pay or otherwise, an authorized District representative shall submit to the Board of Directors of the District a special budget item requesting a special appropriation from the Board of Directors of the District of the amount of such insufficiency; provided, however, the Board of Directors of the District shall have absolute discretion in determining whether such a special appropriation shall be made, and a determination not to make a special appropriation shall not in and of itself constitute an event of default under the Water Obligations.

Take-or-Pay; Joint Powers Agency Obligations. As previously discussed, the District participates in certain joint powers agencies, including TANC and M-S-R PPA, which have issued joint powers agency debt to finance the costs of certain projects on behalf of their respective project participants. Obligations of the District under its agreements with respect to M-S-R PPA and TANC, including obligations for the payment of debt service costs on indebtedness issued by such joint powers agencies, constitute Maintenance and Operation Costs of the District’s Electric System and are paid before the District’s direct outstanding Electric System indebtedness described above. Agreements with TANC and M-S-R PPA are on a “take-or-pay” basis, which requires payments to be made whether or not projects are completed or operable, or whether output from such projects is suspended, interrupted or terminated. In addition, these agreements contain “step-up” provisions obligating the District to pay a share of the obligations of a defaulting participant.

As described herein, the District also participates in M-S-R EA and has certain payment obligation in connection therewith which constitute Maintenance and Operation Costs of the District’s Electric System.

However, the District’s payment obligation to M-S-R EA is with respect to actual quantity of natural gas delivered each month on a take-and-pay (rather than take-or-pay) basis, with the obligation to make payments being contingent upon delivery of the purchased commodity. Responsibility for bond repayment is non- recourse to the District. See “– Fuel Supply – M-S-R Energy Authority–Gas Prepay” above. In addition, as described herein, the District has certain payment obligations under the NCPA LEC Power Sales Agreement in connection with the Lodi Energy Center which constitute Maintenance and Operation Costs of the District’s Electric System. However, the District has no obligation with respect to debt service costs on bonds issued by NCPA on behalf of the other LEC Project Participants to finance their respective shares of the construction costs of the Lodi Energy Center. See “– Power Supply Resources – Purchased Power – Lodi Energy Center Project” above.

The District’s participation and share of debt service obligation (without giving effect to any “step-up” provisions) for the TANC and M-S-R PPA projects in which it participates are shown in the following table.

MODESTO IRRIGATION DISTRICT OUTSTANDING DEBT OF JOINT POWERS AGENCIES (Dollar amounts in millions) (as of February 1, 2021)

Outstanding District District Share of Debt Participation(1) Outstanding Debt M-S-R PPA San Juan Unit No. 4 ...... $ 51.6 50.000% $25.8 TANC COTP Bonds ...... 172.0 23.829(2) 41.0 TOTAL ...... $223.6 $66.8

(1) Participation based on actual debt service obligation. Participation obligation is subject to increase upon default of another project participant. Such increase shall not exceed, without the written consent of a non-defaulting participant, an accumulated maximum of 25% of such non-defaulting participant’s original participation. (2) Debt service obligation varies depending on bond purposes. Includes the District’s obligations under certain layoff agreements. See “Transmission Resources – TANC California-Oregon Transmission Project” above. Source: Modesto Irrigation District.

For the year ended December 31, 2020, the District’s annual obligations for debt service on its joint powers agency obligations described in the table above aggregated approximately $16.7 million. The District’s share of debt service on such joint powers agency obligations is expected to decrease to approximately $16.5 million in calendar year 2022 (the final maturity of the outstanding M-S-R PPA Bonds) and decline thereafter, with the District’s annual obligations for debt service costs ranging from a low of approximately $2.6 million to a high of approximately $3.5 million in calendar years 2024 through 2039 (the final maturity of the TANC COTP Bonds). This projection assumes no future debt issuances.

Financial Management Policies

The District’s Board has adopted financial management policies that include, among other things, guidelines for debt service coverage and the maintenance of formal reserves. The District’s policy is to seek to maintain a debt service coverage ratio of 1.25 on the sum of the outstanding debt service obligations with respect to its joint powers agency obligations (as referenced in the table entitled “Modesto Irrigation District Electric System Statement of Historical Revenues and Expenses and Debt Service Coverage Ratios” under “– Condensed Historical Operating Results and Balance Sheet Information” below, “JPA Obligation Service”) and its long-term Electric System revenue obligations (as referenced in the table entitled “Modesto Irrigation District Electric System Statement of Historical Revenues and Expenses and Debt Service Coverage Ratios” under “– Condensed Historical Operating Results and Balance Sheet Information” below, “Direct Debt

Service”). The District has also adopted a policy to maintain operating reserves equal to 120 days of operating expenses. The District achieved all such policy objectives for the Fiscal Year ended December 31, 2020.

Condensed Historical Operating Results and Balance Sheet Information

The following table sets forth summaries of Electric System revenues and expenses and debt service information for the four years ended December 31, 2016 through December 31, 2019, and preliminary information for the year ended December 31, 2020. Also included in the table is selected balance sheet information as of the end of such periods.

The revenues, maintenance and operation costs and selected balance sheet information relating to December 31, 2016 through December 31, 2019 and the full year periods then ended was derived from the District’s audited financial statements. The information for the year ended December 31, 2020 is preliminary, based on unaudited financial information and remains subject to revision and amendment.

No independent auditor has audited the financial table below or other financial information or data included in this Official Statement, other than the audited financial statements as of and for the years ended December 31, 2019 and 2018 included in Appendix A to this Official Statement. A complete review of the audited financial statements and notes to such financial statements set forth in Appendix A is integral to an understanding of all such other financial information and data included herein.

The following table also sets forth debt service coverage ratios with respect to the District’s outstanding Electric System revenue obligations for the full fiscal years ended December 31, 2016 through December 31, 2019, and preliminary debt service coverage ratios for the year ended December 31, 2020, computed in accordance with the instruments authorizing such Electric System revenue obligations.

The financial information in the table below is primarily in relation to dates and for periods prior to any economic impacts of the COVID-19 pandemic and the measures instituted to respond to it (with the exception of the applicable period covered in the preliminary information for the year ended December 31, 2020). Because of the unprecedented nature of the COVID-19 pandemic, such historical data is not necessarily indicative of the current or expected future performance of the Electric System. See “– COVID-19 Pandemic” above.

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MODESTO IRRIGATION DISTRICT ELECTRIC SYSTEM STATEMENT OF HISTORICAL REVENUES AND EXPENSES AND DEBT SERVICE COVERAGE RATIOS (Dollar amounts in 000’s)

Fiscal Year Ended December 31, Preliminary 2016 2017 2018 2019 2020 Revenue: Retail Electric Sales(1) $356,816 $362,468 $348,644 $353,938 $371,983 Wholesale Electric Sales(2) 6,997 10,754 13,723 17,298 7,974 Other Income(3) 16,537 15,336 17,205 18,671 14,683 Total System Revenues $380,350 $388,558 $379,572 $389,907 $394,640

Maintenance & Operation: Purchased Power(4) $174,009 $158,287 $154,389 $157,611 $168,636 Power Generation(5) 35,084 39,515 34,502 32,101 28,724 Maintenance & Operation 73,857 78,512 78,262 81,874 91,018 Total Maintenance & Operation $282,950 $276,314 $267,153 $271,586 $288,378 Net Electric System Revenue $ 97,400 $112,244 $112,419 $118,321 $106,262 Use of Reserves(6) ------JPA Obligation Service(7) 23,187 20,669 18,276 16,195 16,351 Adjusted Net Electric System Revenue(8) $120,587 $132,913 $130,695 $134,516 $122,613 Debt & Obligation Service: Direct Debt Service $ 58,366 $ 63,625 $ 61,515 $ 61,261 $ 57,958 JPA Obligation Service(7) 23,187 20,669 18,276 16,195 16,351 Total Debt & Obligation Service $ 81,553 $ 84,294 $ 79,791 $ 77,456 $ 74,309 Debt Service Coverage(9) 1.67 1.76 1.83 1.93 1.83 Adjusted Debt Service Coverage(10) 1.48 1.58 1.64 1.74 1.65 Selected Balance Sheet Information: System Fund Balance $155,432 $146,296 $155,405 $148,259 $147,046 Rate Stabilization 53,750 53,750 53,750 53,750 53,750 General Fund Balance(11) $209,182 $200,046 $209,155 $202,009 $200,796 Net Plant in Service $675,855 $687,331 $672,855 $655,698 $611,615 Construction Work in Progress 41,343 30,342 34,946 47,214 88,282 Total Capital Assets $717,198 $717,673 $707,801 $702,912 $699,897

(1) Includes accrued revenues. (2) Decline in wholesale power revenue in 2016 primarily due to lower wholesale energy sales as the District procured less additional resources to meet the District’s native load and decreased demand. See “– Wholesale Power” above. (3) Interest income and miscellaneous income. (4) Represents costs of purchased power from all sources, including joint powers agencies (a portion of which costs includes JPA Obligation Service). Includes purchases made as part of the District’s wholesale energy activities. (5) Represents District-owned generation resources. (6) Represents lawfully available funds budgeted by the District to be used for Maintenance and Operation Costs of the District’s Electric System or debt service which are used for the purpose of the debt service coverage calculation. (7) Represents debt service on the District’s percentage share of indebtedness of M-S-R PPA and TANC. (8) Represents Net Electric System Revenues plus JPA Obligation Service and Use of Reserves. (9) Represents Total System Revenues plus Use of Reserves less Maintenance and Operation Costs divided by Direct Debt Service. (10) Represents Adjusted Net Electric System Revenues divided by Total Debt & Obligation Service. (11) Represents the total unrestricted cash and investments of the District. Source: Modesto Irrigation District.

Litigation Affecting the Electric System

General. At any given time, including the present, there are certain claims and disputes, including those currently in litigation, that arise in the normal course of the District’s activities. Certain of such matters are described below. Such matters could, if determined adversely to the District, affect expenditures by the District, and in some cases, its revenues. The District’s management and the District’s General Counsel are of the opinion that none of the pending actions, including those described below, if determined adversely to the District, would individually or in the aggregate materially impair the District’s ability to pay debt service on its indebtedness, including the 2021 Bonds.

Litigation Challenging Electric Rates. A class action lawsuit challenging the District’s electric rates, Hobbs v. Modesto Irrigation District (“Hobbs”), filed in March 2016, alleges that the District uses funds collected from electric customers to subsidize its water operations and, as a result, amounts collected and applied for electric service exceed the costs to the District of providing that service and constitute a tax on its electric customers requiring voter approval under Proposition 26, and seeks refunds of the alleged illegal taxes. The District disagrees with the plaintiffs’ contention that costs of its water operations are funded from electric rates and is vigorously defending the Hobbs action.

The bench trial of the liability portion of the Hobbs lawsuit in the Stanislaus County Superior Court occurred on September 27, 2019 and December 15, 2019 and a ruling was rendered on December 31, 2019 in favor of the plaintiffs. The ruling concluded that the District’s 2016 rates violate Proposition 26, a 2010 initiative amendment to the California Constitution. The remedies, including the amount of any refund liability of the District, will be determined in a second phase of trial. The parties are now engaged in discovery in support of the remedies phase of trial, and no trial date has been set. A status conference is scheduled for March 15, 2021. At this time, the District is unable to predict the ultimate outcome of such litigation or the extent to which remedies against the District may be available if the plaintiffs ultimately prevail in the lawsuit, although refund liability will be limited to (i) the class of litigants (all electric ratepayers who are not also irrigation customers or court employees) and (ii) the period from February 19, 2015 (one year before the date the claim was filed for the class) through December 31, 2018, the last day the rates challenged in this case were in effect. The portion of the District’s electric rates for which a refund is sought was not specified in the original complaint in the Hobbs lawsuit and is subject to determination at the remedies phase of trial. However, plaintiffs have argued that the entire shortfall between the District’s estimated cost of irrigation service and the proceeds of irrigation rates is their measure of damages. If the Court agrees (and the District contends it should not), the District estimates the magnitude of refunds based on the plaintiff’s trial brief, to be a one-year liability of $10.3 million. Multiplied by the 3.5 years expected between the claim date and the last date the challenged rates were in effect, that claim would produce an estimated refund liability of approximately $36 million, although it should be emphasized that such amount cannot be predicted with certainty pending a final judgment in the action. Moreover, any decision by the Superior Court is subject to possible appeal by either party.

The plaintiff class has also filed suit to challenge the re-adoption by the District in December 2018 of its electric rates (which rates were unchanged from the prior rates), also under Proposition 26. This claim is currently tolled by agreement of the parties pending the outcome of the Hobbs case. The District expects to assert a further available defense to the new potential claim and to vigorously defend this new matter. The District is unable to predict at this time the outcome of this matter or what the ultimate effect may be on the District’s current or future electric rates. However, the District does not currently expect that either the original Hobbs lawsuit or the threatened additional action would result in any material impairment of the ability of the District to timely pay the 2021 Bonds or to comply with its rate covenant under the Indenture.

Operations Under Mandatory Reliability Standards. The District is subject to mandatory electric reliability standards (“Reliability Standards”) promulgated in primary part by NERC and enforced by WECC. Violations of such standards can result in financial penalties. See “CERTAIN FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY – Federal Energy and Environmental Policies and Legislation – Energy Policy Act of 2005.” The District is subject to a regularly scheduled (three-year cycle) audit of its Reliability

Standards compliance by WECC, the most recent of which is taking place in 2020. In addition, the District from time-to-time self-identifies issues. These potential issues involve possible minor lapses in technical upkeep which have been or are promptly remediated. Any self-reports are evaluated by WECC, and if determined to be an alleged violation by WECC, WECC can take several courses of action, from issuing a compliance exception with zero penalty to proposing a fine or sanction. The District has no open enforcement actions with WECC at this time.

Other Matters. The District closely monitors and participates in FERC proceedings involving the administration of the organized electricity markets operated by the CAISO. A key issue that the District is monitoring involving the CAISO is regional expansion, which at the present time involves primarily the development of an energy imbalance market, which extends certain CAISO real-time services to utilities located in the western United States outside of the CAISO’s footprint, and in which the District will begin to participate on March 25, 2021. See “– Interconnections, Local Transmission and Distribution Facilities” above. The potential extension of CAISO day-ahead services is being studied. Other litigation involves the IOUs’ wholesale Transmission Access Charge (“TAC”) rates, which the District pays via the CAISO’s Wheeling Access Charge. PG&E has filed at FERC a series proposed increases in PG&E’s wholesale electric rates via the CAISO’s TAC and Wheeling Access Charges. The District and other affected wholesale customers litigated one significant rate increase (the “TO-18” rate case) before FERC and achieved positive results before an Administrative Law Judge and FERC. That outcome is subject to continued review by FERC, including on the issue of return on equity. The District and other entities settled a subsequent rate increase (the “TO-19” rate case), which sets a PG&E revenue requirement as a percentage of the outcome of litigation in the TO-18 rate case. PG&E has also filed a further, subsequent rate case (the “TO-20” rate case), which changes the mechanism for computing wholesale rates to a formula basis. The District has settled issues in that proceeding, and PG&E’s rates are subject to annual updates in which the District has opportunities for participation. Through FERC processes, the District monitors and seeks reasonable adjustments to other IOU rates which are incorporated into the TAC and Wheeling Access Charges, such as those periodically proposed by Southern California Edison Company (“SCE”) and San Diego Gas & Electric Company (“SDG&E”). The potential cost increase to the District from these several proposed changes to the CAISO rates is determined at least in part by usage of the CAISO-controlled transmission grid and cannot be determined at this time.

RATE REGULATION

The District sets rates, fees and charges for electric service. The authority of the District to impose and collect rates and charges for electric power and energy sold and delivered is not subject to the general regulatory jurisdiction of the CPUC and presently neither the CPUC nor any other regulatory authority of the State of California nor FERC approves such rates and charges. It is possible that future statutory and/or regulatory changes could subject the rates and/or service area of the District to the jurisdiction of the CPUC or to other limitations or requirements. See “CONSTITUTIONAL LIMITATIONS IN CALIFORNIA AFFECTING FEES AND CHARGES” for a discussion of certain voter-approved constitutional measures affecting the imposition of fees and charges by governmental agencies in the State. See also “MODESTO IRRIGATION DISTRICT – Litigation Affecting the Electric System – Litigation Challenging Electric Rates” for a discussion of ligation that has been filed against the District relating to its electric rates.

FERC could potentially assert jurisdiction over rates of licensees of hydroelectric projects and customers of such licensees under Part I of the Federal Power Act, although it has not as a practical matter exercised or sought to exercise such jurisdiction to modify rates that would legitimately be charged. If it did assert such jurisdiction, the result might have some significance for the District through its hydroelectric projects.

Under provisions of the Federal Power Act, FERC has the authority, under certain circumstances and pursuant to certain procedures, to order certain utilities (municipal, distribution cooperative or otherwise) to provide transmission access to others at FERC-approved rates. See “CERTAIN FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY.”

The CEC is authorized to evaluate rate policies for electric energy as related to the goals of the Energy Resources Conservation and Development Act and to make recommendations to the Governor, the Legislature and publicly owned electric utilities.

CERTAIN FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY

The following discussion of legislative, regulatory and other factors affecting the electric utility industry should be considered when evaluating the District and considering an investment in the 2021 Bonds. This discussion does not purport to be comprehensive or definitive, and these matters are subject to change subsequent to the date hereof. The electric industry has historically been subject to continuing legislative and administrative reform. The District cannot predict at this time whether any additional legislation or rules will be enacted which will affect the District’s finances or Electric System operations, but the impacts could be significant. Extensive information on the electric utility industry is available from the legislative and regulatory bodies and other sources in the public domain, and potential purchasers of the 2021 Bonds should obtain and review such information. Such information is not incorporated herein by reference.

Federal Energy and Environmental Policies and Legislation

Energy Policy Act of 2005. Although the District is exempt from most federal rate regulation pursuant to Section 201(f) of the Federal Power Act (see “RATE REGULATION”), EPAct 2005 imposed specific exceptions. In particular, FERC was given authority over the behavior of market participants. Under FERC’s authority it can impose penalties on any seller for using a manipulative or deceptive device, including market manipulation, in connection with the purchase or sale of energy or of transmission service. The Commodity Futures Trading Commission (“CFTC”) also has jurisdiction to enforce certain types of market manipulation or deception claims under the Commodity Exchange Act.

EPAct 2005 authorized FERC to issue permits to construct or modify transmission facilities located in a national interest electric transmission corridor if FERC determines that the statutory conditions are met. EPAct 2005 also required the creation of an electric reliability organization (“ERO”) to establish and enforce, under FERC supervision, mandatory Reliability Standards to increase system reliability and minimize blackouts. The Reliability Standards apply to users, owners and operators of the Bulk-Power System, as more specifically set forth in each Reliability Standard. On February 3, 2006, FERC issued Order 672, which certified NERC as the ERO. Many Reliability Standards have since been approved by FERC. The Reliability Standards include requirements related to cyber and physical security of systems that could affect the reliable operation of the electric grid.

The ERO or the entities to which NERC has delegated enforcement authority through an agreement approved by FERC (“Regional Entities”), such as the WECC, may enforce the Reliability Standards, subject to FERC oversight, or FERC may independently enforce them. Potential monetary sanctions include fines in excess of $1 million per violation per day. FERC Order 693 further provided the ERO and Regional Entities with the discretion necessary to assess penalties for such violations, while also having discretion to calculate a penalty without collecting the penalty if circumstances warrant.

See “MODESTO IRRIGATION DISTRICT – Litigation Affecting the Electric System – Operations Under Mandatory Reliability Standards.”

Federal Regulation of Transmission Access. EPAct 2005 authorizes FERC to compel “open access” to the transmission systems of certain utilities that are not generally regulated by FERC, including municipal utilities if the utility sells more than four million MWhs of electricity per year. Under open access, a transmission provider must allow all customers to use the system under standardized rates, terms and conditions of service.

FERC Order No. 888 requires the provision of open access transmission services on a nondiscriminatory basis by all “jurisdictional utilities” (which, by definition, does not include municipal

entities like the District) by requiring all such utilities to file Open Access Transmission Tariffs (“OATTs”). Order No. 888 also requires “non-jurisdictional utilities” (which, by definition, does include the District) that purchase transmission services from a jurisdictional utility under an open access tariff and that owns or controls transmission facilities to provide open access service to the jurisdictional utility under terms that are comparable to the service that the non-jurisdictional utility provides itself. Section 211A of the EPAct 2005 authorizes, but does not require, FERC to order unregulated transmission utilities to provide transmission services. Specifically, FERC may require an unregulated transmitting utility to provide access to their transmission facilities (1) at rates that are comparable to those that the unregulated transmitting utility charges to itself; and (2) on terms and conditions (not relating to rates) that are comparable to those under which the unregulated transmitting utility provides transmission services to itself that are not unduly discriminatory or preferential.

On February 16, 2007, FERC issued Order 890, which concluded that reform of its pro forma OATT was necessary to reduce the potential for undue discrimination and provide clarity in the obligations of transmission providers and customers. Significantly, in Order 890 FERC stated that it will implement its authority under Section 211A with respect to unregulated transmitting utilities on a case-by-case basis and retain the current reciprocity provisions.

On July 21, 2011, FERC issued Order 1000, which among other things requires public utility (jurisdictional) transmission providers to participate in a regional transmission planning process that produces a regional transmission plan and that incorporates a regional and inter-regional cost allocation methodology. Further, FERC states that it has the authority to allocate costs to beneficiaries of transmission services, even in the absence of a contractual relationship between the owner of the transmission facilities and the beneficiary. Under EPAct 2005, FERC may not require municipal utilities to join regional transmission organizations, in which participating utilities allow an independent entity to oversee operation of the utilities’ transmission facilities. FERC has stated, however, that FERC expects such utilities to participate in the regional processes for transmission planning and that FERC will pursue associated complaints against such utilities on a case-by- case basis.

Federal Policy on Cybersecurity. In February 2013, then-President Obama issued an Executive Order “Improving Critical Infrastructure Security” (the “Cybersecurity Order”). Among other things, the Cybersecurity Order called for improved information sharing and processing of security clearances for owners and operators of critical infrastructure. The Cybersecurity Order further required the Secretary of Commerce to direct the National Institute of Standards and Technology (“NIST”) to lead the development of a framework (“Framework”) to reduce cyber risks to critical infrastructure. The voluntary Framework will continue to be updated and improved as industry provides feedback on implementation.

The Cybersecurity Information Sharing Act of 2015 was signed into law in December 2015. It creates an industry-supported, voluntary cybersecurity information sharing program which facilitates the secure sharing of cyber-related threat information among both public and private sector entities. The District participates in sharing and receiving information about cybersecurity threats in real time through several hubs, including the Electricity Information Sharing and Analysis Center (E-ISAC) and the National Cybersecurity and Communication Integration Center, as tools to actively manage risk related to potential cyber intrusion.

Regulatory Actions Under the Clean Air Act. The United States Environmental Protection Agency (the “EPA”) regulates GHG emissions under existing law by imposing monitoring and reporting requirements, and through its permitting programs. Like other air pollutants, GHGs are regulated under the Clean Air Act through the Prevention of Significant Deterioration (“PSD”) Permit Program and the Title V Permit Program. A PSD permit is required before commencement of construction of new major stationary sources or major modifications of a major stationary source and requires best available control technologies (“BACT”) to control emissions at a facility. Title V permits are operating permits for major sources that consolidate all Clean Air Act requirements (arising, for example, under the Acid Rain, New Source Performance Standards, National Emission Standards for Hazardous Air Pollutants, and/or PSD programs) into a single document and the permit process provides for review of the documents by the EPA, state agencies and the public. GHGs

from major natural gas-fired facilities are regulated under both permitting programs through performance standards imposing efficiency and emissions standards.

On October 23, 2015, under the Obama Administration, the EPA published the Clean Power Plan and final regulations for (1) carbon pollution standards for new, modified, and reconstructed power plans, and (2) carbon pollution emission guidelines for existing electric generating units (“EGUs”). The total national emissions reduction goal under the Clean Power Plan targeted an average of a 32% reduction from 2005 levels by 2030, with incremental interim goals for the years from 2022 through 2029. The Clean Power Plan allowed states multiple options for measuring reductions and established different reduction goals depending upon the regulatory program set forth in the state plan.

On March 28, 2017, President Trump signed the Executive Order on Energy Independence (E.O. 13783), which called for a review of the Clean Power Plan. On October 16, 2017, a Notice of Proposed Rulemaking was published in the Federal Register that proposed to repeal the Clean Power Plan, under the premise that it exceeded EPA’s statutory authority under Section 111 of the Clean Air Act. On December 28, 2017, an Advance Notice of Proposed Rulemaking was published in the Federal Register proposing a new GHG emission limit rule for existing EGUs. On July 8, 2019, the EPA published its final “Affordable Clean Energy” rule in the Federal Register, and on September 6, 2019, the final rule became effective.

The final Affordable Clean Energy rule: (i) replaced the Clean Power Plan with revised emissions guidelines that inform the development, submittal, and implementation of state plans to reduce GHG emissions from fossil fuel steam EGUs, primarily coal-fired plants; and (ii) implemented new regulations that provided direction to both the EPA and the states on the implementation of emission guidelines. The final rule identified heat rate improvements as the best system of emission reduction from coal-fired power plants, to be made at the individual facilities. Under the Affordable Clean Energy rule, states would have three years to submit implementation plans. The EPA would have 12 months to approve or disapprove a state’s plan.

A number of environmental advocates and state attorneys general have filed lawsuits challenging the Affordable Clean Energy rule. On January 19, 2021, the United States Court of Appeals for the District of Columbia struck down the Affordable Clean Energy rule, determining that the EPA did not act lawfully when it adopted the Affordable Clean Energy rule. As a result, the Affordable Clean Energy rule has been vacated and remanded to EPA. In addition, pursuant to the 2021 Review Order, the Biden Administration has directed the EPA to review the repeal of the Clean Power Plan and the rulemaking for the Affordable Clean Energy rule. The District is unable to predict the outcome of any ongoing legal challenges to the EPA rulemaking regulating GHG emissions or, given the legal uncertainties regarding the Clean Power Plan and the Affordable Clean Energy rule, what the ultimate impact of any such rulemaking will be.

State Legislation and Regulatory Proceedings

A number of bills affecting the District and the electric utility industry have been introduced or enacted by the California Legislature in recent years. In general, these bills reflect California climate policy developments by regulating greenhouse gas (“GHG”) emissions and providing for greater investment in energy efficiency and environmentally friendly generation and storage alternatives, principally through more stringent RPS requirements. Legislation enacted in recent years has also focused on addressing issues relating to wildfire risks and occurrences in California, including imposing certain requirements on electric utilities in connection with planning for and mitigation of such occurrences and risks. Pursuant to enacted legislation, State regulatory agencies such as the California Air Resources Board (“CARB”) and the CEC are also pursuing a number of regulatory programs designed to reduce GHG emissions and encourage or mandate renewable energy generation. Set forth below is a brief summary of certain of these bills and regulatory proceedings.

GHG Regulations; Cap-and-Trade. In September 2006, then-Governor Arnold Schwarzenegger signed into law Assembly Bill 32, the California Global Warming Solutions Act of 2006 (“AB 32” or the

“Global Warming Solutions Act”). This law, which became effective on January 1, 2007, required CARB to adopt enforceable GHG emission limits and emission reduction measures in order to reduce GHG emissions from within the State to 1990 levels by 2020. In September 2016, then-Governor Jerry Brown signed into law Senate Bill 32, an amendment to the Global Warming Solutions Act, that requires CARB to take such actions to ensure that statewide GHG emissions from within the State are reduced to at least 40% below 1990 levels by 2030.

The Global Warming Solutions Act established an annual mandatory reporting requirement for all IOUs, local publicly-owned electric utilities (“POUs”) and other load-serving entities (electric utilities providing energy to end-use customers) to inventory and report GHG emissions to CARB, required CARB to adopt regulations for significant GHG emission sources, and gave CARB the authority to enforce such regulations beginning in 2012. The District is complying with the applicable reporting requirements under the Global Warming Solutions Act.

CARB implemented the Global Warming Solutions Act through a series of regulations (collectively referred to as the “Cap-and-Trade Regulations”) that imposed declining aggregate emissions limitations on entities in California that meet minimum reporting thresholds. The Cap-and-Trade Regulations require all regulated entities to obtain and submit to CARB compliance instruments (allowances and/or offsets) that represent GHG emissions related to its industrial processes within the State; for electric utilities this includes generation and GHG emissions associated with imported electricity from out-of-state resources. The District, like other electric utilities, receives an administrative allocation of allowances for compliance. Entities that emit GHGs at levels above those for which they receive administrative allocations, if any, must purchase the additional allowances they require at quarterly CARB auctions or from other covered entities with surplus allowances.

In July 2017, then-Governor Brown signed into law Assembly Bill 398 (“AB 398”), which extends the Cap-and-Trade Regulations from 2021 to 2030. The bill passed both chambers with a 2/3 supermajority vote, which protects the legislation from certain legal challenges. Under AB 398, CARB was directed to address the following: establish a price ceiling, offer non-tradeable allowances at two price containment points below the price ceiling, transfer current vintages unsold for more than 24 months to the allowance price containment reserve, evaluate and address allowance over-allocation concerns, set industry assistance factors for allowance allocation, and establish allowance banking rules. Under AB 398, CARB was directed to include cost containment provisions to keep allowance prices from rising too high and pushing business expansion outside of the state (referred to as “leakage”). AB 398 was passed in conjunction with AB 617, which strengthens the monitoring of criteria air pollutants and toxic air contaminants in local communities. Amendments to the Cap- and-Trade Regulations to reflect the requirements of AB 398 were adopted by CARB and went into effect on April 1, 2019.

The District is unable to predict at this time the full impact of the Cap-and-Trade Regulations over the long-term on the District’s Electric System or on the electric utility industry generally or whether any additional changes to the adopted program will be made. Since the advent of the cap-and-trade program in 2012, regulations by CARB have provided the electric sector, including the District on behalf of its ratepayers, with sufficient allocated GHG allowances or credits to cover existing operations in meeting retail load obligations. However, the District could be adversely affected in the future if the GHG emissions of its resource portfolio are in excess of the allowances administratively allocated to it and it is required to purchase compliance instruments on the market to cover its emissions. Currently, the District is sufficiently positioned for compliance.

GHG Emissions Performance Standard and Financial Commitment Limits. Senate Bill 1368 (“SB 1368”) became effective as law on January 1, 2007. SB 1368 provided for an emission performance standard (“EPS”) restricting new investments in baseload electric generating resources that exceed a specified rate of GHG emissions. SB 1368 allows the CEC to establish a regulatory framework to enforce the EPS for POUs. Pursuant to SB 1368, the CEC adopted a GHG EPS for electric generating facilities of 1,100 pounds of carbon dioxide (CO2) per MWh for “covered procurements” by POUs. SB 1368 also prohibits POUs from making

any “long-term financial commitment” in connection with “baseload generation” that does not satisfy the EPS. Generally, a “long-term financial commitment” is any new or renewed power purchase agreement with a term of five years or more, the purchase of an interest in a new power plant, or any investment (other than routine maintenance) in an existing power plant that extends the life of the plant by more than five years or results in an increase in its rated capacity. “Baseload generation” means a power plant that is intended to operate at an annualized capacity factor of 60% or more.

As modified, the EPS regulations require a POU to post a notice of a public meeting at which its governing board will consider any expenditure over $2.5 million to meet environmental regulatory requirements at a non-EPS compliant baseload facility. In addition, each POU is required to file an annual notice identifying all investments over $2.5 million that it anticipates making during the subsequent 12 months on non-EPS compliant baseload facilities to comply with environmental regulatory requirements. This requirement is waived for any POU that has entered into a binding agreement to divest within five years of all baseload facilities exceeding the EPS. CEC staff has confirmed that the $2.5 million threshold applies to an individual investment by each utility, and not the combined investment of all participants in a project.

Senate Bill 350 (“SB 350”), the Clean Energy and Pollution Reduction Act of 2015, was signed by then-Governor Brown in October 2015. Among other things, SB 350 requires CARB, in consultation with the CPUC and the CEC, to establish 2030 GHG emission targets for each electric utility in the State. At present, these targets are non-binding, and primarily intended to help the State measure progress toward the 2030 statewide goal outlined in SB 32. The targets, however, are an input to the development of the Integrated Resource Plans that are required of the State’s 16 largest POUs, which includes the District. See “– Integrated Resource Plans (IRP)” below. See also “– California Renewables Portfolio Standard” below for a discussion of certain other provisions of SB 350.

Energy Procurement and Efficiency Reporting. Senate Bill 1037 (“SB 1037”) was signed by then- Governor Schwarzenegger in September 2005. It requires that each POU, including the District, prior to procuring new energy generation resources, first acquire all available energy efficiency, demand reduction, and renewable resources that are cost effective, reliable and feasible. SB 1037 also requires each POU to report annually to its customers and to the CEC its investment in energy efficiency and demand reduction programs. The District is complying with these ongoing reporting requirements.

Further, Assembly Bill 2021 (“AB 2021”), signed by then-Governor Schwarzenegger in September 2006, requires that POUs establish, report, and explain the basis of the annual energy efficiency and demand reduction targets by June 1, 2007 and every three years thereafter for a ten-year horizon. A subsequent amendment, Assembly Bill 2227, extended the reporting timeframe from three to four years. The District is complying with these ongoing reporting requirements. The information obtained from the POUs is being used by the CEC to present progress made by the State to double energy efficiency savings in electricity and natural gas final end uses by 2030, to the extent doing so is cost effective, feasible, and does not adversely impact public health and safety, as prescribed in SB 350.

Biomass Legislation. SB 859, signed by then-Governor Brown in September 2016, requires IOUs and POUs that serve more than 100,000 customers (which includes the District), to procure, through financial commitments of five years, their proportionate shares (based on the ratio of the utility’s peak demand to the total statewide peak demand), of 125 MW of cumulative rated capacity from existing bioenergy projects that generate energy from (a) a byproduct of sustainable forestry management and (b) high fire-hazard zones. SB 901, signed into law in September 2018, requires certain of these biomass contracts to have their term extended five years past the original expiration date. In order to comply with these provisions of SB 859 and SB 901, the District is required to enter into contracts for approximately 1.6 MWs of biomass capacity, of which it has already obtained approximately 1 MW (although the continuation of such contract is uncertain due to the recent bankruptcy of the project operator). Due to the specific requirements of the law, the available facilities satisfying the requirements of the law are limited. Although deadlines are not provided for in SB 859 or SB 901, the District has been working with other POUs on biomass contracts to comply with the requirements of

such legislation. See “MODESTO IRRIGATION DISTRICT – Power Supply Resources – Purchased Power – Renewable Resources; District Renewable Portfolio Standard.”

Integrated Resource Plans (IRP). SB 350 requires that all POUs with demand greater than 700 gigawatt hours to develop an IRP at least once every five years, commencing no later than January 1, 2019. The District is subject to this requirement. As required in the statute, all IRPs are to be submitted to the CEC, including information outlined in the CEC’s POU IRP Guidelines that were finalized in August 2017. The District completed its IRP within the required timeline.

California Renewables Portfolio Standard. California’s legislature and executive branch have been active in promoting increasingly stringent renewable energy procurement requirements since 2002. Early efforts established a renewables portfolio standard (“RPS”) of 20% of renewable electricity generation by 2017. Since then, both legislative and executive branch initiatives have raised that standard in multiple phases.

Senate Bill X1-2 (“SBX1-2”), the California Renewable Energy Resources Act, was signed into law by then-Governor Brown in April 2011. SBX1-2 requires each POU to adopt and implement a renewable energy resource procurement plan. The plan must require the utility to procure at least the following amounts of electricity products from eligible renewable energy resources, which may include renewable energy certificates (“RECs”), as a proportion of total kilowatt hours sold to the utility’s retail end-use customers: (i) over the 2011-2013 compliance period, an average of 20% of retail sales from January 1, 2011 to December 31, 2013, inclusive; (ii) over the 2014-2016 compliance period, a total equal to 20% of 2014 retail sales, 20% of 2015 retail sales, and 25% of 2016 retail sales; (iii) over the 2017-2020 compliance period, a total equal to 27% of 2017 retail sales, 29% of 2018 retail sales, 31% of 2019 retail sales, and 33% of 2020 retail sales; and (iv) for 2021 and each subsequent year, 33% of retail sales for the applicable year. The governing boards of POUs are responsible for implementing the requirements of SBX1-2, rather than the CPUC, as is the case for the IOUs. In addition, the CEC was given certain enforcement authority for POUs and CARB was given the authority to set penalties. The CEC has developed detailed rules to implement SBX1-2, and has adopted regulations for the enforcement of the RPS program requirements for POUs, which regulations have been subsequently amended from time to time.

SB 350, the Clean Energy and Pollution Reduction Act of 2015, as enacted, establishes an RPS target of 50% by December 31, 2030 for the amount of electricity generated and sold to retail customers from eligible renewable energy resources for retail sellers and POUs, including interim targets of (i) 40% of retail sales from eligible renewable energy resources by December 31, 2024; (ii) 45% of retail sales from eligible renewable energy resources by December 31, 2027; and (iii) 50% of retail sales from eligible renewable energy resources by December 31, 2030.

Senate Bill 100 (“SB 100”), the 100 Percent Clean Energy Act of 2018, was signed into law by then- Governor Brown in September 2018. SB 100 accelerates the State’s RPS target as established by SB 350 from 50% by 2030 to 60% by 2030 and sets a goal of 100% “clean energy” by the year 2045. SB 100 requires retail electric sellers and POUs to procure a minimum quantity of electricity products from eligible renewable energy resources so that the total kWhs of those products sold to retail end-use customers achieve (i) 44% of retail sales by December 31, 2024; (ii) 52% of retail sales by December 31, 2027; and (iii) 60% of retail sales by December 31, 2030. SB 100 additionally establishes that it is the policy of the State that eligible renewable energy resources and zero-carbon resources supply 100% of retail sales of electricity to California end-use customers by December 31, 2045. Along with SB 100, Governor Brown signed an executive order that directs the State to achieve carbon neutrality by 2045 and net negative GHG emissions thereafter. The goal of carbon neutrality by 2045 is in addition to existing Statewide targets of reducing GHG emissions. By expanding the State’s carbon reduction goal the State will also look to reduce carbon through sequestration in forests, soils and other natural landscapes.

In December 2020, the CEC adopted regulations to update its RPS enforcement procedures for POUs, including to update regulations amended by both SB 350 and SB 100, among other enacted bills. This includes implementing a provision relating to the long-term procurement of renewable resources which

requires, beginning January 1, 2021, that at least 65% of renewable procurement must be for a duration of 10 years or more. The regulations implement the new RPS procurement requirements for the compliance periods between 2021 and 2030, establish soft procurement targets for the intervening years of the compliance periods to demonstrate reasonable progress in meeting the RPS procurement target for the compliance periods, and establish three-year compliance periods beginning after 2030. The regulations also define requirements for 10- year procurement contracts for purposes of satisfying the long-term procurement requirement.

See also “MODESTO IRRIGATION DISTRICT – Power Supply Resources – Purchased Power – Renewable Resources; District Renewable Portfolio Standard.”

Legislation Relating to Wildfires; Related Risks. Senate Bill 1028 (“SB 1028”) was signed into law by then-Governor Brown in September 2016. SB 1028 requires that each POU and each electric cooperative in the State construct, maintain, and operate its electrical lines and equipment in a manner that will minimize the risk of catastrophic wildfire posed by those electrical lines and equipment. SB 1028 requires the governing board of each POU to determine, based on historical fire data and local conditions, and in consultation with the fire departments or other entities responsible for the control of wildfires within the geographical area where the utility’s overhead electrical lines and equipment are located, whether any portion of that geographical area has a significant risk of wildfire resulting from those electrical lines and equipment, and if so, to present for board approval wildfire mitigation measures the utility intends to undertake to minimize the risk of its overhead electrical lines and equipment causing a catastrophic wildfire.

SB 901 was signed into law by then-Governor Brown in September 2018. SB 901 amends certain provisions of SB 1028 requiring POUs and electric cooperatives to prepare wildfire mitigation measures if the utilities’ overhead electrical lines and equipment are located in an area that has a significant risk of wildfire resulting from those electrical lines and equipment. Under SB 901, each POU or electric cooperative is required to prepare before January 1, 2020 and annually thereafter, a wildfire mitigation plan. SB 901 requires specified information and elements to be considered as necessary, at minimum, in the wildfire mitigation plan. The POU or electric cooperative is required to present each wildfire mitigation plan in an appropriately noticed public meeting, and to accept comments on its wildfire mitigation plan from the public, other local and state agencies, and interested parties. In addition, SB 901 requires the POU or electric cooperative to contract with a qualified independent evaluator with experience in assessing the safe operation of electrical infrastructure to review and assess the comprehensiveness of its wildfire mitigation plan. The report of the independent evaluator is to be made available to the public and to be presented at a public meeting of the POU’s governing board. In accordance with the requirements of SB 901, the District’s wildfire mitigation plan was adopted and the report of the independent evaluator was presented at the November 12, 2019 meeting of the District’s Board. See also “MODESTO IRRIGATION DISTRICT – Wildfire Mitigation Measures.”

Assembly Bill 1054 (“AB 1054”) was signed into law by Governor Newsom in July 2019. AB 1054 establishes a Wildfire Fund for IOUs to facilitate payment of eligible, uninsured third-party damage claims resulting from future catastrophic wildfires. Participation in the Wildfire Fund is exclusive to IOUs. Each of the major IOUs in California are now participating in the in the Wildfire Fund. POUs, such as the District, are not eligible to participate in or receive funding for wildfire claims from the Wildfire Fund.

AB 1054 expands on the existing requirements for POUs established under SB 901 for wildfire mitigation plans. AB 1054 requires each POU, by July 1 of each year, to submit its wildfire mitigation plan to a newly created California Wildfire Safety Advisory Board (the “Wildfire Advisory Board”) for review and comment. Under AB 1054, the Wildfire Advisory Board is required to provide comments and an advisory opinion to each POU regarding the content and sufficiency of its plan and to make recommendations on the mitigation of wildfire risks. AB 1054 requires each POU to comprehensively revise its wildfire mitigation plan at least once every three years. The District submitted its wildfire mitigation plan to the Wildfire Advisory Board on March 27, 2020 as required by AB 1054. The California Wildfire Safety Advisory Board adopted its final guidance advisory opinion for Publicly Owned Utilities on December 9, 2020. The District will review the California Wildfire Safety Advisory Board advisory opinion and update its wildfire mitigation plan prior to July 1, 2021.

The legality of AB 1054 is currently the subject on ongoing litigation. The District is unable to predict the ultimate outcome of this lawsuit.

A number of wildfires occurred in California in 2017, 2018 and 2019. See also “– PG&E Bankruptcy” below. Under the doctrine of inverse condemnation (a legal concept that entitles property owners to just compensation if their property is damaged by a public use), California courts have imposed liability on utilities in legal actions brought by property holders for damages caused by the utility’s infrastructure. Thus, if the facilities of a utility, such as its electric distribution and transmission lines, are determined to be the substantial cause of a fire, and the doctrine of inverse condemnation applies, the utility could be liable for damages without having been found negligent. SB 1028, SB 901 and AB 1054 do not address the existing legal doctrine relating to utilities’ liability for wildfires. How any future legislation addresses California’s inverse condemnation and “strict liability” issues for utilities in the context of wildfires in particular could be significant for the electric utility industry.

Impact of California Energy Market Developments on the District. The effect of the developments in the California energy markets described above on the District cannot be fully ascertained at this time. Also, volatility in energy prices in California may return due to a variety of factors that affect both the supply and demand for electric energy in the western United States. These factors include, but are not limited to, the adequacy of generation resources to meet peak demands at all times, the availability and cost of renewable energy, the impact of economy-wide GHG emission legislation and regulations, fuel costs and availability, weather effects on customer demand, the impact of climate change, wildfire mitigation and potential liability cost recovery, insurance costs, transmission congestion, the strength of the economy in California and surrounding states and levels of hydroelectric generation within the region (including the Pacific Northwest). This price volatility may contribute to greater volatility in the District’s revenues from the sale (and purchase) of electric energy and, therefore, could materially affect the District’s financial condition. The District, individually and/or through joint powers agencies in which it participates, undertakes resource planning and risk management activities and manages its resource portfolio to mitigate such price volatility and spot market rate exposure. See “MODESTO IRRIGATION DISTRICT – Power Supply Resources.”

Changing Laws and Requirements Generally

Electric utilities are subject to continuing environmental regulation. Federal, State and local standards and procedures which regulate the environmental impact of electric utilities are subject to change. These changes may arise from continuing legislative, regulatory and judicial action regarding such standards and procedures. Consequently, there is no assurance that any facilities or projects of the District will remain subject to the laws and regulations currently in effect, will always be in compliance with future laws and regulations or will always be able to obtain all required operating permits. In addition, the election of new administrations, including the President of the United States, could impact substantially the current environmental standards and regulations and other matters described herein. An inability to comply with environmental standards could result in, for example, additional capital expenditures, reduced operating levels or the shutdown of individual units not in compliance. In addition, increased environmental laws and regulations may create certain barriers to new facility development, may require modification of existing facilities and may result in additional costs for affected resources.

In addition, on both the federal and State levels, legislation is introduced frequently addressing domestic energy policies and various environmental matters and impacts relating to energy, including the generation of energy using conventional and unconventional technologies. Issues raised in recent legislative proposals have included implementation of energy efficiency and renewable energy standards, addressing transmission planning, siting and cost allocation to support the construction of renewable energy facilities, cybersecurity legislation that would allow FERC to issue interim measures to protect critical electric infrastructure, a federal cap-and-trade program to reduce GHG emissions, and renewable energy incentives that could provide grants and credits to municipal utilities to invest in renewable energy infrastructure. Congress has also considered other bills relating to energy supplies and development (such as expedited permitting for natural gas drilling projects, reducing regulatory burdens, climate change and water quality.

The District is unable to predict at this time whether any of these or other legislative proposals will be enacted into law or what the impact of any such proposals that may ultimately be enacted will be.

PG&E Bankruptcy

The following statements in this section regarding PG&E’s financial condition, potential wildfire liabilities, and its actions and developments in connection with PG&E’s voluntary bankruptcy filing have been obtained from public sources that the District believe to be reliable, but such statements have not been independently verified by the District and the District assumes no responsibility for the accuracy or completeness thereof.

On January 29, 2019, PG&E and PG&E Corporation (collectively, the “PG&E Entities”) filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”). A Chapter 11 case under the Bankruptcy Code may be utilized by businesses to accomplish either a restructuring and/or a liquidation.

Following their bankruptcy filing, and with the approval of the United States Bankruptcy Court for the Northern District of California (the “Bankruptcy Court”), the PG&E Entities continued to operate both their gas and electric systems. The PG&E Entities obtained, and the Bankruptcy Court approved, their access to approximately $5.5 billion in secured debtor-in-possession financing from a consortium of lenders to provide liquidity to the PG&E Entities to fund their ongoing operations during the Chapter 11 process.

In their bankruptcy filings, the PG&E Entities indicated that their voluntary bankruptcy filings were initiated to address extraordinary financial challenges, which were largely attributed to their potential liabilities associated with a number of wildfires which occurred in Northern California in 2017 and 2018. On September 9, 2019, the PG&E Entities filed a proposed plan of reorganization with the Bankruptcy Court. Through a series of amendments, settlements with multiple groups of creditors with respect to the treatment and discharge of their claims, including a settlement with the official committee representing about 70% in number of the holders of wildfire victim claims, were integrated into the terms of the proposed plan of reorganization. See also “– State Legislation and Regulatory Proceedings – Legislation Relating to Wildfires; Related Risks” above.

On June 20, 2020, the Bankruptcy Court confirmed PG&E’s Chapter 11 plan of reorganization, determining the plan meets the necessary requirements for confirmation under the Bankruptcy Code. On July 1, 2020, the PG&E Entities emerged from bankruptcy. Notwithstanding the confirmation of the PG&E’s bankruptcy plan, various subsidiary disputes among the PG&E Entities and their creditors, including appeals of various aspects of the reorganization plan, remain and the PG&E Entities’ bankruptcy proceedings will continue.

The District is a party to an Interconnection Agreement with PG&E that provides the terms and conditions for connecting the District’s Electric System resources and load to PG&E’s wholesale transmission system, which has been turned over to the operational control of the CAISO. In addition, the natural gas required to operate the District’s gas-fired generating resources is delivered to the District through PG&E’s natural gas pipeline system. The District (either directly or through a joint powers agency in which it participates), also has rights of access to transmission facilities and receives certain transmission services on transmission facilities owned or co-owned by PG&E. See “MODESTO IRRIGATION DISTRICT – Power Supply Resources,” “– Transmission Resources,” and “– Interconnections, Local Transmission and Distribution Facilities.” These contracts and arrangements were not interrupted as a result of the PG&E bankruptcy filing. The District has no long-term contracts currently in place for the purchase of energy, energy-related commodities, or natural gas from PG&E, and the District currently does not have any accounts receivable due from PG&E in connection with wholesale market activities. To, date the District has not experienced any material adverse effects of the PG&E bankruptcy filing.

The PG&E Entities’ bankruptcy proceedings could have broader effects on the electric markets generally. It is possible that one or more other entities may ultimately assume or acquire all or a portion of PG&E’s operations and activities in the future. Several public agencies submitted non-binding indications of interest to the PG&E Entities to purchase a portion of PG&E’s electric transmission and distribution assets in connection with the PG&E Entities’ bankruptcy proceedings, although the PG&E Entities generally rejected such offers. Legislation signed by the Governor on June 30, 2020 (Senate Bill 350), authorizes the creation of a non-profit public benefit corporation that could acquire PG&E in the future if the utility fails to meet certain enhanced safety obligations set forth in the CPUC’s decision approving PG&E’s reorganization plan.

Other electric utilities, including the other major IOUs in the State (SCE and SDG&E) experienced credit rating downgrades as a result of potential wildfire liabilities exposure, which may also have implications for the electric market generally.

As a result of the foregoing, the District is unable to predict what the ultimate impacts of the PG&E Entities’ bankruptcy proceedings and the other challenges facing IOUs referenced above may be on the Electric System or the State electric markets or future legislative proposals at this time.

Other Factors

The electric utility industry in general has been, or in the future may be, affected by a number of other factors which could impact the financial condition and competitiveness of many electric utilities and the level of utilization of generating and transmission facilities. In addition to the factors discussed above, such factors include, among others, (a) effects of compliance with rapidly changing environmental, safety, licensing, regulatory and legislative requirements other than those described above (including those affecting nuclear power plants or potential new energy storage requirements), (b) changes resulting from conservation and demand-side management programs on the timing and use of electric energy, (c) effects on the integration and reliability of power supply from the increased usage of renewables, (d) changes resulting from a national energy policy, (e) effects of competition from other electric utilities (including increased competition resulting from a movement to allow direct access or expanded community choice aggregation or from mergers, acquisitions, and “strategic alliances” of competing electric and natural gas utilities and from competitors transmitting less expensive electricity from much greater distances over an interconnected system) and new methods of, and new facilities for, producing low-cost electricity, (f) the repeal of certain federal statutes that would have the effect of increasing the competitiveness of many IOUs, (g) increased competition from independent power producers and marketers, brokers and federal power marketing agencies, (h) “self- generation” or “distributed generation” (such as microturbines, fuel cells and solar installations) by industrial and commercial customers and others, (i) issues relating to the ability to issue tax-exempt obligations, including severe restrictions on the ability to sell to nongovernmental entities electricity from generation projects and transmission service from transmission line projects financed with outstanding tax-exempt obligations, (j) effects of inflation on the operating and maintenance costs of an electric utility and its facilities, (k) changes from projected future load requirements, (l) increases in costs and uncertain availability of capital, (m) shifts in the availability and relative costs of different fuels (including the cost of natural gas and nuclear fuel), (n) sudden and dramatic increases in the price of energy purchased on the open market that may occur in times of high peak demand in an area of the country experiencing such high peak demand, such as has occurred in the past in California, (o) issues relating to risk management procedures and practices with respect to, among other things, the purchase and sale of natural gas, energy and transmission capacity, (p) other legislative changes, voter initiatives, referenda and statewide propositions, (q) effects of the changes in the economy, population and demand of customers within a utility’s service area, including as a consequence of the COVID-19 pandemic and its impacts; (r) effects of possible manipulation of the electric markets, (s) acts of terrorism or cyber-terrorism impacting a utility and/or significant load customers, (t) changes to the climate; (u) natural disasters or other physical calamities, including, but not limited to, earthquakes, droughts, severe weather, floods and wildfires, and potential liabilities of electric utilities in connection therewith, and (v) adverse impacts to the market for insurance relating to recent wildfires and other calamities, leading to higher costs or prohibitively expensive coverage, or limited or unavailability of coverage for certain types of

risk. Any of these factors (as well as other factors) could have an adverse effect on the financial condition of any given electric utility, including the District, and likely will affect individual utilities in different ways.

CONSTITUTIONAL LIMITATIONS IN CALIFORNIA AFFECTING FEES AND CHARGES

Proposition 218 and Proposition 26

Proposition 218, a State ballot initiative known as the “Right to Vote on Taxes Act,” was approved by the voters of the State of California on November 5, 1996. Proposition 218 added Articles XIIIC and XIIID to the State Constitution. Article XIIIC imposes a majority voter approval requirement on local governments (including the District) with respect to taxes for general purposes, and a two-thirds voter approval requirement with respect to taxes for special purposes. Article XIIID creates additional requirements for the imposition by most local governments of general taxes, special taxes, assessments and “property-related” fees and charges. Article XIIID explicitly exempts fees for the provision of electric service from the provisions of such article.

Article XIIIC expressly extends the people’s initiative power to the reduction or repeal of local taxes, assessments, and fees and charges imposed prior to its effective date (November 1996). The California Supreme Court held in Bighorn-Desert View Water Agency v. Verjil, 39 Cal.4th 205 (2006) that, under Article XIIIC, local voters by initiative may reduce a public agency’s water rates and delivery charges, as those are property-related fees or charges within the meaning of Article XIIID, and noted that the initiative power described in Article XIIIC may extend to a broader category of fees and charges than the property-related fees and charges governed by Article XIIID. Moreover, in the case of Bock v. City Council of Lompoc, 109 Cal.App.3d 52 (1980), the Court of Appeal determined that an electric rate ordinance was not subject to the same constitutional restrictions that are applied to the use of the initiative process for tax measures so as to render it an improper subject of the initiative process. Thus, even electric service charges (which are expressly exempted from the provisions of Article XIIID) might be subject to the initiative provision of Article XIIIC, thereby subjecting such fees and charges imposed by the District to reduction by the electorate. However, the District believes that even if the electric rates of the District are subject to the initiative power, the electorate of the District would be precluded from reducing electric rates and charges in a manner adversely affecting the payment of the 2021 Bonds by virtue of the “impairments clause” of the United States Constitution.

The California electorate approved Proposition 26 at the November 2, 2010 election, amending Article XIIIC of the California Constitution. Proposition 26 was designed to supplement tax limitations California voters adopted when they approved Proposition 13 in 1978, and Proposition 218 in 1996. Proposition 26 applies by its terms to any levy, charge or exaction imposed, increased or extended by a local government on or after November 3, 2010. Proposition 26 deems any such levy, charge or fee to be a “tax” requiring voter approval unless it comes within one of the listed exceptions. Proposition 26 expressly excludes from its definition of a “tax,” among other things, a “charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product.”

Proposition 26 is subject to interpretation by California courts, including the extent to which it is applicable to pre-existing electric rates and general fund transfers. A number of lawsuits have been filed against public agencies in California relating to electric utility fund transfers. In Citizens for Fair REU Rates v. City of Redding (filed on January 20, 2015 and modified on February 19, 2015), for example, the California Court of Appeal considered a ratepayer challenge to a “payment in lieu of taxes” (or “PILOT”) required by the city of Redding to be made by its electric utility as an annual budgetary transfer amount without voter approval. The city’s PILOT was designed to compensate the general fund for the costs of services that other city departments provide to the electric utility. The amount of the PILOT was equivalent to the ad valorem taxes the electric utility would have had to pay if the electric utility were privately owned. The suits alleged that the PILOT was passed through to the city’s electric utility customers as part of the rates and charges for electric service in excess of the reasonable costs to the city of providing electric service. The Court of Appeal determined that Proposition 26 has no retroactive effect as to local taxes that existed prior to

November 3, 2010, but found that since the PILOT was subject to the City Council’s recurring discretion, the PILOT did not escape the purview of Proposition 26. The Court of Appeal concluded that the PILOT constituted a “tax” under Proposition 26 for which the city must secure voter approval unless the city proved that the amount collected was necessary to cover the reasonable costs to the city of providing electric service. On April 29, 2015, the California Supreme Court granted review of the decision of the Court of Appeal. The California Supreme Court rendered its decision on August 27, 2018, reversing the judgment of the Court of Appeal. The California Supreme Court determined that the budgetary transfer from the Redding electric utility to the city’s general fund, calculated by using the PILOT, itself is not the type of exaction that is subject to Article XIIIC of the California Constitution. The court reasoned that it is only the Redding electric utility rate, not the PILOT, that is imposed on customers for electric service. The California Supreme Court concluded that the challenged rate did not exceed the reasonable costs of providing electric service, and therefore did not constitute a tax.

Litigation has been filed against the District’s electric rates. One such lawsuit has been dismissed. The remaining lawsuits allege that the District uses funds collected from electric customers to subsidize its water operations and as a result amounts collected and applied for such purpose exceed the costs to the District of providing electric service and constitute a tax on its electric customers requiring voter approval under Proposition 26. The lawsuits seek a refund, on behalf of the plaintiff (a customer of the District’s electric system) and a class of others similarly situated, of the alleged illegal taxes. For a discussion of such litigation and the status thereof, see “MODESTO IRRIGATION DISTRICT – Litigation Affecting the Electric System – Litigation Challenging Electric Rates.”

Due to evolving case law and the uncertainties regarding potential legislative interpretations of Proposition 26, the District is unable to predict the ultimate impact of Proposition 26 on the District and its charges for electricity.

Other Initiatives

Articles XIIIC and XIIID and Proposition 26 were adopted as measures that qualified for the ballot pursuant to California’s initiative process. From time to time, including presently, other initiatives have been, and could be, proposed, and if qualified for the ballot and approved by voters, could affect the District’s revenues or operations. Neither the nature and impact of these measures nor the likelihood of qualification for ballot or passage can be anticipated by the District.

TAX MATTERS

In the opinion of Orrick, Herrington & Sutcliffe LLP, bond counsel to the District (“Bond Counsel”), based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the 2021 Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the “Code”) and is exempt from State of California personal income taxes. Bond Counsel is of the further opinion that interest on the 2021 Bonds is not a specific preference item for purposes of the federal alternative minimum tax. A complete copy of the proposed form of opinion of Bond Counsel is set forth in Appendix F hereto.

To the extent the issue price of any maturity of the 2021 Bonds is less than the amount to be paid at maturity of such 2021 Bonds (excluding amounts stated to be interest and payable at least annually over the term of such 2021 Bonds), the difference constitutes “original issue discount,” the accrual of which, to the extent properly allocable to each beneficial owner thereof, is treated as interest on the 2021 Bonds which is excluded from gross income for federal income tax purposes and State of California personal income taxes. For this purpose, the issue price of a particular maturity of the 2021 Bonds is the first price at which a substantial amount of such maturity of the 2021 Bonds 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 2021 Bonds accrues daily over the term to

maturity of such 2021 Bonds on the basis of a constant interest rate compounded semiannually (with straight- line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such 2021 Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such 2021 Bonds. Beneficial owners of the 2021 Bonds should consult their own tax advisors with respect to the tax consequences of ownership of 2021 Bonds with original issue discount, including the treatment of beneficial owners who do not purchase such 2021 Bonds in the original offering to the public at the first price at which a substantial amount of such 2021 Bonds is sold to the public.

2021 Bonds purchased, whether at original issuance or otherwise, for an amount higher than their principal amount payable at maturity (or, in some cases, at their earlier call date) (“Premium Bonds”) will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of bonds, like the Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, the amount of tax-exempt interest received, and a beneficial owner’s basis in a Premium Bond, will be reduced by the amount of amortizable bond premium properly allocable to such beneficial owner. Beneficial owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances.

The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the 2021 Bonds. The District has made certain representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the 2021 Bonds will not be included in federal gross income. Inaccuracy of these representations or failure to comply with these covenants may result in interest on the 2021 Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the 2021 Bonds. The opinion of Bond Counsel assumes the accuracy of these representations and compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken), or events occurring (or not occurring), or any other matters coming to Bond Counsel’s attention after the date of issuance of the 2021 Bonds may adversely affect the value of, or the tax status of interest on, the 2021 Bonds. Accordingly, the opinion of Bond Counsel is not intended to, and may not, be relied upon in connection with any such actions, events or matters.

Although Bond Counsel is of the opinion that interest on the 2021 Bonds is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes, the ownership or disposition of, or the accrual or receipt of amounts treated as interest on, the 2021 Bonds may otherwise affect a beneficial owner’s federal, state or local tax liability. The nature and extent of these other tax consequences depends upon the particular tax status of the beneficial owner or the beneficial owner’s other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences.

Current and future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the 2021 Bonds to be subject, directly or indirectly, in whole or in part, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent beneficial owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such legislative proposals or clarification of the Code or court decisions may also affect, perhaps significantly, the market price for, or marketability of, the 2021 Bonds. Prospective purchasers of the 2021 Bonds should consult their own tax advisors regarding the potential impact of any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel is expected to express no opinion.

The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel’s judgment as to the proper treatment of the 2021 Bonds for federal income tax purposes. It is not binding on the Internal Revenue Service (“IRS”) or the courts. Furthermore, Bond Counsel cannot give and has not given any opinion or assurance about the future activities of the District or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS. The District has covenanted, however, to comply with the requirements of the Code.

Bond Counsel’s engagement with respect to the 2021 Bonds ends with the issuance of the 2021 Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the District or the beneficial owners regarding the tax-exempt status of the 2021 Bonds in the event of an audit examination by the IRS. Under current procedures, parties other than the District and its appointed counsel, including the beneficial owners, would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of tax-exempt bonds is difficult, obtaining an independent review of IRS positions with which the District legitimately disagrees, may not be practicable. Any action of the IRS, including but not limited to selection of the 2021 Bonds for audit, or the course or result of such audit, or an audit of bonds presenting similar tax issues may affect the market price for, or the marketability of, the 2021 Bonds, and may cause the District or the beneficial owners to incur significant expense.

LITIGATION

There is no action, suit or proceeding known to be pending or threatened, restraining or enjoining the issuance or delivery of the 2021 Bonds or the Indenture, or in any way contesting or affecting the validity of the foregoing or any proceedings of the District taken with respect to any of the foregoing.

There is no litigation pending or, to the best knowledge of the District, threatened, questioning the corporate existence of the District, or the title of the officers of the District to their respective offices, or the power and authority of the District to execute the Indenture or to pay debt service on the 2021 Bonds. There is no litigation pending or, to the best knowledge of the District, threatened, questioning or affecting in any material respect any of the financial information with respect to the District contained in this Official Statement.

For a discussion of certain litigation affecting the District, see “MODESTO IRRIGATION DISTRICT – Litigation Affecting the Electric System.”

CONTINUING DISCLOSURE

The District has covenanted for the benefit of the holders and beneficial owners of the 2021 Bonds to provide certain financial information and operating data relating to the District and the Electric System by not later than June 30 of the succeeding year following the end of the District’s Fiscal Year (which Fiscal Year presently ends December 31) (the “Annual Report”), commencing with the report for the 2020 Fiscal Year, and to provide notices of the occurrence of certain enumerated events. The Annual Report and notices of enumerated events will be provided by or on behalf of the District to the Municipal Securities Rulemaking Board through its Electronic Municipal Market Access System. The specific nature of the information to be contained in the Annual Report and the notice of specified events is summarized in “APPENDIX E – FORM OF CONTINUING DISCLOSURE CERTIFICATE.” These covenants have been made in order to assist the Underwriter in complying with S.E.C. Rule 15c2-12(b)(5) (the “Rule”).

During the past five years, although such information was timely filed in connection with certain then outstanding certificates of participation of the District, MIDFA Bonds and District Refunding Bonds (to the extent applicable), the District’s annual report filings for Fiscal Years 2015 and 2016 pursuant to its continuing disclosure undertakings in connection with bonds of M-S-R PPA, M-S-R EA and TANC (though timely made) either failed to include one or more tables of required financial information or operating data or such filings were not properly linked to the CUSIPs for all applicable series of such bonds. In addition, for Fiscal Year 2015, the District’s annual report in connection with bonds of the TANC inadvertently included the audited financial statements of MIDFA rather than the District. The District has made corrective filings to address all of these oversights (except with respect to bonds that are no longer outstanding).

The District believes that it has established procedures to ensure that it will continue to comply in all material respects with its continuing disclosure undertakings in the future.

RATINGS

S&P and Fitch Ratings, Inc. (“Fitch”) have assigned the 2021 Bonds the ratings of “A+” and “AA–,” respectively. S&P’s rating outlook with respect to the 2021 Bonds is “stable.” Fitch’s rating outlook is “stable.” Such ratings and any ratings outlook reflects only the views of the respective rating agencies and an explanation of the significance of such ratings may be obtained only from such rating agencies as follows: Standard & Poor’s Rating Services, 55 Water Street, 38th Floor, New York, New York 10041; and Fitch Ratings, Inc., 33 Whitehall Street, New York, New York 10004. A securities rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time. There is no assurance that any such rating or any outlook ascribed thereto will continue for any given period of time or that they will not be revised or withdrawn entirely if, in the judgment of such rating agencies, circumstances so warrant. Any downward revision or withdrawal of any rating obtained could have an adverse effect on the market price of the 2021 Bonds. The District undertakes no responsibility to contest any revision or withdrawal by the rating agencies of any such ratings.

MUNICIPAL ADVISOR

The District has retained PFM Financial Advisors LLC, Los Angeles, California, as municipal advisor (the “Municipal Advisor”) in connection with the issuance of the 2021 Bonds. The Municipal Advisor has not undertaken to make an independent verification or to assume responsibility for the accuracy, completeness, or fairness of the information contained in this Official Statement. 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. The payment of the fees of the Municipal Advisor is contingent upon the issuance and delivery of the 2021 Bonds.

INDEPENDENT AUDITORS

The financial statements of the District as of and for the years ended December 31, 2019 and 2018 included in Appendix A to this Official Statement have been audited by Baker Tilly Virchow Krause, LLP, independent auditors, as stated in their report, which also appears in Appendix A. Baker Tilly Virchow Krause, LLP has not been engaged to perform and has not performed, since the date of its report included herein, any procedures on the financial statements addressed in such report. Baker Tilly Virchow Krause, LLP has also not performed any procedures relating to this Official Statement.

UNDERWRITING

Citigroup Global Markets Inc., as underwriter (the “Underwriter”), has agreed, pursuant to a Purchase Contract with the District, to purchase the 2021 Bonds, subject to certain conditions, at a price of $______(representing the $______aggregate principal amount of 2021 Bonds less $______of Underwriter’s discount and plus $______of original issue premium).

The Purchase Contract for the 2021 Bonds provides that the Underwriter is obligated to purchase all of the 2021 Bonds if any are purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in the Purchase Contract.

Citigroup Global Markets Inc., the Underwriter of the 2021 Bonds, has entered into a retail distribution agreement with Fidelity Capital Markets, a division of National Financial Services LLC (together with its affiliates, “Fidelity”). Under this distribution agreement, Citigroup Global Markets Inc. may distribute municipal securities to retail investors at the original issue price through Fidelity. As part of this arrangement, Citigroup Global Markets Inc. will compensate Fidelity for its selling efforts.

CERTAIN RELATIONSHIPS

The Underwriter and its affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage activities. The Underwriter and its affiliates have, from time to time, performed, and may in the future perform, various investment banking services for the District, for which they received or will receive customary fees and expenses.

In the ordinary course of their various business activities, the Underwriter and its affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (which may include bank loans and/or credit default swaps) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve securities and instruments of the District.

CERTAIN LEGAL MATTERS

The validity of the 2021 Bonds and certain other legal matters are subject to the approving opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the District. A complete copy of the proposed form of Bond Counsel opinion is contained in Appendix F hereto. Bond Counsel undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement and expresses no opinion with respect thereto. Certain legal matters will be passed upon for the District by Atkinson, Andelson, Loya, Ruud & Romo, a Professional Law Corporation, General Counsel to the District, and for the Underwriter by Stradling Yocca Carlson & Rauth, a Professional Corporation.

EXECUTION AND DELIVERY

The execution and delivery of this Official Statement has been duly authorized by the District.

MODESTO IRRIGATION DISTRICT

By Treasurer and Assistant General Manager, Finance

69 [THIS PAGE INTENTIONALLY LEFT BLANK]

APPENDIX A

AUDITED FINANCIAL STATEMENTS OF THE DISTRICT AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

[THIS PAGE INTENTIONALLY LEFT BLANK]

MODESTO IRRIGATION DISTRICT Modesto, California

FINANCIAL STATEMENTS

Including Independent Auditors’ Report

As of and for the Years Ended December 31, 2019 and 2018

MODESTO IRRIGATION DISTRICT

TABLE OF CONTENTS As of and for the Years Ended December 31, 2019 and 2018

Page No.

Independent Auditors’ Report 1 – 2

Required Supplementary Information

Management’s Discussion and Analysis 3 – 13

Financial Statements

Balance Sheets 14 – 15

Statements of Revenues, Expenses and Changes in Net Position 16

Statements of Cash Flows 17 – 18

Statements of Fiduciary Net Position 19

Statements of Changes in Fiduciary Net Position 20

Notes to Financial Statements 21 – 70

Required Supplementary Information

Schedule of Changes in the Employer’s Net OPEB Liability and Related Ratios – GASB Statement No. 74 and No. 75 71

Schedule of Employer’s Contributions – GASB Statement No. 74 and No. 75 72

Schedule of Changes in the Employer’s Net Pension Liability and Related Ratios – GASB Statement No. 68 73

Schedule of Employer’s Contributions – GASB Statement No. 68 74

Supplementary Information

Combining Statements of Fiduciary Net Position 75

Combining Statements of Changes in Fiduciary Net Position 76

INDEPENDENT AUDITORS' REPORT

To the Board of Directors Modesto Irrigation District Modesto, California

We have audited the accompanying financial statements of the Modesto Irrigation District and its fiduciary funds (the District), as of and for the years ended December 31, 2019 and 2018, and the related notes to the financial statements, which collectively comprise the District’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.

Auditors’ Responsibility

Our responsibility is to express opinions on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits 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 auditors’ 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 District'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 District'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 opinions.

Opinions

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the District as of December 31, 2019 and 2018, and the respective changes in financial position and cash flows, where applicable, thereof for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Baker Tilly Virchow Krause, LLP trading as Baker Tilly is a member of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. © 2018 Baker Tilly Virchow Krause, LLP 1 Other Matters

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the required supplementary information as listed in the table of contents 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.

Supplementary Information

Our audits were conducted for the purpose of forming opinions on the financial statements as a whole. The combining statements of fiduciary net position and changes in fiduciary net position are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The 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 statements of fiduciary net position and changes in fiduciary net position are fairly stated in all material respects in relation to the financial statements as a whole.

Madison, Wisconsin May 1, 2020

2 MODESTO IRRIGATION DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS

For the Years Ended December 31, 2019 and 2018 - Unaudited

Overview: The following management discussion and analysis of the Modesto Irrigation District and its fiduciary funds (District) provides an overview of the financial activities and transactions for fiscal years 2019 and 2018 in the context of the requirements of the Governmental Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments , as amended. This discussion and analysis should be read in conjunction with the District’s audited financial statements and accompanying notes.

Financial Reporting: The District’s accounting records are maintained in accordance with Generally Accepted Accounting Principles (GAAP) as prescribed by the Governmental Accounting Standards Board (GASB).

Explanation of Financial Statements: The financial statements for the District include a Balance Sheet; Statement of Revenues, Expenses and Changes in Net Position; Statement of Cash Flows, Statement of Fiduciary Net Position; Statement of Changes in Fiduciary Net Position; and Notes to the Financial Statements.

Balance Sheet: The Balance Sheet provides information about assets, deferred outflows of resources, liabilities, deferred inflows of resources and equity of the District at a specific point in time. Assets are economic resources the District owns that have value and can either be sold or used by the District to produce products or services that can be sold. Assets include power generation plants, vehicles, equipment, inventory, cash and investments, and customer accounts receivable.

Deferred outflows of resources represents a consumption of net position that applies to a future period and will not be recognized as an outflow of resources (expense) until that time.

Liabilities are amounts of money that the District owes to others. This includes debt, money owed to suppliers for materials, payroll, and taxes owed to other governmental agencies.

Deferred inflows of resources represents an acquisition of net position that applies to a future period and will not be recognized as an inflow of resources (revenue) until that time.

Equity or Net Position are the funds that would be left if the District sold all of its assets and paid off all of its liabilities.

Statement of Revenues, Expenses and Changes in Net Position: The Statement of Revenues, Expenses and Changes in Net Position is more commonly known as the Income Statement. This statement provides information regarding the District’s operations including revenue earned and expenses incurred over a one year period. The “bottom line” of the statement shows the District’s end of year net position.

3 MODESTO IRRIGATION DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS

For the Years Ended December 31, 2019 and 2018 - Unaudited

Statement of Cash Flows: The Statement of Cash Flows reports the District’s inflows and outflows of cash. This report provides management with information regarding cash on hand and the ability to pay expenses and purchase assets.

A cash flow statement reflects changes over time rather than absolute dollar amounts at a point in time. The bottom line of the cash flow statement shows the net increase or decrease in cash for the period. Cash flow statements are divided into three activities: (1) operating activities; (2) investing activities; and (3) capital financing activities.

1. Operating Activities – analyzes the cash flow from operational activities (Operating Income and Expenses). This section of the cash flow statement reconciles the operating income to the actual cash MID received from or used in its operating activities. To facilitate this, the operating income is adjusted for any non-cash items (depreciation expenses) and any cash that was used or provided by other operating assets and liabilities.

2. Investing Activities – reflects the cash flow from all investing activities including purchases or sales of investment securities.

3. Capital Financing Activities – shows the cash flow from all financing activities. Typical sources of cash flow include funds received from borrowings, paying back debt service, and the purchase of capital assets.

Statement of Fiduciary Net Position: The Statement of Fiduciary Net Position (Balance Sheet) reports the financial resources available for future pension and other retirement benefits.

Statement of Changes in Fiduciary Net Position: The Statement of Changes in Fiduciary Net Position (Income Statement) reflects the additions and deductions and net increase (decrease) in net position held in trust for pension and other retirement benefits.

4 MODESTO IRRIGATION DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS

For the Years Ended December 31, 2019 and 2018 - Unaudited

The following is a comparative financial summary for years ending December 31, 2019, 2018, and 2017.

Financial Summary

Balance Sheet ($ in thousands) December 31, December 31, December 31, Change from 2019 2018 2017 2018 to 2019 Assets and Deferred Outflows of Resources Utility plant, net $ 702,912 $ 707,801 $ 717,673 $ (4,889) Other noncurrent assets and investments 452,783 378,947 292,359 73,836 Current assets 116,538 169,857 135,660 (53,319) Deferred outflows of resources 154,527 64,629 63,366 89,898 Total Assets and Deferred Outflows of Resources $ 1,426,760 $ 1,321,234 $ 1,209,058 $ 105,526

Liabilities, Deferred Inflows of Resources, and Net Position Long-term debt, net $ 575,520 $ 576,865 $ 616,180 $ (1,345) Noncurrent liabilities 307,164 294,354 204,469 12,810 Current liabilities 75,432 77,766 82,337 (2,334) Deferred inflow of resources 73,758 52,388 43,101 21,370 Net position Net investment in capital assets 152,992 143,940 110,441 9,052 Unrestricted 241,894 175,921 152,530 65,973 Total Liabilities, Deferred Inflows, and Net Position $ 1,426,760 $ 1,321,234 $ 1,209,058 $ 105,526

Statement of Revenues, Expenses, and Changes in Net Position ($ in thousands) December 31, December 31, December 31, Change from 2019 2018 2017 2018 to 2019

Operating revenues $ 425,802 $ 412,328 $ 384,392 $ 13,474 Operating expenses (342,229) (337,893) (340,443) (4,336) Operating income (loss) 83,573 74,435 43,949 9,138 Non-operating Income (Expenses) Investment and other income, net 14,319 8,489 4,028 5,830 Interest expense (31,512) (32, 567) (36,737) 1,055 Other non-operating income, net 4,176 4,504 5,294 (328) Non-operating income (expense) (13,017) (19, 574) (27,415) 6,557 Contributed Capital - Electric/Water 4,469 2,029 1,735 2,440

Change in net position 75,025 56,890 18,269 18,135

Net position, beginning of year 319,861 262,971 244,702 56,890

Net Position, End of Year $ 394,886 $ 319,861 $ 262,971 $ 75,025

5 MODESTO IRRIGATION DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS

For the Years Ended December 31, 2019 and 2018 - Unaudited

ASSETS and DEFERRED OUTFLOWS

Utility Plant, net MID has invested approximately $702.9 million in utility plant assets net of accumulative depreciation and transferred approximately $26.2 million of assets from construction in progress to utility plant in service in 2019. This includes $19.7 million in electric plant in service. It also includes improvements of $4.5 million in administration and general. The following chart reflects the percentage breakdown of Utility Plant net of depreciation by category as of December 31, 2019.

2019 Plant In Service Percentages

5.3%

Electric 22.4% Irrigation Domestic Water Adm & General (A&G)

68.3%

4.0%

Utility plant decreased by approximately $4.9 million in 2019 due to additions to in plant in service of $26.2 million, and an increase of $12.3 million construction work in progress, offset by an increase in accumulated depreciation of $38.1 million.

Utility plant decreased by approximately $9.9 million in 2018 due to additions to in plant in service of $26.1 million, which included $4.7 million for the painting of 230kV towers, and an increase of $4.6 million construction work in progress, offset by an increase in accumulated depreciation of $40.6 million.

Other non-current assets and investments Other non-current assets and investments increased $73.8 million in 2019. This increase is due to an increase of $28.4 million in Cash and investments - restricted related to the issuance of the 2019 bonds. There was also an increase of $34.6 million in Investments - unrestricted based on a combination of changes in the District's portfolio between long-term investments and Cash and investments - unrestricted in current assets, and an increase of $6.9 million in the Capital improvement fund.

Other non-current assets and investments increased $86.6 million in 2018. The increase is due to the implementation of GASB 75 and the addition of the regulatory costs for future recovery related to Other post employment benefits (OPEB) of $118.0 million. This increase is offset by a $30.3 million decrease in Investments - unrestricted based on a combination of changes in the District's portfolio between long-term investments and Cash and investments - unrestricted in current assets.

6 MODESTO IRRIGATION DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS

For the Years Ended December 31, 2019 and 2018 - Unaudited

Current assets Current assets decreased by approximately $53.3 million in 2019. The decrease is based on a combination of changes in the District’s portfolio between long-term Investments - unrestricted and current Cash and investments - unrestricted. Current assets for Cash and investments - unrestricted decreased $48.7 million over prior year, and a decrease in Materials and supplies of $1.2 million. Other current assets also decreased by $1.3 million due to collections on miscellaneous receivables throughout the year.

Current assets increased by approximately $34.1 million in 2018. The increase is based on a combination of changes in the District’s portfolio between long-term Investments - unrestricted and current Cash and investments - unrestricted. Current assets for Cash and investments - unrestricted increased $39.8 million over prior year, partially offset by a decrease in Customer accounts receivable, net of $8.0 million. This decrease is due to collections resuming after implementing a new customer billing system in September, 2017.

Deferred Outflows of Resources In 2019 deferred outflows of resources increased by $89.9 million. The change is due to a $84.0 million increase in Deferred outflows related to pension, an increase of $1.6 million in Deferred outflows related to OPEB, an increase in Deferred cash flow hedges of approximately $5.3 million, partially offset by a decrease in Unamortized loss on advanced refunding of $1.0 million due to scheduled amortization during the current year.

In 2018 deferred outflows of resources increased by $1.3 million. The change is due to a $9.6 million decrease in Deferred outflows related to pension, the addition of $18.6 million in Deferred outflows related to OPEB due to the implementation of GASB 75, a decrease in Unamortized loss on advanced refunding of $2.2 million due to scheduled amortization during the current year, and a decrease in Deferred cash flow hedges of approximately $5.5 million.

LIABILITIES AND NET POSITION

Long-term debt Long-term debt decreased by $1.3 million in 2019 due to the refunding of the 2009A COP bonds and the issuance of the 2019 A&B Bonds, offset by scheduled debt service payments.

Long-term debt decreased by $39.3 million in 2018 due to scheduled debt service payments for 2019.

Non-current liabilities Non-current liabilities increased by $12.8 million in 2019. This increase is primarily due to an increase in unamortized premium of $22.6 million due to the 2019 A&B bond issue offset by scheduled amortization, an increase of $36.0 million related to the Net pension liability, offset by a decrease of the Net OPEB liability of $30.2 million and a decrease of $16.0 million in Equity interest in MSR.

Non-current liabilities increased by $89.9 million in 2018. This increase is primarily due to the implementation of GASB 75 and the addition of the Net OPEB liability of $127.5 million, offset by a decrease of $15.7 million related to the Net pension liability, a decrease of $9.8 million in Equity interest in MSR, and also due to a decrease related to scheduled amortization of unamortized premium of $6.6 million.

7 MODESTO IRRIGATION DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS

For the Years Ended December 31, 2019 and 2018 - Unaudited

Current liabilities Current liabilities decreased by $2.3 million in 2019 due to a decrease in Current portion of long-term debt of $1.7 million and small decreases in Interest payable and Accounts payable and other accruals of $0.6 million.

Current liabilities decreased by $4.6 million in 2018 due to a decrease in Accounts payable and other accruals of $4.0 million and a decrease in Interest payable of $0.7 million.

Deferred inflow of resources Deferred inflow of resources increased by $21.4 million in 2019 due to an increase in Deferred inflows related to OPEB of $25.7 million, partially offset by a decrease of Deferred inflows related to pension of $7.4 million. This is partially offset by an increase in Unearned revenue which reflects the difference between the time the District bills the City of Modesto for Domestic Water and when the expense for depreciation is recovered and recorded. In 2019 the amount decreased by $3.0 million.

Deferred inflow of resources increased by $9.3 million in 2018 due to the addition of Deferred inflows related to pension of $7.4 million and Deferred inflows related to OPEB of $3.0 million. This is partially offset by a decrease in Unearned revenue which reflects the difference between the time the District bills the City of Modesto for Domestic Water and when the expense for depreciation is recovered and recorded. In 2018 the amount decreased by $1.1 million.

Net position In 2019, the District’s net investment in capital assets increased by $9.0 million primarily due to investments in fixed assets, scheduled debt service payments of $39.9 million.

Unrestricted net position increased by approximately $66.0 million in 2019 due to an increase in Operating revenues of $13.5 million, an increase in Investment and other income of $5.8 million, and an increase of $6.1 million in Equity in net income of public power agencies.

In 2018, the District’s net investment in capital assets increased by $33.5 million primarily due to investments in fixed assets, scheduled debt service payments of $38.2 million.

Unrestricted net position increased by approximately $23.4 million in 2018 primarily due to an increase in Operating revenues of $27.9 million.

8 MODESTO IRRIGATION DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS

For the Years Ended December 31, 2019 and 2018 - Unaudited

STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION

Operating Revenues

Changes from 2018 to 2019

In 2019, Operating revenue increased by $13.5 million or approximately 3.27%.

Retail electric revenue increased by $6.1 million or approximately 1.8%. Retail consumption increased slightly over the prior year.

Wholesale electric revenue increased by $3.6 million or approximately 26.1% due to an increase in Morgan Stanley revenue of $6.0 million over prior year, partially offset by a decrease in Lodi Energy Center of $1.8 million from prior year.

In 2019, Domestic Water revenue decreased by $1.8 million or approximately 8.32%.

Other operating revenue increased by $5.5 million or 23% primarily due to an increase of $6.1 million related to Equity in public power agencies.

The following is the District’s 2019 operating revenue (dollars are in thousands):

2019 Operating Revenue

Electric Retail Electric Wholesale $17,298 Domestic Water Irrigation $19,953 Other Operating Revenue $5,433

$29,463

$353,655

9 MODESTO IRRIGATION DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS

For the Years Ended December 31, 2019 and 2018 - Unaudited

Operating Revenues

Changes from 2017 to 2018

In 2018, Operating revenue increased by $27.9 million or approximately 7.27%.

Retail electric revenue decreased by $14.7 million or approximately 4.1%. Retail consumption decreased over the prior year due to a more mild summer when compared to 2017.

Wholesale electric revenue increased by $3.0 million or approximately 27.6% due to an increase in Lodi Energy Center revenue of $3.6 million over prior year.

In 2018, Domestic Water revenue remained relatively flat over the prior year with a small increase of $801 thousand.

Other operating revenue increased by $38.8 million or 261.5% primarily due to an increase of $36.4 million related to equity in public power agencies.

The following is the District’s 2017 operating revenue (dollars are in thousands):

2018 Operating Revenue

Electric Retail Electric Wholesale $13,723 Domestic Water Irrigation $21,764 Other Operating Revenue $5,352

$347,531 $23,958

10 MODESTO IRRIGATION DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS

For the Years Ended December 31, 2019 and 2018 - Unaudited

Operating Expenses

Changes from 2018 to 2019

Total operating expenses reflect an increase of approximately $4.3 million or 1.28% in 2019. The increase is due to increased costs for Purchased power of $3.2 million, increased costs for Electric transmission and distribution of $1.4 million, and increased cost of $1.8 million in Depreciation and amortization. These increased costs are partially offset by decreases in Power generation costs of $2.4 million and decreased costs of $1.9 million in Domestic water operations.

Purchased power and power generation expenses for 2019 reflect a slight increase of approximately $821 thousand or 0.4%. The change is mainly due to an increase in Purchased power costs offset by lower natural gas prices. Consumption was relatively flat in 2019 when compared to 2018.

Expenses for Domestic Water decreased by $1.9 million or 17.1% when compared to 2018.

The following depicts the 2019 operational expenses (dollars are in thousands):

2019 Operating Expenses

$12,111 $23,327 Electric Power Supply $11,515 Electric Resources $9,185

$11,717 Electric Transmission & Distribution Irrigation Operations $41,039 Domestic Water Operations

Customer Account Service $189,712

Administration and General

$43,623 Depreciation & Amortization

11 MODESTO IRRIGATION DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS

For the Years Ended December 31, 2019 and 2018 - Unaudited

Operating Expenses

Changes from 2017 to 2018

Total operating expenses reflect a decrease of approximately $2.5 million in 2018. The decrease is due to decreased costs for Purchased power of $3.9 million and decreased costs for power generation of $5.0 million. These decreases are offset by increases in Electric resources and Electric transmission and distribution of $3.1 million, and $2.3 million increase in Depreciation and amortization.

Purchased power and power generation expenses for 2018 reflect a decrease of approximately $8.9 million or 4.5%. The change is mainly due to a decrease in Purchased power costs and lower natural gas prices tied to lower consumption in 2018 when compared to 2017.

Expenses for Domestic Water increased by $1.3 million when compared to 2017. These increased costs reflect a full year of operating the expansion of the plant. Irrigation operations remained relatively flat when compared to 2017.

The following depicts the 2018 operational expenses (dollars are in thousands):

2018 Operating Expenses

$11,408 $21,963 Electric Power Supply $10,702

$11,083 Electric Resources

$11,592 Electric Transmission & Distribution Irrigation Operations $40,407 Domestic Water Operations

Customer Account Service

$188,891 Administration and General

$41,847 Depreciation & Amortization

12 MODESTO IRRIGATION DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS

For the Years Ended December 31, 2019 and 2018 - Unaudited

Non-Operating Revenue (Expenses)

Investment income Investment income increased in 2019 by $5.4 million due to an increase in interest received on investments and unrealized gains on investments held.

Investment income increased in 2018 by $1.2 million due to an increase in interest received on investments and lower unrealized losses on investments held.

Interest expense Interest expense for 2019 decreased $1.1 million over prior year due to scheduled interest payments.

Interest expense for 2018 decreased $4.2 million over prior year due to scheduled interest payments.

Other non-operating Income, net Other non-operating income remained relatively flat with a decrease in 2019 by $0.3 million over the prior year.

Other non-operating income decreased in 2018 by $7.8 million over the prior year. This was partially due to funds received from FEMA for storm damage which was reimbursed in 2017.

Contacting the Modesto Irrigation District This financial report is designed to provide our customers, investors, and creditors with a general overview of the District's finances. If you have questions about this report or need additional information, please contact the Controller's Office at P.O. Box 4060, Modesto, CA 95352.

13 MODESTO IRRIGATION DISTRICT

BALANCE SHEETS As of December 31, 2019 and 2018

(Dollars in Thousands) ASSETS AND DEFERRED OUTFLOWS 2019 2018 CAPITAL ASSETS Plant in service$ 1,381,357 $ 1,360,366 Less accumulated depreciation (725,659) (687,511) Plant in service - net 655,698 672,855 Construction work in progress 47,214 34,946 Total Capital Assets 702,912 707,801

OTHER ASSETS AND INVESTMENTS Cash and investments - restricted 98,129 69,705 Investments - unrestricted 129,162 94,538 Interest receivable - restricted 239 339 Capital improvement fund 13,729 6,864 Regulatory costs for future recovery 183,448 183,559 Equity interest in TANC 7,503 5,348 Other long-term assets 20,573 18,594 Total Other Assets and Investments 452,783 378,947

CURRENT ASSETS Cash and investments - unrestricted 54,786 103,459 Cash and investments - restricted 7,399 7,901 Interest receivable - unrestricted 1,362 1,325 Customer accounts receivable, net 26,996 27,813 Materials and supplies 12,864 14,102 Prepayments 2,217 2,959 Derivative financial instruments maturing within one year 59 164 Other current assets, net 10,855 12,134 Total Current Assets 116,538 169,857

Total Assets 1,272,233 1,256,605

DEFERRED OUTFLOWS OF RESOURCES Deferred cash flow hedges - unrealized loss on derivatives 24,793 19,493 Unamortized loss on refunding 8,168 9,178 Deferred outflows related to OPEB 20,130 18,567 Deferred outflows related to pension 101,436 17,391 Total Deferred Outflows of Resources 154,527 64,629

TOTAL ASSETS AND DEFERRED OUTFLOWS $ 1,426,760 $ 1,321,234

14 (Dollars in Thousands) LIABILITIES, DEFERRED INFLOWS AND NET POSITION 2019 2018 NONCURRENT LIABILITIES Long-term debt, net of current portion$ 575,520 $ 576,865 Unamortized premium 43,011 27,113 Unamortized debt discount (796) (1,465) Net pension liability 116,284 80,267 Net OPEB liability 97,270 127,472 Other liabilities 11,335 10,114 Derivative financial instruments 24,851 19,657 Equity interest in M-S-R 15,209 31,196 Total Noncurrent Liabilities 882,684 871,219

CURRENT LIABILITIES Accounts payable and other accruals 27,776 28,022 Current liabilities payable from restricted assets Current portion of long-term debt 37,550 39,315 Interest payable 10,106 10,429 Total Current Liabilities 75,432 77,766

Total Liabilities 958,116 948,985

DEFERRED INFLOWS OF RESOURCES Deferred inflows related to OPEB 28,766 3,042 Deferred inflows related to pension - 7,398 Unearned revenue 44,992 41,948 Total Deferred Inflows of Resources 73,758 52,388

NET POSITION Net investment in capital assets 152,992 143,940 Unrestricted 241,894 175,921 Total Net Position 394,886 319,861

TOTAL LIABILITIES, DEFERRED INFLOWS AND NET POSITION $ 1,426,760 $ 1,321,234

See accompanying notes to financial statements. 15 MODESTO IRRIGATION DISTRICT

STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION For the Years Ended December 31, 2019 and 2018

(Dollars in Thousands) 2019 2018 OPERATING REVENUES Residential, commercial and industrial electric$ 353,655 $ 347,531 Wholesale electric 17,298 13,723 Domestic water 19,953 21,764 Irrigation water 5,433 5,352 Equity in net income of public power agencies 19,791 13,700 Other operating income, net 9,672 10,258 Total Operating Revenues 425,802 412,328

OPERATING EXPENSES Purchased power 157,611 154,389 Power generation 32,101 34,502 Electric resources 12,111 11,408 Electric transmission and distribution 23,327 21,963 Irrigation operations 11,515 10,702 Domestic water operations 9,185 11,083 Customer account service 11,717 11,592 Administrative and general 41,039 40,407 Depreciation and amortization 43,623 41,847 Total Operating Expenses 342,229 337,893

OPERATING INCOME 83,573 74,435

NONOPERATING REVENUES (EXPENSES) Investment income 10,061 4,707 Interest expense (31,512) (32,567) Amortization of debt discount (81) (101) Amortization of premium 6,739 6,595 Amortization of loss on refunding (1,923) (2,196) Regulatory amounts collected in rates (477) (516) Other nonoperating income, net 4,176 4,504 Total Nonoperating Expenses (13,017) (19,574)

Change in Net Position Before Contributions 70,556 54,861

CAPITAL CONTRIBUTIONS 4,469 2,029

CHANGE IN NET POSITION 75,025 56,890

NET POSITION - Beginning of Year 319,861 262,971

NET POSITION - END OF YEAR $ 394,886 $ 319,861

See accompanying notes to financial statements. 16 MODESTO IRRIGATION DISTRICT

STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2019 and 2018

(Dollars in Thousands) 2019 2018 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers$ 413,347 $ 404,932 Receipts from public power agencies 1,650 1,650 Payments to suppliers for goods and services (311,166) (251,760) Payments to employees for services (48,432) (46,678) Net Cash Flows Provided by Operating Activities 55,399 108,144

CASH FLOWS FROM CAPITAL FINANCING ACTIVITIES Net proceeds from issuance of long-term debt obligations 58,723 - Repayment of long-term debt (39,890) (38,155) Construction expenditures (34,389) (33,194) Interest paid (31,835) (33,278) Contributions received for construction 2,539 1,504 Net Cash Flows Used in Capital Financing Activities (44,852) (103,123)

CASH FLOWS FROM INVESTING ACTIVITIES Investments purchased (18,254) (49,445) Investments sold and matured 52,776 46,712 Interest received 6,222 4,790 Net Cash Flows Provided by (Used in) Investing Activities 40,744 2,057

Net Change in Cash and Cash Equivalents 51,291 7,078

CASH AND CASH EQUIVALENTS, Beginning of Year 69,433 62,355

CASH AND CASH EQUIVALENTS, END OF YEAR $ 120,724 $ 69,433

SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES Noncash contributions by developers$ 1,930 $ 524 Amortization $ 4,258 $ 3,782 Change in arbitrage liability $ (67) $ 107 Bond proceeds used in refunding debt $ (59,070) $ - Unrealized gain (loss) on investments $ 3,969 $ (369)

17 (Dollars in Thousands) 2019 2018 RECONCILIATION OF OPERATING INCOME TO NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES Operating income$ 83,573 $ 74,435 Adjustments to reconcile operating income to net cash flows provided by operating activities Other non-operating income 4,176 4,504 Depreciation and amortization 43,623 41,847 Undistributed income from public power agencies (19,791) (13,700) Distributions from public power agencies 1,650 1,649 Change in operating assets, deferred outflows of resources, liabilities and deferred inflows of resources: Customer accounts receivable, net 63 8,062 Wholesale power receivables 754 (747) Other current assets, net (700) (4,362) Materials and supplies 1,238 2,159 Prepayments 742 (790) Accounts payable and other accruals (1,506) (3,395) Pension related deferrals and liabilities (55,426) 1,312 OPEB related deferrals and liabilities (6,041) (1,677) Unearned revenue and other liabilities 3,044 (1,153)

NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES $ 55,399 $ 108,144

RECONCILIATION OF CASH AND CASH EQUIVALENTS TO BALANCE SHEET ACCOUNTS Cash and investments - unrestricted $ 54,786 $ 103,459 Cash and investments - restricted 7,399 7,901 Investments - unrestricted 129,162 94,538 Cash and investments - restricted 98,129 69,705 Capital improvement fund 13,729 6,864 Total Cash and Investments 303,205 282,467 Less: Noncash equivalents (182,481) (213,034)

CASH AND CASH EQUIVALENTS $ 120,724 $ 69,433

See accompanying notes to financial statements. 18 MODESTO IRRIGATION DISTRICT

STATEMENTS OF FIDUCIARY NET POSITION As of December 31, 2019 and 2018

(Dollars in Thousands) 2019 2018 ASSETS

CASH AND CASH EQUIVALENTS $ 1,026 $ 4,428

RECEIVABLES Accrued interest - 4 Dividends 51 35

INVESTMENTS AT FAIR VALUE Publicly traded stocks 33,673 25,482 Stable value 15,593 13,867 Mutual funds 509,705 375,333 Total Assets 560,048 419,149

LESS: ACCRUED LIABILITIES 866 997

NET POSITION HELD IN TRUST FOR RETIREE BENEFITS $ 559,182 $ 418,152

See accompanying notes to financial statements. 19 MODESTO IRRIGATION DISTRICT

STATEMENTS OF CHANGES IN FIDUCIARY NET POSITION For the Years Ended December 31, 2019 and 2018

(Dollars in Thousands) 2019 2018 ADDITIONS Additions to (reductions from) net position attributed to: Investment income (loss): Net appreciation (depreciation) of investments$ 76,685 $ (30,877) Dividend income 9,795 8,661 Interest income 161 669 Investment expenses (1,552) (1,209) Net investment income (loss) 85,089 (22,756) Contributions Employee contributions 2,335 2,871 Employer contributions 87,979 25,026 Other contributions 30 31 Total Contributions 90,344 27,928

Total Additions (Reductions) 175,433 5,172

DEDUCTIONS Deductions from net position attributed to: Distributions to plan members and beneficiaries 26,097 24,360 Medical premiums paid 7,720 7,469 Other benefits expense 15 51 Administrative expenses 509 268 Consultant and professional services expenses 62 35 Total Deductions 34,403 32,183

Net Increase (Decrease) in Net Position Held in Trust for Retiree Benefits 141,030 (27,011)

NET POSITION HELD IN TRUST FOR RETIREE BENEFITS Beginning of year 418,152 445,163

END OF YEAR $ 559,182 $ 418,152

See accompanying notes to financial statements. 20 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

The Modesto Irrigation District (the “District”) was formed in 1887 and operates as a nonregulated special district of the State of California. The District provides electric power on an exclusive basis within a 160 square mile service area in Stanislaus County and in the Don Pedro Reservoir area in Tuolumne County. The District also provides electric power in portions of southern San Joaquin County. The District provides irrigation water to an area of California’s Central Valley that lies between the Tuolumne and Stanislaus rivers. The District also operates a surface water treatment plant that provides water for the City of Modesto's (the “City”) domestic water supply.

The District is managed by a Board of Directors. The District's Board of Directors has the authority to fix rates and charges for the District's commodities and services. As a public power utility, the District is not subject to regulation or oversight by the California Public Utilities Commission (CPUC). The District may also incur indebtedness including issuing bonds. The District is exempt from payment of federal and state income taxes.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial statements of the District have been prepared in conformity with accounting principles generally accepted in the United States of America. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles.

The significant accounting principles and policies utilized by the District are described below.

REPORTING ENTITY

As required by accounting principles generally accepted in the United States of America, these financial statements present the District, its component unit, the Modesto Irrigation District Financing Authority (the “Authority”), and the following component units presented as fiduciary funds (collectively referred to as “the Plan”):

Retirement System Basic Retirement Plan (a pension trust fund) is a single-employer defined benefit plan for all eligible District employees and Directors.

Retirement System Supplemental Retirement Plan (a pension trust fund) is a defined contribution plan and serves as partial or full replacement of social security for participants, depending upon date of employment.

Retiree Medical Benefits Plan (an other postemployment benefit trust fund) is a single-employer defined benefit healthcare plan for all eligible retirees and their spouses.

The Authority, a joint power authority composed of the District and the City of Redding, provides financing for public improvements of the District. The District's Board of Directors serves as the Authority's Board, and District employees provide all of the Authority's administrative and management functions. All of the Authority’s financial transactions, except the payment of debt service, are transacted with the District. Accordingly, all operations of the Authority are consolidated into the District's financial statements.

21 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

MEASUREMENT FOCUS, BASIS OF ACCOUNTING AND FINANCIAL STATEMENT PRESENTATION

The financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recorded when the liability is incurred or economic asset used. Revenues, expenses, gains, losses, assets, deferred outflows of resources, liabilities and deferred inflows of resources resulting from exchange and exchange-like transactions are recognized when the exchange takes place. The District’s accounting records generally follow the Uniform System of Accounts for Public Utilities and Licensees prescribed by the Federal Energy Regulatory Commission (FERC).

In January 2017, the GASB issued statement No. 84 - Fiduciary Activities. This Statement establishes criteria for identifying fiduciary activities of all state and local governments for accounting and financial reporting purposes and how these activities should be reported. This standard was implemented January 1, 2019.

In March 2018, the GASB issued Statement No. 88 - Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements. This statement defines debt for purposes of disclosure in notes to financial statements and establishes additional financial statement note disclosure requirements related to debt obligations of governments, including direct borrowings and direct placements. The District adopted this statement effective January 1, 2019.

In June 2018, the GASB issued Statement No. 89 - Accounting for Interest Cost Incurred before the End of a Construction Period. This statement establishes requirements for interest cost incurred before the end of a construction period. The utility adopted this statement effective January 1, 2019.

Presentation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.

CASH AND CASH EQUIVALENTS

Cash equivalents include all financial instruments with maturity dates of 90 days or less from the date of purchase and all investments in the Local Agency Investment Fund (LAIF), and money market mutual funds. LAIF has an equity interest in the State of California Pooled Money Investment Account (PMIA). PMIA funds are on deposit with the State’s Centralized Treasury System and are managed in compliance with the California Government Code, according to a statement of investment policy which sets forth permitted investment vehicles, liquidity parameters and maximum maturity of investments. The PMIA cash and investments are recorded at amortized cost, which approximates fair value. The District’s deposits with LAIF are generally available for withdrawal on demand.

INVESTMENTS

Generally, all investments are carried at their fair value, except for guaranteed investment contracts (GICs), which are carried at cost. Fair values are based on methods and inputs as outlined in Note 3. Fair values may have changed significantly after year-end.

22 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

ALLOWANCE FOR DOUBTFUL ACCOUNTS

The District recognizes an estimate of uncollectible accounts for its customer accounts receivable related to electric service based upon its historical experience with collections. The District has an allowance for doubtful accounts for its electric retail customers of $844 and $1,199 as of December 31, 2019 and 2018, respectively. The District’s net expense relating to doubtful accounts for all accounts receivable is included in the accompanying statements of revenues, expenses, and changes in net position as an offset to operating revenues. The District recorded bad debt expense of $283 and $1,113 at December 31, 2019 and 2018, respectively.

MATERIALS AND SUPPLIES

Materials and supplies are generally used for construction, operation and maintenance work, and are not for resale. They are valued at the lower of cost or fair value utilizing the average cost method and charged to construction or expense when used.

The balance includes greenhouse gas allowances used for generation. Allowances are valued at the lower of cost or fair value utilizing the average cost method and charged to generation expense when used. Any allowances held for sale are recorded at fair value at year-end. No allowances were held for sale at December 31, 2019 and 2018.

RESTRICTED ASSETS

Mandatory segregations of assets are presented as restricted assets. Such segregations are required by bond agreements and other external parties. Current liabilities payable from these restricted assets are so classified.

CAPITAL IMPROVEMENT FUND

The District bills each customer a per kilowatt-hour capital infrastructure surcharge. These funds are segregated to pay for future capital improvements.

PREPAYMENTS

The balance represents payments to vendors for costs applicable to future accounting periods.

REGULATORY COSTS FOR FUTURE RECOVERY

As a regulated entity, the District’s financial statements are prepared in accordance with GASB Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, which require that the effects of the rate making process be recorded in the financial statements. Accordingly, certain expenses and credits normally reflected in the change in net position as incurred are recognized when included in rates. The District records regulatory assets and credits to reflect rate-making actions of the Board. The account includes the unamortized debt issuance costs of previously issued bonds of the District, the original unfunded net pension liability under GASB Statement No. 68, and the original unfunded net OPEB liability under GASB Statement No. 75.

23 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

OTHER CURRENT AND LONG-TERM ASSETS

Other current and long-term assets represents miscellaneous receivables and deposits. Included is a receivable from the City of Modesto for a domestic water pipeline project of $1,273 and $1,567 of the 2019 and 2018 balances, respectively. Approximately $972 and $1,275 of the 2019 and 2018 balances, respectively, are not expected to be collected within one year. The balance of other long-term assets and a receivable from TANC is discussed in Note 6.

CAPITAL ASSETS

Capital assets are generally defined by the District as assets with an initial, individual cost of more than $5 and an estimated useful life in excess of three years.

Capital assets are stated at cost or the estimated acquisition value at the time of contribution to the utility. Costs and related accumulated depreciation of assets sold or otherwise disposed of are eliminated from the accounts and related gains or losses are considered nonoperating. The costs of replacement are charged to District plant. Repair and maintenance costs are charged to expense in the period incurred.

Depreciation is computed using the straight-line method over the useful lives of the assets, which generally range from twenty to fifty years for electric and domestic water plant assets and ten to one hundred years for irrigation system assets. The estimated useful lives of furniture, fixtures, equipment and other assets range from five to twenty years.

DEFERRED OUTFLOWS OF RESOURCES

A deferred outflow of resources represents a consumption of net position that applies to a future period and will not be recognized as an outflow of resources (expense) until that future time.

ACCRUED VACATION

Under terms of employment, employees are granted vacation time in varying amounts. Only benefits considered to be vested are disclosed in these statements. Vested vacation pay is accrued when earned in the financial statements. The liability is liquidated from general operating revenues of the District. At December 31, 2019 and 2018, the District recorded accrued vacation time of $3,473 and $3,326, respectively. The liability is included in accounts payable and other accruals in the accompanying balance sheet.

OTHER LIABILITIES

Other liabilities include customer meter deposits of $9,505 and $8,258 at December 31, 2019 and 2018, respectively. Other costs in the account include power cost true-ups, potential rate refunds, arbitrage liability, and other miscellaneous long-term liabilities.

24 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

ASSET RETIREMENT OBLIGATIONS

The District has identified potential retirement obligations related to certain transmission, distribution and irrigation canal facilities located on properties that do not have perpetual lease rights. The District’s nonperpetual leased land rights generally are renewed continuously because the District intends to utilize these facilities indefinitely. Since the timing and extent of any potential asset retirements are unknown, the fair value of any obligations associated with these facilities cannot be reasonably estimated. Accordingly, a liability has not been recorded at December 31, 2019 and 2018 for these assets.

The District accrues costs related to capital assets when an obligation to decommission facilities or other liability is legally required.

NET PENSION LIABILITY

A net pension liability is recorded in accordance with GASB Statement No. 68. The liability is the difference between the actuarial total pension liability and the Plan’s fiduciary net position as of the measurement date. See Note 9 for additional information.

NET OTHER POSTEMPLOYMENT BENEFIT (OPEB) LIABILITY

A net OPEB liability is recorded in accordance with GASB Statement No. 75. The net OPEB liability is the difference between the actuarial total OPEB liability and the Plan’s fiduciary net position as of the measurement date. See Note 9 for additional information.

LONG-TERM DEBT

Long-term debt and other obligations are reported as liabilities. Bond premiums and discounts are amortized over the life of the bonds using the effective interest rate method. Gains or losses on prior refundings are amortized over the remaining life of the old debt or the life of the new debt, whichever is shorter. The balance at year-end for premiums and discounts is shown as an increase or decrease in the liability section of the balance sheet. The balance at year-end for the loss on refunding is shown as a deferred outflow of resources in the balance sheet.

DEFERRED INFLOWS OF RESOURCES

A deferred inflow of resources represents an acquisition of net position that applies to a future period and therefore will not be recognized as an inflow of resources (revenue) until that future time.

Billings to the City in connection with the Domestic Water Project (the “Project”) in advance of the operation of the facility were recorded as unearned revenues. Annual differences between billings to the City and the District's annual Project costs are charged or credited to unearned revenues. These differences are being amortized over the life of the facility. Accordingly, the District’s financial statements reflect Domestic Water operations on a break-even basis, consistent with the operating agreements between the District and the City.

25 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

NET POSITION

GASB Statement No. 34, Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments, requires the classification of net position into three components – net investment in capital assets; restricted; and unrestricted. These classifications are defined as follows:

Net investment in capital assets – This component of net position consists of capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. If there are significant unspent related debt proceeds at year-end, the portion of the debt attributable to the unspent proceeds is not included in the calculation of net investment in capital assets. Rather, that portion of the debt is included in the same net position component as the unspent proceeds.

Restricted – this component of net position consists of constraints placed on net asset use through external constraints imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or constraints imposed by law through constitutional provisions or enabling legislation.

Unrestricted – This component of net position consists of net position that does not meet the definition of “restricted” or “net investment in capital assets”.

When both restricted and unrestricted resources are available for use, it is the District’s policy to use restricted resources first, then unrestricted resources as they are needed.

REVENUES AND EXPENSES

The District distinguishes operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the District’s principal ongoing operations. The principal operating revenues of the District are charges to customers for sales and services. Operating expenses include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses.

Electric and Irrigation Revenues

Retail and wholesale electric revenues are billed on the basis of monthly cycle bills and are recorded as revenue when the electricity is delivered. The District records an estimate for unbilled revenues earned from the dates its retail customers were last billed to the end of the month. At December 31, 2019 and 2018, unbilled revenues of $13,565 and $14,217, respectively, are included in customer accounts receivable in the balance sheet.

Irrigation revenues are recognized when billed based on annual assessments, payable with installment payments due in June and December.

26 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

REVENUES AND EXPENSES (cont.)

Purchased Power

The majority of the District's power needs are provided by power purchases. These power purchases are principally made under long-term agreements with the M-S-R Public Power Agency and the Hetch Hetchy System, owned and operated by the City and County of San Francisco. Additionally, the District purchases power from others under various power purchase agreements. Gains or losses on power purchase and sale transactions that are settled without physical delivery are recorded as net additions or reductions to purchased power expense.

Capital Contributions

Cash and capital assets are contributed to the District from customers and external parties. The value of property contributed to the District is reported as capital contributions on the statements of revenues, expenses and changes in net position.

COMPARATIVE DATA

Certain amounts presented in the prior year data have been reclassified in order to be consistent with the current year’s presentation.

EFFECT OF NEW ACCOUNTING STANDARDS ON CURRENT PERIOD FINANCIAL STATEMENTS

GASB has approved GASB Statement No. 87, Leases; Statement No. 91, Conduit Debt Obligations; Statement No. 92, Omnibus 2020 and Statement No. 93, Replacement of Interbank Offered Rates. When they become effective, application of these standards may restate portions of these financial statements.

NOTE 3 – CASH AND INVESTMENTS

The District’s investment policies are governed by the California Government Codes and its bond Indenture, which restricts the District’s investment securities to obligations which are unconditionally guaranteed by the United States (U.S.) Government or its agencies or instrumentalities; direct and general obligations of the State of California (State) or any local agency within the State; bankers’ acceptances; commercial paper; certificates of deposit; time certificates of deposit; repurchase agreements; reverse repurchase agreements or securities lending agreements; medium-term corporate notes; shares of beneficial interest; mortgage pass-through securities; financial futures and financial option contracts; and deposits with the LAIF. Investments in LAIF are unregistered, pooled funds. LAIF is a component of the Pooled Money Investment Account Portfolio managed by the State Treasurer, in accordance with Government Code Sections 16430 and 16480. The fair value of the District’s investments in LAIF approximates the value of its pool shares.

The District’s investment policy includes restrictions for investments relating to maximum amounts invested as a percentage of total portfolio and with a single issuer, maximum maturities, and minimum credit ratings.

27 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 3 – CASH AND INVESTMENTS (cont.)

Deposits in each local and area bank are insured by the FDIC in the amount of $250 for time and savings accounts (including NOW accounts), $250 for interest-bearing demand deposit accounts (interest bearing and noninterest bearing). In addition, if deposits are held in an institution outside of the state in which the government is located, insured amounts are further limited to a total of $250 for the combined amount of all deposit accounts.

The District maintains a rate stabilization fund to protect District customers from extreme rate increases that would otherwise be necessitated by dramatic short-term changes in purchased power or other operating costs. Annual transfers into and out of the fund are determined by the District’s Board of Directors (Board), which may utilize these unrestricted funds for any lawful purposes. The rate stabilization fund consists of an undivided portion of the District’s general operating funds. No transfers occurred during fiscal years 2019 and 2018.

The Plan’s investment policies are governed primarily by the “Prudent Person Rule” which restricts the Plan’s investments to only those securities which would be selected by a person of prudence, diligence and intelligence in the management of his or her own affairs, giving due consideration to safety or principal and income. The Plan, under the guidelines of its investment policies, is authorized to invest its cash in various financial instruments, including cash and equivalents, domestic equities, international equities, convertible securities, bankers acceptances, commercial paper, certificates of deposit, repurchase and reverse repurchase agreements, financial futures, financial option contracts, medium term notes, corporate bonds, shares issued by diversified management companies, hedge funds, and deposits with the LAIF.

The Plan’s investment policy and guidelines are established by and may be amended by the District’s Retirement Committee (the “Committee”) and the District’s Board of Directors. The Committee is responsible for overseeing the investment management of the Plan. This includes, but is not limited to, reviewing and evaluating investment activities regularly to assure that the Plan’s investment policy and guidelines are followed.

The Plan’s investment policy includes restrictions for investments related to maximum amounts invested as a percentage of total portfolios, with a single issuer, and within market sectors and styles, minimum market capitalization, maximum maturities, and minimum credit ratings.

DISTRICT CASH AND INVESTMENTS (EXCLUSIVE OF THE FIDUCIARY FUNDS)

The following disclosures relate to the District, exclusive of the fiduciary funds.

The District categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the asset (liability). Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable inputs.

28 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 3 – CASH AND INVESTMENTS (cont.)

DISTRICT CASH AND INVESTMENTS (EXCLUSIVE OF THE FIDUCIARY FUNDS) (cont.)

The valuation methods for recurring fair value measurements include the following:

> Institutional bond quotes for U.S. government agency securities, corporate medium term notes, and U.S. Treasuries. > Trader-entered price information for money market mutual funds. > JJ Kenny municipal information for municipal bonds. > Matrix pricing for commercial paper. > Bloomberg pricing of similar assets for its interest rate swap. > Market information from NYMEX for its natural gas swaps and futures.

The following table sets forth by level, within the fair value hierarchy, the District’s assets at fair value as of December 31, 2019 and 2018:

December 31, 2019 Investment Type Level 1 Level 2 Level 3 Total

U.S. Government Agencies $ - $ 27,037 $ - $ 27,037 U.S. Treasury Notes 101,318 - - 101,318 Money Market Funds 77,199 - - 77,199 Corporate Medium Term Notes - 32,661 - 32,661 Municipal Bonds - 1,574 - 1,574 Derivative Financial Instruments (25) (24,767) - (24,792)

Total $ 178,492 $ 36,505 $ - $ 214,997

December 31, 2018 Investment Type Level 1 Level 2 Level 3 Total

U.S. Government Agencies $ - $ 76,376 $ - $ 76,376 U.S. Treasury Notes 78,110 - - 78,110 Money Market Funds 12,058 - - 12,058 Corporate Medium Term Notes - 27,575 - 27,575 Municipal Bonds - 3,993 - 3,993 Commercial Paper - 7,089 - 7,089 Derivative Financial Instruments 335 (19,828) - (19,493)

Total $ 90,503 $ 95,205 $ - $ 185,708

29 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 3 – CASH AND INVESTMENTS (cont.)

DISTRICT CASH AND INVESTMENTS (EXCLUSIVE OF THE FIDUCIARY FUNDS) (cont.)

Custodial Credit Risk

Deposits

Custodial credit risk is the risk that in the event of a financial institution failure, the District's deposits may not be returned to the District.

As of December 31, 2019 and 2018, none of the District’s bank balances are known to be individually exposed to custodial credit risk.

The District’s investment policy does not address this risk. Investments

For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, the District will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party.

As of December 31, 2019 and 2018, the District’s investments were exposed to custodial credit risk as follows:

Neither Insured Nor Registered and Held by the Counterparty’s Trust Department or Agent in the District’s Name 2019 2018

U.S. Agencies Implicitly Guaranteed $ 27,037 $ 76,376 Corporate Medium Term Notes 32,661 27,575 Municipal Bonds 1,574 3,993 Commercial Paper - 7,089 U.S. Treasury 101,318 78,110

Totals $ 162,590 $ 193,143

The District’s investment policy addresses this risk. All securities owned by the District shall be held in safekeeping by a third party custodian, acting as agent for the District under the terms of a custody agreement.

30 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 3 – CASH AND INVESTMENTS (cont.)

DISTRICT CASH AND INVESTMENTS (EXCLUSIVE OF THE FIDUCIARY FUNDS) (cont.)

Credit Risk

Credit risk is the risk an issuer or other counterparty to an investment will not fulfill its obligations.

As of December 31, 2019 and 2018, the District’s investments were rated as follows:

Standard & Poors Investment Type 2019 2018

LAIF NR NR Money Market Mutual Funds NR NR U.S. Agencies Implicitly Guaranteed AA+ AA+ Corporate Medium Term Notes AA+ - A- AA- - A+ Investment Agreement Contracts NR NR Municipal Bonds AA- AA-

The District’s investment policy addresses this risk. The District limits investments to those allowed by Sections 53601 of the California Government code that address the risk allowable for each investment.

Concentration of Credit Risk

Concentration of credit risk is the risk of loss attributed to the magnitude of a government's investment in a single issuer.

At December 31, 2019 and 2018, the District’s investment portfolio was concentrated as follows:

Percentage of Portfolio Investment Type 2019 2018

Fannie Mae 8% 14% Freddie Mac - 11%

The District’s investment policy addresses this risk and places limits on the amounts invested in specific types of investments.

31 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 3 – CASH AND INVESTMENTS (cont.)

DISTRICT CASH AND INVESTMENTS (EXCLUSIVE OF THE FIDUCIARY FUNDS) (cont.)

Interest Rate Risk

Interest rate risk is the risk changes in interest rates will adversely affect the fair value of an investment.

As of December 31, 2019, the District's investments exposed to interest rate risk were as follows:

Investment Maturities in Years Greater Less than 1 – 5 than Investment Type Fair Value 1 Year Years 5 Years

U.S. Government Agencies $ 27,037 $ - $ 27,037 $ - Corporate Medium Term Notes 32,661 10,919 21,742 - LAIF 11,133 11,133 - - Money Market Fund 77,199 77,199 - - Municipal Bonds 1,574 - 1,574 - U.S. Treasury Notes 101,318 - 101,318 -

Totals $ 250,922 $ 99,251 $ 151,671 $ -

As of December 31, 2018, the District's investments exposed to interest rate risk were as follows:

Investment Maturities in Years Greater Less than 1 – 5 than Investment Type Fair Value 1 Year Years 5 Years

U.S. Government Agencies $ 76,376 $ 31,681 $ 44,695 $ - Corporate Medium Term Notes 27,575 3,002 24,573 - LAIF 45,955 45,955 - - Money Market Fund 12,058 12,058 - - Municipal Bonds 3,993 3,993 - - Commercial paper 7,089 7,089 - - U.S. Treasury Notes 78,110 - 78,110 -

Totals $ 251,156 $ 103,778 $ 147,378 $ -

Though the District has restrictions as to the maturities of some of the investments, it does not have a formal policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increases in interest rates.

32 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 3 – CASH AND INVESTMENTS (cont.)

FIDUCIARY FUND INVESTMENTS

The following disclosures relate to the District’s Fiduciary Funds.

The Plans categorize its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable inputs.

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques maximize the use of relevant observables and minimize the use of unobservable inputs.

The valuation methods for recurring fair value measurements include the following:

> Publicly traded stocks are valued at the most recent closing price reported on the market on which individual securities are traded. > Mutual funds are valued at the daily closing price as reported by the fund. Mutual funds held by the Plan are open-end mutual funds that are registered with the Securities and Exchange Commission. These funds are required to publish their daily net asset value (NAV) and to transact at that price. The level 2 and level 3 mutual funds are valued based on a manual method using pricing provided by various sources such as the issuer, investment manager, fund accountant, etc. or default price if a price is not provided. > Stable value fund is a collective fund that seeks to maintain a stable net asset value. It invests primarily in a diversified portfolio of fixed income securities from U.S. and foreign issuers, including corporate, mortgage-backed, and government, and agency bonds.

The preceding methods may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

33 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 3 – CASH AND INVESTMENTS (cont.)

FIDUCIARY FUND INVESTMENTS (cont.)

The following table sets forth by level, within the fair value hierarchy, the Plan’s assets at fair value as of December 31, 2019 and 2018:

December 31, 2019 Investment Type Level 1 Level 2 Level 3 Total

Money Market Funds $ 1,018 $ - $ - $ 1,018 Publicly Traded Stocks 27,109 6,564 - 33,673 Mutual Funds 447,493 35,605 26,607 509,705

Total $ 475,620 $ 42,169 $ 26,607 $ 544,396

Investments measured at the net asset value Stable value $ 15,593

Total Investments $ 559,989

December 31, 2018 Investment Type Level 1 Level 2 Level 3 Total

Money Market Funds $ 3,993 $ - $ - $ 3,993 Publicly Traded Stocks 20,900 4,582 - 25,482 Mutual Funds 275,581 70,088 29,664 375,333

Total $ 300,474 $ 74,670 $ 29,664 $ 404,808

Investments measured at the net asset value Stable value $ 13,867

Total Investments $ 418,675

Investments Measured Using NAV: These funds have no unfunded commitments, the redemption frequency is Daily – Bi-annually, and the redemption notice period ranges from 0 – 92 days.

34 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 3 – CASH AND INVESTMENTS (cont.)

FIDUCIARY FUND INVESTMENTS (cont.)

Custodial Credit Risk

This is the risk that in the event of the failure of a depository financial institution or counterparty to a transaction, the Plan’s deposits may not be returned or the Plan will not be able to recover the value of its deposits, investments or collateral securities that are in the possession of another party. The Plan’s investment policy does not address this risk.

As of December 31, 2019 and 2018, none of the Basic, Supplemental or Retiree Medical Plan’s deposits are known to be individually exposed to custodial credit risk.

As of December 31, 2019 and 2018, the Basic Plan’s investments were exposed to custodial credit risk as follows:

Neither Insured Nor Registered and Held by the Counterparty’s Trust Department or Agent in the District’s Name 2019 2018

Publicly Traded Stocks $ 33,673 $ 25,482

The Supplemental Retirement and Retiree Medical Benefit Plan’s investments were not exposed to custodial credit risk in 2019 and 2018.

The Plan’s investment policy does not address this risk.

Credit Risk

As of December 31, 2019 and 2018, the Plan’s investments were rated as follows:

Standard & Poors Investment Type 2019 2018

Money Market Funds NR NR

In addition, the Plans had investments in mutual funds – bond funds were rated as follows:

MorningStar Rating 2019 2018

2 $ - $ 34,479 3 9,673 54,761 4 103,155 93,116 5 99,261 16,571 Not Rated 60,579 76

35 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 3 – CASH AND INVESTMENTS (cont.)

FIDUCIARY FUND INVESTMENTS (cont.)

Credit Risk

To mitigate the risk that an issuer of an investment will not fulfill its obligation to the owner of the investment, the Plan limits investments in certain securities to those that met or exceed certain minimum credit ratings established by nationally recognized rating agencies. Commercial paper must be rated at a minimum of A-1 and P-1 by Standard & Poor’s and Moody’s, respectively. Bankers acceptances and certificates of deposit must have been purchased from larger well-capitalized banks with a minimum of an A rating from one of the major rating agencies. Banker’s acceptances must also be eligible for both purchases and discount by the Federal Reserve Bank. The pooled fund investments with LAIF are not rated. Noninvestment Grade securities may be purchased up to a maximum of 20% of the portfolio value. The preceding table shows the Standard and Poor’s (S&P) credit ratings of the Plan’s deposits and investments, at December 31, 2019 and 2018.

Interest Rate Risk

As of December 31, 2019, the Plan’s investments exposed to interest rate risk were as follows:

Investment Maturities in Years Less than Greater than Investment Type Fair Value 1 Year 1 – 5 Years 5 Years

Money Market Funds $ 1,018 $ 1,018 $ - $ - Stable Value Fund 15,593 15,593 - - Mutual Funds 272,668 272,668 - -

Totals $ 289,279 $ 289,279 $ - $ -

As of December 31, 2018, the Plan’s investments exposed to interest rate risk were as follows:

Investment Maturities in Years Less than Greater than Investment Type Fair Value 1 Year 1 – 5 Years 5 Years

Money Market Funds $ 3,992 $ 3,992 $ - $ - Stable Value Fund 13,867 13,867 - - Mutual Funds 199,003 199,003 - -

Totals $ 216,862 $ 216,862 $ - $ -

The Plan has restrictions as to the maturities of some of the investments and has a formal policy that allocates investments to manage its exposure to fair value losses arising from increases in interest rates.

36 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 3 – CASH AND INVESTMENTS (cont.)

FIDUCIARY FUND INVESTMENTS (cont.)

Foreign Currency Risk

Foreign currency risk is the risk that changes in exchange rates will adversely affect the fair value of an investment or a deposit denominated in a foreign currency.

The Plan investments in international equity open-ended mutual funds stated at fair value as of December 31, 2019 and 2018 were:

Mutual Fund Name 2019 2018

Oppenheimer International Growth Fund $ - $ 27,789 PIMCO Real Return Fund Class 8,716 8,312 Prudential Core Bond Fund 35,606 42,731 Ivy International Core Equity Fund 248 210 Blackrock Core Bon Portfolio Class K 35,080 34,292 Met West Total Return Bond Fund Class I 26,682 17,242 Brandes International Equity Fund 29,073 31,859 State Street Institutional Premier Growth Fund 35,553 - Principal Midcap Institution - 258 Prudential Total Return Fund 9,294 - Dodge & Cox Stock Fund 7,243 - BNY International Stock Fund 31,048 - Goldman Sachs Emerging Equity Fund 9,101 - Hartford Schroders Emerging Equity Fund 9,044 - Totals $ 236,688 $ 162,693

The Plan has restrictions relating to maximum amounts invested in certain non-U.S. investments, as a percentage of total portfolio, and with a single issuer. The Plan has a formal policy that allocates investments to manage its exposure to fair value losses arising from changes in currency exchange rates.

37 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 4 – RESTRICTED ASSETS

Certain proceeds of the District’s debt, as well as certain resources set aside for their repayment, are classified as restricted assets on the balance sheet because their use is limited. The following accounts are reported as restricted assets:

Carrying Value as of Year-End 2019 2018 Restricted Accounts Project fund $ 50,362 $ 28,794 Reserve fund 46,831 39,996 Redemption fund 7,399 7,901 Domestic water and reserve contingency fund 936 915

Total Restricted Accounts $ 105,528 $ 77,606

DEBT RELATED ACCOUNTS

Redemption - Used to segregate resources accumulated for debt service payments over the next twelve months.

Reserve - Used to report resources set aside to make up potential future deficiencies in the redemption account.

Project - Used to report debt proceeds restricted for use in construction.

DOMESTIC WATER RESERVE AND CONTINGENCY

As a condition of the Treatment and Delivery Agreement with the City of Modesto for domestic water, the District has established an account for the payment of emergency maintenance items that arise.

REMEDIATION FUND

As a condition of the Natural Gas and Supply Agreement with the M-S-R Energy Authority, the District has established a fund to track proceeds received from the sale of gas delivered per the supply agreement. These proceeds will be used for future gas supply needs. There was no balance in this account as of December 31, 2019 and 2018.

38 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 5 – CHANGES IN CAPITAL ASSETS

A summary of changes in capital assets for 2019 follows:

Balance Balance 1/1/19 Increases Decreases 12/31/19 Capital assets, not being depreciated/amortized Land and land rights $ 35,002 $ - $ - $ 35,002 Intangibles assets, not being depreciated/amortized 5,367 - - 5,367 Total Capital Assets Not Being Depreciated/Amortized 40,369 - - 40,369 Capital assets being depreciated/amortized Intangible assets, being depreciated/ amortized 45,267 -- 45,267 Electric system 923,595 19,996 4,806 938,785 Domestic water plant 217,006 266 - 217,272 Irrigation system 54,764 706 - 55,470 General and administrative facilities 79,365 4,506 732 83,139 Completed construction not classified - 1,055 - 1,055 Total Capital Assets Being Depreciated/Amortized 1,319,997 26,529 5,538 1,340,988

Total Capital Assets 1,360,366 26,529 5,538 1,381,357

Less: Accumulated depreciation/ amortization (687,511) (43,623) 5,475 (725,659) Construction in progress 34,946 38,463 26,195 47,214

Net Capital Assets $ 707,801 $ 21,369 $ 26,258 $ 702,912

39 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 5 – CHANGES IN CAPITAL ASSETS (cont.)

Balance Balance 1/1/18 Increases Decreases 12/31/18 Capital assets, not being depreciated/amortized Land and land rights $ 35,002 $ - $ - $ 35,002 Intangibles assets, not being depreciated/amortized 5,367 - - 5,367 Total Capital Assets Not Being Depreciated/Amortized 40,369 - - 40,369 Capital assets being depreciated/amortized Intangible assets, being depreciated/ amortized 45,267 - - 45,267 Electric system 903,102 20,929 436 923,595 Domestic water plant 215,964 1,042 - 217,006 Irrigation system 53,272 1,873 381 54,764 General and administrative facilities 76,252 3,558 445 79,365 Total Capital Assets Being Depreciated/Amortized 1,293,857 27,402 1,262 1,319,997

Total Capital Assets 1,334,226 27,402 1,262 1,360,366

Less: Accumulated depreciation/amortization (646,895) (41,847) (1,231) (687,511) Construction in progress 30,342 31,481 26,877 34,946

Net Capital Assets $ 717,673 $ 17,036 $ 26,908 $ 707,801

NOTE 6 – INVESTMENT IN PUBLIC POWER AGENCIES

The District's investments in public power agencies are accounted for using the equity method of accounting and consist of the following at December 31, 2019 and 2018:

2019 2018

M-S-R Public Power Agency $ (15,209 ) $ (31,196)

Transmission Agency of Northern California (TANC) $ 7,503 $ 5,348

40 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 6 – INVESTMENT IN PUBLIC POWER AGENCIES (cont.)

M-S-R PUBLIC POWER AGENCY

The District, the City of Santa Clara, and the City of Redding formed M-S-R Public Power Agency (Agency) for the principal purpose of acquiring electric power resources for the electric systems of its members. The District owns a 50% interest in generation assets owned by the Agency. The District’s deficit investment derives from its proportionate interest in the Agency’s deficit and the District’s commitment to repay its share of the Agency’s debt, among other costs and obligations, through its take- or-pay commitment. The District is liable for its proportionate share of the Agency’s long-term debt and asset retirement obligations related to the San Juan Project. The Agency divested its interest in the San Juan Plant, a 507-megawatt (MW) unit of a coal-fired electricity generating plant located in New Mexico, as of December 31, 2017. In 2006, the Agency entered into agreements with Iberdrola Renewables, Inc., to purchase renewable energy from the Big Horn wind project. The District’s share of the Big Horn output is 12.5% and is obligated to make payments commensurate with its share of the project.

During 2019 and 2018, the District incurred purchased power costs of $29,297 and $31,188, respectively, in connection with these Agency resources. At December 31, 2019 and 2018, the District had a payable of $1,692 and $2,075, respectively, to the Agency for its proportionate share of project related expenditures.

Summarized financial information of the Agency is as follows at December 31:

Restated 2019 2018

Total assets $ 78,933 $ 82,188 Total deferred outflows of resources 1,387 2,539

Total Assets and Deferred Outflows $ 80,320 $ 84,727

Total liabilities $ 110,739 $ 140,927 Total net position (30,419) (56,200)

Total Liabilities and Net Position $ 80,320 $ 84,727

Changes in Net Position During the Year $ 25,787 $ 20,627

The Agency restated its 2018 financial statement information upon implementation of GASB 83, Certain Asset Retirement Obligations, effective January 1, 2019.

The long-term debt of the Agency, which totals $75,795 and $98,850 at December 31, 2019 and 2018, respectively, is secured by a pledge and assignment of the net electric revenues of the Agency and are supported by take-or-pay commitments, which are an operating expense of the Participant’s electric system. The District’s portion of the Agency’s principal and interest payments during the year were $13,874 and $4,259 for December 31, 2019 and 2018, respectively.

41 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 6 – INVESTMENT IN PUBLIC POWER AGENCIES (cont.)

M-S-R ENERGY AUTHORITY

The District, the City of Santa Clara, and the City of Redding formed M-S-R Energy Authority (Authority) for the principal purpose to acquire, construct, maintain, operate and finance projects for the benefit of any one or more of the Members. On September 10, 2009, the Authority entered into a series of thirty- year prepaid gas contracts with Citigroup Energy, Inc., which are financed by nonrecourse revenue bonds. The Authority also entered into matching Natural Gas Supply Agreements (“Supply Agreements”) whereby each member is obligated to purchase the natural gas from the Authority at a discount from the Index Price. The Supply Agreements will continue in effect until September 30, 2039, unless terminated earlier due to certain defaults, as set forth therein, or the termination of the matching prepaid gas contract. If the Authority fails on any day to deliver the quantity of natural gas required to be delivered pursuant to a Supply Agreement, the member will have no obligation for any of the natural gas supply that was not delivered as a result of such delivery default.

Billings to the members are designed to provide, over the life of the project, full recovery of costs as defined by the indenture and project contracts, and as prescribed by the Authority. Rates are structured to systematically provide for the current debt service requirements, operating costs and reserves. The net costs to be recovered from future participant billings consist primarily of timing differences related to the debt service requirements included in rates. In accordance with GASB Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, certain income and expense amounts which would be recognized during the current time period are deferred and not included in the determination of income until such costs are recoverable through participant billings. Under the current rate structure, costs are expected to be recovered over the 30-year term of the Natural Gas Supply Agreement.

During 2019 and 2018, the District incurred purchased gas costs of $4,697 and $4,966, respectively, in connection with the Authority. At December 31, 2019 and 2018, the District had a payable of $607 and $1,052, respectively, for purchased gas and project related expenses.

Summarized financial information of the Authority is as follows at December 31:

2019 2018

Total Assets $ 903,202 $ 904,901

Total liabilities $ 903,202 $ 904,901 Total net position - -

Total Liabilities and Net Position $ 903,202 $ 904,901

Changes in Net Position During the Year $ - $ -

The long-term debt of the Authority totaled $899,780 and $901,260 at December 31, 2019 and 2018, respectively. The Authority began making principals payments in 2019. The District's portion of the Authority's principal and interest payments during 2019 were $13,751 and portion of the Authority’s interest only payments were $13,211 in 2018.

42 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 6 – INVESTMENT IN PUBLIC POWER AGENCIES (cont.)

TRANSMISSION AGENCY OF NORTHERN CALIFORNIA (TANC)

TANC is a joint power agency that owns a portion of the California Oregon Transmission Project (COTP), a transmission line between central California and southern Oregon. As of July 1, 2015, through a 25-year lay-off agreement and the termination of a layoff between MID and some of the other TANC members, the District has a 23.5% ownership interest in TANC for a net total scheduling entitlement of 320 MW. As a result of the 2015 25-year lay-off agreement, the District assumed the debt payment associated with the acquisition of approximately 25 MW of additional COTP transfer capability. TANC is entitled to approximately 87% of the 1,600 MW transmission capacity of the COTP. In addition, the District has a 34% share of TANC’s transmission entitlement under the South of Tesla transmission agreements with Pacific Gas & Electric Company (PG&E) that provides the District with 102 MW of transmission between Tesla and Midway. The District is responsible for 34% of the South of Tesla operating costs. In July 2006, TANC changed the method used to invoice members for transmission costs. TANC began invoicing its members at the monthly TANC Open Access Transmission Tariff (OATT) rate. The OATT rate is charged to the member based on their entitlement share of kWs. During 2019 and 2018, the District incurred transmission costs of $11,471 and $11,717, respectively, relating to these projects, which are included in purchased power expense in the accompanying statements of revenues, expenses and changes in net position. At December 31, 2019 and 2018, the District has a receivable from TANC in the amount of $19,601 and $17,319, respectively, included in other long-term assets in the accompanying balance sheet. In 2006, the District began selling excess transmission capabilities from the COTP transmission lines through TANC, as agent of the District. The District recognized $1,539 and $2,074 in revenues from transmission sales in the 2019 and 2018, respectively.

Summarized unaudited financial information of TANC is as follows at December 31:

2019 2018 (unaudited) (unaudited)

Total Assets and Deferred Outflows of Resources $ 346,979 $ 353,175

Total liabilities $ 312,470 $ 329,023 Total net position 34,509 24,152

Total Liabilities and Net Position $ 346,979 $ 353,175

Changes in Net Position for 6 Months Ended $ 7 $ 7

The long-term debt of TANC (unaudited), which totals $200,632 and $229,607 at December 31, 2019 and 2018, respectively, is collateralized by a pledge and assignment of net revenues of each agency, supported by take-and-pay commitments of the District and the other members. Should other members of these agencies default on their obligations to the agencies, the District would be required to make “step up” payments to cover a portion of the defaulted payments. The District’s portion of TANC’s principal and interest payments during the year were $4,300 and $4,425 for December 31, 2019 and 2018, respectively. During 2019, TANC defeased debt with cash on hand. The District’s share of TANC’s defeasance payment was $4,580.

43 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 6 – INVESTMENT IN PUBLIC POWER AGENCIES (cont.)

BALANCING AUTHORITY OF NORTHERN CALIFORNIA (BANC)

The District and three other California municipal utilities formed BANC in 2009. One new member joined in 2013. BANC was formed to perform North American Electric Reliability Corporation (NERC) functions that would otherwise be performed by the BANC members or on their behalf.

Summarized financial information of BANC is as follows at December 31:

2019 2018

Total Assets $ 6,184 $ 3,994

Total liabilities $ 6,184 $ 3,994 Total net position - -

Total Liabilities and Net Position $ 6,184 $ 3,994

Changes in Net Position During the Year $ - $ -

MODESTO IRRIGATION DISTRICT FINANCING AUTHORITY

The Authority is a joint power authority that provides financing for public improvements of the District, and is accounted for as a component unit of the District. The revenues and expenses of the Authority are eliminated upon consolidation with the District. The Authority’s summary financial information as of December 31, 2019 and 2018 and for the years then ended is as follows:

2019 2018 Assets Current assets $ 14,604 $ 13,170 Other noncurrent assets 77,246 45,963 Debt service installment receivable, less current portion 326,022 254,455 Total Assets 417,872 313,588

Deferred Outflows of Resources 26,849 21,346

Total Assets and Deferred Outflows of Resources $ 444,721 $ 334,934

Liabilities and Net Position Current liabilities $ 14,292 $ 12,858 Derivative financial instruments 24,767 19,828 Long-term debt, net 405,454 302,107 Other noncurrent liabilities 208 141 Net position - -

Total Liabilities and Net Position $ 444,721 $ 334,934

44 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 6 – INVESTMENT IN PUBLIC POWER AGENCIES (cont.)

MODESTO IRRIGATION DISTRICT FINANCING AUTHORITY (cont.)

2019 2018 Revenues and Expenses Revenues: Debt service contributions $ 13,097 $ 12,400 Interest income 1,311 1,002 Other nonoperating income 1,208 1,247 Total Revenues 15,616 14,649

Interest expense and amortization (15,616) (14,649)

Change in Net Position --

NET POSITION, Beginning of Year - -

NET POSITION, END OF YEAR $ - $ -

2019 2018 Cash Flows Net cash provided by (used in) noncapital financing activities $ 30,094 $ (458) Net cash provided by investing activities 36,859 862

Net Change in Cash and Cash Equivalents 66,953 404

CASH AND CASH EQUIVALENTS – Beginning of the Year 5,462 5,058

CASH AND CASH EQUIVALENTS – END OF THE YEAR $ 72,415 $ 5,462

45 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 7 – LONG-TERM DEBT

LONG-TERM DEBT The following bonds have been issued:

Outstanding Final Interest Original Amount Date Issue Maturity Rate Amount 12/31/19

6/26/07 2007F Domestic Water 9/1/37 Index Rate $ 93,190 $ 93,190 Revenue Bonds 3/31/09 2009A Certificates of 10/1/39 4.10 – 6.10 132,145 - Participation 6/23/10 2010A Taxable Electric 10/1/40 4.78 – 7.20 60,325 50,710 System Revenue Bonds 6/23/10 2010B Electric System 10/1/39 5.00 39,930 39,930 Revenue Bonds 7/23/11 2011A Electric System 7/1/26 3.85 – 5.00 125,380 55,685 Refunding Revenue Bonds 8/31/11 2011C Electric System 7/1/31 4.50 – 5.00 32,840 32,450 Refunding Revenue Bonds 10/25/12 2012A Electric System 7/1/32 1.00 – 5.00 90,065 72,675 Refunding Revenue Bonds 8/14/13 2013G Domestic Water 9/11/22 2.00 – 5.00 43,270 16,570 Refunding Revenue Bonds 7/15/15 2015A Electric System 10/1/40 4.00 – 5.00 67,690 67,690 Revenue Bond 7/15/15 2015B Electric System 10/1/36 2.00 – 5.00 30,190 26,760 Refunding Revenue Bond 10/1/16 2016 Electric System 10/1/34 2.00 – 5.00 95,240 65,420 Refunding Revenue Bond 6/20/19 2019A Electric System 10/1/39 5.00 47,355 47,355 Revenue Bonds 6/20/19 2019B Electric System 10/1/31 5.00 48,495 44,635 Revenue Bonds

GENERAL DEBT TERMS

The net revenue of the District’s electric system is pledged for repayment of COPs and Revenue Bonds. The Domestic Water Revenue Bonds are collateralized by a pledge of payments made by the City of Modesto relating to domestic water services. Interest on certificates and revenue bonds is generally payable semi-annually, except for interest on certain COPs that is payable on the last day of each interest rate reset period.

46 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 7 – LONG-TERM DEBT (cont.)

GENERAL DEBT TERMS (cont.)

Interest earnings on tax-exempt bond funds are subject to arbitrage rules of the Internal Revenue Service if interest earnings on the unspent tax-exempt funds are greater than the stated bond yield on the tax- exempt debt. As of December 31, 2019 and 2018, the District has recorded a liability of $208 and $141, respectively, for a potential arbitrage rebate to the IRS. Arbitrage rebates are due five years from the issuance date of the tax-exempt debt.

The District’s outstanding debt obligations of $613,070 and $616,180 on December 31, 2019 and 2018 respectively contain event of default and remedies provisions that in the event of default, outstanding amounts become immediately due and payable. The District has evaluated the event of default and remedies provisions and in the opinion of Management, the likelihood is remote that these provisions(s) will have a significant effect on the District’s financial position or results of operations. The District is in compliance with required bond covenants

LONG-TERM DEBT REPAYMENT

Revenue bonds debt service requirements to maturity follows:

Interest Year Ending December 31, Principal Interest Subsidy Total

2020 $ 37,550 $ 30,111 $ (1,153) $ 66,508 2021 39,805 28,162 (1,104) 66,863 2022 41,780 26,212 (1,065) 66,927 2023 37,120 24,243 (1,065) 60,298 2024 40,660 22,387 (1,065) 61,982 2025-2029 162,735 84,905 (5,327) 242,313 2030-2034 128,205 49,574 (5,156) 172,623 2035-2039 113,375 20,022 (2,707) 130,690 2040 11,840 553 (117) 12,276

Total Requirements $ 613,070 $ 286,169 $ (18,759) $ 880,480

Pursuant to the requirements of the Balanced Budget and Emergency Deficit Control Act of 1985, as amended, certain automatic reductions were effective March 1, 2013 for qualified bonds including the District’s 2010A series Bonds. The District received a reduced interest subsidy payment during 2019 and 2018 due to budget sequestration by the federal government. In 2019 and 2018, the District recognized $1,207 and $1,247, respectively, in revenues for its Build America Bonds, as a component of other nonoperating income, net in the statements of revenues, expenses and changes in net position. Federal subsidies for these bonds will be reduced by 5.9% through the end of the federal fiscal year (September 30, 2020) or convening U.S. Congressional action, at which time the sequestration rate is subject to change.

The District had outstanding debt obligations totaling $10,325 and $77,455 on December 31, 2019 and 2018, respectively, which were defeased and excluded from the District's long-term debt.

47 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 7 – LONG-TERM DEBT (cont.)

CURRENT REFUNDING

On June 20, 2019, bonds in the amount of $48,495 were issued with an average interest rate of 5.00% to refund $59,070 of series 2009A Certificates of Participation Bonds with an average interest rate of 5.62%. The net proceeds were used to prepay the outstanding debt service requirements on the old bonds.

The cash flow requirements on the old bonds prior to the current refunding were $83,054 with refunding receipts of $3,917 from 2019 through 2031. The cash flow requirements on the new bonds are $67,915 with refunding receipts of $3,853 from 2019 through 2031. The advance refunding resulted in an economic gain of $14,224.

CASH DEFEASANCE

On November 21, 2018, the District used $54,765 of cash on hand, including $1,514 of restricted funds, to defease $51,360 of the outstanding series 2009A Certificate of Participation Bonds. The cash on hand, net of expenses, were used to purchase U.S. government securities. Those securities were deposited in an irrevocable trust with an escrow agent to provide for a portion of the future debt service payments on the bonds. As a result, that portion of the bonds are considered defeased and the liability for that portion of the bonds has been removed from the balance sheet.

The cash flow requirements on the old bonds prior to this transaction was $63,783 from 2032 through 2038.

LONG-TERM OBLIGATION SUMMARY

Long-term obligation activity for the year ended December 31, 2019 is as follows:

1/1/19 12/31/19 Due Within Balance Additions Reductions Balance One Year Domestic water revenue bonds $ 114,765 $ - $ 5,005 $ 109,760 $ 5,260 Certificate of participation 59,070 - 59,070 - - Revenue bonds 442,345 95,850 34,885 503,310 32,290 Unamortized debt discount (1,465) - (669) (796) - Unamortized premium 27,113 22,642 6,744 43,011 - Other liabilities 10,114 1,886 665 11,335 - Derivative financial instruments 19,493 5,299 - 24,792 (59) Equity interest in M-S-R 31,196 1,649 17,636 15,209 -

Totals $ 702,631 $ 127,326 $ 123,336 $ 706,621 $ 37,491

48 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 7 – LONG-TERM DEBT (cont.)

LONG-TERM OBLIGATION SUMMARY (cont.)

Long-term obligation activity for the year ended December 31, 2018 is as follows:

1/1/18 12/31/18 Due Within Balance Additions Reductions Balance One Year Domestic water revenue bonds $ 119,525 $ - $ 4,760 $ 114,765 $ 5,005 Certificate of participation 62,200 - 3,130 59,070 3,285 Revenue bonds 472,610 - 30,265 442,345 31,025 Unamortized debt discount (1,566) - (101) (1,465) - Unamortized premium 33,708 - 6,595 27,113 - Other liabilities 11,387 638 1,911 10,114 - Derivative financial instruments 24,981 - 5,488 19,493 (164) Equity interest in M-S-R 41,033 1,650 11,487 31,196 -

Totals $ 763,878 $ 2,288 $ 63,535 $ 702,631 $ 39,151

In addition to the liabilities above, information on the net pension liability and the net OPEB liability is provided in Note 9.

NOTE 8 – DERIVATIVE INSTRUMENTS

SUMMARY OF NOTIONAL AMOUNTS AND FAIR VALUES

The District enters into contracts to hedge its exposure to power and natural gas prices, and to procure energy supplies. The District also enters into contracts to hedge its exposure to fluctuating interest rates. These contracts are evaluated pursuant to GASB Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, to determine whether they meet the definition of derivative instruments, and, if so, whether they effectively hedge the expected cash flows associated with interest rate and energy exposures.

The District applies hedge accounting for derivatives that are deemed effective hedges. Under hedge accounting, the increase (decrease) in the fair value of a hedge is reported as a deferred inflow (outflow) on the balance sheets. For the reporting periods, all of the District’s derivatives meet the effectiveness tests.

For energy derivatives, fair values are estimated by comparing contract prices to forward market prices quoted by third party market participants or provided in relevant industry publications. For interest rate derivatives, the District subscribes to a financial information service that it uses to verify fair value estimates obtained from its counterparties.

49 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 8 – DERIVATIVE INSTRUMENTS (cont.)

SUMMARY OF NOTIONAL AMOUNTS AND FAIR VALUES (cont.)

The following is a summary of the fair values and notional amounts of derivative instruments outstanding as of December 31, 2019 (amounts in thousands; gains shown as positive amounts, losses as negative).

2019 Change in Fair Value Fair Value, End of 2019 Notional Classification Amount Classification Amount (Thousands) Effective Cash Flow Hedges

Interest Rate Derivatives: Pay-fixed swaps, interest rate Deferred Outflow $ (4,939 ) Derivative $ (24,767) $ 93,190 Energy Derivatives: Pay-fixed swaps, natural gas Deferred Outflow (367) Derivative (25) 2,133 mmBtu Options Contracts Deferred Outflow 7 Derivative - 240 mmBtu

The following is a summary of the fair values and notional amounts of derivative instruments outstanding as of December 31, 2018 (amounts in thousands; gains shown as positive amounts, losses as negative).

2018 Change in Fair Value Fair Value, End of 2018 Notional Classification Amount Classification Amount (Thousands) Effective Cash Flow Hedges

Interest Rate Derivatives: Pay-fixed swaps, interest rate Deferred Outflow $ 4,126 Derivative $ (19,828) $ 93,190 Energy Derivatives: Pay-fixed swaps, natural gas Deferred Outflow 1,328 Derivative 342 2,041 mmBtu Options Contracts Deferred Outflow 34 Derivative (7) 180 mmBtu

OBJECTIVE AND TERMS OF HEDGING DERIVATIVE INSTRUMENTS

The objectives and terms of the District’s hedging derivative instruments that were outstanding at December 31, 2019 and 2018 are summarized in the table below. The table is aggregated by the credit ratings (using the Standard & Poor’s scale) of the District’s counterparties. For counterparties having multiple ratings, the rating indicating the greatest degree of risk is used.

The interest rate swaps are designed to synthetically fix the cash flows associated with variable rate bonds. The interest rate that the District pays on the 2007F bonds is 67% of LIBOR plus a spread. With the interest rate swaps, the District pays the counterparty a fixed rate and receives 67% of LIBOR. Netting out the LIBOR-based payments, the District’s effective interest rate is the sum of the fixed rate paid to the swap counterparty and the spread.

50 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 8 – DERIVATIVE INSTRUMENTS (cont.)

OBJECTIVE AND TERMS OF HEDGING DERIVATIVE INSTRUMENTS (cont.)

The District hedges its power and natural gas costs so that it can offer predictable rates to its retail electric customers, stabilize its finances and enhance its credit profile. The District maintains a Risk Management Program (RMP) to control the price, credit, and operational risks arising from its power and natural gas market activities. Under the RMP, authorized District personnel assemble a portfolio of swaps, options, futures, and forward contracts over time with the goal of making the District’s purchased power and fuel budget more predictable.

Notional Effective Maturity Counterparty Type Objective (Thousands) Date Date Terms Rating

Pay-fixed Pay 4.378-4.440%; swaps, Hedge cash flows on Receive 67% interest rate the 2007F bonds $ 93,190 Jun-07 Sep-37 of LIBOR A-

Option Hedge cash flows on Collar with $2.00/mmBtu contracts, PG&E citygate gas floor, $2.90 cap; natural gas purchases 240 mmBtu Dec-18 Dec-20 settle on NYMEX n/a

Pay-fixed Hedge cash flows on Pay $2.93-3.32/mmBtu; swaps, natural PG&E citygate gas Receive NGI PG&E Between A+ gas purchases 2,133 mmBtu Apr-17 Dec-22 citygate price To BBB+

Objectives and terms of the District’s hedging derivative instruments that were outstanding at December 31, 2018 are summarized in the table below:

Notional Effective Maturity Counterparty Type Objective (Thousands) Date Date Terms Rating

Pay 4.378-4.440%; Pay-fixed swaps, Hedge cash flows on Receive 67% interest rate the 2007F bonds $ 93,190 Jun -07 Sep-37 of LIBOR A-

Hedge cash flows on Collar with $2.60/mmBtu Option contracts, PG&E citygate gas floor, $3.35 cap; natural gas purchases 180 mmBtu Dec-18 Dec-19 settle on NYMEX n/a

Hedge cash flows on Pay $3.00-3.32/mmBtu; Pay-fixed swaps, PG&E citygate gas Receive NGI PG&E Between A natural gas purchases 2,041 mmBtu Oct-16 Dec-21 citygate price To BBB

RISKS OF DERIVATIVE INSTRUMENTS

Credit risk – Credit risk is the risk of loss due to a counterparty defaulting on its obligations. The District seeks to minimize credit risk by transacting with creditworthy counterparties. Interest rate swap counterparties are evaluated at the time of transaction execution. For energy counterparties, the District follows a procedure under its RMP wherein the District will accept more potential credit risk from counterparties having greater amounts of tangible net worth and higher credit ratings. The procedure restricts the District from executing energy hedge transactions with counterparties rated lower than BBB by Standard & Poor’s or Fitch rating services, or Baa2 by Moody’s.

51 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 8 – DERIVATIVE INSTRUMENTS (cont.)

RISKS OF DERIVATIVE INSTRUMENTS (cont.)

Credit risk (cont.) – The District uses industry standard agreements to document derivative transactions. These agreements include netting clauses whereby, if the District and the counterparty owe each other payment, the party owing the greater amount pays the net. The District also uses collateral posting provisions to manage credit risk. These provisions require an out-of-the-money party to post cash, letters of credit, or other pre-agreed liquid securities to the extent that the mark-to-market value of derivative positions with a given counterparty exceeds a threshold value. Thresholds are negotiated individually with counterparties, and the netting provisions include rights to set off against posted collateral.

To avoid concentrations of credit risk, and to avoid the risk of itself having to post large amounts of collateral, the District seeks to spread transactions across counterparties so that, even with an adverse move in the market, the threshold values would likely not be exceeded. As of December 31, 2019 and 2018, the District did not have any collateral posted with its derivative counterparties and did not hold any collateral posted by its counterparties.

The District is exposed to credit risk to the extent that it has net fair value gains on its derivative positions with individual counterparties. If counterparty failed, those value amounts could be lost. As of December 31, 2019 and 2018, the District was not in-the-money with certain of its counterparties; the District’s only net gains were on exchange-traded instruments.

Basis risk – Basis risk is the risk that arises when a hedged item and a derivative intended to hedge that item are based on different indices. The District is exposed to basis risk when it hedges its natural gas purchases, which are priced at the PG&E citygate index, with NYMEX futures and options contracts, which settle based on the price in Henry Hub, Louisiana. If the markets diverge such that PG&E citygate prices increase relative to Henry Hub prices, the District would be negatively affected on the futures and options contracts that mature in 2019.

Termination risk – Termination risk is the risk that a derivative will terminate prior to its scheduled maturity due to a contractual event. Contractual events include bankruptcy, illegality, default, and mergers in which the successor entity does not meet credit criteria. One aspect of termination risk is that the District would lose the hedging benefit of a derivative that becomes subject to a termination event. Another aspect of termination risk is that, if at the time of termination the mark-to-market value of the derivative was a liability to the District, the District could be required to pay that amount to the counterparty. Termination risk is associated with all of the District’s derivatives up to the fair value amounts.

HEDGED DEBT

Net cash flows for the District’s synthetic fixed-rate debt are shown below. These amounts assume that the interest rates of the bonds and the reference rates of the hedging derivative instruments remain at December 31, 2019 levels. These rates will vary and, as they do, interest payments on the variable-rate bonds and net receipts/payments on the interest rate swaps will vary. The table shows only the District’s effectively hedged synthetic fixed-rate debt, which is a subset of the District’s total debt. As of December 31, 2019, all of the District’s variable-rate debt is effectively hedged.

52 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 8 – DERIVATIVE INSTRUMENTS (cont.)

HEDGED DEBT (cont.)

Net Year Ending Payment on December 31, Principal Interest Derivatives Total

2020 $ - $ 1,767 $ 2,356 $ 4,123 2021 - 1,767 2,356 4,123 2022 - 1,767 2,356 4,123 2023 4,275 1,747 2,329 8,351 2024 4,455 1,667 2,220 8,342 2025 – 2029 25,550 6,994 9,290 41,834 2030 – 2034 32,040 4,302 5,705 42,047 2035 – 2037 26,870 983 1,307 29,160

Totals $ 93,190 $ 20,994 $ 27,919 $ 142,103

NOTE 9 – EMPLOYEE BENEFIT PLANS

The District maintains two retirement plans and a retiree medical benefits plan for its eligible employees. The Retirement Committee of the District's Board of Directors oversees the plans. The District has a Retirement Department that performs plan administrative functions. Plan investments are managed by the District Treasury Department and third-party investment managers. All funds of the plans are separate assets of the retirement plans, and are not assets of the District.

BASIC RETIREMENT PLAN

The District implemented GASB Statement No. 68, Accounting and Financial Reporting for Pensions – an amendment of GASB Statement No. 27, effective January 1, 2015. The cumulative effect of the change in net position due to the change in accounting standard, or the initial unfunded liability is shown as a regulatory cost for future recovery on the balance sheet. The District plans to recover these costs in a future rate study.

Plan Description. The Basic Retirement Plan (the Plan) is a single-employer defined benefit pension plan for eligible employees. All employees who normally work 20 hours per week or more and at least five months per year, except leased employees, employees whose work classification is excluded from coverage under the Plan by a collective bargaining agreement, and individuals employed in work experience and student intern classifications, are eligible. There are three tiers of employees covered. Tier 1 is comprised of Pre-2006 eligible employees. Tier 2 is comprised of Post-2005 eligible employees. Tier 3 is comprised of Post-2012 eligible employees. The Plan provides retirement, disability and death benefits to plan members and beneficiaries. The District issues publicly available stand-alone financial statements and required supplementary information of the Plan that may be obtained by contacting the District. The fiduciary net position reported in these statements has been determined on the same basis as the Plan.

53 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 9 – EMPLOYEE BENEFIT PLANS (cont.)

BASIC RETIREMENT PLAN (cont.)

Benefits Provided. Benefits provided for Tier 1 and 2 employees include monthly benefits of 2.75% of the final average monthly earnings multiplied by a credited service factor. Tier 3 employees receive a monthly benefit equal to a percentage between 1% if retirement occurs at age 52 and 2.5% if retirement occurs at age 67 or older multiplied by a credited service factor. For ages 52 through 67, the percentage is between 1% and 2.5%. Vesting periods are 5 years for all tiers. Normal retirement age is 60 for Tier 1 and 2 employees with reduced early retirement options at 55 with 5 years of service. Tier 3 employees may retire at age 52, but cost of living adjustments are only given to employees that retire on or after age 55 with 5 years of service. Final average compensation is calculated based on the highest average monthly earnings during the 36 consecutive months out of the last 120 months for Tier 1 and Tier 2 employees. Tier 3 employee benefits are calculated as the highest average monthly earnings received during the 36 consecutive month’s immediately preceding separation of service. Cost of living adjustments are provided for all employees who have been receiving benefits for more than one year excepted as noted above. The cost of living adjustment is based on the increase in the U.S. Labor Department cost of living index, but it may not exceed 4%. Tier 3 employees that leave the District’s service may withdraw his or her contribution if they are not yet vested. Benefit terms may be amended by the Board of Directors.

Employees Covered by Benefit Terms. At the December 31, 2018 and 2017 valuation dates, the following employees were covered by the benefit terms:

2018 2017

Inactive employees or beneficiaries currently receiving 440 440 benefits Inactive employees entitled to but not yet receiving benefits 51 51 Active employees 456 444

Totals 947 935

Contributions. The Board of Directors has established, and may amend, the contribution requirements for Plan members and the District set forth in the terms of the Plan. The terms of the Plan empower the Retirement Committee of the District (the Committee) to make, at reasonable intervals, an analysis of the funding requirements of the Plan for the payment of retirement benefits and expenses based on reasonable actuarial assumptions and methods which take into account the experience of the Plan and the reasonable expectations, and on the basis of this analysis, to establish a funding policy for the Plan. The terms of the Plan state that, subject to the Board of Directors’ right to suspend or reduce contributions to the Plan at any time, the District shall contribute to the Plan at least once a year the amounts necessary to maintain the Plan on a sound actuarial basis, in a manner consistent with the funding policy established by the Committee.

The funding policy currently established by the Committee requires the District to contribute an amount set forth in the Recommendation Regarding Total Contributions presented in the Plan actuary’s Actuarial report. The Required Annual Contributions set forth in the Recommendation regarding total contributions presented in the Actuarial Report are $18,261 and $12,825, which were contributed in 2019 and 2018, respectively.

54 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 9 – EMPLOYEE BENEFIT PLANS (cont.)

BASIC RETIREMENT PLAN (cont.)

Contributions (cont.). The District was the sole participating employer and contributing entity. Prior to 1989, participants were allowed to make voluntary contributions and prior to 1977, participating contributions were required. The Plan was amended as of January 1, 2013; new member employees are required to contribute an amount equal to one-half of the defined benefits’ normal cost through payroll deductions.

Net Pension Liability. The employer’s net pension liability was measured as of December 31, 2018 and 2017 for the District’s December 31, 2019 and 2018 financial statements, respectively, and the total pension liability used to calculate the net pension liability was determined by an annual actuarial valuation as of January 1, 2019 and January 1, 2018, respectively.

Actuarial Assumptions. The total pension liability in the January 1, 2019 and 2018 annual actuarial valuations were determined using the following actuarial assumptions, applied to all periods included in the measurement, unless otherwise specified:  Inflation: 2.50%  Salary Increases: 4.00%  Investment rate of return: 7.50%, net of investment expense, including inflation.  Mortality rates used were based on the RP-2000 Blue Collar Generational Mortality Table for Males or Females, as appropriate, with adjustments for mortality improvements based on 75% of Scale AA. This mortality rate is for both pre-retirement and post-retirement.  The Plan’s investment policy does not establish long-term expected rates of return for each asset class. The target allocation for each major asset class are summarized in the following table:

Asset Class Target Allocation

Cash 0% Fixed Income and U.S. Governmental Obligations 25% International Stocks 15% Domestic Stocks 45% Hedge Funds 10% Public Real Estate 5% Opportunistic Portfolio 0%

Discount Rate. The discount rate used to measure the total pension liability is 7.50%. The projection of cash flows used to determine the discount rate assumes that employer and employee contributions will be made at the rates agreed-upon for employees and the actuarially determined rates for employers. Based on these assumptions, the pension plan’s fiduciary net position was projected to be available to pay all projected future benefit payments of current active and inactive employees. Therefore, the long- term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability.

55 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 9 – EMPLOYEE BENEFIT PLANS (cont.)

BASIC RETIREMENT PLAN (cont.)

Changes in Net Pension Liability

Increase (Decrease)

Total Pension Plan Fiduciary Net Pension Liability Net Position Liability (a) (b) (a) - (b)

Balances at December 31, 2017 $ 337,887 $ 241,913 $ 95,974

Changes for the Year Service cost 6,915 - 6,915 Interest on total pension liability 24,722 - 24,722 Difference between expected and actual experience 3,965 - 3,965 Employer contributions - 13,155 (13,155) Employee contributions - 477 (477) Net investment income - 37,865 (37,865) Benefit payments, including employee refunds (17,058) (17,058) - Administrative expense - (188) 188

Net Changes 18,544 34,251 (15,707)

Balances at December 31, 2018 356,431 276,164 80,267

Changes for the Year Service cost 6,979 - 6,979 Interest on total pension liability 26,042 - 26,042 Difference between expected and actual experience 1,301 - 1,300 Employer contributions - 12,883 (12,883) Employee contributions - 572 (572) Net investment income - (14,875) 14,875 Benefit payments, including employee refunds (18,341) (18,341) - Administrative expense - (224) 224 Other (benefits payable) - (51) 51

Net Changes 15,981 (20,036) 36,017

Balances as of December 31, 2019 $ 372,412 $ 256,128 $ 116,284

56 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 9 – EMPLOYEE BENEFIT PLANS (cont.)

BASIC RETIREMENT PLAN (cont.)

Sensitivity of the Net Pension Liability to Changes in the Discount Rate. The following presents the Net Pension Liability of the employer, calculated using the discount rate of 7.50%, as well as what the employer’s Net Pension Liability would be using a discount rate that is 1 percentage point lower (6.50%) or 1% higher (8.50%) than the current rate.

Current 1% Decrease Discount Rate 1% Increase

Net pension liability as of 12/31/2019 $ 160,927 $ 116,284 $ 78,663 Net pension liability as of 12/31/2018 123,495 80,267 43,890

Pension Plan Fiduciary Net Position. Detailed information about the pension plan’s fiduciary net position is available in the separately issued Modesto Irrigation District Retirement System Basic Retirement Plan report.

Pension Expense, Deferred Outflows of Resources, and Deferred Inflows of Resources Related to Pensions. For the year ended December 31, 2019 and 2018, the employer recognized pension expense of $20,385 and $14,194, respectively. The employer reported deferred outflows and inflows of resources related to pensions from the following sources:

December 31, 2019 Deferred Deferred Outflows of Inflows of Resources Resources

Net difference between projected and actual investment earnings $ 20,990 $ - Differences between expected and actual experience 4,584 - Contributions subsequent to the measurement date * 75,862 -

Totals $ 101,436 $ -

December 31, 2018 Deferred Deferred Outflows of Inflows of Resources Resources

Net difference between projected and actual investment earnings $ - $ 7,398 Differences between expected and actual experience 4,508 - Contributions subsequent to the measurement date * 12,883 -

Totals $ 17,391 $ 7,398

* The amount reported as deferred outflows of resources resulting from contributions subsequent to the measurement date is recognized as a reduction in the net pension liability in the subsequent year.

57 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 9 – EMPLOYEE BENEFIT PLANS (cont.)

BASIC RETIREMENT PLAN (cont.)

Amounts reported as deferred outflows and inflows of resources related to pensions will be recognized in pension expense as follows:

Year Ending December 31 Expense

2020 $ 8,289 2021 4,701 2022 4,391 2023 8,015 2024 178

Payable to the Pension Plan. At December 31, 2019 and 2018, the employer did not have a payable for any outstanding amount of contributions to the pension plan required.

The 2019 and 2018 required contributions were determined as part of the January 1, 2019 and January 1, 2018 actuarial valuations, respectively, using the entry age normal cost method. This method seeks to provide a level pattern of cost as a percentage of salary throughout an employee’s working lifetime. A level percentage of payroll amortization is used, with an amortization period not to exceed 30 years.

SUPPLEMENTAL RETIREMENT PLAN

Eligible employees of the District also participate in the District's supplemental retirement plan (the Supplemental Plan). The Supplemental Plan is a defined contribution plan and serves as partial or full replacement of social security for participants, depending upon date of employment. Participants are required to contribute 5% of their compensation on a pre-tax basis. The District wholly matches the contributions. Participants become fully vested in the District's portion of their account after six months of employment. Covered payroll of Participants is the same as under the Basic Retirement Plan. Participants have a selection of investment options offered under the Plan. The District made contributions to the Supplemental Plan of $2,335 and $2,273 for 2019 and 2018, respectively. The District issues publicly available stand-alone financial statements and required supplementary information of the Plan that may be obtained by contacting the District.

58 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 9 – EMPLOYEE BENEFIT PLANS (cont.)

DEFERRED COMPENSATION PLAN

The Modesto Irrigation District (the “District”) Deferred Compensation Plan (the “Plan”) was established effective as of January 1, 1980 to provide retirement income and other deferred benefits to the Employees of the District and their Beneficiaries. The District intends to maintain the Plan as an eligible deferred compensation plan within the meaning of section 457(b) of the Internal Revenue Code. The Plan is established and shall be maintained for the exclusive benefit of Participants and their Beneficiaries. The District does not provide contributions to the Plan. The Plan is participant-directed and available to all District employees, which permits them to defer a portion of their salary until future years. Plan participants are ultimately responsible for their investment decisions, therefore the Retirement Committee intends to provide a broad spectrum of investment options to allow plan participants to construct diversified portfolios designed to meet their own time horizons and risk and return objectives ranging from conservative (with an emphasis on capital preservation) to aggressive (with an emphasis on higher long-term growth potential). The deferred compensation is not available to employees until termination, retirement, death, or unforeseeable emergency. All assets of the Plan shall be held and invested in the Trust Fund in accordance with the Plan and the Trust Agreement. The Plan is managed by a third-party administrator. Plan assets were $42,952 and $35,790 at December 31, 2019 and 2018, respectively.

HEALTH CARE BENEFITS

The District implement GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, effective January 1, 2019. The cumulative effect of the change in net position due to the change in accounting standard, or the initial unfunded liability is shown as a regulatory cost for future recovery on the balance sheet. The District plans to recover these costs in a future rate study.

Plan description. The Retiree Medical Program is a single-employer defined benefit healthcare plan. The District provides health care benefits, in accordance with District policy, to qualified retirees and their spouses. The qualification requirements for these benefits are similar to those under the District's retirement plans. The following description of the District Retiree Medical Program (Retiree Medical Plan) provides only general information. Participants should refer to the Retiree Medical Plan agreement for a more complete description of the Retiree Medical Plan’s provisions.

The Retiree Medical Plan is governed by ten committee members. The ten-member committee consist of: two District Board of Directors, the General Manager of the District, an employee who serves as chief financial officer of the District, an employee who serves as chief human resources manager of the District, the general counsel of the District, an employee employed in the Utility Services and Maintenance bargaining unit, an employee employed in the Administrative, Technical and Clerical bargaining unit, an employee employed in the Professional and Supervisory bargaining unit, and an employee employed in the Modesto Irrigation District Employees Association bargaining unit.

Plan provisions and contribution requirements were established by and may be amended by the District’s Board of Directors.

59 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 9 – EMPLOYEE BENEFIT PLANS (cont.)

HEALTH CARE BENEFITS (cont.)

Plan membership. At the December 31, 2018 and 2017 valuation dates, the following employees were covered by the benefit terms:

2018 2017 Inactive plan members or beneficiaries currently receiving benefit payments 385 355 Inactive plan members entitled to but not yet receiving benefit payments - - Active and disabled plan members 435 428

Total 820 783

Benefits provided. The District contributes the full cost of coverage for employees who retired before 1992; employees who retire in 1992 and thereafter pay a portion of the monthly premium for eligible dependent coverage; and the District pays the remainder of the cost of the plan. Covered retirees are also responsible for personal deductibles and co-payments. The District pays for post-retirement dental and vision care for retirees only to age 65. Section 5.03 of the Retiree Medical Plan Agreement grants the authority to establish and amend the benefit terms to the Retirement Committee.

Contributions. Section 5.03 of the Retiree Medical Plan Agreement grants the authority to establish and amend the contribution requirements of the District and Retiree Medical Plan members to the Retirement Committee. The Retiree Medical Plan Agreement directs the District to make contributions based on an actuarially determined rate. The District reserves the right to suspend or reduce the contributions otherwise payable to the Retiree Medical Plan by the District. Tthe District's average contribution rate was 5.76% and 4.51% of covered-employee payroll, for the year ended December 31, 2019 and 2018, respectively. Plan members are not required to contribute to the plan.

Net OPEB liability. The District's net OPEB liability was measured as of December 31, 2018 and 2017 for the District’s December 31, 2019 and 2018 financial statements, respectively, and the total OPEB liability used to calculate the net OPEB liability was determined by an actuarial valuation as of January 1, 2018 and 2017, respectively.

60 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 9 – EMPLOYEE BENEFIT PLANS (cont.)

HEALTH CARE BENEFITS (cont.)

Actuarial assumptions. The total OPEB liability in the January 1, 2018 and 2017 annual actuarial valuations were determined, using the following actuarial assumptions, applied to all periods included in the measurement, unless otherwise specified:  Inflation: 2.50%  Salary Increases: 4.00%  Investment rate of return: 7.50%  Healthcare cost trend rates: 5.5% for 2018 and 6.5% for 2017, decreasing 0.5 percent per year to an ultimate rate of 4.5% for 2021 and later years  Mortality rates were based on the RP-2000 Blue Collar Generational Mortality Table projected with 75% of Scale AA.

The actuarial assumptions used were based on the results of an actuarial experience study for the period January 1, 2009 – December 31, 2012.

The long-term expected rate of return on OPEB plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of OPEB plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The total return should exceed the Retiree Medical Plan’s actuarial assumption of 7.5%. The Retiree Medical Plan’s investment policy does not establish long-term expected rates of return for each asset class. The following is the Board's adopted asset allocation policy:

Asset Class Target Allocation

Cash 0% Fixed Income and U.S. Governmental Obligation 25% International Stocks 15% Domestic Stocks 45% Hedge Fund 10% Public Real Estate 5% Opportunistic Portfolio 0%

Discount rate. The discount rate used to measure the total OPEB liability was 4.62% and 3.44% for the year ended December 31, 2019 and 2018, respectively. The projection of cash flows used to determine the discount rate assumed that District contributions will be made at rates equal to the actuarially determined contribution rates. Based on those assumptions, the OPEB plan's fiduciary net position will not be available to make all projected future benefit payments of current plan members. Therefore, a blended rate was used based on the long-term expected rate of return on OPEB plan investments and the S&P Municipal Bond 20 Year High Grade Index was used to determine the total OPEB liability.

61 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 9 – EMPLOYEE BENEFIT PLANS (cont.)

HEALTH CARE BENEFITS (cont.)

Changes in the Net OPEB Liability

Increase (Decrease) Plan Total OPEB Fiduciary Net OPEB Liability Net Position Liability (a) (b) (a)-(b)

Balances at 12/31/2017 $ 165,752 $ 43,240 $ 122,512

Changes for the year: Service cost 4,479 - 4,479 Interest 6,263 - 6,263 Differences between expected and actual experience - - - Changes in assumptions 10,207 - 10,207 Contributions-employer - 8,862 (8,862 ) Contributions-employee - 25 (25 ) Net investment income - 7,180 (7,180 ) Benefit payments (7,049 ) (7,049 ) - Administrative expense - (78 ) 78 Net changes 13,900 8,940 4,960

Balances at 12/31/2018 179,652 52,180 127,472

Changes for the year: Service cost 5,041 - 5,041 Interest 6,053 - 6,053 Differences between expected and actual experience (599) - (599 ) Changes in assumptions (33,732 ) (33,732 ) Contributions-employer - 9,870 (9,870 ) Contributions-employee - 26 (26 ) Net investment income - (2,856 ) 2,856 Benefit payments (7,469 ) (7,469 ) - Administrative expense - (75 ) 75 Net changes (30,706 ) (504 ) (30,202 )

Balances at 12/31/2019 $ 148,946 $ 51,676 $ 97,270

62 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 9 – EMPLOYEE BENEFIT PLANS (cont.)

HEALTH CARE BENEFITS (cont.)

Sensitivity of the net OPEB liability to changes in the discount rate. The following presents the net OPEB liability of the District, as well as what the District's net OPEB liability would be if it were calculated using a discount rate that is 1-percentage point lower or 1-percentage-point higher than the current discount rate.

The sensitivity analysis as of December 31, 2019 follows:

Current 1% Decrease Discount Rate 1% Increase (3.62%) (4.62%) (5.62%)

Net OPEB liability $ 117,601 $ 97,270 $ 80,733

The sensitivity analysis as of December 31, 2018 follows:

Current 1% Decrease Discount Rate 1% Increase (2.44%) (3.44%) (4.44%)

Net OPEB liability $ 156,353 $ 127,472 $ 104,679

Sensitivity of the net OPEB liability to changes in the healthcare cost trend rates. The following presents the net OPEB liability of the District, as well as what the District's net OPEB liability would be if it were calculated using healthcare cost trend rates that are 1-percentage-point lower or 1-percentage-point higher than the current healthcare cost trend rates.

The sensitivity analysis as of December 31, 2019 follows:

1% Decrease Healthcare Cost 1% Increase (4.5% Trend Rates (6.5% Decreasing (5.5% Decreasing Decreasing to 3.5%) to 4.5%) to 5.5%)

Net OPEB liability $ 79,373 $ 97,270 $ 119,446

The sensitivity analysis as of December 31, 2018 follows:

1% Decrease Healthcare Cost 1% Increase (5.5% Trend Rates (7.5% Decreasing (6.5% Decreasing Decreasing to 3.5%) to 4.5%) to 5.5%)

Net OPEB liability $ 101,314 $ 127,472 $ 160,908

63 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 9 – EMPLOYEE BENEFIT PLANS (cont.)

HEALTH CARE BENEFITS (cont.)

OPEB Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to OPEB. The District recognized OPEB expense of $3,740 and $8,167 for the year ended December 31, 2019 and 2018, respectively.

At December 31, 2019, the District reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources:

Deferred Deferred Outflows Inflows of of Resources Resources

Differences between expected and actual experience $ - $ 502 Changes of assumptions 7,187 28,265 Net difference between projected and actual earnings on OPEB plan investments 3,161 - Contributions subsequent to the measurement date * 9,782 -

Total $ 20,130 $ 28,766

At December 31, 2018, the District reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources:

Deferred Deferred Outflows Inflows of of Resources Resources Differences between expected and actual experience $ - $ - Changes of assumptions 8,697 - Net difference between projected and actual earnings on OPEB plan investments - 3,042 Contributions subsequent to the measurement date* 9,870 -

Total $ 18,567 $ 3,042

64 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 9 – EMPLOYEE BENEFIT PLANS (cont.)

HEALTH CARE BENEFITS (cont.)

OPEB Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to OPEB (cont.). Deferred outflows resulting from contributions subsequent to the measurement date is recognized as a reduction in the net OPEB liability in the subsequent year. Remaining amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized in OPEB expense as follows:

Year Ended December 31: 2020 $ (3,454 ) 2021 (3,454 ) 2022 (3,454 ) 2023 (2,693 ) 2024 (4,417 ) Thereafter (946 )

Payable to the OPEB Plan. At December 31, 2019 and 2018, the employer did not have a payable for any outstanding amount of contributions to the OPEB plan required.

The 2019 and 2018 required contributions were determined as part of the December 31, 2018 and December 31, 2017, 2018 actuarial valuations, respectively, using the individual entry age cost method.

NOTE 10 – RETIREE MEDICAL PLAN

The following disclosures relate to the Retiree Medical Plan fiduciary fund as required by GASB Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans. Plan information related to December 31, 2018 is included in Note 9 with regard to the December 31, 2019 net OPEB liability, unless otherwise stated below.

Plan membership. At December 31, 2019, Retiree Medical Plan membership consisted of the following:

Inactive plan members or beneficiaries currently receiving benefit payments 382 Inactive plan members entitled to but not yet receiving benefit payments - Active and disabled plan members 433

Total 815

65 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 10 – RETIREE MEDICAL PLAN (cont.)

Investment policy. The Retiree Medical Plan’s policy in regard to the allocation of invested assets is established and may be amended by the Retirement Committee. It is the policy of the Retirement Committee to pursue an investment strategy that reduces risk through the prudent diversification of the portfolio across a broad selection of distinct asset classes. The Retiree Medical Plan’s investment policy includes restrictions for investments related to maximum amounts invested as a percentage of total portfolio, with a single issuer, and within market sectors and styles, minimum market capitalization, maximum maturities, and minimum credit ratings. See the target investment mix below. The total return should exceed the Retiree Medical Plan’s actuarial assumption of 6.90%. The Retiree Medical Plan’s investment policy does not establish long-term expected rates of return for each asset class. The following is the Board's adopted asset allocation policy:

Asset Class Target Allocation

Cash 0% Fixed Income and U.S. Governmental Obligation 25% International Stocks 15% Domestic Stocks 45% Hedge Fund 10% Public Real Estate 5% Opportunistic Portfolio 0%

Rate of return. For the year ended December 31, 2019 and 2018, the annual money-weighted rate of return on investments, net of investment expense, was 20.42% and -5.43%, respectively. The money- weighted rate of return expresses investment performance, net of investment expense, adjusted for the changing amounts actually invested.

Net OPEB Liability of the District

The components of the net OPEB liability of the District at December 31, 2019, were as follows:

Total OPEB liability $ 142,122 Retiree Medical Plan fiduciary net position (64,633 )

District's net OPEB liability $ 77,489 Retiree Medical Plan fiduciary net position as a percentage of the total OPEB liability 45.5 %

66 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 10 – RETIREE MEDICAL PLAN (cont.)

Actuarial assumptions. The total OPEB liability was determined by an actuarial valuation as of January 1, 2019, using the following actuarial assumptions, applied to all periods included in the measurement:  Inflation: 2.50%  Salary Increases: 4.00%  Investment rate of return: 6.90%  Healthcare cost trend rates: 5.0% for 2020, decreasing 0.5 percent per year to an ultimate rate of 4.5% for 2021 and later years  Mortality rates were based on the RP-2000 Blue Collar Generational Mortality Table projected with 75% of Scale AA.

The actuarial assumptions used were based on the results of an actuarial experience study for the period January 1, 2009 – December 31, 2012.

Discount rate. The discount rate used to measure the total OPEB liability was 4.80%. The projection of cash flows used to determine the discount rate assumed that District contributions will be made at rates equal to the actuarially determined contribution rates. Based on those assumptions, the OPEB plan's fiduciary net position will not be available to make all projected future benefit payments of current plan members. Therefore, a blended rate was used based on the long-term expected rate of return on OPEB plan investments and the S&P Municipal Bond 20 Year High Grade Index was used to determine the total OPEB liability.

Sensitivity of the net OPEB liability to changes in the discount rate. The following presents the net OPEB liability of the District for the December 31, 2019 measurement date, as well as what the District's net OPEB liability would be if it were calculated using a discount rate that is 1-percentage point lower or 1-percentage-point higher than the current discount rate.

The sensitivity analysis as of December 31, 2019 follows:

Current 1% Decrease Discount Rate 1% Increase (3.80%) (4.80%) (5.80%)

Net OPEB liability $ 96,222 $ 77,489 $ 62,146

67 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 10 – RETIREE MEDICAL PLAN (cont.)

Sensitivity of the net OPEB liability to changes in the healthcare cost trend rates. The following presents the net OPEB liability of the District for the December 31, 2019 measurement date, as well as what the District's net OPEB liability would be if it were calculated using healthcare cost trend rates that are 1-percentage-point lower or 1-percentage-point higher than the current healthcare cost trend rates.

The sensitivity analysis as of December 31, 2019 follows:

Healthcare Cost Trend 1% Decrease Rates 1% Increase (4.0% (5.0% (6.0% Decreasing Decreasing Decreasing to 3.0%) to 4.0%) to 5.0%)

Net OPEB liability $ 60,847 $ 77,489 $ 97,976

NOTE 11 – COMMITMENTS

The District purchases most of its purchased power from M-S-R (Note 6) and through the following long-term agreements:

OTHER ENERGY PURCHASE COMMITMENTS

The District has a number of other power and natural gas purchase agreements with various entities, which provide for power and fuel deliveries, under various terms and conditions. Total commitments under these agreements over the next five years are as follows as of December 31, 2019:

2020 $ 96,874 2021 81,595 2022 79,485 2023 78,475 2024 64,457

68 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 12 – CONTINGENCIES

RATE SUBSIDY LITIGATION

Hobbs v. Modesto Irrigation District is a class-action challenge to District power rates filed in March 2016. A further suit by the same plaintiff as to rates the District adopted in December 2018 is currently stayed pending the outcome of the challenge to the 2016 rates. These challenges stem from Proposition 26, which California voters adopted on November 2, 2010. The lawsuits allege MID uses funds collected from electric customers to subsidize its irrigation and water operations and that power rates therefore illegally tax electric customers. The suit seeks refunds of alleged illegal taxes. No details of the challenge to 2018 rates are available, but the District expects the plaintiff will assert similar theories.

The trial court heard argument on whether the District is liable under Proposition 26 and issued a December 31, 2019 ruling concluding the District’s 2016 rates violate Proposition 26. The court will determine the amount of the District’s liability, if any, in a coming remedies phase of trial. No date has been set for that phase of the trial.

The District cannot predict the outcome of the litigation or the extent to which remedies against it may be available if the District is ultimately unsuccessful in the litigation. The District is vigorously defending this matter.

GENERAL CONTINGENCIES

In the normal course of operations, the District is party to various claims, legal actions and complaints. However, the District’s counsel and management believe that the ultimate resolution of these matters will not have a significant adverse effect on the financial position or results of operations of the District.

OPEN CONTRACTS

The District has open contracts for approximately $53,618 for various capital and operating projects. As of December 31, 2019, approximately 45,880 has been expended.

Electric Purchase Contracts. The District has entered into numerous electric purchase contracts with amounts totaling approximately 2,275 gigawatt hours (GWh) for the purpose of fixing the rate on the District’s electric power purchases. These electric purchase contracts result in the District paying fixed rates ranging from $27.25 to $109.50 per MWh. These contracts expire periodically from March 2020 through December 2023. In addition, the District has entered into contracts for power generated by hydroelectric, solar and wind resources where the amount and cost will depend on weather variables. The hydro, solar and wind contracts expire periodically from December 2024 through December 2040.

Gas Purchase Contracts. The District has entered into numerous gas purchase contracts for the purpose of fixing the rate on the District’s natural gas purchases for its gas-fueled power plants. These gas purchase contracts result in the District paying fixed rates ranging from $2.81 to $3.98 per million British Thermal Units (mmbtu). The amounts total to approximately 6.7 million mmbtu and the contracts expire periodically from January 2020 through December 2025.

69 MODESTO IRRIGATION DISTRICT

NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2019 and 2018 (Dollars in Thousands)

NOTE 13 – RISK MANAGEMENT

The District is exposed to various risks of loss related to torts; theft of, damage to, or destruction of assets; errors and omissions; workers compensation; and health care of its employees. These risks are covered through the purchase of commercial insurance. The District is self insured for general and liability claims up to $1,000. The District also has excess liability insurance for claims over $1,000. There was no significant decrease in coverage over the prior year. Settled claims have not exceeded insurance coverage in each of the past three years. Claims are paid as they are incurred. Total accrual and payment history is shown below.

2019 2018 2017 Claims liability – beginning of year $ 422 $ 462 $ 508 Claims accrued 517 530 487 Claims paid/other (608) (570) (533) Claims Liability – End of Year $ 331 $ 422 $ 462

R E Q U I R E D S U P P L E M E N T A R Y I N F O R M A T I O N

MODESTO IRRIGATION DISTRICT REQUIRED SUPPLEMENTARY INFORMATION (Unaudited) As of December 31, 2019 (Dollars in Thousands)

Schedule of Changes in the Employer's Net OPEB Liability and Related Ratios - GASB Statement No. 74 and 75

2019 2018 2017 Total OPEB Liability Service cost $ 3,402 $ 5,041 $ 4,479 Interest 6,705 6,053 6,263 Differences between expected and actual experience (3,042) (599) - Changes of assumptions (6,169) (33,732) 10,207 Benefit payments (7,720) (7,469) (7,049) Net Change in Total OPEB Liability (6,824) (30,706) 13,900 Total OPEB Liability - Beginning 148,946 179,652 165,752

Total OPEB Liability - Ending (a) $ 142,122 $ 148,946 $ 179,652

Plan Fiduciary Net Position Contributions - employer $ 9,782 $ 9,870 $ 7,749 Contributions - employee 31 26 25 Net investment income 10,934 (2,856) 7,180 Benefit payments (7,720) (7,469) (5,935) Administrative expenses (70) (75) (79) Net Change in Plan Fiduciary Net Position 12,957 (504) 8,940 Plan Fiduciary Net Position - Beginning 51,676 52,180 43,240

Plan Fiduciary Net Position - Ending (b) $ 64,633 $ 51,676 $ 52,180

Net OPEB Liability - Ending (a) - (b) $ 77,489 $ 97,270 $ 127,472

Plan fiduciary net position as a percentage of the total OPEB liability 45.48% 34.69% 29.05%

Covered-employee payroll $ 43,888 $ 42,110 $ 40,803

Net OPEB liability as a percentage of covered- employee payroll 176.56% 230.99% 312.41%

Annual Money Weighted Rate of Return on OPEB Plan Investments 20.42% -5.43% 16.00%

Notes to Schedule: The District implemented GASB Statement No. 74 in fiscal year 2017. Information prior to fiscal year 2017 is not available.

The District implemented GASB Statement No. 75 in fiscal year 2018. The District uses a one year lag in its measurement date to record its net OPEB liability in the District's financial statements.

Note: This schedule is to show information for 10 years. However, until a full 10-year trend is compiled, governments should present information for those years for which information is available.

See independent auditors' report. 71 MODESTO IRRIGATION DISTRICT REQUIRED SUPPLEMENTARY INFORMATION (Unaudited) As of December 31, 2019 (Dollars in Thousands)

Schedule of Employer's Contributions - GASB Statement No. 74 and 75

2019 2018 2017

Actuarially determined contribution $ 2,092 $ 2,426 $ 1,646 Contributions in relation to the actuarially determined determined contribution 2,093 2,426 1,839 Contribution Deficiency (Excess)$ (1) $ -$ (193)

Covered-employee payroll $ 43,888 $ 42,110 $ 40,803

Contributions as a percentage of covered- 4.77% 5.76% 4.51%

Notes to Schedule Valuation date: Actuarially determined contribution rates are calculated as of: Fiscal year 2019 1/1/2019 Fiscal year 2018 10/15/2018 Fiscal year 2017 1/1/2017

Methods and assumptions used to determine contribution rates: Actuarial cost method Normal cost method Amortization method Level percentage of payroll, open Amortization period 18 years, decreasing annually from 30 in 2017 Asset valuation method Fair value Inflation 2.5 percent Healthcare cost trend rates 5.0 percent for 2020, starting in 2017 at 6.5 percent and decreasing 0.5 percent per year to an ultimate rate of 4.5 percent in 2021 Salary increases 4.0 percent Investment rate of return 2019 6.90%* 2018 7.50%* 2017 7.50%* *net of OPEB plan investment expense, including inflation Single equivalent discount rate 2019 4.80% 2018 4.62% 2017 3.44% Retirement age Retirement probability begins at 10.0 percent upon obtaining the age of 55, decreasing to 5.0 percent at age 56, then increasing to 15.0 percent at age 59. At age 62 retirement probability increases to 50.0 percent and increases to 100.0 percent at age 70 Mortality RP-2000 Blue Collar Generational Mortality Table projected with a 75% Scale AA.

Other information:

The District implemented GASB Statement No. 74 in fiscal year 2017. Information prior to fiscal year 2017 is not available.

The District implemented GASB Statement No. 75 in fiscal year 2018. The District uses a one year lag in its measurement date to record its net OPEB liability in the District's financial statements. See independent auditors' report. 72 MODESTO IRRIGATION DISTRICT

REQUIRED SUPPLEMENTARY INFORMATION (Unaudited) As of December 31, 2019 (Dollars in Thousands)

Schedule of Changes in the Employer's Net Pension Liability and Related Ratios - GASB Statement No. 68

2019 2018 2017 2016 2015 Total Pension Liability Service cost$ 6,979 $ 6,915 $ 6,126 $ 6,460 $ 5,996 Interest 26,042 24,722 23,581 22,503 21,705 Difference between expected and actual experience 1,300 3,965 1,583 356 - Benefit payments including employee refunds (18,340) (17,058) (15,562) (14,508) (13,448) Net Change in Total Pension Liability 15,981 18,544 15,728 14,811 14,253 Total Pension Liability beginning 356,431 337,887 322,159 307,348 293,095

Total Pension Liability ending $ 372,412 $ 356,431 $ 337,887 $ 322,159 $ 307,348

Plan Fiduciary Net Position Contributions-employer $ 12,883 $ 13,155 $ 11,854 $ 12,120 $ 13,221 Contributions-employee 572 477 739 465 72 Net Investment income (14,875) 37,866 16,325 (237) 14,852 Benefit payments including employee refunds (18,341) (17,058) (15,562) (14,508) (13,448) Administrative expense (224) (189) (155) (142) (159) Other (51) - - - - Net Change in Plan Fiduciary Net Position (20,036) 34,251 13,201 (2,302) 14,538

Plan Fiduciary Net Position beginning 276,164 241,913 228,712 231,014 216,476

Plan Fiduciary Net Position ending $ 256,128 $ 276,164 $ 241,913 $ 228,712 $ 231,014

Employer Net Pension Liability $ 116,284 $ 80,267 $ 95,974 $ 93,447 $ 76,334

Plan Fiduciary Net Position as a percentage of the Total Pension Liability 68.78% 77.48% 71.60% 70.99% 75.16%

Covered Employee Payroll $ 41,166 $ 41,274 $ 39,112 $ 38,211 $ 35,448

Employer's Net Pension Liability as a percentage of covered employee payroll 282.48% 194.47% 245.38% 244.56% 215.34%

Annual money-weighted rate of return -5.33% 15.45% 7.04% -0.10% 6.70%

Notes to schedule: GASB 68 requires that 10 years of comparative data be shown for all the data presented above. However, as this information is unavailable for the periods preceding 2015, only the data since 2015 is being presented.

See independent auditors' report. 73 MODESTO IRRIGATION DISTRICT

REQUIRED SUPPLEMENTARY INFORMATION (Unaudited) As of December 31, 2019 (Dollars in Thousands)

Schedule of Employer's Contributions - GASB Statement No. 68

2019 2018 2017 2016 2015

Actuarial determined contributions $ 18,261 $ 12,825 $ 12,833 $ 11,781 $ 12,057 Contributions in relation to the actuarially determined contribution 75,862 12,883 13,155 11,854 12,120

Contribution Deficiency (Excess) $ (57,601) $ (58) $ (322) $ (73) $ (63)

Covered employee payroll$ 42,193 $ 41,166 $ 41,274 $ 39,112 $ 38,211

Contributions as a percentage of covered employee payroll 180% 31% 32% 30% 32%

Notes to Schedule 2019 2015 - 2018 Actuarial cost method Entry Age Normal Method Entry Age Normal Method Amortization method 20 year amortization method 30-year rolling, level-dollar amortization method Asset valuation method Smoothed fair market value method with Smoothed fair market value method with gains and losses recognized over five gains and losses recognized over three years years Long term expected rate of return 6.90% 7.50% Discount rate 6.90% 7.50% Inflation 2.50% 2.50% Salary increases 4.00% per year, compounded annually 4.00% per year, compounded annually Mortality RP-2000 Blue Collar Generation RP-2000 Blue Collar Generation Mortality Table projected with a 75% of Mortality Table projected with a 75% of scale AA scale AA Post-retirement adjustments 2.50% 2.50% Overtime assumptions 4 to 16% of current salaries for 4 to 16% of current salaries for employees who are expected to have employees who are expected to have significant increased in their final significant increased in their final average salaries due to overtime. average salaries due to overtime. Overtime assumption of 0% for Post- Overtime assumption of 0% for Post- 2005 eligible employees. 2005 eligible employees.

Normal retirement age - tier 1 and tier 2 60 Normal retirement age - tier 3 65

GASB 68 requires that 10 years of comparative data be shown for all the data presented above. However, as this information is unavailable for the periods preceding 2015, only the data since 2015 is being presented.

See independent auditors' report. 74

S U P P L E M E N T A R Y I N F O R M A T I O N

MODESTO IRRIGATION DISTRICT

COMBINING STATEMENTS OF FIDUCIARY NET POSITION As of December 31, 2019 and 2018

(Dollars in Thousands) Basic Retirement Plan Supplemental Retirement Plan Retiree Medical Plan Total Fiduciary Funds 2019 2018 2019 2018 2019 2018 2019 2018 ASSETS

CASH AND CASH EQUIVALENTS $ 1,012 $ 1,941 $ 8 $ 56 $ 6 $ 2,431 $ 1,026 $ 4,428

RECEIVABLES Accrued interest - 4 - - - - - 4 Dividends 51 35 - - - - 51 35

INVESTMENTS AT FAIR VALUE Publicly traded stocks 33,673 25,482 - - - - 33,673 25,482 Stable value - - 15,593 13,867 - - 15,593 13,867 Mutual funds 331,790 229,590 113,218 96,425 64,697 49,318 509,705 375,333 Total Assets 366,526 257,052 128,819 110,348 64,703 51,749 560,048 419,149

LESS: ACCRUED LIABILITIES 796 924 - - 70 73 866 997

NET POSITION HELD IN TRUST FOR RETIREE BENEFITS $ 365,730 $ 256,128 $ 128,819 $ 110,348 $ 64,633 $ 51,676 $ 559,182 $ 418,152

75 MODESTO IRRIGATION DISTRICT

COMBINING STATEMENTS OF CHANGES IN FIDUCIARY NET POSITION As of December 31, 2019 and 2018

(Dollars in Thousands) Basic Retirement Plan Supplemental Retirement Plan Retiree Medical Plan Total Fiduciary Funds 2019 2018 2019 2018 2019 2018 2019 2018 ADDITIONS Additions to (reductions from) net position attributed to: Investment income (loss): Net appreciation (depreciation) of investments $ 50,434 $ (18,025) $ 16,583 $ (8,925) $ 9,668 $ (3,927) $ 76,685 $ (30,877) Dividend income 4,909 3,700 3,639 3,899 1,247 1,062 9,795 8,661 Interest income 142 660 - - 19 9 161 669 Investment expenses (1,552) (1,209) - - - - (1,552) (1,209) Net investment income (loss) 53,933 (14,874) 20,222 (5,026) 10,934 (2,856) 85,089 (22,756) Contributions Employee contributions (31) 572 2,335 2,273 31 26 2,335 2,871 Employer contributions 75,862 12,883 2,335 2,273 9,782 9,870 87,979 25,026 Other contributions - - 30 31 - - 30 31 Total Contributions 75,831 13,455 4,700 4,577 9,813 9,896 90,344 27,928 Total Additions (Reductions) 129,764 (1,419) 24,922 (449) 20,747 7,040 175,433 5,172

DEDUCTIONS Deductions from net position attributed to: Distributions to plan members and beneficiaries 19,708 18,341 6,389 6,019 - - 26,097 24,360 Medical premiums paid - - - - 7,720 7,469 7,720 7,469 Other benefits expense 15 51 - - - - 15 51 Administrative expenses 377 190 62 3 70 75 509 268 Consultant and professional services expenses 62 35 - - - - 62 35 Total Deductions 20,162 18,617 6,451 6,022 7,790 7,544 34,403 32,183

Net increase (decrease) in net position held in trust for retiree benefits 109,602 (20,036) 18,471 (6,471) 12,957 (504) 141,030 (27,011)

NET POSITION HELD IN TRUST FOR RETIREE BENEFITS Beginning of year 256,128 276,164 110,348 116,819 51,676 52,180 418,152 445,163

END OF YEAR $ 365,730 $ 256,128 $ 128,819 $ 110,348 $ 64,633 $ 51,676 $ 559,182 $ 418,152

APPENDIX B

GENERAL ECONOMIC AND DEMOGRAPHIC INFORMATION ABOUT THE DISTRICT’S SERVICE AREA

The 2021 Bonds are not secured by any pledge of the full faith and credit or taxing power of the District. The economic and financial data regarding the District, the City of Modesto and the County of Stanislaus set forth in this section are included for information purposes only, to provide a description of the District’s service area.

It should be noted that to the extent that information in this Appendix B reflects annual data through the end of 2019 for comparative purposes, such information is generally in relation to dates and for periods prior to any economic impacts of the COVID-19 pandemic and the measures instituted to respond to it. Because of the unprecedented nature of the COVID-19 pandemic, such historical data may not be an accurate predictor of future performance. Accordingly, any such information contained in this Appendix B should be considered in light of possible or probable negative impacts of COVID-19 and should not be viewed as necessarily indicative of future prospects or results.

Population

The District’s service area includes most of the City of Modesto, which is the county seat and the largest city in the County of Stanislaus, the City of Waterford, the unincorporated communities of Empire and Salida and intervening county lands and parts of Escalon, Oakdale, Ripon, and Riverbank. In addition, since January 1, 2001, the District’s exclusive service area has included the Mountain House Community Services District in western San Joaquin County. Mountain House Community Services District is a master-planned community of approximately 7.5 square miles which is expected to include approximately 43,500 residents (16,000 homes) at ultimate build-out, which is projected to occur over a span of approximately 20 years. The District served approximately 6,615 customer accounts in the Mountain House Community Services District as of December 31, 2020.

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CITY OF MODESTO AND STANISLAUS COUNTY POPULATION (1970, 1980, 1990, 2000 and 2010 as of April 1; 2011-2020 as of January 1)

City of Modesto Stanislaus County Annualized Annualized Percent Change Percent Change Year Number Over Interval Number Over Interval 1970 61,712 – 194,506 – 1980 106,963 5.65 265,900 3.18 1990 164,746 4.41 370,522 3.37 2000 188,861 1.38 446,997 1.89 2010 201,165 0.63 514,453 0.63 2011 202,290 0.56 517,831 0.66 2012 204,205 0.95 522,176 0.84 2013 208,348 2.03 525,886 0.71 2014 209,923 0.76 529,094 0.61 2015 211,438 0.72 533,800 0.89 2016 214,044 1.23 539,515 1.07 2017 216,881 1.33 547,357 1.45 2018 218,674 0.83 550,964 0.66 2019 220,126 0.66 554,018 0.55 2020 222,335 1.00 557,709 0.67

Source: State of California, Department of Finance, E-4 Population Estimates for Cities, Counties, and the State, 2011-2020, with 2010 Census Benchmark. Sacramento, California, May 2020.

Employment

The District forms part of the Modesto Metropolitan Area Labor Market (Stanislaus County) reported on periodically by the State Department of Employment Development. As of 2019 (the most recent annual information available), this labor market had total civilian employment of 228,800.

Approximately 15.4% of all wage and salary workers in the Modesto Metropolitan Area Labor Market are governmental employees. The largest category of wage and salary employment is trade, transportation and utilities, representing approximately 19.3% of all wage and salary workers. The next largest major category of wage and salary employment is educational and health services.

The table on the following page summarizes the development of wage and salary employment in the County of Stanislaus during the 2015-2019 period.

As of December 2020, the State Department of Employment Development reported the preliminary unemployment rate (not seasonally adjusted) in the Modesto Metropolitan Area Labor Market to be 9.9%. This compares with an unadjusted unemployment rate of 8.8% for California and 6.5% for the nation during the same period. See “MODESTO IRRIGATION DISTRICT – COVID-19 Pandemic” in the front part of this Official Statement.

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LABOR FORCE AND EMPLOYMENT IN STANISLAUS COUNTY(1)

2015 2016 2017 2018 2019 Civilian Labor Force 240,900 242,700 242,200 243,400 243,500 Employment 218,000 221,800 224,100 227,500 228,800 Unemployment 22,900 20,900 18,100 15,800 14,700 Unemployment Rate 9.5% 8.6% 7.5% 6.5% 6.0%

Wage and Salary Employment: Farm 14,600 14,900 14,300 14,400 14,800 Mining, Logging, and Construction 8,500 9,000 9,300 10,200 10,500 Manufacturing 21,300 21,800 21,400 21,600 21,400 Trade, Transportation and Utilities 35,800 37,000 37,100 37,500 37,800 Information 900 1,000 1,000 1,000 1,000 Financial Activities 5,200 5,300 5,300 5,300 5,300 Professional and Business Services 14,200 14,600 14,900 15,400 15,300 Educational and Health Services 30,900 31,200 32,600 33,600 34,500 Leisure and Hospitality 17,800 18,700 19,200 19,300 19,200 Other Services 5,300 5,400 5,700 5,800 5,900 Government 26,700 27,600 28,300 29,500 30,200 Total, All Industries 181,000 186,300 189,200 193,600 195,900

(1) Reflects March 2019 benchmark. Columns may not add to totals due to independent rounding. Source: State Department of Employment Development.

Commercial Activity

The following tables indicate the history of taxable transactions for the County for the calendar years 2015 through 2019.

STANISLAUS COUNTY TAXABLE TRANSACTIONS 2015-2019 (in thousands of dollars)

2015 2016 2017 2018 2019 Category: Motor Vehicle and Parts Dealers $1,284,466 $1,386,010 $1,449,020 $1,439,881 $1,467,719 Home Furnishings and Appliance Stores 240,145 267,668 266,575 278,677 278,192 Building Material and Garden Equipment and Supplies Dealers 550,161 581,113 617,543 588,272 626,432 Food and Beverage Stores 319,287 325,814 340,688 353,825 357,394 Gasoline Stations 612,070 555,107 655,141 760,704 765,581 Clothing and Clothing Accessories Stores 384,484 405,059 407,885 420,229 428,859 General Merchandise Stores 878,039 984,696 913,145 928,792 934,082 Food Services and Drinking Places 702,235 748,485 787,180 808,106 862,034 Other Retail Group 531,072 574,608 616,899 666,809 745,668 Total Retail and Food Services 5,501,959 5,738,560 6,054,078 6,245,295 6,465,961 All Other Outlets 2,738,869 3,004,194 2,918,543 3,053,646 3,213,864 Total All Outlets $8,240,827 $8,742,755 $8,972,620 $9,298,941 $9,679,825 Number of permits 10,898 11,248 11,210 11,647 12,084

Source: California Department of Tax and Fee Administration.

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Agriculture

The District’s service area is located in one of the most productive agricultural areas in the United States. The County of Stanislaus ranks in the top ten of the nation’s counties in sales of agricultural products with production primarily in fruits, nuts, livestock and animal products. There are over 970,000 acres of farmland in the County of Stanislaus.

The value of agricultural commodities produced in the County of Stanislaus in 2019 (the most recent full year information available) increased approximately 0.80% to $3,598,404,000 compared to 2018. The all- time high in crop production values was $3,879,332 in 2015. A five year summary of farm production in the County of Stanislaus, and a listing of the leading agricultural commodities in 2019 (the most recent annual information available) can be seen below.

GROSS VALUE OF AGRICULTURAL PRODUCTION IN STANISLAUS COUNTY (Thousands of Dollars)

2015 2016 2017 2018 2019 Field Crops $ 256,892 $ 185,744 $ 207,574 $ 212,742 $ 214,113 Seed Crops 740 ------Vegetable Crops 157,659 156,182 179,320 171,546 180,994 Fruits and Nuts 1,647,390 1,248,457 1,392,747 1,390,010 1,484,057 Nursery Products 169,887 204,797 271,049 220,953 227,537 Livestock and Poultry 731,506 622,473 582,477 588,352 636,561 Livestock and Poultry Products 729,031 649,556 715,117 680,197 659,186 Apiary Products 74,795 76,768 80,706 89,041 109,523 Organic Products 89,413 99,696 199,409 193,609 61,415 Other Agriculture 22,019 17,738 19,793 23,540 25,018 TOTAL $3,879,332 $3,261,411 $3,648,192 $3,569,990 $3,598,404

Source: Stanislaus County Agricultural Crop Reports 2019.

LEADING FARM COMMODITIES IN STANISLAUS COUNTY

Gross Production Rank Commodity Value in 2019 1 Almonds, All $1,228,536,000 2 Milk, All 628,701,000 3 Chickens, All 365,786,000 4 Cattle & Calves, All 198,477,000 5 Nursery Fruit & Nut Trees & Vines 175,314,000 6 Silage, All 137,001,000 7 Walnuts 122,549,000 8 Pollination, Almond 83,945,000 9 Turkeys, All 60,931,000 10 Melons, All 51,490,000

Source: Stanislaus County Agricultural Crops Report 2019.

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Industrial and Commercial Development

The availability of low-cost power, modern sewage treatment and disposal facilities, a good supply of water, reasonably priced developable land and excellent transportation facilities have been important factors in the development of an industrial base in the District’s service territory. Other significant sectors for employment include education, healthcare and government.

The table below sets forth the largest employers in the City of Modesto.

CITY OF MODESTO 2019-20 PRINCIPAL EMPLOYERS

Name of Employer Employees Type of Business E & J Gallo Winery 6,500 Winery Stanislaus County 3,991 Government Modesto City Schools 3,200 Education Doctors Medical Center 2,600 Healthcare Memorial Medical Center 2,196 Healthcare Foster Farms Poultry 2,000 Meat Products Del Monte Foods, Inc. 1,972 Fruit Products Stanislaus Food Products 1,500 Vegetable Processing Save Mart Supermarkets 1,700 Supermarket Turlock Unified School District 1,500 Education

Source: City of Modesto, California Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2020.

Transportation

Modesto is traversed by three State highways. Interstate 5, with which one of these State highways connects, passes approximately 20 miles to the west of the City of Modesto. Modesto is served by truck and bus lines. Rail service to Modesto is provided by Union Pacific and Burlington Northern Santa Fe railroads. The Modesto City County Airport has daily scheduled commuter service to San Francisco. The deep water port of Stockton, California, located approximately 34 miles from the City of Modesto, provides shipping to coastal and overseas markets.

Educational Facilities

The City of Modesto is primarily served by Modesto City Schools. Modesto City Schools is the third largest employer in Stanislaus County and is composed of 22 elementary schools, 4 junior high schools and 7 high schools, and an extensive alternative education program that includes continuation school, independent study, and adult evening high school. Additionally, there are a number of private institutions of learning. Higher education is provided by Modesto Junior College, the Community Business College and California State University, Stanislaus, and University of California, Merced, which offers both undergraduate and graduate degrees.

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Construction

Housing unit and building permit data for the County of Stanislaus for the years 2015 through 2019 (the most recent annual information available) is summarized below. Dollar amounts are expressed in thousands.

STANISLAUS COUNTY BUILDING PERMIT VALUATIONS (2015-2019)

2015 2016 2017 2018 2019

New Single-dwelling $105,229 $156,445 $168,251 $141,972 $117,996 New Multi-dwelling 1,063 1,055 26,656 1,269 19,129 Additions, alterations 31,900 38,540 46,491 33,278 36,672 Total Residential* $137,192 $196,039 $241,397 $176,519 $173,796

New Commercial $ 44,104 $ 71,655 $ 45,315 $ 50,157 $ 73,740 New Industrial 4,075 5,760 32,379 12,626 30,303 Other 74,174 69,969 61,493 133,485 56,017 Additions, alterations 52,925 67,625 99,818 54,449 104,466 Total Nonresidential* $175,278 $215,009 $239,006 $250,718 $263,526

Total Valuation* $312,470 $411,048 $480,403 $427,237 $437,322

Single-Unit Permit 476 678 788 684 561 Multi-Unit Permit 14 14 95 10 178 Total Permits 490 692 883 694 739

Source: California Homebuilding Foundation CHF|CIRB for 2015-2019 data. *Figures may not add due to independent rounding.

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APPENDIX C

SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE

CERTAIN DEFINITIONS

The following are definitions of certain terms used in the Indenture:

“Accountant’s Report” means a report signed by an Independent Certified Public Accountant.

“Authority” means the Modesto Irrigation District Financing Authority, a joint exercise of powers authority duly organized and existing under and by virtue of the laws of the State of California.

“Authorized District Representative” means the General Manager or the Treasurer and Assistant General Manager, Finance or the Controller of the District and any other person who from time to time may be so designated, by a Certificate of the District furnished to the Trustee. Such Certificate will contain the specimen signature of such person, will be signed on behalf of the District by the President of its Board of Directors or the General Manager of the District and may designate an alternate or alternates.

“Board of Directors” means the Board of Directors of the District.

“Bond Enhancement Agreement” means any loan agreement, revolving credit agreement, reimbursement agreement, insurance contract, commitment to purchase, purchase or sale agreement, or commitments or other contracts or agreements, including, without limitation, interest rate agreements, including interest rate swap agreements, entered into by the District in connection with the issuance, payment, sale, resale or exchange of any bonds or certificates of participation to enhance the security for or provide for the payment, redemption or remarketing of such bonds or certificates of participation and interest on such bonds or certificates of participation or to reduce the interest on such bonds or certificates of participation.

“Bond Redemption Fund” means the fund by that name established under the Indenture.

“Bond Reserve Fund” means the fund by that name established under the Indenture.

“Bond Reserve Fund Facility” means any insurance policy, letter of credit or surety, meeting the requirements set forth in the Indenture, and delivered to the Trustee in satisfaction of all or a portion of the Reserve Requirement.

“Business Day” means a day on which banks located in the cities in which the Principal Corporate Trust Office of the Trustee are located are not required or authorized to remain closed and on which the New York Stock Exchange is not closed.

“Certificate of the District” means an instrument in writing signed by an Authorized District Representative.

“Code” means the Internal Revenue Code of 1986 and all then applicable regulations of the United States Department of the Treasury issued thereunder, and in this regard reference to any particular section of the Code shall include reference to all successors to such section of the Code.

“Debt Service” means, for any Fiscal Year or other period of calculation, the sum of that portion of the Installment Payments or Rental Payments or other payments with respect to Parity Obligations, as the case may be, required to be made at the times provided in the Installment Purchase Contract—2010 or the Leases or in a contract describing the terms of such Parity Obligation, respectively, that would have accrued during such Fiscal Year or period if such payments were deemed to accrue daily in equal amounts from, in each case, the

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next preceding payment date of interest or principal or the dated date of the pertinent contract providing for such payment, as the case may be; provided, that, as to any payments bearing or comprising interest at other than a fixed rate, the rate of interest used to calculate Debt Service will be one hundred ten percent (110%) of the greater of (a) the daily average interest rate on such payments during the twelve (12) calendar months preceding the date of calculation (or the portion of the then current Fiscal Year or period that such principal amount of such payments have borne interest) or (b) the most recent effective interest rate on such payments prior to the date of calculation; provided, however, that if any payments are bearing or comprising interest at other than a fixed rate and the payments received and made by the District under a Bond Enhancement Agreement with respect to such payments is expected to produce a fixed rate to be paid by the District, the payments will be treated as bearing interest at such fixed rate; and provided further, that if any series or issue of such payments have twenty-five percent (25%) or more of the aggregate principal amount of such series or issue due in any one year, Debt Service will be determined as if the principal of and interest on such series or issue of such payments were being paid in substantially equal annual amounts over a period of twenty-five (25) years from the date of calculation; and, provided further, that, as to any such payments or portions thereof bearing no interest but which are sold at a discount and which discount accretes with respect to such payments or portions thereof, such accreted discount will be treated as interest in the calculation of Debt Service.

“District” means the Modesto Irrigation District, an irrigation district duly organized and existing under and by virtue of the laws of the State of California.

“Electric Service” means the electricity furnished, made available or sold by the Electric System.

“Electric System” means all electric generation, transmission and distribution facilities and all general plant facilities related thereto now owned by the District and all other properties, structures or works for the generation, transmission and distribution of electricity and all rights to obtain, control or receive output, capacity or other electrical services heretofore or hereafter acquired or constructed by the District, together with all additions, betterments, extensions or improvements to such facilities, properties, structures or works or any part thereof hereafter acquired and constructed.

“Electric System Revenues” means all income, rents, rates, fees, charges and other moneys derived from the ownership or operation of the Electric System, including, without limiting the generality of the foregoing, (1) all income, rents, rates, fees, charges, insurance proceeds or other moneys derived by the District from the sale, furnishing and supplying of the electric capacity or energy 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 Electric System, (2) the earnings on and income derived from the investment of such income, rents, rates, fees, charges, or other moneys to the extent that the use of such earnings and income is limited to the Electric System by or pursuant to law, and (3) such other income, charges, revenue or moneys as the District may specify in a Written Order of the District filed with the Trustee, but excluding (A) in all cases customers’ deposits or any other deposits or advances subject to refund until such deposits or advances have become the property of the District; and (B) such other income, charges, revenue or moneys as the District may specify in a Written Order of the District filed with the Trustee, provided that such Written Order of the District confirms that, following the filing of such Written Order of the District, (i) the requirements of the Indenture will be satisfied; and (ii) the income, charges, revenue or moneys specified in such Written Order of the District will be accounted for separately from the Electric System Revenues.

“Event of Default” means an event described as such in the Indenture.

“Federal Securities” means those securities described in clause (A)(1) or clause (A)(2) of the definition of Permitted Investments.

“Fiscal Year” means the twelve-month period terminating on December 31 of each year, or any other annual accounting period hereafter selected and designed by the District as its Fiscal Year in accordance with applicable law.

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“Fitch” means Fitch Ratings, Inc., a corporation duly organized and existing under and by virtue of the laws of the State of Delaware, and its successors or assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, “Fitch” shall be deemed to refer to any other nationally recognized securities rating agency designated by the District.

“General Fund” means the fund by that name existing in the treasury of the District established by the Law.

“Indenture” means the Indenture, dated as of April 1, 2021, by and between the District and Wells Fargo Bank, National Association, as trustee, and all Supplemental Indentures.

“Independent Certified Public Accountant” means any firm of certified public accountants appointed by the District, and each of whom is independent pursuant to the Statement on Auditing Standards No. 1 of the American Institute of Certified Public Accountants.

“Installment Payments” means the outstanding payments of interest and principal scheduled to be paid by the District under and pursuant to the Installment Purchase Contract—2010 after the issuance and delivery of the 2021 Bonds.

“Installment Purchase Contract—2010” means the installment purchase contract designated as 2010, by and between the District and the Authority dated as of June 1, 2010, as originally executed and as it may from time to time be amended or supplemented in accordance with its terms.

“Interest Payment Date” means any January 1 or July 1 on which interest on any of the 2021 Bonds is scheduled to be paid.

“Law” means the Irrigation District Law of the State of California (being Division 11 of the Water Code of the State of California, as amended) and all laws amendatory thereof or supplemental thereto, including Articles 10 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California.

“Leases” means collectively (i) the Lease Agreement—2010 between the District and the Authority, dated as of June 1, 2010, (ii) the Lease Agreement—2015 between the District and the Authority, dated as of July 1, 2015, and (iii) the Lease Agreement—2019 between the District and the Authority, dated as of July 1, 2019.

“Maintenance and Operation Costs of the Electric System” means all costs paid or incurred by or on behalf of the District and determined by the District to be reasonable and necessary to maintain and operate the Electric System and to sell, exchange or otherwise dispose of electrical capacity or output, including all costs of electricity generated or purchased by the District for resale through the Electric System, all reasonable expenses of management and repair and other expenses necessary to maintain and preserve the Electric System in good repair and working order, and all administrative costs of the District that are charged directly or apportioned to the operation of the Electric System, such as salaries and wages of employees, overhead, taxes (if any) and insurance premiums, and including all other reasonable and necessary costs of the District or charges required to be paid by it to comply with the terms of the Indenture or of any resolution authorizing the execution of any Parity Obligations or of such Parity Obligation, such as compensation, reimbursement and indemnification of the trustee for any such Parity Obligations and fees and expenses of Independent Certified Public Accountants and consulting engineers, if any, and all payments owed by the District under the M-S-R Agreement, and all payments owed by the District under the TANC Agreement, and all payments owed by the District under any other Obligations; but excluding in all cases depreciation, replacement and obsolescence charges or reserves of the District therefor and amortization of intangibles.

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“Maintenance and Operation Fund” means the Maintenance and Operation Fund established by the District, which fund is to be maintained and applied by the District in accordance with the Indenture.

“Maximum Annual Debt Service” means an amount equal to the greatest annual payments of Debt Service in any Fiscal Year or other twelve (12) month period permitted under the Indenture.

“Moody’s” means Moody’s Investors Service, Inc., a corporation organized and existing under the laws of the State of Delaware, its successors and their assigns, and, if such corporation will be dissolved or liquidated or will no longer perform the functions of a securities rating agency, “Moody’s” will be deemed to refer to any other nationally recognized securities rating agency designated by the District.

“M-S-R Agreement” means the Tucson/San Juan Project Power Sales Agreement, by and among M-S-R Public Power Agency, the City of Santa Clara, the City of Redding and the District, dated as of November 29, 1982, as amended or supplemented in accordance with its terms.

“Net Electric System Revenues” means, for any Fiscal Year, the Electric System Revenues for such Fiscal Year less the Maintenance and Operation Costs of the Electric System for such Fiscal Year.

“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.

“Obligation” means any contract or lease for the purchase of any facilities, properties, structures or works or electrical output, capacity or other electrical services for the Electric System the final payments under which are due more than one year following the effective date thereof (including the M-S-R Agreement, the TANC Agreement and other similar contracts), so long as the payments in each such case thereunder constitute Maintenance and Operation Costs of the Electric System.

“Obligation Service” means, for any Fiscal Year, that portion of the sum of all payments of interest and principal and contract or lease payments (including the payments to M-S-R Public Power Agency under the M-S-R Agreement and to the Transmission Agency of Northern California under the TANC Agreement that are attributable to debt service and related expenses of each such agency’s outstanding indebtedness and other similar payments) required to be made on all Obligations at the times provided in such Obligations that would have accrued during such Fiscal Year if such payments were deemed to accrue daily in equal amounts from, in each case, the next preceding payment date or the date of the pertinent Obligation, as the case may be; provided, that, as to any such Obligations bearing or comprising interest at other than a fixed rate, the rate of interest used to calculate Obligation Service will be one hundred ten percent (110%) of the greater of (a) the daily average interest rate on such Obligations during the twelve (12) calendar months preceding the date of calculation (or the portion of the then current Fiscal Year that such Obligations have borne or comprised interest) or (b) the most recent effective interest rate on such Obligations prior to the date of calculation; and, provided further, that if any such Obligations have twenty-five percent (25%) or more of the aggregate principal amount thereof due in any one year, Obligation Service will be determined as if the principal of and interest on such Obligations were being paid in substantially equal annual amounts over a period of twenty- five (25) years from the date of calculation; and, provided further, that, as to any such Obligations or portions thereof bearing no interest but which are sold at a discount and which discount accretes with respect to such Obligations or portions thereof, such accreted discount will be treated as interest in the calculation of Obligation Service.

“Opinion of Counsel” means a written opinion of counsel of recognized national standing in the field of law relating to municipal bonds, appointed and paid by the District.

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“Outstanding,” when used as of any particular time with reference to 2021 Bonds, means (subject to the provisions of the Indenture) all 2021 Bonds executed, authenticated and delivered under the Indenture except --

(1) 2021 Bonds theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation;

(2) 2021 Bonds paid or deemed to have been paid pursuant to the Indenture; and

(3) 2021 Bonds in lieu of or in substitution for which other Bonds will have been executed by the District and authenticated and delivered by the Trustee pursuant to the Indenture.

“Owner” means the registered owner of any Outstanding 2021 Bond, as shown in the registration books maintained by the Trustee pursuant to the Indenture.

“Parity Obligation” means the Leases, the Installment Purchase Contract—2010, the 2012A Bonds, the 2016 Bonds, the 2020 Bonds and any other contract, bond, Bond Enhancement Agreement or obligation of the District that is classified as a liability on the financial statements of the District in accordance with generally accepted accounting principles and is secured by a subordinate and junior pledge, lien or encumbrance on Electric System Revenues on a parity with the subordinate lien on Electric System Revenues created pursuant to the Indenture.

“Permitted Investments” means any of the following which at the time are legal investments under the laws of the State of California for moneys held under the Indenture and then proposed to be invested therein:

A. (1) Cash (insured at all times by the Federal Deposit Insurance Corporation);

(2) Obligations of, or obligations fully and unconditionally guaranteed as to timely payment of principal and interest by, the U.S. or any agency or instrumentality thereof, when such obligations are backed by the full faith and credit of the U.S. including:

• U.S. treasury obligations

• All direct or fully guaranteed obligations

• Farmers Home Administration

• General Services Administration

• Guaranteed Title XI financing

• Government National Mortgage Association (GNMA)

• State and Local Government Series

Any security used for defeasance must provide for the timely payment of principal and interest and cannot be callable or prepayable prior to maturity or earlier redemption of the rated debt (excluding securities that do not have a fixed par value and/or whose terms do not promise a fixed dollar amount at maturity or call date).

B. The following obligations may be used as Permitted Investments for all purposes other than defeasance investments in refunding escrow accounts.

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(1) Obligations of any of the following federal agencies which obligations represent the full faith and credit of the United States of America, including:

• Export-Import Bank

• Rural Economic Community Development Administration

• U.S. Maritime Administration

• Small Business Administration

• U.S. Department of Housing & Urban Development (PHAs)

• Federal Housing Administration

• Federal Financing Bank;

(2) Direct obligations of any of the following federal agencies which obligations are not fully guaranteed by the full faith and credit of the United States of America:

• Senior debt obligations issued by the Federal National Mortgage Association (FNMA) or the Federal Home Loan Mortgage Corporation (FHLMC).

• Obligations of the Resolution Funding Corporation (REFCORP)

• Senior debt obligations of the Federal Home Loan Bank System

• Senior debt obligations of other government sponsored agencies;

(3) U.S. dollar denominated deposit accounts including time deposits, trust accounts, trust funds, overnight bank deposits, interest bearing deposits, interest bearing money market accounts, certificates of deposit, including those placed by a third party pursuant to an agreement between the Trustee and the District, federal funds and bankers’ acceptances with domestic commercial banks (including the Trustee and its affiliates) which have a rating on their short term certificates of deposit on the date of purchase of “P-1” by Moody’s and “A-1” or “A-1+” by S&P and maturing not more than 360 calendar days after the date of purchase. (Ratings on holding companies are not considered as the rating of the bank or which are FDIC insured);

(4) Commercial paper which is rated at the time of purchase in the single highest classification, “P-1” by Moody’s and “A-1+” by S&P and which matures not more than 270 calendar days after the date of purchase;

(5) Investments in a money market fund rated, at the time of purchase, “AAAm” or “AAAm-G” or better by S&P or in the highest rating category by Moody’s, including without limitation any mutual fund for which the Trustee or an affiliate of the Trustee serves as investment manager, administrator, shareholder servicing agent, and/or custodian or subcustodian, notwithstanding that (i) the Trustee or an affiliate of the Trustee receives fees from funds for services rendered, (ii) the Trustee collects fees for services rendered pursuant to the Indenture, which fees are separate from the fees received from such funds, and (iii) services performed for such funds and pursuant to the Indenture may at times duplicate those provided to such funds by the Trustee or an affiliate of the Trustee;

(6) Pre-refunded municipal obligations defined as follows: any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local

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governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice; and

(A) which are rated, based on an irrevocable escrow account or fund (the “escrow”), in the highest rating category of Moody’s or S&P or any successors thereto; or

(B) (i) which are fully secured as to principal and interest and redemption premium, if any, by an escrow consisting only of cash or obligations described in paragraph A(2) above, which escrow may be applied only to the payment of such principal of and interest and redemption premium, if any, on such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate, and (ii) which escrow is sufficient, as verified by a nationally recognized Independent Certified Public Accountant, to pay principal of and interest and redemption premium, if any, on the bonds or other obligations described in this paragraph of the Indenture on the maturity date or dates specified in the irrevocable instructions referred to above, as appropriate;

(7) Municipal obligations rated, at the time of purchase, “Aaa/AAA” or general obligations of States with a rating, at the time of purchase, of “A2/A” or higher by both Moody’s and S&P;

(8) Investment agreements with providers (or any parent or other guarantor of such providers) rated by any of Moody’s, S&P or Fitch at least the same as the then underlying rating on the Bonds applied by Moody’s, S&P or Fitch at the time of execution of such investment agreement or agreements;

(9) Local Agency Investment Fund (“LAIF”); and

(10) Repurchase Agreements with entities, or entities the obligations of which are guaranteed by an entity, rated by any of Moody’s, S&P or Fitch then rating the 2021 Bonds at least the same as the then underlying rating on the 2021 Bonds applied by Moody’s, S&P or Fitch at the time of execution of such repurchase agreement and provided that: (a) the over-collateralization is at one hundred two percent (102%), computed weekly, consisting of such securities as described in the Indenture, items (1) and (2); (b) a third party custodian, the Trustee or the Federal Reserve Bank will have possession of such obligations; (c) the Trustee will have perfected a first priority security interest in such obligations; and (d) failure to maintain the requisite collateral percentage will require the Trustee to liquidate the collateral.

“Principal Corporate Trust Office” means the designated corporate trust office of the Trustee in Minneapolis, Minnesota (except that with respect to the registration, transfer, exchange or payment of the 2021 Bonds, it shall mean the office of the Trustee at which it conducts its corporate agency business).

“Rebate Fund” means the Modesto Irrigation District 2021 Electric System Refunding Revenue Bonds Rebate Fund established pursuant to the Indenture.

“Rebate Instructions” means a Written Order of the District providing directions required to be delivered to the Trustee by the District pursuant to the Tax Certificate.

“Rebate Requirement” means the applicable Rebate Requirement defined in the Tax Certificate.

“Rental Payments” means the Rental Payments due under the Leases.

“Reserve Requirement” means, as of any date of calculation, an amount equal to the Maximum Annual Debt Service relating to the 2021 Bonds, unless on the date of calculation a Written Order of the District is on file with the Trustee to the effect that moneys in an amount at least equal to one half (1/2) Maximum Annual Debt Service relating to the 2021 Bonds are on deposit in unrestricted funds of the District and are available to pay Maintenance and Operation Costs of the Electric System as well as Installment

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Payments, Rental Payments and debt service payments of the District, in which case the term “Reserve Fund Requirement” means an amount equal to one half (1/2) the Maximum Annual Debt Service relating to the 2021 Bonds.

“Revenue Fund” means the Modesto Irrigation District Electric System Revenue Fund established by the District, which fund is to be maintained and applied by the District in accordance with the Indenture.

“S&P” means S&P Global Ratings, a division of Standard & Poor’s Financial Services LLC, its successors and assigns, and if such entity will be dissolved or liquidated or will no longer perform the functions of a securities rating agency, “S&P” will be deemed to refer to any other nationally recognized securities rating agency designated by the District.

“Senior Lien Obligation” means any obligation, bond, installment payment contract or other liability of the District, determined in accordance with generally accepted accounting principles, which is secured by any pledge, lien, security interest, encumbrance or charge of any kind on or in any Electric System Revenues which is senior in priority and superior to the lien of the Indenture on or in such Electric System Revenues.

“Supplemental Indenture” means any indenture then in full force and effect which has been executed by the District and the Trustee, amendatory or supplemental to the Indenture; but only if and to the extent that such Supplemental Indenture is specifically authorized under the Indenture.

“TANC Agreement” means Project Agreement No. 3 by and among the Transmission Agency of Northern California, the City of Alameda, the City of Healdsburg, the City of Lodi, the City of Lompoc, the City of Palo Alto, the City of Redding, the City of Roseville, the Sacramento Municipal Utility District, the City of Santa Clara, the Turlock Irrigation District, the City of Ukiah, the Plumas-Sierra Rural Electric Cooperative and the District, dated as of March 1, 1990, as amended or supplemented in accordance with its terms.

“Tax Certificate” means the certificate, dated the date of the original issuance and delivery of the 2021 Bonds, with respect to the requirements of certain provisions of the Code, as such certificate may from time to time be amended or supplemented in accordance with its terms.

“Trustee” means Wells Fargo Bank, National Association, a national banking association duly organized and existing under and by virtue of the laws of the United States, and authorized to accept and execute trusts of the character set forth in the Indenture, at its Principal Corporate Trust Office, acting in its capacity as trustee under and pursuant to the Indenture, and its successors or assigns, or any other bank or trust company or national banking association having its designated corporate trust office in Los Angeles or San Francisco, California, which may at any time be substituted in its place as provided in the Indenture.

“2012A Bonds” means $90,065,000 aggregate principal amount of the Modesto Irrigation District Electric System Refunding Revenue Bonds, Series 2012A, authorized, executed, issued and delivered by the District under and pursuant to the Law and under and pursuant to and that are secured by indenture, dated as of October 1, 2012, by and between the District and Wells Fargo Bank, National Association, as trustee, as such indenture may from time to time be amended or supplemented in accordance with its terms.

“2016 Bonds” means $95,240,000 aggregate principal amount of Modesto Irrigation District Electric System Refunding Revenue Bonds, Series 2016, authorized, executed, issued and delivered by the District under and pursuant to the Law and under and pursuant to and that are secured by the indenture, dated as of September 1, 2016, by and between the District and Wells Fargo Bank, National Association, as trustee, as such indenture may from time to time be amended or supplemented in accordance with its terms.

“2020 Bonds” means $34,920,000 aggregate principal amount of the Modesto Irrigation District Electric System Refunding Revenue Bonds, Series 2020, authorized, executed, issued and delivered by the

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District under and pursuant to the Law and under and pursuant to and that are secured by the indenture, dated as of August 1, 2020, by and between the District and Wells Fargo Bank, National Association, as trustee, as such indenture may from time to time be amended or supplemented in accordance with its terms.

“2021 Bonds” means $______aggregate principal amount of the Modesto Irrigation District Electric System Refunding Revenue Bonds, Series 2021, authorized, executed, issued and delivered by the District under and pursuant to the Law and under and pursuant to the Indenture and that are secured by the Indenture.

“Written Order of the District” means an instrument in writing signed by an Authorized District Representative.

CERTAIN PROVISIONS OF THE INDENTURE

The Indenture sets forth the terms of the 2021 Bonds, the nature and extent of the security therefor, various rights of the Owners, rights and duties and immunities of the Trustee and rights and obligations of the District and the Trustee. Certain provisions of the Indenture are summarized below. THIS SUMMARY DOES NOT PURPORT TO BE COMPLETE OR DEFINITIVE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TERMS OF THE INDENTURE.

Subordinate Pledge of Electric System Revenues

All Electric System Revenues are irrevocably pledged to the payment of the 2021 Bonds as provided in the Indenture, and the Electric System Revenues will not be used for any other purpose while any of the 2021 Bonds remain unpaid; provided, however, that out of the Electric System Revenues there may be apportioned such sums for such purposes as are expressly permitted by the Indenture. This pledge will constitute a lien on the Electric System Revenues for the payment of the 2021 Bonds which lien is on a parity with the lien on Electric System Revenues for the payment of other Parity Obligations and is junior and subordinate to any lien on the Electric System Revenues for the payment of any of the Maintenance and Operation Costs of the Electric System, and all other payments due and payable pursuant to Obligations in accordance with their terms and any other Senior Lien Obligations.

Allocation of Electric System Revenues

In order to carry out and effectuate the subordinate pledge and lien contained in the Indenture, the District agrees and covenants that all Electric System Revenues will be received by the District in trust and will be deposited when and as received in the Revenue Fund, which fund has been established by the District and which fund the District agrees and covenants to maintain so long as any Parity Obligations remain unpaid or are not discharged in accordance with their respective terms, and all moneys in the Revenue Fund will be so held in trust and applied and used as provided in the Indenture.

The District agrees and covenants to maintain the Maintenance and Operation Fund, which fund has been established by the District, so long as any Parity Obligations remain unpaid or are not discharged in accordance with their respective terms. On or before the last day of each month, the District will, from the moneys in the Revenue Fund transfer such amounts to the Maintenance and Operation Fund in amounts sufficient to pay all Maintenance and Operation Costs of the Electric System (including amounts reasonably required to be set aside in contingency reserves for Maintenance and Operation Costs of the Electric System, the payment of which is not then immediately required).

The application of remaining Electric System Revenues under the Indenture will be made proportionately with the application of such remaining Electric System Revenues for the payment of all other payments due and payable on other Parity Obligations. Such remaining Electric System Revenues will be deposited when and as available or received, but only to the extent they are required for such purpose at the

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following times, in the following respective special funds (each of which is established under the Indenture and each of which the District agrees and covenants to maintain so long as any 2021 Bonds remain Outstanding) in the following order of priority:

(i) Bond Redemption Fund (to be held by the Trustee); and

(ii) Bond Reserve Fund (to be held by the Trustee).

All money in each of such funds will be held in trust and will be applied, used and withdrawn only for the purposes authorized in the Indenture.

(a) Bond Redemption Fund. On or before each Interest Payment Date, the District will, from the money in the Revenue Fund, transfer to the Trustee for deposit (on a parity with the deposits for the payment of all other Parity Obligations) in the Bond Redemption Fund a sum equal to the amount of interest becoming due under the Indenture on the next succeeding Interest Payment Date, as the case may be, plus, if a principal payment is due on such succeeding Interest Payment Date, the amount of principal becoming due under the Indenture on the next succeeding July 1.

No deposit need be made in the Bond Redemption Fund if the amount available and contained therein is at least equal to the amount of interest becoming due under the Indenture on the next succeeding January 1 or July 1, as the case may be, plus, if a principal payment is due on such succeeding Interest Payment Date, the amount of principal becoming due under the Indenture on the next succeeding July 1.

All money in the Bond Redemption Fund will be used and withdrawn by the Trustee solely for the purpose of paying the interest on and principal of the 2021 Bonds as such interest and principal becomes due and payable.

(b) Bond Reserve Fund. On or before the last day of each month, the District will, from the remaining money in the Revenue Fund, thereafter transfer to the Trustee for deposit (on a parity with the deposits for the reserve funds for all other Parity Obligations) in the Bond Reserve Fund that sum, if any, necessary to restore the Reserve Fund to an amount equal to the Reserve Requirement or to replenish any Bond Reserve Fund Facility issued in lieu thereof.

No deposit need be made in the Bond Reserve Fund if the amount available and contained therein is at least equal to the Reserve Requirement.

All money in the Bond Reserve Fund will be used and withdrawn by the Trustee solely for the purpose of paying the interest on and principal of the 2021 Bonds as such interest and principal becomes due and payable in the event the money in the Bond Redemption Fund is at any time insufficient for such purpose.

On the day following each Interest Payment Date, all remaining moneys in the Revenue Fund will be deposited by the District in the General Fund for expenditure for any lawful purpose of the District.

Punctual Payment

The District will punctually pay the interest on and principal of and redemption premiums, if any, on the 2021 Bonds in strict conformity with the terms of the Indenture and of the 2021 Bonds, and will faithfully observe and perform all the agreements, conditions, covenants and terms contained in the Indenture and in the 2021 Bonds required to be observed and performed by it.

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Against Encumbrances

The District will not make any pledge of or place any lien on the Electric System Revenues except as provided in the Indenture.

Against Sale or Other Disposition of the Electric System

The District may at any time or from time to time sell, lease or otherwise dispose of the Electric System or any part thereof; provided, however, that the District will not sell, lease or otherwise dispose of the Electric System or any part thereof if in the reasonable discretion of the District such sale, lease or disposition would materially adversely affect the District’s ability to satisfy its covenant set forth in the Indenture.

Tax Covenants and Matters; Rebate Fund

The District will not directly or indirectly use or permit the use of any proceeds of the 2021 Bonds provided in the Indenture or any other funds of the District or take or omit to take any action that would cause the 2021 Bonds to be “arbitrage bonds” within the meaning of Section 148(a) of the Code or “federal guaranteed obligations” within the meaning of Section 149(b) of the Code or “private activity bonds” as described in Section 141 of the Code. The District will not allow 10% or more of the proceeds of the 2021 Bonds provided in the Indenture to be used in the trade or business of any nongovernmental units and will not loan 5% or more of the proceeds of the obligations provided in the Indenture to any nongovernmental units.

To that end, as long as any 2021 Bonds are unpaid, the District will comply with all requirements of such sections of the Code to the extent applicable to the obligations provided in the Indenture. In the event that at any time the District is of the opinion that for purposes of the Indenture it is necessary to restrict or to limit the yield on the investment of any moneys held by the Trustee under the Indenture, the District will so instruct the Trustee in writing, and the Trustee will act in accordance with such instructions.

The District covenants that it will at all times do and perform all acts necessary or desirable in order to assure that the interest on the 2021 Bonds will not be included in gross income of the holders of the 2021 Bonds for federal income tax purposes and the District covenants that it will take no action that would result in such interest being so included.

The District will pay or cause to be paid the Rebate Requirement as provided in the Tax Certificate. This covenant will survive payment in full of the 2021 Bonds. The District will establish and maintain a fund separate from any other fund established and maintained under the Indenture designated the Rebate Fund. The District will cause the Rebate Requirement to be deposited in the Rebate Fund as provided in the Tax Certificate (which is incorporated in the Indenture by reference). Subject to the provisions of the Indenture, moneys held in the Rebate Fund are pledged to secure payments to the United States of America. The District, the Trustee and the holders of the 2021 Bonds will have no rights in or claim to such moneys. The District will invest all amounts held in the Rebate Fund in Permitted Investments.

Upon receipt of the Rebate Instructions required by the Tax Certificate, the District will remit part or all of the balance held in the Rebate Fund to the United States of America as so directed. In addition, if the Rebate Instructions so direct, the District will deposit, or cause to be deposited moneys into or transfer or cause to be transferred moneys out of the Rebate Fund from or into such accounts or funds as the Rebate Instructions direct.

Notwithstanding any provision of the Indenture, if the District receives an opinion of Bond Counsel that any specified action required under the Indenture is no longer required or that some further or different action is required to maintain the exclusion from gross income for federal income tax purposes of interest on the 2021 Bonds, the District may conclusively rely on such opinion in complying with the requirements of the Indenture, and the covenants under the Indenture will be deemed to be modified to that extent.

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Maintenance and Operation of the Electric System

The District will maintain and preserve the Electric System in good repair and working order at all times and will operate the Electric System in an efficient and economical manner and will pay all Maintenance and Operation Costs of the Electric System as they become due and payable. On or before the first day of each Fiscal Year (commencing January 1, 2022), the District will file with the Trustee a certificate stating that the Board of Directors has adopted a budget. Such certificate will also identify the estimated Maintenance and Operation Costs of the Electric System for such Fiscal Year. Any budget may be amended at any time during any Fiscal Year and such amended budget will be filed by the District with the Trustee. The Trustee will have no duty or obligation to review or analyze such budget.

Payment of Claims

The District will pay and discharge any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien on the Electric System Revenues or any part thereof or on any funds in the hands of the District prior to or superior to the lien of the 2021 Bonds or which might impair the security of the 2021 Bonds; provided, that nothing contained in the Indenture will require the District to make any such payments so long as the District in good faith will contest the validity of any such claims.

Insurance

The District will procure and maintain or cause to be procured and maintained insurance on the Electric System with responsible insurers in such amounts and against such risks (including accident to or destruction of the Electric System) as the District determines to be reasonable and appropriate and only to the extent such insurance is available at reasonable costs from reputable insurance companies; provided that any such insurance may be maintained under a self-insurance program.

In the event of any damage to or destruction of the Electric System caused by the perils covered by such insurance, the Net Proceeds thereof will be applied to the reconstruction, repair or replacement of the damaged or destroyed portion of the Electric System. The District will begin such reconstruction, repair or replacement promptly after such damage or destruction will occur, and will continue and properly complete such reconstruction, repair or replacement as expeditiously as possible, and will pay out of such Net Proceeds all costs and expenses in connection with such reconstruction, repair or replacement so that the same will be completed and the Electric System will 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 will be applied in part to the retirement of 2021 Bonds and in part to such other fund or account as may be appropriate and used for the retirement of Parity Obligations in the same proportion which the aggregate unpaid principal balance of the 2021 Bonds then bears to the aggregate unpaid principal amount of such Parity Obligations. If such Net Proceeds are sufficient to enable the District to retire the 2021 Bonds prior to the final maturity date of the 2021 Bonds as well as the entire obligations evidenced by Parity Obligations then remaining unpaid prior to their final respective due dates, the District may elect not to reconstruct, repair or replace the damaged or destroyed portion of the Electric System, and thereupon such Net Proceeds will be applied to the retirement of 2021 Bonds and to the retirement of such Parity Obligations.

The District will procure and maintain such other insurance which it will deem advisable or necessary to protect its interests and the interests of the Owners and the Trustee, which insurance will afford protection in such amounts and against such risks as the District determines to be reasonable and appropriate; provided that any such insurance may be maintained under a self-insurance program.

All policies of insurance obtained pursuant to the Indenture will name the Trustee as co-insured and co-loss payee with the District and provide that the Trustee will be given 30 days’ written notice of any intended cancellation thereof or reduction of coverage provided thereby.

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Accounting Records; Financial Statements and Other Reports

The District will keep appropriate accounting records in which complete and correct entries will be made of all transactions relating to the Electric System, which records will be available for inspection by the Trustee at reasonable hours and under reasonable conditions.

The District will prepare and file with the Trustee annually not later than June 30 of the succeeding year (commencing with the Fiscal Year ending December 31, 2021) financial statements of the District for the preceding Fiscal Year prepared in accordance with generally accepted accounting principles, together with an Accountant’s Report thereon and a special report prepared by the Independent Certified Public Accountant who examined such financial statements stating that nothing came to its attention in connection with such examination that caused it to believe that the District was not in compliance with any of the financial agreements or financial covenants contained in the Indenture.

The District will keep, and will cause the Trustee to keep proper books of record and account in accordance with Trustee’s standards in which complete and correct entries will be made of all transactions relating to the receipt, investment, disbursement, allocation and application of the 2021 Bonds and the proceeds of the obligations provided in the Indenture. Such records will specify the account or fund to which each investment (or portion thereof) held pursuant to the Indenture is to be allocated and will set forth, in the case of each Permitted Investment, (i) its purchase price, (ii) identifying information, including par amount, coupon rate, and payment dates, (iii) the amount received at maturity or its sale price, as the case may be, (iv) the amounts and dates of any payments made with respect thereto, and (v) such other documentation as the District deems necessary.

Such records will be open to inspection by the Trustee at any reasonable time during regular business hours on reasonable notice. The Trustee will furnish to the District regular reports on such dates and containing such information as the District will require, covering the activities and responsibilities of the Trustee. The Trustee will have no duty to review, verify or analyze any financial statements delivered to it under the Indenture and will hold such financial statements solely as a repository for the benefit of the Owners. The Trustee will not be deemed to have notice of any information contained therein or Event of Default which may be disclosed therein in any manner.

Protection of Security and Rights of Owners

The District will preserve and protect the security of the 2021 Bonds and the rights of the Owners under the Indenture, and will warrant and defend such rights against all claims and demands of all persons.

Payment of Taxes and Compliance with Governmental Regulations

The District will pay and discharge all taxes, assessments and other governmental charges which may be lawfully imposed upon the Electric System under the Indenture or any part thereof or upon the Electric System Revenues when the same will become due. The District will duly observe and conform with all valid regulations and requirements of any governmental authority relative to the operation of the Electric System or any part thereof, but the District will not be required to comply with any regulations or requirements so long as the validity or application thereof will be contested in good faith.

Collection of Rates and Charges

The District will have in effect at all times rules and regulations requiring each consumer or customer located on any premises connected with the Electric System to pay the rates and charges applicable to the Electric Service to such premises and providing for the billing thereof and for a due date and a delinquency date for each bill. In each case where such bill remains unpaid in whole or in part after it becomes delinquent, the District may disconnect such premises from the Electric System, and such premises will not thereafter be

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reconnected to the Electric System until all delinquent bills and penalties (if any) have been paid or provision satisfactory to the District for such payment will have been made, together with the charges for reconnection to the Electric System. The District will not permit any part of the Electric System or any facility thereof to be used or taken advantage of free of charge by any corporation, firm or person, or by any public agency (including the United States of America, the State of California and any city, county, district, political subdivision, public corporation or agency of any thereof); provided that the District may without charge use the Electric Service.

Eminent Domain Proceeds

If all or any part of the Electric System will be taken by eminent domain proceedings, the Net Proceeds thereof will be applied as follows:

(a) If (1) the District files with the Trustee a written report of the District (which documentation the Trustee will have no duty to review) showing (i) the estimated loss of annual Net Electric System Revenues, if any, suffered or to be suffered by the District by reason of such eminent domain proceedings, (ii) a general description of the additions, betterments, extensions or improvements to the Electric System proposed to be acquired and constructed by the District from such Net Proceeds, and (iii) an estimate of the additional annual Net Electric System Revenues to be derived from such additions, betterments, extensions or improvements, and (2) the District, on the basis of such written report, determines that the estimated additional annual Net Electric System Revenues will sufficiently offset the estimated loss of annual Net Electric System Revenues resulting from such eminent domain proceedings so that the ability of the District to meet its obligations under the Indenture will not be substantially impaired (which determination will be final and conclusive) then the District will promptly proceed with the acquisition and construction of such additions, betterments, extensions or improvements substantially in accordance with such written report and such Net Proceeds will be applied for the payment of the costs of such acquisition and construction, and any balance of such Net Proceeds not required by the District for such purpose will be deposited in the Revenue Fund.

(b) If the foregoing conditions are not met, then such Net Proceeds will be applied in part to the retirement of 2021 Bonds and in part to such other fund or account as may be appropriate and used for the retirement of Parity Obligations in the same proportion which the aggregate unpaid principal balance of 2021 Bonds then bears to the aggregate unpaid principal amount of such Parity Obligations.

Further Assurances

The District will adopt, deliver, execute and make any and all further assurances, instruments and resolutions as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the Indenture and for the better assuring and confirming unto the Owners of the rights and benefits provided to them in the Indenture.

The Trustee

Wells Fargo Bank, National Association at its Principal Corporate Trust Office, is appointed original Trustee under the Indenture for the purpose of receiving all money which the District is required to deposit with the Trustee under the Indenture and to allocate, use and apply such money as provided in the Indenture.

The District at any time may (prior to the occurrence of an Event of Default which will then be continuing), upon any breach of the trust set forth in the Indenture, remove any Trustee and appoint any successor thereto upon thirty (30) days’ written notice to the removed Trustee; provided, that any such successor Trustee will be a bank or trust company or national banking association with a designated corporate

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trust office in San Francisco, California, and that has a combined capital (exclusive of borrowed capital) and surplus of at least $100,000,000 and is subject to supervision or examination by federal or state authority. If such bank or trust company or national banking association publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purposes of the Indenture the combined capital and surplus of such bank or trust company will be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published.

Any Trustee may at any time resign by giving 30 days’ written notice to the District and by giving to the Owners notice of such resignation, which notice will be mailed to the Owners at their addresses appearing in the registration books maintained by the Trustee pursuant to the Indenture. Upon receiving such notice of resignation, the District will promptly appoint a successor Trustee by an instrument in writing; provided, that if no such successor will have been appointed by the District within 30 days after the receipt by the District of such notice, the resigning Trustee may petition any court of competent jurisdiction to appoint a successor Trustee.

Any resignation or removal of a Trustee and appointment of a successor Trustee will become effective only upon the appointment of and the acceptance of appointment by the successor Trustee.

The Trustee is authorized and directed to pay the interest on the 2021 Bonds on each Interest Payment Date as provided in the Indenture and to pay the principal of and the redemption premiums, if any, on the 2021 Bonds when duly presented for payment at maturity or on redemption prior to maturity, and to cancel and dispose of all 2021 Bonds upon payment thereof in a manner deemed appropriate by it.

The District will from time to time, subject to any agreement between the District and the Trustee then in force, pay to the Trustee compensation for its services, reimburse the Trustee for all its advances and expenditures, including but not limited to advances to and fees and expenses of independent accountants, counsel and engineers or other experts employed by it in the exercise and performance of its duties and obligations under the Indenture, and indemnify and save the Trustee and its officers, directors, employees and agents harmless against any costs, expenses, losses and liabilities not arising from its own negligence or willful misconduct which it may incur in the exercise and performance of its duties and obligations under the Indenture. The Trustee’s rights to indemnification and protection from liability under the Indenture and its rights to payment of its fees and expenses will survive its resignation or removal and final payment or defeasance of the 2021 Bonds.

Any bank or trust company into which the Trustee may be merged or converted or with which it may be consolidated, or any bank or trust company resulting from any merger, conversion or consolidation to which it will be a party, or any bank or trust company to which the Trustee may sell or transfer all or substantially all of its corporate trust business, if such bank or trust company would be eligible under the Indenture to serve as Trustee, will be the successor Trustee under the Indenture without the execution or filing of any paper or any further act, anything in the Indenture to the contrary notwithstanding.

Liability of Trustee

The recitals of facts, agreements and covenants contained in the Indenture and in the 2021 Bonds will be taken as statements, agreements and covenants of the District, and the Trustee does not assume any responsibility for the correctness of the same and does not make any representation as to the validity or sufficiency of the Indenture or of the 2021 Bonds, the adequacy of any security afforded thereunder, or the correctness or completeness of any information contained in any offering materials distributed in connection with the sale of any 2021 Bonds, and will not incur any responsibility in respect of any of the foregoing other than in connection with the duties or obligations assigned to or imposed upon it under the Indenture. The Trustee will not be liable in connection with the performance of its duties and obligations under the Indenture except for its own negligence or willful misconduct.

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The Trustee will be under no obligation to exercise any of the rights vested in it under the Indenture at the request or direction of any Owner pursuant to the Indenture unless such Owner will have offered to the Trustee security or indemnity satisfactory to the Trustee against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction.

Except during the continuance of an Event of Default,

(a) the Trustee undertakes to perform such duties and obligations and only such duties and obligations as are specifically set forth in the Indenture, and no implied duties or obligations will be read in the Indenture against the Trustee; and

(b) in the absence of negligence or willful misconduct on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of the Indenture.

In case an Event of Default has occurred and is then continuing, the Trustee will exercise such rights vested in it by the Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.

The Trustee will not be accountable for the use by the District of any money which the Trustee releases to the District or which the District otherwise receives, or to verify compliance by the District with the provisions of the Indenture. The Trustee will not have any obligation to incur any financial or other liability or risk in performing any duty or obligation or in exercising any right or remedy under the Indenture. The Trustee will be entitled to interest on all amounts advanced by it under the Indenture at the maximum interest rate permitted by law. The Trustee in its individual or other capacity may become the owner or pledgee of the 2021 Bonds with the same rights it would have if it were not the Trustee.

The Trustee will not be deemed to have knowledge of any Event of Default (other than a payment default under the Indenture) until an officer of the Trustee at its Principal Corporate Trust Office has been notified by the District in writing that such an Event of Default has occurred. The Trustee will not be bound to ascertain or inquire as to the performance or observance by any other party of any of the agreements, conditions, covenants or terms of the Indenture or of any of the documents executed in connection with the 2021 Bonds.

The Trustee will not be liable for an error of judgement made in good faith unless it has been proven that the Trustee was negligent in ascertaining the pertinent facts.

The Trustee will not be liable for any action taken or omitted by it in good faith at the direction of the holders of not less than a majority in principal amount of the 2021 Bonds as to the time, method, and place of conducting any proceedings for any remedy available to the Trustee or the exercising of any power conferred by the Indenture.

Before taking action under the Indenture or upon the direction of the Owners, the Trustee may require that indemnity satisfactory to it be furnished to it to protect it against all fees and expenses, including those of its attorneys and advisors, and protect it against all liability it may incur.

No provision in the Indenture will require to the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers.

Under no circumstances will the Trustee be liable in its individual capacity for the payment of the 2021 Bonds.

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Notice to Trustee

The Trustee will be protected in acting upon any bond, certificate, consent, indenture, notice, order, report, request, requisition or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. The Trustee may consult with counsel, who may be counsel to the District, with regard to legal questions, and the opinion of such counsel will be full and complete authorization and protection in respect of any action taken or suffered under the Indenture in good faith and in accordance therewith.

The Trustee will not be bound to recognize any person as the Owner of a 2021 Bond unless and until such 2021 Bond is submitted for inspection, if required, and his title thereto satisfactorily established, if disputed.

Whenever in the administration of its duties and obligations under the Indenture the Trustee will deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action under the Indenture, such matter (unless other evidence in respect thereof be specifically prescribed in the Indenture) may, in the absence of negligence or willful misconduct on the part of the Trustee, be deemed to be conclusively proved and established by a Certificate of the District, and such certificate will be full warrant to the Trustee for any action taken or suffered under the provisions of the Indenture upon the faith thereof, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as to it may seem reasonable.

Procedure for Amendment of or Supplement to the Indenture

The Indenture and the rights and obligations of the District and of the Owners may be amended or supplemented at any time by a Supplemental Indenture which will become binding when the written consents of the Owners of at least 60% in aggregate principal amount of the 2021 Bonds then Outstanding (exclusive of 2021 Bonds disqualified as provided in the Indenture) are filed with the Trustee; provided, that no such amendment or supplement will (1) extend the maturity of any 2021 Bond, or reduce the interest rate thereon, or otherwise alter or impair the obligation of the District to pay the interest thereon or the principal thereof or any redemption premium thereon at the time and place and at the rate and in the currency and from the funds provided in the Indenture without the express written consent of the Owner of such 2021 Bond, or (2) reduce the percentage of 2021 Bonds required for the written consent to any amendment of the Indenture or supplement to the Indenture, or (3) modify any rights or obligations of the Trustee without its prior written assent thereto.

The Indenture and the rights and obligations of the District and of the Owners may also be amended or supplemented at any time by a Supplemental Indenture which will become binding upon execution, without the consent of any Owners, but only to the extent permitted by law and only for any one or more of the following purposes:

(a) To add to the agreements and covenants of the District contained in the Indenture other agreements and covenants thereafter to be observed, or to surrender any right or remedy in the Indenture reserved to or conferred upon the District;

(b) To make such provisions for the purpose of curing any ambiguity contained in the Indenture or of curing, correcting or supplementing any defective provision contained in the Indenture or in regard to questions arising under the Indenture as the District may deem necessary or desirable and not inconsistent with the Indenture, which will not materially adversely affect the interests of the Owners;

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(c) To provide for the issuance of any additional bonds and to provide the terms and conditions under which such additional bonds may be issued, subject to and in accordance with the provisions of the Indenture;

(d) To amend or supplement the Indenture in such manner as to permit the qualification of the Indenture under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, and to add such other agreements, conditions, covenants and terms as may be permitted by said act or any similar federal statute, which will not materially adversely affect the interests of the Owners of the 2021 Bonds;

(e) To maintain the exclusion under the Code of interest on the 2021 Bonds from gross income for federal income tax purposes or the exemption of interest on the 2021 Bonds from State of California personal income taxes;

(f) To the extent necessary to obtain a municipal bond insurance policy or to maintain any then existing rating on the 2021 Bonds or to satisfy all or a portion of the Reserve Requirement by crediting a policy of insurance, a surety bond or a letter of credit or other comparable credit facility to the Bond Reserve Fund; and

(g) For any other purpose that does not materially adversely affect the interests of the Owners.

The Trustee may conclusively rely upon and accept an Opinion of Counsel that an amendment of the Indenture is in conformity with the provisions of the Indenture, is enforceable against the District and does not adversely impact the tax-exempt status of the interest on the 2021 Bonds. The Trustee is not obligated to enter into any amendment or supplement that adversely impacts its rights.

Amendment by Mutual Consent

The provisions of the Indenture will not prevent any Owner from accepting any amendment as to the particular 2021 Bonds held by such Owner, provided that due notation thereof is made on such 2021 Bonds.

Events of Default and Acceleration of Maturities

If one or more of the following events (herein an “Event of Default”) happens, that is to say:

(a) If default is made in the due and punctual payment of the interest on any 2021 Bond when and as the same becomes due and payable;

(b) If default is made in the due and punctual payment of the principal of or the redemption premium, if any, on any 2021 Bond when and as the same becomes due and payable, whether at maturity as therein expressed, by declaration or otherwise;

(c) If default is made by the District in the observance or performance of any of the other agreements, conditions, covenants or terms on its part contained in the Indenture or in the 2021 Bonds, and such default continues for a period of 30 days (or for such additional time as is reasonably required to correct the same after the District has given notice in writing of such default to the Trustee, but in no event later than 60 days after the delivery of such default notice); provided, that such default will not constitute an Event of Default under the Indenture if the District commences to cure such default within such 30-day period and thereafter diligently and in good faith proceeds to cure such default within a reasonable period of time; or

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(d) If the District files a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law of the United States of America or the State of California, or if a court of competent jurisdiction approves a petition, filed with or without the consent of the District, seeking reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or the State of California, or if, under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction will assume custody or control of the District or of the whole or any substantial part of its property; then, and in each and every such case during the continuance of such Event of Default, the Trustee may, and upon the written request of the Owners of not less than a majority in aggregate principal amount of the 2021 Bonds at the time Outstanding will, by notice in writing to the District, declare the principal of all of the 2021 Bonds then Outstanding and the interest accrued thereon to be immediately due and payable, and upon any such declaration the same will become due and payable, anything contained in the Indenture or in the 2021 Bonds to the contrary notwithstanding; provided, that if at any time after the principal of the 2021 Bonds will have been so declared due and payable and before any judgment or decree for the payment of the money due thereunder will have been obtained or entered, the District will deposit with the Trustee a sum sufficient to pay all principal on the 2021 Bonds matured prior to such declaration and all matured installments of interest (if any) upon all the 2021 Bonds, with interest at the rate borne by such 2021 Bonds on such overdue installments of interest and principal, and all expenses of the Trustee, including attorneys’ fees, together with interest on any amounts advanced as provided therein, and any and all other defaults known to the Trustee (other than in the payment of interest and principal on the 2021 Bonds due and payable solely by reason of such declaration) will have been made good or cured to the satisfaction of the Trustee (or provision deemed by the Trustee to be adequate will have been made therefor), then, and in every such case, the Owners of at least a majority in aggregate principal amount of the 2021 Bonds then Outstanding, by written notice to the District and to the Trustee, may (on behalf of the Owners of all the 2021 Bonds) rescind and annul such declaration and its consequences; except that no such rescission or annulment will extend to or will affect any subsequent default or will impair or exhaust any right consequent thereon.

Application of Funds Upon Acceleration

All money in the funds provided in the Indenture (except the Rebate Fund) upon the date of the declaration of acceleration by the Trustee as provided in the Indenture, and all Electric System Revenues thereafter available to the District under the Indenture, will be transmitted to the Trustee and will be applied by the Trustee in the following order:

First, to the payment of the costs, fees and expenses of the Trustee, if any, in carrying out the provisions of the Indenture, including reasonable compensation to its agents, attorneys and counsel, and thereafter to the payment of the costs and expenses of the Owners in providing for the declaration of such Event of Default, including reasonable compensation to their agents, attorneys and counsel;

Second, upon presentation of the several 2021 Bonds, and the stamping thereon of the amount of the payment if only partially paid or upon the surrender thereof if fully paid, to the payment of the whole amount then owing and unpaid upon the 2021 Bonds for interest and principal, with interest on the overdue interest and principal at the rate borne by such 2021 Bonds, and in case such money will be insufficient to pay in full the whole amount so owing and unpaid upon the 2021 Bonds, then to the payment of such interest, principal and interest on overdue interest and principal without preference or priority among such interest, principal and interest on overdue interest and principal, ratably to the aggregate of such interest, principal and interest on overdue interest and principal.

Institution of Legal Proceedings by Trustee

If one or more of the Events of Default happens and continues, the Trustee in its discretion may, and will, at the direction of the Owners of a majority in aggregate principal amount of the 2021 Bonds then

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Outstanding, and upon being indemnified to its satisfaction therefor, proceed to protect or enforce its rights or the rights of the Owners of the 2021 Bonds under the Indenture by a suit in equity or action at law, either for the specific performance of any covenant or agreement contained in the Indenture, or in aid of the execution of any power therein granted, or by mandamus or other appropriate proceeding for the enforcement of any other legal or equitable remedy as will be deemed most effectual in support of any of its rights and duties under the Indenture.

Remedies Not Exclusive

No remedy in the Indenture conferred upon or reserved to the Owners is intended to be exclusive of any other remedy, and every such remedy will be cumulative and will be in addition to every other remedy given under the Indenture or hereafter existing, at law or in equity or by statute or otherwise, and may be exercised without exhausting and without regard to any other remedy conferred by the Law or any other law.

Discharge of 2021 Bonds

If the District will pay or cause to be paid, or there will otherwise be paid, to the Owners of all Outstanding 2021 Bonds the interest thereon and the principal thereof and the redemption premiums, if any, thereon at the times and in the manner stipulated therein and in the Indenture, then the Owners of such 2021 Bonds will cease to be entitled to the pledge of Electric System Revenues and the other funds provided in the Indenture, and all agreements, covenants and other obligations of the District to the Owners of such 2021 Bonds under the Indenture will thereupon cease, terminate and become void and be discharged and satisfied.

Any Outstanding 2021 Bonds will prior to the scheduled maturity dates thereof be deemed to have been paid within the meaning of and with the effect expressed in the preceding paragraph (except that the District will remain liable for the payment of such 2021 Bonds, but only from the money or Federal Securities deposited with the Trustee as provided in the Indenture) if (1) there will have been deposited with the Trustee either money in an amount which will be sufficient or Federal Securities which are not subject to redemption prior to maturity (including any Federal Securities issued or held in book-entry form on the books of the Department of Treasury of the United States of America) the interest on and the principal of which when paid will provide money which, together with the money, if any, deposited with the Trustee at the same time, will be sufficient to pay when due the interest to become due on such 2021 Bonds on and prior to the maturity dates thereof or the redemption dates thereof and the principal of and the redemption premiums, if any, on such 2021 Bonds on the maturity dates thereof or the redemption dates thereof, (2) there will be provided to the District a verification report from an independent nationally recognized certified public accountant stating its opinion as to the sufficiency of the moneys or Federal Securities deposited with the Trustee or the escrow bank to pay and discharge the principal of, premium, if any, and interest on all Outstanding 2021 Bonds to be defeased in accordance with the Indenture, as and when the same will become due and payable, and an Opinion of Counsel (which may rely upon the opinion of the certified public accountant) to the effect that the 2021 Bonds being defeased have been legally defeased in accordance with the Indenture and any applicable Supplemental Indenture, and (3) the District will have given the Trustee (in form satisfactory to the Trustee) irrevocable instructions to mail, as soon as practicable, a notice to the Owners of such Bonds that the deposit required by clause (1) of this paragraph has been made with the Trustee and that such 2021 Bonds are deemed to have been paid in accordance with the Indenture, and stating the maturity dates thereof or the redemption dates thereof upon which money is to be available for the payment of the principal of and the redemption premiums, if any, on such 2021 Bonds; provided, that no Federal Securities or money deposited with the Trustee pursuant to the Indenture (nor any interest on or principal payments of such Federal Securities) will be withdrawn or used for any purpose other than, and such Federal Securities and money will be held in trust for, the payment of the interest on and the principal of and the redemption premiums, if any, on such 2021 Bonds as provided in the Indenture, except that any money received from such interest on or principal payments of such Federal Securities deposited with the Trustee which is not then needed for the foregoing purpose will, to the extent practicable, be reinvested as specified in a Written Order of the District filed with the Trustee in Federal Securities maturing at the times and in the amounts sufficient to pay when due the interest on and the principal

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of and the redemption premiums, if any, on such 2021 Bonds on and prior to such maturity dates thereof or redemption dates thereof, and all interest earned from such reinvestments will be deposited in the Revenue Fund.

Unclaimed Money

Anything contained in the Indenture to the contrary notwithstanding, any money held by the Trustee in trust for the payment and discharge of the interest on or the principal of or the redemption premiums, if any, on any of the 2021 Bonds which remains unclaimed for 2 years after the date when such payments have become due and payable, if such money was held by the Trustee at such date, or for 2 years after the date of deposit of such money if deposited with the Trustee after the date when such payments became due and payable, will be repaid by the Trustee to the District as its absolute property and free from trust, and the Trustee will thereupon be released and discharged with respect thereto and the Owners will look only to the District for the making of such payments; provided, that before being required to make any such payment to the District, the Trustee will mail by first class mail to the Owners of such 2021 Bonds (at the expense of the District) at their addresses as they appear in the registration books maintained by the Trustee pursuant to the Indenture a notice that such money remains unclaimed and that, after a date named in such notice, which date will not be less than 30 days after the date of the mailing of such notice, the balance of such money then unclaimed will be returned to the District.

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APPENDIX D

BOOK-ENTRY ONLY SYSTEM

General

The Depository Trust Company (“DTC”), New York, New York will act as securities depository for the 2021 Bonds. The 2021 Bonds will be issued as fully-registered securities certificates 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 2021 Bond will be delivered for each maturity of the 2021 Bonds, in the aggregate principal amount of such maturity, and will be deposited with DTC.

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 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post- trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing Corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a S&P rating of AA+. The DTC Rules applicable to DTC’s participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. The information on such website is not incorporated herein by reference.

Purchases of the 2021 Bonds under the DTC book-entry system must be made by or through Direct Participants, which will receive a credit for the 2021 Bonds on DTC’s records. The ownership interest of each actual purchaser of each 2021 Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the 2021 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the 2021 Bonds, except in the event that use of the book-entry system for the 2021 Bonds is discontinued.

To facilitate subsequent transfers, all 2021 Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co, or such other name as may be requested by an authorized representatives of DTC. The deposit of 2021 Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the 2021 Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such 2021 Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

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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 the 2021 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the 2021 Bonds, such as redemptions, defaults and proposed amendments to the Indenture. For example, Beneficial Owners of 2021 Bonds may wish to ascertain that the nominee holding the 2021 Bonds 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 bond registrar and request that copies of notices be provided directly to them.

Redemption notices (if applicable) shall be sent to DTC. If less than all of the 2021 Bonds within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.

Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the 2021 Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the District as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the 2021 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Principal, premium, if any, and interest payments with respect to the 2021 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the District or the Trustee, on each payment date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owner will be governed by standing instructions and customer 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 Trustee or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC, is the responsibility of the District or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be responsibility of Direct and Indirect Participants.

DTC may discontinue providing its services as depository with respect to the 2021 Bonds at any time by giving reasonable notice to the District or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, 2021 Bonds are required to be printed and delivered.

The District may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, certificates will be printed and delivered.

The foregoing description concerning DTC and DTC’s book-entry system is based solely on information furnished by DTC. No representation is made herein by the District or the Underwriter as to the accuracy or completeness of such information, and the District and the Underwriter take no responsibility for the accuracy or completeness thereof.

Discontinuance of DTC Services

In the event that (a) DTC determines not to continue to act as securities depository for the 2021 Bonds or (b) the District determines to remove DTC from its functions as a depository, DTC’s role as securities depository for the 2021 Bonds and use of the book-entry system will be discontinued. If the District fails to select a qualified securities depository to replace DTC, the District will cause the Trustee to execute and deliver new 2021 Bonds in fully registered form in such denominations and numbered in the manner determined by the Trustee and registered in the names of such persons as are requested in a written request of

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the District. The Trustee shall not be required to deliver such new 2021 Bonds within a period of less than 60 days from the date of receipt of such written request of the District. Upon such registration, such persons in whose names the 2021 Bonds are registered will become the registered owners of the 2021 Bonds for all purposes.

In the event that the book-entry system is discontinued, the following provisions would also apply: (a) the transfer or exchange of any 2021 Bonds may be registered on the books maintained by the Trustee under the Indenture for such purpose by the person in whose name it is registered, in person or by his or her duly authorized attorney, upon payment by the Owner requesting such transfer or exchange of any tax or other governmental charge required to be paid with respect to such transfer or exchange and upon the surrender of such 2021 Bond for cancellation accompanied by a duly executed written instrument of transfer or exchange in a form acceptable to the Trustee; (b) no transfer or exchange of 2021 Bonds shall be required to be made after the fifteenth day of the month preceding an Interest Payment Date (the “record date”) and prior to the Interest Payment Date or during the period commencing fifteen Business Days preceding the giving of any notice of redemption and ending on the date such notice is given; (c) all interest payments on the 2021 Bonds will be made on the Interest Payment Dates therefor as provided in the Indenture to the person whose name appears on the registration books maintained by the Trustee as the Owner thereof at the close of business on the record date next preceding the Interest Payment Date, such interest to be paid by check mailed by first-class mail on the Interest Payment Date to such registered Owner at his or her address as it appear on such books, except in the case of an Owner of at least $1,000,000 in aggregate principal amount of 2021 Bonds the Outstanding, payment shall be made at such Owner’s option by wire transfer on each Interest Payment Date of immediately available funds to an account in a bank or trust company or savings bank that is a member of the Federal Reserve System and that is located in the United States of America according to written instructions given by such Owner to the Trustee by the applicable record date; and (d) all payments of principal and any premium on the 2021 Bonds will be made to the person whose name appears in the registration books maintained by the Trustee as the registered Owner thereof, such principal and redemption premiums, if any, to be paid upon surrender of the 2021 Bonds at the principal corporate trust office of the Trustee at maturity or upon prior redemption.

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APPENDIX E

FORM OF CONTINUING DISCLOSURE CERTIFICATE

This Continuing Disclosure Certificate (the “Disclosure Certificate”), dated ______, 2021, is executed and delivered by the Modesto Irrigation District (the “District”) in connection with the issuance of $______aggregate principal amount of Modesto Irrigation District Electric System Refunding Revenue Bonds, Series 2021 (the “Bonds”). The Bonds are being issued pursuant to the Indenture, dated as of April 1, 2021 (the “Indenture”), by and between the District and Wells Fargo Bank, National Association, as trustee (the “Trustee”). The District covenants and agrees as follows:

SECTION 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the District for the benefit of the Owners and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5).

SECTION 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section 2, the following capitalized terms shall have the following meanings:

“Annual Report” shall mean any Annual Report provided by the District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate.

“Beneficial Owner” shall mean any person which has or shares the power, directly or indirectly, to make investment decisions concerning ownership of any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries).

“Disclosure Representative” shall mean the Treasurer of the District or his or her designee, or such other officer or employee as the District shall designate in writing to the Dissemination Agent from time to time.

“Dissemination Agent” shall mean Hilltop Securities Inc., or any successor Dissemination Agent designated in writing by the District and which has filed with the District a written acceptance of such designation.

“Financial Obligation” shall mean, for purposes of the Listed Events set out in Section 5(a)(10) and Section 5(b)(8), a (i) debt obligation; (ii) derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (iii) guarantee of (i) or (ii). The term “Financial Obligation” shall not include municipal securities (as defined in the Securities Exchange Act of 1934, as amended) as to which a final official statement (as defined in the Rule) has been provided to the MSRB consistent with the Rule.

“Fiscal Year” shall mean the period beginning on January 1 of each year and ending on the next succeeding December 31, or any other 12-month or 52-week period hereafter selected by the District, with notice of such change in fiscal year to be provided as set forth herein.

“Listed Events” shall mean any of the events listed in Section 5(a) or 5(b) of this Disclosure Certificate.

“MSRB” shall mean the Municipal Securities Rulemaking Board or any other entity designated or authorized by the SEC to receive reports or notices pursuant to the Rule. Until otherwise designated by the MSRB or the SEC, filings with the MSRB are to be made through the Electronic Municipal Market Access (EMMA) website of the MSRB, currently located at http://emma.msrb.org.

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“Participating Underwriter” shall mean Citigroup Global Markets Inc., the underwriter of the Bonds required to comply with the Rule in connection with the offering of the Bonds.

“Rule” shall mean Rule 15c2-12(b)(5) adopted by the SEC under the Securities Exchange Act of 1934, as the same may be amended from time to time.

“SEC” shall mean the Securities and Exchange Commission or any successor agency thereto.

SECTION 3. Provision of Annual Reports.

(a) The District shall, or shall cause the Dissemination Agent to, not later than June 30 of the succeeding year, commencing with the report for the Fiscal Year ending December 31, 2020, provide to the MSRB an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. Each Annual Report must be submitted in electronic format in the manner and accompanied by such identifying information as is prescribed by the MSRB, and may include by reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the District may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date. If the District’s Fiscal Year changes, the District shall give notice of such change in the same manner as for a Listed Event under Section 5(e) hereof. The District 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 it hereunder. The Dissemination Agent may conclusively rely upon such certification of the District and shall have no duty or obligation to review such Annual Report.

(b) Not later than fifteen (15) Business Days prior to the date specified in subsection (a) for providing the Annual Report to the MSRB, the District shall provide its Annual Report to the Dissemination Agent. If by fifteen (15) Business Days prior to such date, the Dissemination Agent has not received a copy of the Annual Report from the District, the Dissemination Agent shall contact the Disclosure Representative to determine if the District is in compliance with subsection (a).

(c) If the Dissemination Agent is unable to verify that an Annual Report of the District has been provided to the MSRB by the date required in subsection (a), the Dissemination Agent shall send a notice, in electronic format, to the MSRB, such notice to be in substantially the form attached hereto as Exhibit A.

(d) Unless the District shall have informed the Dissemination Agent in writing that the District has provided its Annual Report directly to the MSRB, the District shall inform the Dissemination Agent and (if the Dissemination Agent is not the Trustee) the Trustee in writing that its Annual Report has been provided to the MSRB pursuant to this Disclosure Certificate and stating the date it was provided. The Dissemination Agent shall, to the extent the District has provided the Dissemination Agent with the Annual Report, inform the District and the Trustee (if the Dissemination Agent is not the Trustee) in writing that the Annual Report has been provided to the MSRB pursuant to this Disclosure Certificate and stating the date it was provided. The Dissemination Agent shall have no responsibility for the content of any Annual Report or any notice prepared by the District pursuant to this Disclosure Certificate.

SECTION 4. Content of Annual Reports.

(a) The District’s Annual Report shall contain or include by reference the following:

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(i) Updated information comparable to the information in the chart entitled “MODESTO IRRIGATION DISTRICT POWER SUPPLY RESOURCES” as it appears in the Official Statement, dated ______, 2021, relating to the Bonds (the “Official Statement”);

(ii) Updated information, to the extent deemed by the District to be not proprietary information, comparable to the information in the chart entitled “MODESTO IRRIGATION DISTRICT LARGEST ELECTRIC CUSTOMERS (as of December 31, 2020)” as it appears in the Official Statement;

(iii) Updated information comparable to the information in the chart entitled “MODESTO IRRIGATION DISTRICT CUSTOMERS, ENERGY SALES, BILLED REVENUES AND DEMAND” as it appears in the Official Statement;

(iv) Information relating to debt service coverage with respect to the Bonds; and

(v) The audited financial statements of the District for the prior Fiscal Year, prepared in accordance with generally accepted accounting principles for governmental enterprises as prescribed from time to time by any regulatory body with jurisdiction over the District and by the Governmental Accounting Standards Board. If the District’s audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available.

(b) Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the District or public entities related thereto, which have been submitted to the MSRB or the SEC. If the document included by reference is a final official statement, it must be available from the MSRB. The District shall clearly identify each such other document so included by reference.

SECTION 5. Reporting of Significant Events.

(a) Pursuant to the provisions of this Section 5, the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, not later than ten (10) business days after the occurrence of the event:

1. Principal and interest payment delinquencies;

2. Unscheduled draws on debt service reserves reflecting financial difficulties;

3. Unscheduled draws on credit enhancements reflecting financial difficulties;

4. Substitution of credit or liquidity providers, or their failure to perform;

5. Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability or Notices of Proposed Issue (IRS Form 5701- TEB);

6. Tender offers;

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7. Defeasances;

8. Rating changes;

9. Bankruptcy, insolvency, receivership or similar event of the District; and

10. Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a Financial Obligation of the District, any which reflect financial difficulties.

Note: for the purposes of the event identified in subparagraph (9), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for the District in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the District, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the District.

(b) Pursuant to the provisions of this Section 5, the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material, not later than ten (10) business days after the occurrence of the event:

1. Non-payment related defaults;

2. Unless described in paragraph 5(a)(5), other material notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other material events affecting the tax status of the Bonds;

3. Modifications to rights of Owners;

4. Bond calls;

5. Release, substitution, or sale of property securing repayment of the Bonds;

6. The consummation of a merger, consolidation, or acquisition involving the District or the sale of all or substantially all of the assets of the District, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms;

7. Appointment of a successor or additional trustee or the change of name of a trustee; and

8. Incurrence of a Financial Obligation of the District, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a Financial Obligation of the District, any of which affect Owners.

(c) The Dissemination Agent shall, within two (2) Business Days of obtaining at its corporate trust office actual knowledge of the occurrence of any of the Listed Events, contact the Disclosure Representative, inform such person of the event, and request that the District promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to subsection

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(e); provided, however, that the failure by the Dissemination Agent to so notify the Disclosure Representative and make such request shall not relieve the District of its duty to report any of the Listed Events as required by this Section 5 nor impose any liability upon the Dissemination Agent.

(d) Whenever the District obtains knowledge of the occurrence of a Listed Event described in subsection (b), whether because of a notice from the Dissemination Agent pursuant to subsection (c) or otherwise, the District shall as soon as possible determine if such event would be material under applicable federal securities laws.

(e) If the District learns of the occurrence of a Listed Event described in subsection (a), or determines that knowledge of a Listed Event described in subsection (b) would be material under applicable federal securities laws, the District shall within ten (10) business days of occurrence instruct the Dissemination Agent to a notice of such occurrence with the MSRB in electronic format, accompanied by such identifying information as is prescribed by the MSRB. If the Dissemination Agent has been instructed by the District to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the MSRB. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(7) and (b)(3) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Owners of affected Bonds pursuant to the Indenture.

(f) The District intends to comply with the Listed Events described in Section 5(a)(10) and Section 5(b)(8), and the definition of “Financial Obligation” in Section 1, with reference to the Rule, any other applicable federal securities laws and the guidance provided by the Securities and Exchange Commission in Release No. 34-83885 dated August 20, 2018 (the “2018 Release”), and any further amendments or written guidance provided by the Securities and Exchange Commission or its staff with respect the amendments to the Rule effected by the 2018 Release.

SECTION 6. Termination of Reporting Obligation. The obligations of the District and the Dissemination Agent under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds and with respect to any Bonds upon the maturity, defeasance, prior redemption or payment in full of such Bonds.

SECTION 7. Dissemination Agent. The District 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 such Dissemination Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be Hilltop Securities Inc.

SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the District may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied:

(a) If the amendment or waiver relates to the provisions of Sections 3(a), 4, 5(a) or 5(b), 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 Bonds, or the type of business conducted;

(b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and

(c) The amendment or waiver either (i) is approved by the Owners of the Bonds in the same manner as provided in the Indenture with respect to amendments to the Indenture which

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require the consent of Owners, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Owners or Beneficial Owners of the Bonds.

In the event of any amendment or waiver of a provision of this Disclosure Certificate, the District shall describe such amendment in its next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the District. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event, and (ii) the Annual Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles.

SECTION 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the District chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the District 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 10. Default. In the event of a failure of the District or the Dissemination Agent to comply with any provision of this Disclosure Certificate, the Trustee may (and, at the request of any Participating Underwriter or the Owners of at least 25% aggregate principal amount of Outstanding Bonds, shall), or any Owner or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District or the Dissemination Agent, as the case may be, 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 Indenture, and the sole remedy under this Disclosure Certificate in the event of any failure of the District or the Dissemination Agent to comply with this Disclosure Certificate shall be an action to compel performance.

SECTION 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent (if other than the Trustee or the Trustee in its capacity as Dissemination Agent) shall have only such duties as are specifically set forth in this Disclosure Certificate, and the District agrees to indemnify and save the Dissemination Agent, and its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it 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 obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. The Dissemination Agent shall receive reasonable compensation for its services as dissemination agent, and reimbursement for all expenses incurred by it, under this Disclosure Agreement.

SECTION 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District, the Dissemination Agent, the Trustee, the Participating Underwriter and Owners and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. No person shall have any right to commence any action against the Dissemination Agent seeking any remedy other than to compel specific performance of this Disclosure Certificate. The Dissemination Agent shall not be liable under any circumstances for monetary damages to any person for any breach of this Disclosure Certificate.

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SECTION 13. California Law. This Disclosure Certificate shall be construed and governed in accordance with the laws of the State of California.

SECTION 14. Notices. All written notices to be given hereunder shall be given in person or by mail to the party entitled thereto at its address set forth below, or at such other address as such party may provide to the other parties in writing from time to time, namely:

To the District: Modesto Irrigation District 1231 Eleventh Street Modesto, California 95354 Attention: General Manager Fax: (209) 526-7574

To the Dissemination Agent: Hilltop Securities Inc. 1201 Elm Street, Suite 3500 Dallas, Texas 75270 Attention: Vice President, Continuing Disclosure Fax: (214) 953-4050

The Dissemination Agent and the District may, by notice given hereunder, designate any further or different addresses to which subsequent notices, certificates or other communications shall be sent. Unless specifically otherwise required by the context of this Disclosure Certificate, any notices required to be given hereunder to the Dissemination Agent or the District may be given by any form of electronic transmission capable of producing a written record. Each such party shall file with the Dissemination Agent information appropriate to receiving such form of electronic transmission.

SECTION 15. Electronic Signatures. The District agrees that the transaction consisting of this Disclosure Certificate may be conducted by electronic means. The District agrees, and acknowledges that it is the District’s intent, that if the District signs this Disclosure Certificate using an electronic signature, it is signing, adopting and accepting this Disclosure Certificate and that signing this Disclosure Certificate using an electronic signature is the legal equivalent of having placed its handwritten signature on this Disclosure Certificate on paper. The District acknowledges that it is being provided with an electronic or paper copy of this Disclosure Certificate in a usable format.

IN WITNESS WHEREOF, this Disclosure Certificate is executed and delivered by the District as of the date set forth above.

MODESTO IRRIGATION DISTRICT

By: Treasurer and Assistant General Manager, Finance

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EXHIBIT A

NOTICE OF FAILURE TO FILE ANNUAL REPORT

Name of Municipal Entity: Modesto Irrigation District

Name of Issue: $______Modesto Irrigation District Electric System Refunding Revenue Bonds, Series 2021

Date of Issuance: April ___, 2021

NOTICE IS HEREBY GIVEN that the Modesto Irrigation District has not provided an Annual Report with respect to the above-named Bonds as required by the Continuing Disclosure Certificate, dated April ___, 2021, executed by the District. The Modesto Irrigation District anticipates that the Annual Report will be filed by ______.

Dated: ______

HILLTOP SECURITIES INC., on behalf of the Modesto Irrigation District

IFI

cc: Modesto Irrigation District

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APPENDIX F

PROPOSED FORM OF OPINION OF BOND COUNSEL

[Closing Date]

Modesto Irrigation District Modesto, California

Modesto Irrigation District Electric System Refunding Revenue Bonds, Series 2021 (Final Opinion)

Ladies and Gentlemen:

We have acted as bond counsel to the Modesto Irrigation District (the “Issuer”) in connection with the issuance of $______aggregate principal amount of Modesto Irrigation District Electric System Refunding Revenue Bonds, Series 2021 (the “Bonds”), issued pursuant to an indenture, dated as of April 1, 2021 (the “Indenture”), between the Issuer and Wells Fargo Bank, National Association, as trustee (the “Trustee”). Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Indenture.

In such connection, we have reviewed the Indenture, the Tax Certificate, dated the date hereof (the “Tax Certificate”), opinions of counsel to the Issuer and the Trustee, certificates of the Issuer, the Trustee and others, and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein.

The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after original delivery of the Bonds on the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after original delivery of the Bonds on the date hereof. Accordingly, this letter speaks only as of its date and is not intended to, and may not, be relied upon or otherwise used in connection with any such actions, events or matters. We disclaim any obligation to update this letter. We have assumed the genuineness of all documents and signatures provided to us and the due and legal execution and delivery thereof by, and validity against, any parties other than the Issuer. We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents, and of the legal conclusions contained in the opinions, referred to in the second paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Indenture and the Tax Certificate, including (without limitation) covenants and agreements compliance with which is necessary to assure that future actions, omissions or events will not cause interest on the Bonds to be included in gross income for federal income tax purposes. We call attention to the fact that the rights and obligations under the Bonds, the Indenture and the Tax Certificate and their enforceability may be subject to bankruptcy, insolvency, receivership, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against irrigation districts in the State of California. We express no opinion with respect to any indemnification, contribution, liquidated damages, penalty (including any remedy deemed to constitute or having the effect of a penalty), right of set- off, arbitration, judicial reference, choice of law, choice of forum, choice of venue, non-exclusivity of remedies, waiver or severability provisions contained in the foregoing documents, nor do we express any opinion with respect to the state or quality of title to or interest in any of the assets described in or as subject to

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the lien of the Indenture or the accuracy or sufficiency of the description contained therein of, or the remedies available to enforce liens on, any such assets. Our services did not include financial or other non-legal advice. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement or other offering material relating to the Bonds and express no opinion with respect thereto.

Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions:

1. The Bonds constitute the valid and binding limited obligations of the Issuer.

2. The Indenture has been duly executed and delivered by, and constitutes the valid and binding obligation of, the Issuer. The Indenture creates a valid pledge, to secure the payment of the principal of and interest on the Bonds, of the Revenues and any other amounts held by the Trustee in any fund or account established pursuant to the Indenture, except the Rebate Fund, subject to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth in the Indenture.

3. The Bonds are not a lien or charge upon the funds or property of the Issuer except to the extent of the aforementioned pledge. Neither the faith and credit nor the taxing powers of the Issuer, the State of California nor any political subdivision thereof is pledged to the payment of principal of or interest on the Bonds.

4. Interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. Interest on the Bonds is not a specific preference item for purposes of the federal alternative minimum tax. We express no opinion regarding other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Bonds.

Faithfully yours,

ORRICK, HERRINGTON & SUTCLIFFE LLP

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APPENDIX G

DISTRICT DEBT SERVICE SCHEDULE

Year 2021 Bonds Outstanding Electric System Obligations(1) Total Ending Debt December 31 Principal Interest Total(3) Principal Interest Total(2) Service(2) 2021 $ 34,290,000 $ 20,410,345 $ 54,700,345 2022 33,175,000 22,054,098 55,229,098 2023 35,695,000 20,407,160 56,102,160 2024 36,415,000 18,684,710 55,099,710 2025 37,570,000 16,897,060 54,467,060 2026 29,060,000 15,046,460 44,106,460 2027 21,510,000 13,622,460 35,132,460 2028 22,540,000 12,577,110 35,117,110 2029 23,635,000 11,481,460 35,116,460 2030 24,780,000 10,344,860 35,124,860 2031 25,945,000 9,129,085 35,074,085 2032 14,425,000 7,831,835 22,256,835 2033 13,940,000 7,166,685 21,106,685 2034 14,685,000 6,422,133 21,107,133 2035 15,445,000 5,637,672 21,082,672 2036 16,300,000 4,812,371 21,112,371 2037 17,240,000 3,875,821 21,115,821 2038 18,235,000 2,886,540 21,121,540 2039 19,285,000 1,841,558 21,126,558 2040 11,840,000 737,905 12,577,905 Total(3) $466,010,000 $211,867,332 $677,877,332

(1) Includes the Refunded 2011 Bonds. Outstanding Electric System Obligations include outstanding MIDFA Bonds and District Refunding Bonds as described in the Official Statement. Excludes Obligation Service on joint powers agency obligations which constitute Maintenance and Operation Costs. Includes gross interest payable before application of any Direct BABs Subsidy Payments received in connection with the outstanding 2010A MIDFA Bonds. (2) Totals may not add due to rounding.

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MODESTO IRRIGATION DISTRICT • ELECTRIC SYSTEM REFUNDING REVENUE BONDS, SERIES 2021