Southern California Public Power Authority

This Preliminary Official Statement and the information contained herein are subject to completion or 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 or qualification under the securities laws of such jurisdiction. Authority orachargeagainstitsgeneralcredit.Thehas no taxingpower. provision orlimitationofthe Constitution orstatutesoftheStateCaliforniaandshallnotconstitutenorgiverisetoapecuniary liabilityofthe pledged forthepaymentof2016Bonds.TheBondsshallnot constituteadebtorindebtednessoftheAuthoritywithinmeaningany or anyothermemberoftheAuthority,andneitherfaithcredit northetaxingpowerofanyforegoing(includingAuthority)is conditions providedfortherein. FOR THE2016MEAD-PHOENIXBONDS”herein. cause whatsoever.See“SECURITYANDSOURCESOFPAYMENTFORTHE 2016MEAD-ADELANTOBONDS”and“SECURITYANDSOURCESOFPAYMENT operation oftheMead-AdelantoProjectorMead-PhoenixProject,asapplicable, ortheperformancenonperformancebyanypartyofagreementfor Department’s electricsystem.ThepaymentobligationsoftheProjectParticipant undertheTransmissionServiceContracts(LADWP)arenotcontingentupon herein. PursuanttotheTransmissionServiceContracts(LADWP),suchpayments tobemadebytheProjectParticipantwillconstituteoperatingexpensesof related Mead-AdelantoTransmissionServiceContract(LADWP)orMead-Phoenix(LADWP),asapplicable,morefully described Indenture andMead-PhoenixconsistprimarilyofpaymentstobemadetheAuthoritybyDepartment,asProjectParticipant,pursuant tothe and interest thereon, solely by a pledge and assignmentof the related Revenues and certain other moneys described herein. Revenuesunder the Mead-Adelanto in therespectiveprincipalamountssetforthoninsidecoverhereof.The2016Bondsaresubjecttoredemptionpriormaturityasdescribedherein. commencing January 1, 2017,andwillbecalculatedonthebasisofa360-dayyearcomprisedtwelve30-daymonths.The2016Bondsmaturedates ofeachyear, andJuly 1 interest attherespectiveratessetforthoninsidecoverhereof.Interest2016BondswillbepayablesemiannuallyJanuary 1 ENTRY ONLYSYSTEM”herein. interest, DTCisobligatedtoremitsuchpaymentsitsparticipantsforsubsequentdisbursementthebeneficialownersof2016Bonds. See“BOOK- and premium,ifany,interestonthe2016BondsarepayabledirectlytoDTCbyTrustee.Uponreceiptofpaymentssuchprincipal, ifany,and book-entry formonly.Purchasersofthe2016Bondswillnotreceivesecuritiescertificatesrepresentingtheirinterestinpurchased. Principalof Trust Company,NewYork,York(“DTC”).DTCwillactassecuritiesdepositoryofthe2016Bonds.IndividualpurchasesBonds bemadein PROJECT” herein. of 100%thecapabilityAuthorityInterest(LADWP)inrespectiveprojects.See“THEMEAD-ADELANTOPROJECT”andMEAD-PHOENIX Contract (LADWP),”respectively,andtogether,the“TransmissionServiceContracts(LADWP)”),AuthoritywillselltoDepartmentanentitlement touse service contracts,eachdatedasofMarch17,2016(the“Mead-AdelantoTransmissionServiceContract(LADWP)”andthe“Mead-Phoenix Service assist itinbringingadditionalrenewablepowerintoitselectricsystemandmeetfutureportfoliostandardgoals.Pursuanttoseparatetransmission “Project Participant”)inmeetingitsfuturepowerneedsandprovideitwithadditionaltransmissioncapabilityfortransactionsothers,includingparticularly, to are beingacquiredbytheAuthorityinorderto,amongother things, assist the Departmentof Water andPowerof The CityofLos Angeles (the“Department” orthe Adelanto ProjectandMead-PhoenixbeingacquiredbytheAuthority(eachreferredtohereinas“AuthorityInterest(LADWP)”inrespective project) related facilities,asmorefullydescribedherein,and(ii) pay thecostsofissuance2016Mead-PhoenixBonds. TheadditionalownershipinterestsintheMead- and interests)intheMead-PhoenixProject,a256-mile,500-kV,alternatingcurrenttransmissionlineextendingbetweencentralArizonasouthern Nevada, and thecostsofacquisitionanadditionalownershipinterest(andassociatedparticipationshareandrelated rights the “Indentures”),toprovidefunds(i) pay fromtheAuthoritytoTrustee,assupplementedandamended (the“Mead-PhoenixIndenture,”andtogetherwiththeMead-AdelantoIndenture, of May 1, 2016, Bonds” and,togetherwiththe2016Mead-AdelantoBonds,“2016Bonds”)arebeingissuedbyAuthoritypursuanttoaseparateIndentureofTrust, datedas (the“2016Mead-Phoenix issuance ofthe2016Mead-AdelantoBonds.TheMead-PhoenixProject,AuthorityInterest(LADWP),RevenueBonds,Series A thecostsof transmission lineextendingbetweensouthernNevadaandCalifornia,relatedfacilities,asmorefullydescribedherein,(ii) pay ownership interest(andassociatedparticipationshareandrelatedrightsinterests)intheMead-AdelantoProject,a202-mile,500-kV,alternatingcurrent thecostsofacquisitionanadditional as trustee(the“Trustee”),supplementedandamended“Mead-AdelantoIndenture”),toprovidefunds(i) pay California Public Power Authority (the “Authority”) pursuant to an Indenture of Trust, dated as of May 1, 2016, from the Authority to U.S. Bank National Association, Capitalized termsusedonthiscoverpagenototherwisedefinedshallhavethemeaningssetforthherein. issues. InvestorsareadvisedtoreadtheentireOfficialStatementobtaininformationessentialmakinganinformedinvestmentdecision. available fordeliverythroughthefacilities ofDTCinNewYork,byFastAutomatedSecuritiesTransfer (FAST)onoraboutMay25,2016. Management, Inc.isservingasFinancial AdvisortotheAuthorityinconnectionwithissuanceof2016Bonds. Itisexpectedthatthe2016Bondswillbe Authority byitsGeneralCounsel,Richard J.Morillo,Esq.,andfortheUnderwritersbytheircounsel,SidleyAustin LLP,SanFrancisco,California.PublicFinancial Los Angeles,California,andCurlsBartling P.C.,Oakland,California,Co-BondCounsel,andcertainotherconditions. Certainlegalmatterswillbepassedonforthe NEW ISSUES–FULLBOOK-ENTRYONLY * Preliminary, subjecttochange. Dated: May__,2016 Dated: DateofDelivery “TAX MATTERS”herein. thereof forfederalincometaxpurposesandwillnotbetreatedasanitemofpreferencethealternativeminimumtax.See and, assumingcompliancewiththetaxcovenantsdescribedherein,intereston2016Bondswillbeexcludablefromgrossincomeofowners Mead-Adelanto Project,AuthorityInterest(LADWP), The 2016BondsarenotobligationsoftheStateCalifornia,anypublic agencythereof(otherthantheAuthority),ProjectParticipant The Authority has reserved its right under each of the Indentures to issue additional parity bonds thereunder and to enter into parity swaps on the terms and The 2016Bondsarespecial,limitedobligationsoftheAuthoritypayablesolelyfromandsecured,astopaymentprincipalorredemptionpricethereof, The 2016Bondswillbeissuedindenominationsof$5,000andanyintegralmultiplethereof.datedtheirdatedelivery bear The 2016Bondsarebeingissuedasfullyregisteredbondsand,whenissued,willbeinthenameofCede&Co.,nomineeDepository (the“2016Mead-AdelantoBonds”)arebeingissuedbySouthern The Mead-AdelantoProject,AuthorityInterest(LADWP),RevenueBonds,2016Series A This coverpagecontainscertaininformationforgeneralreferenceonly.Itisnotintendedtobeasummaryofthesecurityor The 2016Bondsareofferedwhen,asand ifissuedandreceivedbytheUnderwriters,subjecttoapproval of legalitybyNortonRoseFulbrightUSLLP, In theopinionofCo-BondCounsel,underexistinglaw,intereston2016BondsisexemptfrompersonalincometaxesStateCalifornia Revenue Bonds,2016Series A RBC Capital Markets

$27,440,000 S out (a publicentityorganizedunderthelawsofStateCalifornia) PRELIMINARY OFFICIAL STATEMENT DATED APRIL 29, 2016 h ern *

alifornia Maturity Schedules (see insidecover) $49,710,000 P ublic Mead-Phoenix Project,AuthorityInterest(LADWP), * P ower Revenue Bonds,2016Series A A Ramirez &Co., Inc. ut h $22,270,000 ority Due: July1,asshownoninsidecover Ratings: Standard&Poor’s:“AA-” * (See “RATINGS”herein.) Moody’s: “Aa2” termsofthese

Maturity Schedules*

$27,440,000* Mead-Adelanto Project, Authority Interest (LADWP), Revenue Bonds, 2016 Series A Due Principal Interest Price or July 1* Amount Rate Yield CUSIP† 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

$22,270,000* Mead-Phoenix Project, Authority Interest (LADWP), Revenue Bonds, 2016 Series A

Due Principal Interest Price or July 1* Amount Rate Yield CUSIP† 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

* Preliminary, subject to change. † CUSIP® is a registered trademark of the American Bankers Association. CUSIP data herein are provided by CUSIP Global Services, managed by S&P Capital IQ on behalf of the American Bankers Association. CUSIP numbers have been assigned by an independent company not affiliated with the Authority, the Project Participant or the Underwriters and are included solely for the convenience of the holders of the 2016 Bonds. None of the Authority, the Project Participant or the Underwriters is responsible for the selection or use of these CUSIP numbers and no representation is made as to their correctness on the 2016 Bonds or as indicated above. The CUSIP number for a specific maturity is subject to being changed after the delivery of the 2016 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 2016 Bonds.

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY

BOARD OF DIRECTORS

Dukku Lee (Anaheim) Stephen M. Zurn (Glendale) George Morrow (Azusa) Kevin E. Kelley (Imperial) Fred H. Mason (Banning) Marcie L. Edwards (Los Angeles) Ronald E. Davis (Burbank) Shari M. Thomas (Pasadena) Art Gallucci (Cerritos) Girish Balachandran (Riverside) David X. Kolk (Colton) Carlos Fandino (Vernon)

MANAGEMENT

Fred H. Mason – President Girish Balachandran –Vice President Ann M. Santilli – Secretary Mario C. Ignacio – Assistant Secretary Bill D. Carnahan – Executive Director, Treasurer/Auditor and Assistant Secretary Kevin Crawford – Chief Financial Officer Richard J. Morillo – General Counsel Daniel S. Hashimi – Assistant General Counsel

PROJECT PARTICIPANT

Department of Water and Power of The City of Los Angeles

TRUSTEE AND PAYING AGENT FINANCIAL ADVISOR

U.S. Bank National Association Public Financial Management, Inc. Los Angeles, California Los Angeles, California

CO-BOND COUNSEL

Norton Rose Fulbright US LLP Los Angeles, California and Curls Bartling P.C. Oakland, California

No dealer, broker, salesperson or other person has been authorized by the Authority or by the Underwriters to give any information or to make any representations, other than as contained in this Official Statement, and if given or made such other information or representations must not be relied upon as having been authorized by the Authority or the Underwriters. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the 2016 Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale.

This Official Statement is not to be construed as a contract with the purchasers of the 2016 Bonds. Statements contained in this Official Statement that involve estimates, forecasts or matters of opinion, whether or not expressly 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 Authority and the Project Participant, and includes information obtained from other sources which are believed to be reliable. The information and expressions of opinion contained herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Authority or the Project Participant since the date hereof.

The Underwriters have provided the following sentence and paragraph for inclusion in this Official Statement: The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information.

IN CONNECTION WITH THE OFFERING OF THE 2016 BONDS, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICES OF THE 2016 BONDS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking statements.” Such statements are generally identifiable by the terminology used such as “plan,” “project,” “expect,” “anticipate,” “intend,” “believe,” “estimate,” “budget” or other similar words. The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The Authority does not plan to issue any updates or revisions to those forward-looking statements if or when its expectations or events, conditions or circumstances on which such statements are based occur or fail to occur.

This Official Statement, including any supplement or amendment hereto, is intended to be filed with the Municipal Securities Rulemaking Board through the Electronic Municipal Market Access (EMMA) website. The Authority and the Project Participant each 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 2016 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, Securities and Exchange Commission Rule 15c2-12.

TABLE OF CONTENTS Page INTRODUCTION ...... 1 Purpose; Authority for Issuance ...... 1 The Projects and the Authority Interests (LADWP) ...... 2 The Transmission Service Contracts (LADWP) ...... 4 Security and Sources of Payment for the 2016 Bonds ...... 5 The Authority and the Project Participant ...... 6 Continuing Disclosure Undertakings ...... 7 Certain Information; Summaries and References to Documents ...... 7 ESTIMATED SOURCES AND USES OF FUNDS ...... 7 DEBT SERVICE REQUIREMENTS OF THE 2016 BONDS ...... 7 DESCRIPTION OF THE 2016 MEAD-ADELANTO BONDS ...... 8 General ...... 8 Redemption Provisions of the 2016 Mead-Adelanto Bonds ...... 8 DESCRIPTION OF THE 2016 MEAD-PHOENIX BONDS ...... 9 General ...... 9 Redemption Provisions of the 2016 Mead-Phoenix Bonds ...... 9 BOOK-ENTRY ONLY SYSTEM ...... 10 General ...... 10 Discontinuation of the Book-Entry Only System ...... 12 THE MEAD-ADELANTO PROJECT ...... 13 Project Description ...... 13 Proposal for DC Conversion ...... 15 THE MEAD-PHOENIX PROJECT ...... 15 Project Description ...... 15 CURRENT OWNERS OF THE MEAD-ADELANTO PROJECT AND THE MEAD-PHOENIX PROJECT ...... 18 SECURITY AND SOURCES OF PAYMENT FOR THE 2016 MEAD-ADELANTO BONDS ...... 19 Pledge Effected by the Mead-Adelanto Indenture ...... 19 Mead-Adelanto Transmission Service Contract (LADWP) ...... 20 Flow of Funds Under the Mead-Adelanto Indenture ...... 23 Authority Rate Covenant ...... 25 No Funded Debt Service Reserve Account ...... 25 Additional Mead-Adelanto Bonds and Other Obligations ...... 25 SECURITY AND SOURCES OF PAYMENT FOR THE 2016 MEAD-PHOENIX BONDS ...... 26 Pledge Effected by the Mead-Phoenix Indenture ...... 26 Mead-Phoenix Transmission Service Contract (LADWP) ...... 27 Flow of Funds Under the Mead-Phoenix Indenture ...... 30 Authority Rate Covenant ...... 32 No Funded Debt Service Reserve Account ...... 32 Additional Mead-Phoenix Bonds and Other Obligations ...... 32 SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY ...... 33 Formation ...... 33 Organization and Management ...... 33 Other Bond-Financed Projects of the Authority ...... 34

i TABLE OF CONTENTS (continued) Page Other Projects of the Authority Not Financed by Bonds ...... 41 Further Information ...... 42 THE DEPARTMENT OF WATER AND POWER OF THE CITY OF LOS ANGELES ...... 42 DEVELOPMENTS IN THE CALIFORNIA ENERGY MARKETS ...... 43 State Legislation ...... 43 Future Regulation ...... 49 Impact of Developments on the Project Participant ...... 49 OTHER FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY ...... 50 Federal Policy on Cybersecurity ...... 50 Federal Energy Legislation ...... 50 Federal Regulation of Transmission Access ...... 51 Environmental Issues ...... 52 Other Factors ...... 57 CONSTITUTIONAL CHANGES IN CALIFORNIA ...... 58 Proposition 218 ...... 58 Proposition 26 ...... 58 Other Initiatives ...... 59 LITIGATION ...... 59 TAX MATTERS ...... 59 RATINGS ...... 61 UNDERWRITING ...... 62 FINANCIAL ADVISOR ...... 62 INDEPENDENT AUDITORS ...... 62 CERTAIN LEGAL MATTERS...... 62 CERTAIN RELATIONSHIPS ...... 62 CONTINUING DISCLOSURE UNDERTAKINGS FOR THE 2016 BONDS ...... 63 AVAILABLE INFORMATION ...... 64

APPENDIX A – THE PROJECT PARTICIPANT ...... A-1 APPENDIX B – AUDITED FINANCIAL STATEMENTS OF THE DEPARTMENT OF WATER AND POWER OF THE CITY OF LOS ANGELES POWER SYSTEM FOR THE FISCAL YEARS ENDED JUNE 30, 2015 AND JUNE 30, 2014 ...... B-1 APPENDIX C – SUMMARIES OF CERTAIN DOCUMENTS ...... C-1 APPENDIX D – FORMS OF CONTINUING DISCLOSURE RESOLUTIONS FOR THE 2016 BONDS ...... D-1 APPENDIX E – PROPOSED FORM OF CO-BOND COUNSEL OPINION ...... E-1 APPENDIX F – DEBT SERVICE REQUIREMENTS FOR THE 2016 MEAD-ADELANTO BONDS ...... F-1 APPENDIX G – DEBT SERVICE REQUIREMENTS FOR THE 2016 MEAD-PHOENIX BONDS ...... G-1

Official Statement relating to

$49,710,000* Southern California Public Power Authority (a public entity organized under the laws of the State of California)

$27,440,000* $22,270,000* Mead-Adelanto Project, Authority Interest Mead-Phoenix Project, Authority Interest (LADWP), (LADWP), Revenue Bonds, 2016 Series A Revenue Bonds, 2016 Series A

INTRODUCTION

This Introduction is subject in all respects to the more complete information contained elsewhere in this Official Statement, and the offering of the 2016 Bonds (as defined herein) to potential investors is made only by means of the entire Official Statement. Capitalized terms used in this Introduction and not defined herein shall have the respective meanings assigned to them elsewhere in this Official Statement or in the hereinafter-referenced Mead-Adelanto Indenture or Mead-Phoenix Indenture or the Mead- Adelanto Transmission Service Contract (LADWP) or Mead-Phoenix Transmission Service Contract (LADWP), as applicable. See also APPENDIX C – “SUMMARIES OF CERTAIN DOCUMENTS.”

Purpose; Authority for Issuance

This Official Statement (which includes the cover page, the inside cover page, the table of contents and the appendices attached hereto) is furnished by the Southern California Public Power Authority (the “Authority”), a joint powers agency and a public entity organized under the laws of the State of California, to provide information concerning (i) the Mead-Adelanto Project and the corresponding Authority Interest (LADWP) therein and the related $27,440,000* aggregate principal amount of Mead-Adelanto Project, Authority Interest (LADWP), Revenue Bonds, 2016 Series A (the “2016 Mead-Adelanto Bonds”) to be issued by the Authority and (ii) the Mead-Phoenix Project and the corresponding Authority Interest (LADWP) therein and the related $22,270,000* aggregate principal amount of Mead-Phoenix Project, Authority Interest (LADWP), Revenue Bonds, 2016 Series A (the “2016 Mead-Phoenix Bonds”) to be issued by the Authority, all as more fully described herein. The 2016 Mead-Adelanto Bonds and the 2016 Mead-Phoenix Bonds are collectively referred to herein as the “2016 Bonds” and are sometimes referred to herein separately as an “issue” of 2016 Bonds.

The 2016 Bonds are being issued pursuant to the provisions relating to the joint exercise of powers found in Chapter 5 of Division 7 of Title 1 of the Government Code of California, as amended (the “Act”). The 2016 Mead-Adelanto Bonds will be issued under an Indenture of Trust, dated as of May 1, 2016, relating to the Mead-Adelanto Project Authority Interest (LADWP), from the Authority to U.S. Bank National Association, as trustee (the “Trustee”), as supplemented by the First Supplemental Indenture of Trust thereto, dated as of May 1, 2016, providing for the issuance of the 2016 Mead- Adelanto Bonds (as so supplemented, the “Mead-Adelanto Indenture”). The 2016 Mead-Phoenix Bonds will be issued under a separate Indenture of Trust, dated as of May 1, 2016, relating to the Mead-Phoenix Project Authority Interest (LADWP), from the Authority to the Trustee, as supplemented by the First Supplemental Indenture of Trust thereto, dated as of May 1, 2016, providing for the issuance of the 2016 Mead-Phoenix Bonds (as so supplemented, the “Mead-Phoenix Indenture”). The Mead-Adelanto

* Preliminary, subject to change.

Indenture and the Mead-Phoenix Indenture, as the same may be supplemented and amended from time to time as therein permitted, are collectively referred to herein as the “Indentures.”

The Authority Interest (LADWP) in the Mead-Adelanto Project and the Authority Interest (LADWP) in the Mead-Phoenix Project are being purchased by the Authority from M-S-R Public Power Agency (“M-S-R PPA”), the current owner of such interests, pursuant to a Purchase and Sale Agreement, dated as of August 31, 2015 (as amended, the “Purchase and Sale Agreement”), between M-S-R PPA and the Authority. Pursuant to the Purchase and Sale Agreement, on the date of delivery of the 2016 Bonds, M-S-R PPA will sell, convey, assign, transfer and deliver to the Authority, and the Authority will purchase and acquire from M-S-R PPA (subject to certain permitted encumbrances), all of M-S-R PPA’s undivided, tenants-in-common interest in each of the Mead-Adelanto Project and the Mead-Phoenix Project, and all of M-S-R PPA’s rights, title and interest in the related Project Agreements (as defined in the Purchase and Sale Agreement), at a purchase price of $60,000,000, subject to certain adjustments for allocated costs, expenses and receipts and prorations of taxes, fees, rents and other periodic charges as provided in the Purchase and Sale Agreement. The Authority Interest (LADWP) in the Mead-Adelanto Project and the Authority Interest (LADWP) in the Mead-Phoenix Project (sometimes collectively referred to herein as the “Authority Interests (LADWP)”) are being acquired by the Authority in order to, among other things, assist the Department of Water and Power of The City of Los Angeles (the “Department” or the “Project Participant”) in meeting its future power needs and provide it with additional transmission capability for transactions with others, including particularly, to assist it in bringing additional renewable power into its electric system and meet its future renewable portfolio standard goals. Pursuant to separate transmission service contracts, each dated as of March 17, 2016 (the “Mead-Adelanto Transmission Service Contract (LADWP)” and the “Mead-Phoenix Transmission Service Contract (LADWP),” respectively, and together, the “Transmission Service Contracts (LADWP)”), the Authority will sell to the Department an entitlement to use of 100% of the capability of the Authority Interest (LADWP) in the respective projects. See “– The Transmission Service Contracts (LADWP)” below.

The Projects and the Authority Interests (LADWP)

The Mead-Adelanto Project generally consists of a 202-mile, 500-kV alternating current (“AC”) transmission line that extends between a southwest terminus at the existing Adelanto Substation in southern California and a northeast terminus at Marketplace Substation, a substation located approximately 17 miles southwest of Boulder City, Nevada, and related facilities. By connecting to Marketplace Substation, the transmission line interconnects with the Mead-Phoenix Project and the McCullough Substation. The transmission line has a transfer capability of 1,291 MW. The current owners of the Mead-Adelanto Project are the Authority, M-S-R PPA (whose ownership interest in the Mead-Adelanto Project will be sold to the Authority upon the issuance and delivery of the 2016 Mead- Adelanto Bonds as herein described) and StarTrans IO, L.L.C. (“StarTrans”).

Under the Mead-Adelanto Joint Ownership Agreement (hereinafter defined), the Authority currently has two separate and independent ownership interests in the Mead-Adelanto Project: one interest for certain Authority members participating in that portion of the project (i.e., the Authority Interest (Members) in such project referred to herein) and one interest for the Western Area Power Administration (“Western”) (i.e., the Authority Interest (Western) in such project referred to herein). The Authority Interest (Members) in the Mead-Adelanto Project provides to the Authority a 67.9167% member-related ownership share in the Mead-Adelanto Project. The Authority Interest (Members) was financed by the Authority for the benefit of certain of the Authority’s members (namely, the Department and the cities of Anaheim, Azusa, Banning, Burbank, Colton, Glendale, Pasadena and Riverside). The Authority has sold, on a “take-or-pay” basis, the entire capability of its Authority Interest (Members) in the Mead-Adelanto Project through transmission service contracts with such members of the Authority participating in that portion of the Mead-Adelanto Project. The Authority acquired the Authority Interest (Western), representing an 8.3333% ownership share, in the Mead-Adelanto Project at the request of Western. The Authority has sold to Western the capability of the Authority Interest (Western), and Western has agreed to provide to the Authority all necessary funding for costs of acquisition, construction and operation of such Authority Interest (Western).

On the date of delivery of the 2016 Bonds, the Authority will acquire, for the benefit of the Department, all of M-S-R PPA’s undivided, tenants-in-common ownership interest in the Mead-Adelanto Project, representing an additional 17.5000% ownership share in the Mead-Adelanto Project, pursuant to the Purchase and Sale Agreement. The additional ownership share of the Mead-Adelanto Project to be purchased by the Authority from M-S-R PPA (i.e., the Authority Interest (LADWP) referred to herein) is separate and distinct from the Authority Interest (Members) and the Authority Interest (Western) in the Mead-Adelanto Project described above. Pursuant to the Mead-Adelanto Transmission Service Contract (LADWP), the Authority will sell, on a “take-or-pay” basis, 100% of capability of the Authority Interest (LADWP) in the Mead-Adelanto Project to the Department. See “– The Transmission Service Contracts (LADWP)” below.

The Mead-Adelanto Project was developed and constructed in conjunction with the Mead- Phoenix Project described below. See “THE MEAD-ADELANTO PROJECT.”

The Mead-Phoenix Project generally consists of a 256-mile, 500-kV AC transmission line that extends between a southern terminus at the Westwing Substation (in the vicinity of Phoenix, Arizona) and a northern terminus at Marketplace Substation, and related facilities. The transmission line is looped through the 500-kV switchyard constructed in the Mead Substation in southern Nevada with a current transfer capability of 1,923 MW (as a result of certain upgrades completed in 2009). By connecting to Marketplace Substation, the Mead-Phoenix Project interconnects with the Mead-Adelanto Project and with the existing McCullough Substation. The Mead-Phoenix Project is comprised of three project components: the Westwing-Mead Component, the Mead Substation Component and the Mead- Marketplace Component. The current owners of the Mead-Phoenix Project are the Authority, M-S-R PPA (whose ownership interest in the Mead-Phoenix Project will be sold to the Authority upon the issuance and delivery of the 2016 Mead-Phoenix Bonds as herein described), Arizona Public Service Company (“APS”), Salt River Project Agricultural Improvement and Power District (“Salt River Project”) and StarTrans.

Under the Mead-Phoenix Joint Ownership Agreement (hereinafter defined), the Authority currently has two separate and independent ownership interests in the Mead-Phoenix Project: one interest for certain Authority members participating in that portion of the project (i.e., the Authority Interest (Members) in such project referred to herein) and one interest for Western (i.e., the Authority Interest (Western) in such project referred to herein). The Authority Interest (Members) in the Mead-Phoenix Project provides to the Authority an 18.3077% member-related ownership share in the Westwing-Mead Component, a 17.7563% member-related ownership share in the Mead Substation Component, and a

22.4082% member-related ownership share in the Mead-Marketplace Component of the Mead-Phoenix Project. The Authority Interest (Members) was financed by the Authority for the benefit of certain of the Authority’s members (namely, the Department and the cities of Anaheim, Azusa, Banning, Burbank, Colton, Glendale, Pasadena and Riverside). The Authority has sold, on a “take-or-pay” basis, the entire capability of its Authority Interest (Members) in the Mead-Phoenix Project through transmission service contracts with such members of the Authority participating in that portion of the Mead-Phoenix Project. The Authority acquired the Authority Interest (Western), representing a 31.6923% ownership share in the Westwing-Mead Component, a 40.3551% ownership share in the Mead Substation Component, and a 31.3175% ownership share in the Mead-Marketplace Component of the Mead-Phoenix Project at the request of Western. The Authority has sold to Western the capability of the Authority Interest (Western), and Western has agreed to provide to the Authority all necessary funding for costs of acquisition, construction and operation of such Authority Interest (Western).

On the date of delivery of the 2016 Bonds, the Authority will acquire, for the benefit of the Department, all of M-S-R PPA’s undivided, tenants-in-common ownership interest in the Mead-Phoenix Project, representing an additional 11.53850% ownership share in the Westwing-Mead Component and an additional 8.0993% ownership share in the Mead-Marketplace Component of the Mead-Phoenix Project, pursuant to the Purchase and Sale Agreement. The additional ownership share of the Mead-Phoenix Project to be purchased by the Authority from M-S-R PPA (i.e., the Authority Interest (LADWP) referred to herein) is separate and distinct from the Authority Interest (Members) and the Authority Interest (Western) in the Mead-Phoenix Project described above. Pursuant to the Mead-Phoenix Transmission Service Contract (LADWP), the Authority will sell, on a “take-or-pay” basis, 100% of capability of the Authority Interest (LADWP) in the Mead-Phoenix Project to the Department. See “– The Transmission Service Contracts (LADWP)” below.

See also “THE MEAD-PHOENIX PROJECT.”

The Department has identified several benefits to having the additional participation shares in the Mead-Adelanto Project and the Mead-Phoenix Project to be provided to it by the Authority Interests (LADWP), including but not limited to: (a) preparing to meet its future renewable portfolio standard (“RPS”) goals and having the additional capability provided by the Authority Interests (LADWP) to bring more renewable power into the Department’s electric system; (b) increased operational flexibility to move or import more renewable energy from the nearby Palo Verde Switchyard and the Mead Substation; (c) minimizing the need to build additional high voltage transmission lines in these areas in the future, which can be costly and challenging; and (d) enhancing the return of assets by generating electric system revenues for any unused transmission capacity.

The Transmission Service Contracts (LADWP)

The Authority and the Department have entered into the Mead-Adelanto Transmission Service Contract (LADWP) with respect to the Authority Interest (LADWP) in the Mead-Adelanto Project. Under the Mead-Adelanto Transmission Service Contract (LADWP), the Department is entitled to transmission service utilizing 100% of the available capability of the Authority Interest (LADWP) in the Mead-Adelanto Project, and is obligated to make payments therefor on a “take-or-pay” basis, that is, whether or not the Mead-Adelanto Project or any part thereof is operating or is operable, or its service is suspended, interfered with, reduced, curtailed or terminated in whole or in part. The payment obligations of the Department under the Mead-Adelanto Transmission Service Contract (LADWP) constitute a cost of transmission service and an operating expense of the electric utility system of the Department, payable solely from its electric revenue funds. As an operating expense of its electric system, the payment obligations of the Department under the Mead-Adelanto Transmission Service Contract (LADWP) and all other of its “take-or-pay” contract obligations are payable on a parity with the Department’s electric system revenue bonds (see APPENDIX A – “THE PROJECT PARTICIPANT”). See also “SECURITY

AND SOURCES OF PAYMENT FOR THE 2016 MEAD-ADELANTO BONDS – Mead-Adelanto Transmission Service Contract (LADWP)” and APPENDIX C – “SUMMARIES OF CERTAIN DOCUMENTS – Summary of Certain Provisions of the Mead-Adelanto Transmission Service Contract (LADWP).”

The Authority and the Department have entered into a separate Mead-Phoenix Transmission Service Contract (LADWP) with respect to the Authority Interest (LADWP) in the Mead-Phoenix Project. Under the Mead-Phoenix Transmission Service Contract (LADWP), the Department is entitled to transmission service utilizing 100% of the available capability of the Authority Interest (LADWP) in the Mead-Phoenix Project, and is obligated to make payments therefor on a “take-or-pay” basis, that is, whether or not the Mead-Phoenix Project or any part thereof is operating or is operable, or its service is suspended, interfered with, reduced, curtailed or terminated in whole or in part. The payment obligations of the Department under the Mead-Phoenix Transmission Service Contract (LADWP) constitute a cost of transmission service and an operating expense of the electric utility system of the Department, payable solely from its electric revenue funds. As an operating expense of its electric system, the payment obligations of the Department under the Mead-Phoenix Transmission Service Contract (LADWP) and all other of its “take-or-pay” contract obligations are payable on a parity with the Department’s electric system revenue bonds (see APPENDIX A – “THE PROJECT PARTICIPANT”). See also “SECURITY AND SOURCES OF PAYMENT FOR THE 2016 MEAD-PHOENIX BONDS – Mead-Phoenix Transmission Service Contract (LADWP)” and APPENDIX C – “SUMMARIES OF CERTAIN DOCUMENTS – Summary of Certain Provisions of the Mead-Phoenix Transmission Service Contract (LADWP).”

Security and Sources of Payment for the 2016 Bonds

The 2016 Mead-Adelanto Bonds are special, limited obligations of the Authority payable solely from, and secured as to the payment of the principal or redemption price thereof, and interest thereon solely by, a pledge and assignment of Revenues (as defined in the Mead-Adelanto Indenture) and certain other moneys as described herein, subject only to the provisions of the Mead-Adelanto Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein. Revenues under the Mead-Adelanto Indenture consist primarily of payments to be made to the Authority by the Department, as Project Participant, pursuant to the Mead-Adelanto Transmission Service Contract (LADWP), as more fully described herein. See “SECURITY AND SOURCES OF PAYMENT FOR THE 2016 MEAD-ADELANTO BONDS.”

The 2016 Mead-Phoenix Bonds are special, limited obligations of the Authority payable solely from, and secured as to the payment of the principal or redemption price thereof, and interest thereon solely by, a pledge and assignment of Revenues (as defined in the Mead-Phoenix Indenture) and certain other moneys as described herein, subject only to the provisions of the Mead-Phoenix Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein. Revenues under the Mead-Phoenix Indenture consist primarily of payments to be made to the Authority by the Department, as Project Participant, pursuant to the Mead-Phoenix Transmission Service Contract (LADWP), as more fully described herein. See “SECURITY AND SOURCES OF PAYMENT FOR THE 2016 MEAD-PHOENIX BONDS.”

The 2016 Bonds are not obligations of the State of California, any public agency thereof (other than the Authority), the Project Participant or any other member of the Authority, and neither the faith and credit nor the taxing power of any of the foregoing (including the Authority) is pledged for the payment of the 2016 Bonds. The Authority has no taxing power.

The Authority has reserved its right under each of the Indentures to issue additional parity bonds, notes or other evidences of indebtedness thereunder and to enter into Parity Swaps on the terms and

conditions and for the purposes stated therein. The 2016 Mead-Adelanto Bonds and any other bonds, notes or other evidence of indebtedness hereafter issued pursuant to the Act and the Mead-Adelanto Indenture on parity with the 2016 Mead-Adelanto Bonds are herein collectively referred to as the “Mead- Adelanto Bonds.” The 2016 Mead-Phoenix Bonds and any other bonds, notes or other evidence of indebtedness hereafter issued pursuant to the Act and the Mead-Phoenix Indenture on parity with the 2016 Mead-Phoenix Bonds are herein collectively referred to as the “Mead-Phoenix Bonds.”

Pursuant to the Indentures, each Series of Mead-Adelanto Bonds or Mead-Phoenix Bonds will, unless otherwise provided in the Supplemental Indenture relating to such Series of Mead-Adelanto Bonds or Mead-Phoenix Bonds, be “Participating Bonds” for purposes of the related Indenture and will be secured by the common debt service reserve account established thereunder for all Mead-Adelanto Bonds or Mead-Phoenix Bonds that are Participating Bonds, as applicable. The First Supplemental Indentures of Trust for the 2016 Mead-Adelanto Bonds and the 2016 Mead-Phoenix Bonds provide that the 2016 Mead-Adelanto Bonds and 2016 Mead-Phoenix Bonds are not “Participating Bonds” under the respective Indentures and will not be secured by the Participating Bonds Debt Service Reserve Account created therefor under the related Indenture, and no Debt Service Reserve Account will be funded with respect to the 2016 Mead-Adelanto Bonds or the 2016 Mead-Phoenix Bonds.

The Authority and the Project Participant

The Authority, the membership of which is comprised of eleven California cities and one California irrigation district, was formed pursuant to the Act and the Joint Powers Agreement, dated as of November 1, 1980 (as amended, the “Joint Powers Agreement”). See “SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY – Formation.”

As described herein, the Department, as a member of the Authority, has entered into the respective Transmission Service Contract (LADWP) relating to the Authority Interest (LADWP) in the related Mead-Adelanto Project or Mead-Phoenix Project, as applicable. Pursuant to the respective Transmission Service Contract (LADWP), the Authority has sold to the Department 100% of the capability of the Authority Interest (LADWP) in the related project on a take-or-pay basis. See “SECURITY AND SOURCES OF PAYMENT OF THE 2016 MEAD-ADELANTO BONDS – Mead- Adelanto Transmission Service Contract (LADWP)” and “SECURITY AND SOURCES OF PAYMENT OF THE 2016 MEAD-PHOENIX BONDS – Mead-Phoenix Transmission Service Contract (LADWP),” respectively. The Department also performs certain duties and responsibilities of the Authority arising in connection with the Mead-Adelanto Project and the Mead-Phoenix Project (which will include certain duties and responsibilities in connection with the respective Authority Interests (LADWP) therein) pursuant to the Agency Agreements, dated August 4, 1992, between the Authority and the Department. The 11 remaining members of the Authority (i.e., the California cities of Anaheim, Azusa, Banning, Burbank, Cerritos, Colton, Glendale, Riverside, Pasadena and Vernon, and the Imperial Irrigation District) are not participants with respect to the Authority Interest (LADWP) in the Mead-Adelanto Project or the Mead-Phoenix Project, are not participants in this current financing, and are not obligated to make any payments with respect to the 2016 Bonds.

For additional information regarding the Authority and its activities, see “SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY.” For additional information regarding the Department, see APPENDIX A – “THE PROJECT PARTICIPANT” and APPENDIX B – “AUDITED FINANCIAL STATEMENTS OF THE DEPARTMENT OF WATER AND POWER OF THE CITY OF LOS ANGELES POWER SYSTEM FOR THE FISCAL YEARS ENDED JUNE 30, 2015 AND JUNE 30, 2014.”

Continuing Disclosure Undertakings

Pursuant to separate resolutions of the Authority’s Board of Directors adopted on April 21, 2016 relating to the 2016 Mead-Adelanto Bonds and the 2016 Mead-Phoenix Bonds, respectively (together, the “Continuing Disclosure Resolutions”), the Authority has agreed for the benefit of the registered owner and the Beneficial Owners (as defined in each such resolution) of the respective issues of the 2016 Bonds to provide certain financial information and operating data and to provide notices of certain events. See “CONTINUING DISCLOSURE UNDERTAKINGS FOR THE 2016 BONDS.”

Certain Information; Summaries and References to Documents

In preparing this Official Statement, the Authority has relied upon, among other things, certain information relating to (i) the Mead-Adelanto Project and the Mead-Phoenix Project provided by the Department, (ii) certain information relating to the Authority Interests (LADWP) provided by M-S-R PPA as the current owner thereof, and (iii) certain information relating to the Department provided by the Department as Project Participant. This Official Statement also includes summaries of the terms of the 2016 Bonds, the Indentures, the Transmission Service Contracts (LADWP), the Mead-Adelanto Joint Ownership Agreement, the Mead-Phoenix Joint Ownership Agreement, the Mead-Adelanto Fiscal Agency Agreement, the Mead-Phoenix Fiscal Agency Agreement, the Mead-Adelanto Operation Agreement, the Mead-Phoenix Operation Agreement and the Land Rights Agreement, and certain contracts and other arrangements for the transmission of power 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 such document, statute, report or instrument.

ESTIMATED SOURCES AND USES OF FUNDS

The estimated sources and uses of funds relating to the 2016 Bonds are shown below:

2016 Mead- 2016 Mead- Adelanto Bonds Phoenix Bonds Sources: Principal Amount ...... $ $ Original Issue Premium ...... Total Sources $ $

Uses: Deposit to Project Fund(1) ...... $ $ Costs of Issuance(2) ...... Total Uses $ $ ______(1) Includes costs previously incurred by the Department in connection with the Project to be reimbursed to the Department. (2) Includes, among other things, Underwriters’ discount, Trustee’s fees, Co-Bond Counsel fees, Underwriters’ counsel fees, Financial Advisor fees and rating agency fees.

DEBT SERVICE REQUIREMENTS OF THE 2016 BONDS

See APPENDIX F – “DEBT SERVICE REQUIREMENTS FOR THE 2016 MEAD- ADELANTO BONDS” for the debt service requirements relating to the 2016 Mead-Adelanto Bonds. See APPENDIX G – “DEBT SERVICE REQUIREMENTS FOR THE 2016 MEAD-PHOENIX BONDS” for the debt service requirements relating to the 2016 Mead-Phoenix Bonds.

DESCRIPTION OF THE 2016 MEAD-ADELANTO BONDS

General

The 2016 Mead-Adelanto Bonds will be issued in fully registered form in authorized denominations of $5,000 principal amount or any integral multiple thereof. The 2016 Mead-Adelanto Bonds will be issued in the aggregate principal amount indicated on the cover page of this Official Statement and will be dated their date of delivery. The 2016 Mead-Adelanto Bonds will bear interest at the rates per annum and will mature on July 1 in the years and in the principal amounts set forth on the inside cover page of this Official Statement. Interest on the 2016 Mead-Adelanto Bonds will be payable semiannually on January 1 and July 1 of each year, commencing January 1, 2017, and will be calculated on the basis of a 360-day year comprised of twelve 30-day months.

The 2016 Mead-Adelanto Bonds when initially issued will be registered in the name of Cede & Co., as registered owner and nominee of The Depository Trust Company, New York, New York (“DTC”). So long as DTC, or its nominee Cede & Co., is the registered owner of all the 2016 Mead- Adelanto Bonds, all payments of principal of and premium, if any, and interest on the 2016 Mead- Adelanto Bonds will be made directly to DTC. Disbursement of such payments to the DTC participants will be the responsibility of DTC. Disbursement of such payments to the applicable Beneficial Owners (as defined below) of the 2016 Mead-Adelanto Bonds will be the responsibility of the DTC participants as more fully described herein. See “BOOK-ENTRY ONLY SYSTEM.”

Redemption Provisions of the 2016 Mead-Adelanto Bonds

Optional Redemption. The 2016 Mead-Adelanto Bonds maturing on and after July 1, ____ are subject to redemption prior to maturity, at the option of the Authority, from any source of available funds, in whole or in part (and, if in part, from such maturities as the Authority shall direct), on any date on or after July 1, ____, at a redemption price equal to the principal amount of the 2016 Mead-Adelanto Bonds, or portions thereof, to be redeemed, without premium, in each case together with accrued interest to the redemption date.

Selection of 2016 Mead-Adelanto Bonds to be Redeemed. Whenever by the terms of the Mead- Adelanto Indenture, 2016 Mead-Adelanto Bonds are to be redeemed at the direction of the Authority, the Authority shall select the maturity or maturities of 2016 Mead-Adelanto Bonds to be redeemed. If less than all of the 2016 Mead-Adelanto Bonds of a maturity are called for prior redemption, the particular 2016 Mead-Adelanto Bonds or portions of such maturity to be redeemed shall be selected by lot; provided, however, that the portion of any 2016 Mead-Adelanto Bond of a denomination of more than $5,000 to be redeemed shall be in the principal amount of $5,000 or an integral multiple thereof, and in selecting portions of such 2016 Mead-Adelanto Bonds for redemption, the Trustee shall treat each such 2016 Mead-Adelanto Bond as representing that number of 2016 Mead-Adelanto Bonds of $5,000 denomination that is obtained by dividing the principal amount of such 2016 Mead-Adelanto Bonds to be redeemed in part by $5,000.

Notice of Redemption. The Mead-Adelanto Indenture requires the Trustee to give notice of any redemption of the 2016 Mead-Adelanto Bonds to the Owners of the 2016 Mead-Adelanto Bonds designated for redemption by mail not less than 20 nor more than 60 days prior to the redemption date. If by the date of mailing of notice of any optional redemption the Authority has not deposited with the Trustee moneys sufficient to redeem all the 2016 Mead-Adelanto Bonds called for redemption, such notice will state that it is subject to the availability of funds for such purpose and will be of no effect unless funds sufficient for such purpose are available on the applicable redemption date. Failure by any one or more of the Owners of any of the 2016 Mead-Adelanto Bonds designated for redemption to

receive notice of redemption or any defect in any such notice will not affect the validity of the proceedings for the redemption of any such 2016 Mead-Adelanto Bonds.

Effect of Redemption. Notice having been given in the manner provided in the Mead-Adelanto Indenture, and moneys sufficient therefor having been deposited by the Authority with the Trustee, the 2016 Mead-Adelanto Bonds or portions thereof so called for redemption shall become due and payable on the redemption date so designated at the redemption price, plus interest accrued and unpaid to the redemption date, and, upon presentation and surrender thereof at the office specified in such notice, such 2016 Mead-Adelanto Bonds or portions thereof, shall be paid at the redemption price, plus interest accrued and unpaid to the redemption date. If, on the redemption date, moneys for the redemption of all the 2016 Mead-Adelanto Bonds or portions thereof to be redeemed, together with interest to the redemption date, shall be held by the Trustee so as to be available therefor on said date and if notice of redemption shall have been given as aforesaid, then, from and after the redemption date interest on the 2016 Mead-Adelanto Bonds or portions thereof so called for redemption shall cease to accrue and shall become payable. If said moneys shall not be so available on the redemption date, such 2016 Mead- Adelanto Bonds or portions thereof shall continue to bear interest.

DESCRIPTION OF THE 2016 MEAD-PHOENIX BONDS

General

The 2016 Mead-Phoenix Bonds will be issued in fully registered form in authorized denominations of $5,000 principal amount or any integral multiple thereof. The 2016 Mead-Phoenix Bonds will be issued in the aggregate principal amount indicated on the cover page of this Official Statement and will be dated their date of delivery. The 2016 Mead-Phoenix Bonds will bear interest at the rates per annum and will mature on July 1 in the years and in the principal amounts set forth on the inside cover page of this Official Statement. Interest on the 2016 Mead-Phoenix Bonds will be payable semiannually on January 1 and July 1 of each year, commencing January 1, 2017, and will be calculated on the basis of a 360-day year comprised of twelve 30-day months.

The 2016 Mead-Phoenix Bonds when initially issued will be registered in the name of Cede & Co., as registered owner and nominee of DTC. So long as DTC, or its nominee Cede & Co., is the registered owner of all the 2016 Mead-Phoenix Bonds, all payments of principal of and premium, if any, and interest on 2016 Mead-Phoenix Bonds will be made directly to DTC. Disbursement of such payments to the DTC participants will be the responsibility of DTC. Disbursement of such payments to the applicable Beneficial Owners of the 2016 Mead-Phoenix Bonds will be the responsibility of the DTC participants as more fully described herein. See “BOOK-ENTRY ONLY SYSTEM.”

Redemption Provisions of the 2016 Mead-Phoenix Bonds

Optional Redemption. The 2016 Mead-Phoenix Bonds maturing on and after July 1, ____ are subject to redemption prior to maturity, at the option of the Authority, from any source of available funds, in whole or in part (and, if in part, from such maturities as the Authority shall direct), on any date on or after July 1, ____, at a redemption price equal to the principal amount of the 2016 Mead-Phoenix Bonds, or portions thereof, to be redeemed, without premium, in each case together with accrued interest to the redemption date.

Selection of 2016 Mead-Phoenix Bonds to be Redeemed. Whenever by the terms of the Mead- Phoenix Indenture, 2016 Mead-Phoenix Bonds are to be redeemed at the direction of the Authority, the Authority shall select the maturity or maturities of 2016 Mead-Phoenix Bonds to be redeemed. If less than all of the 2016 Mead-Phoenix Bonds of a maturity are called for prior redemption, the particular 2016 Mead-Phoenix Bonds or portions of such maturity to be redeemed shall be selected by lot; provided,

however, that the portion of any 2016 Mead-Phoenix Bond of a denomination of more than $5,000 to be redeemed shall be in the principal amount of $5,000 or an integral multiple thereof, and in selecting portions of such 2016 Mead-Phoenix Bonds for redemption, the Trustee shall treat each such 2016 Mead- Phoenix Bond as representing that number of 2016 Mead-Phoenix Bonds of $5,000 denomination that is obtained by dividing the principal amount of such 2016 Mead-Phoenix Bonds to be redeemed in part by $5,000.

Notice of Redemption. The Mead-Phoenix Indenture requires the Trustee to give notice of any redemption of the 2016 Mead-Phoenix Bonds to the Owners of the 2016 Mead-Phoenix Bonds designated for redemption by mail not less than 20 nor more than 60 days prior to the redemption date. If by the date of mailing of notice of any optional redemption the Authority has not deposited with the Trustee moneys sufficient to redeem all the 2016 Mead-Phoenix Bonds called for redemption, such notice will state that it is subject to the availability of funds for such purpose and will be of no effect unless funds sufficient for such purpose are available on the applicable redemption date. Failure by any one or more of the Owners of any of the 2016 Mead-Phoenix Bonds designated for redemption to receive notice of redemption or any defect in any such notice will not affect the validity of the proceedings for the redemption of any such 2016 Mead-Phoenix Bonds.

Effect of Redemption. Notice having been given in the manner provided in the Mead-Phoenix Indenture, and moneys sufficient therefor having been deposited by the Authority with the Trustee, the 2016 Mead-Phoenix Bonds or portions thereof so called for redemption shall become due and payable on the redemption date so designated at the redemption price, plus interest accrued and unpaid to the redemption date, and, upon presentation and surrender thereof at the office specified in such notice, such 2016 Mead-Phoenix Bonds or portions thereof, shall be paid at the redemption price, plus interest accrued and unpaid to the redemption date. If, on the redemption date, moneys for the redemption of all the 2016 Mead-Phoenix Bonds or portions thereof to be redeemed, together with interest to the redemption date, shall be held by the Trustee so as to be available therefor on said date and if notice of redemption shall have been given as aforesaid, then, from and after the redemption date interest on the 2016 Mead-Phoenix Bonds or portions thereof so called for redemption shall cease to accrue and shall become payable. If said moneys shall not be so available on the redemption date, such 2016 Mead-Phoenix Bonds or portions thereof shall continue to bear interest.

BOOK-ENTRY ONLY SYSTEM

General

DTC will act as securities depository for the 2016 Bonds. The 2016 Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered bond will be issued for each maturity of the 2016 Mead-Adelanto Bonds and for each maturity of the 2016 Mead- Phoenix Bonds, in the aggregate principal amount of each 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”). 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 2016 Bonds under the DTC book-entry system must be made by or through Direct Participants, which will receive a credit for the 2016 Bonds on DTC’s records. The ownership interest of each actual purchaser of 2016 Bonds (“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 Participant or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the 2016 Bonds are to be accomplished by entries made on the books of Direct Participants and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the 2016 Bonds, except in the event that use of the book-entry system for the 2016 Bonds is discontinued.

To facilitate subsequent transfers, all 2016 Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of 2016 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 2016 Bonds. DTC’s records reflect only the identity of the Direct Participants to whose accounts such 2016 Bonds are credited, which may or may not be the Beneficial Owners. The Direct Participants and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the 2016 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the 2016 Bonds, such as redemptions, defaults and proposed amendments to the applicable Indenture. For example, Beneficial Owners of 2016 Bonds may wish to ascertain that the nominee holding the 2016 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 shall be sent to DTC. If less than all of the maturity of the 2016 Bonds of an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed.

Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to 2016 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 Authority 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 2016 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Principal or redemption price of, and interest payments on, the 2016 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 Authority or the Trustee, on each payment date in accordance with their respective holdings shown on DTC’s records. Payments by Direct Participants and Indirect Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such participant and not of DTC, the Trustee or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, redemption price and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Authority or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to Beneficial Owners is the responsibility of Direct Participants and Indirect Participants.

DTC may discontinue providing its services as securities depository with respect to the 2016 Bonds at any time by giving reasonable notice to the Authority or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, definitive 2016 Bonds are required to be printed and delivered.

The Authority may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, definitive 2016 Bonds 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 Authority or the Underwriters as to the accuracy or completeness of such information, and the Authority and the Underwriters take no responsibility for the accuracy or completeness thereof.

Discontinuation of the Book-Entry Only System

If DTC determines not to continue to act as securities depository by giving notice to the Authority and the Trustee, and discharges its responsibilities with respect thereto under applicable law and there is not a successor securities depository, or the Authority determines not to continue the book-entry system through a securities depository, the Authority and the Trustee will cause the delivery of definitive 2016 Bonds to the Beneficial Owners of the 2016 Bonds registered in the names of such Beneficial Owners as shall be specified to the Trustee by DTC or the DTC participants.

If the book-entry system is discontinued the following provisions would apply: (i) the principal and redemption price of the 2016 Bonds will be payable upon surrender of any such 2016 Bond at the principal corporate trust office of the Trustee (as paying agent for the 2016 Bonds) and at the office of any other paying agent hereafter appointed by the Authority; (ii) interest on the 2016 Bonds will be payable by check of the Trustee mailed by first-class mail, postage prepaid, on the applicable interest payment date to the Owner thereof at their respective addresses shown on the registration books maintained by the Trustee as of the 15th day of the calendar month immediately preceding such interest payment date (the “Record Date”) or in immediately available funds by wire transfer on the interest payment date to a designated account, if payable to any Owner of a 2016 Bond or Bonds of an issue in an aggregate principal amount of $1,000,000 or more, upon written request of such Owner to the Trustee received by the Trustee prior to the Record Date for the first interest payment date as to which such request shall be effective, specifying the account or accounts to which such payment shall be made (which request shall remain in effect until revoked or reversed by such Owner in a subsequent writing

delivered to the Trustee); (iii) the transfer of any 2016 Bond shall be registrable only upon the books of the Authority, which shall be kept for such purposes at the principal corporate trust office of the Trustee, as bond registrar, by the Owner thereof in person or by his or her attorney duly authorized in writing, upon surrender of such 2016 Bond, together with a written instrument of transfer satisfactory to the bond registrar duly executed by the Owner or his or her duly authorized attorney, and upon payment by such Owner of any charges which the Authority or the Trustee may impose to reimburse it for any tax, fee or other governmental charge required to be paid with respect to such registration of transfer; (iv) 2016 Bonds may be exchanged for an equal aggregate principal amount of 2016 Bonds of the same issue, Series, tenor, maturity and interest rate in such other authorized denomination or denominations as shall be requested by such Owner, upon surrender of such 2016 Bonds at the principal corporate trust office of the Trustee, as bond registrar, and upon payment by such Owner of any charges which the Authority or the Trustee may impose to reimburse it for any tax, fee or other governmental charge required to be paid with respect to such exchange; and (v) the Trustee (as bond registrar for the 2016 Bonds) will not be required to register the transfer of, or exchange, any 2016 Bonds called for redemption, or any 2016 Bonds during the period of 15 days next preceding any selection of 2016 Bonds to be redeemed.

THE MEAD-ADELANTO PROJECT

Project Description

General; Background. The Mead-Adelanto Project consists of a 202-mile, 500-kV, AC transmission line that extends between a southwest terminus at the Adelanto Switching Station in southern California and a northeast terminus at the Marketplace Substation, located approximately 17 miles southwest of Boulder City, Nevada. The transmission line has a transfer capability of 1,291 MW. The Mead-Adelanto Project includes an undivided one-half interest in the Marketplace Substation and associated facilities. The Marketplace Substation is a 500-kV switchyard and includes the Marketplace- McCullough tie line, an approximately one mile transmission line between the Marketplace and McCullough Substations in southern Nevada. By connecting to the Marketplace Substation, the transmission line interconnects with the Mead-Phoenix Project (described below) and the McCullough Substation.

The Mead-Adelanto Project was developed and constructed by the Authority (for the benefit of certain of its members, namely, the Department and the cities of Anaheim, Azusa, Banning, Burbank, Colton, Glendale, Pasadena and Riverside), M-S-R PPA, the City of Vernon, California (“Vernon”) and Western. Construction costs for the Mead-Adelanto Project were approximately $204 million. The commercial operation date for the Mead-Adelanto Project was April 15, 1996.

Joint Ownership Agreement; Acquisition of the Authority Interest (LADWP). In 1992, the Authority entered into a Joint Ownership Agreement with M-S-R PPA and Vernon (whose interest was subsequently transferred to StarTrans), relating to the Mead-Adelanto Project (the “Mead-Adelanto Joint Ownership Agreement”). Pursuant to the Mead-Adelanto Joint Ownership Agreement, the Authority acquired a 67.9167% member-related ownership share (the “Authority Interest (Members)”) in the Mead- Adelanto Project. Under the Mead-Adelanto Joint Ownership Agreement, in connection with the Authority Interest (Members), the Authority is entitled to use, schedule energy over, and sell to others 67.9167% of Available Transmission Capability of the Mead-Adelanto Project, and is responsible for the payment of certain costs associated with that capability. The Authority has sold, on a take-or-pay basis, entitlements to 100% of the capability of the Authority Interest (Members) in the Mead-Adelanto Project pursuant to certain transmission service contracts, each dated as of August 4, 1992 (the “1992 Mead- Adelanto Transmission Service Contracts (Members)”), with nine of its members (namely, the Department and the cities of Anaheim, Azusa, Banning, Burbank, Colton, Glendale, Pasadena and Riverside, the entities that participated in the Mead-Adelanto Project development). Under its 1992 Mead-Adelanto Transmission Service Contract (Members), the Department has a 35.7055% entitlement

share of the Authority’s 67.9167% Authority Interest (Members) in the Mead-Adelanto Project. For additional information regarding the entitlement shares of the other Authority members with respect to the Authority Interest (Members) in the Mead-Adelanto Project, see APPENDIX C – “SUMMARIES OF CERTAIN DOCUMENTS – Summary of Certain Provisions of the 1992 Mead-Adelanto Transmission Service Contracts (Members) – Schedule of Authority Member-Participant Entitlement Shares.” See also APPENDIX C – “SUMMARIES OF CERTAIN DOCUMENTS – Summary of Certain Provisions of the Mead-Adelanto Joint Ownership Agreement – Project Participants’ Shares and Owners’ Interest.” In addition to the Authority Interest (Members), in connection with the development of the Mead-Adelanto Project, the Authority, at the request of Western, acquired an 8.3333% ownership share in the Mead- Adelanto Project on behalf of Western (the “Authority Interest (Western)” in the Mead-Adelanto Project). All costs associated with the Authority Interest (Western) in the Mead-Adelanto Project are funded by Western.

On the date of delivery of the 2016 Bonds, the Authority will acquire, for the benefit of the Department, from M-S-R PPA the Authority Interest (LADWP), which is separate and distinct from the Authority Interest (Members) and the Authority Interest (Western), in the Mead-Adelanto Project described above. Pursuant to the Mead-Adelanto Transmission Service Contract (LADWP), the Authority will sell, on a “take-or-pay” basis, the entire capability of its Authority Interest (LADWP) in the Mead-Adelanto Project to the Department as described herein. See “SECURITY AND SOURCES OF PAYMENT FOR THE 2016 MEAD-ADELANTO BONDS – Mead-Adelanto Transmission Service Contract (LADWP).”

The Mead-Adelanto Project owners and their respective ownership shares upon the issuance of the 2016 Mead-Adelanto Bonds and the purchase of the ownership interest of M-S-R PPA by the Authority are listed in the following table.

Mead-Adelanto Project Ownership Shares Transfer Capability Owner Share (MW) Authority Interest (LADWP) ...... 17.5000% 225.9 Authority Interest (Members) ...... 67.9167(1) 876.8(1) Authority Interest (Western) ...... 8.3333 107.6 StarTrans IO, L.L.C...... 6.2500 80.7 Total ...... 100.000% 1,291.0 ______(1) As described herein, the Department also has a 35.7055% entitlement share of the Authority’s member- related Authority Interest (Members) in the Mead-Adelanto Project.

The 2016 Mead-Adelanto Bonds are secured solely by the related Revenues, which consist primarily of payments to be made to the Authority by the Department pursuant to the Mead-Adelanto Transmission Service Contract (LADWP), and other amounts pledged therefor under the Mead-Adelanto Indenture. Payments made by the Mead-Adelanto Project owners under the Mead-Adelanto Project Agreements do not in any manner secure the payment of principal of and interest on the 2016 Mead- Adelanto Bonds.

See APPENDIX C – “SUMMARIES OF CERTAIN DOCUMENTS – Summary of Certain Provisions of the Mead-Adelanto Joint Ownership Agreement” for additional information regarding the Mead-Adelanto Joint Ownership Agreement.

Operation of the Mead-Adelanto Project. The Mead-Adelanto Project is currently operated by the Department, as Operation Manager, pursuant to an Operation Agreement, dated as of August 4, 1992, among the Mead-Adelanto Project owners and the Department (the “Mead-Adelanto Operation Agreement”). See APPENDIX C – “SUMMARIES OF CERTAIN DOCUMENTS – Summary of Certain Provisions of the Mead-Adelanto Operation Agreement.” The Department also operates the Marketplace Substation as Operating Agent pursuant to the Marketplace Substation Participation Agreement among the Mead-Adelanto Project owners, the Mead-Phoenix Project owners and the Department.

The Mead-Adelanto Project was designed and constructed to operate in compliance with the applicable federal, state and local laws and regulations. The Authority believes that currently all necessary permits, licenses and approvals are in place for the operation of the Mead-Adelanto Project. In the future, one or more of these permits, licenses and approvals may need to be extended for the continued operation of the Mead-Adelanto Project. The Authority believes that it will be able to secure any such necessary extensions on a timely basis.

The Mead-Adelanto Project has operated reliably since its commercial operation.

Proposal for DC Conversion

StarTrans, as the owner of a 6.25% undivided ownership interest in the Mead-Adelanto Project, is a party to the Mead-Adelanto Joint Ownership Agreement and the Mead-Adelanto Operation Agreement. In 2012, StarTrans submitted a request under the applicable Mead-Adelanto Project Agreements for a conversion of the Mead-Adelanto Project Transmission Line from alternating current to direct current. Such an undertaking will require major capital additions and improvements to the Mead-Adelanto Project Transmission Line, including the construction of AC/DC converter stations, and would result in a substantial increase in the transfer capability of the Mead-Adelanto Project Transmission Line. A feasibility study of the DC conversion proposal has been prepared. The undertaking of the proposed DC conversion is subject to authorization under, and compliance with, the applicable provisions of the Mead- Adelanto Project Agreements. See APPENDIX C – “SUMMARIES OF CERTAIN DOCUMENTS – Summary of Certain Provisions of the Mead-Adelanto Joint Ownership Agreement – Upgrade or Enhancement of the Transmission Line” and “– Summary of Certain Provisions of the Mead-Adelanto Operation Agreement – Increasing the Available Transmission Capability of the Transmission Line” for a description of provisions of the Mead-Adelanto Project Agreements that are applicable to the DC conversion proposal. The Authority is not able to predict whether the proposal will meet the requirements of the Mead-Adelanto Project Agreements or will be approved or undertaken.

THE MEAD-PHOENIX PROJECT

Project Description

General; Background. The Mead-Phoenix Project consists of a 256-mile, 500-kV, AC transmission line that extends between a southern terminus at the Westwing Substation (in the vicinity of Phoenix, Arizona) and a northern terminus at Marketplace Substation (in southern Nevada). The transmission line is looped through the 500-kV switchyard constructed at the Mead Substation in southern Nevada with a current transfer capability of 1,923 MW. The Mead-Phoenix Project is comprised of three project components: the Westwing-Mead Component, the Mead Substation Component and the Mead- Marketplace Component. The Westwing-Mead Component generally includes the transmission line between the Westwing Substation and the Mead Substation, an undivided one-third interest in the 500 kV Mead Switchyard facilities, and related land rights, equipment and facilities. The Mead Substation Component generally includes the 500/230 kV transformation facilities at the Mead Substation, an undivided one-third interest in the Mead Switchyard facilities, and related land rights, equipment and

facilities. The Mead-Marketplace Component generally includes the transmission line between the Mead Substation and the Market Substation, an undivided one-half interest in the Marketplace Substation (including the Marketplace-McCullough tie line) and associated facilities, an undivided one-third interest in the Mead Switchyard facilities, and related land rights, equipment and facilities. By connecting to the Marketplace Substation, the Mead-Phoenix Project interconnects with the Mead-Adelanto Project and the McCullough Substation.

The Mead-Phoenix Project was developed and constructed by the Authority (for the benefit of certain of its members, namely, the Department and the cities of Anaheim, Azusa, Banning, Burbank, Colton, Glendale, Pasadena and Riverside), M-S-R PPA, APS, Salt River Project, Vernon and Western. Construction costs for the Mead-Phoenix Project were approximately $228.6 million. The commercial operation date for the Mead-Phoenix Project was April 15, 1996.

Joint Ownership Agreement; Acquisition of the Authority Interest (LADWP). In 1992, the Authority entered into a Joint Ownership Agreement with M-S-R PPA, APS, Salt River Project and Vernon (whose interest was subsequently transferred to StarTrans), relating to the Mead-Phoenix Project (the “Mead-Phoenix Joint Ownership Agreement”). Pursuant to the Mead-Phoenix Joint Ownership Agreement, the Authority acquired an 18.3077% member-related ownership share in the Westwing-Mead Component, a 17.7563% member-related ownership share in the Mead Substation Component, and a 22.4082% member-related ownership share in the Mead-Marketplace Component (collectively, the “Authority Interest (Members)”) in the Mead-Phoenix Project. Under the Mead-Phoenix Joint Ownership Agreement, the Authority is entitled to use, schedule energy over, and sell to others 18.3077% of Available Transmission Capability with respect to the Westwing-Mead Component, 17.7563% of Available Transmission Capability with respect to the Mead Substation Component and 22.4082% of Available Transmission Capability with respect to the Mead-Marketplace Component, and is responsible for the payment of certain costs associated with that capability. The Authority has sold, on a take-or-pay basis, entitlements to 100% of the capability of the Authority Interest (Members) in the Mead-Phoenix Project pursuant to certain transmission service contracts, each dated as of August 4, 1992 (the “1992 Mead-Phoenix Transmission Service Contracts (Members)”), with nine of its members (namely, the Department and the cities of Anaheim, Azusa, Banning, Burbank, Colton, Glendale, Pasadena and Riverside, the entities that participated in the Mead-Phoenix Project development). Under its 1992 Mead- Phoenix Transmission Service Contract (Members), the Department has a 31.0924% entitlement share of the Authority’s 18.3077% member-related ownership share of the Westwing-Mead Component and a 17.8313% entitlement share of the Authority’s 22.4082% member-related ownership share of the Mead- Marketplace Component of the Mead-Phoenix Project. For additional information regarding the entitlement shares of the other Authority members with respect to the Authority Interest (Members) in the Mead-Phoenix Project, see APPENDIX C – “SUMMARIES OF CERTAIN DOCUMENTS – Summary of Certain Provisions of the 1992 Mead-Phoenix Transmission Service Contracts (Members) – Schedule of Authority Member-Participant Entitlement Shares.” See also APPENDIX C – “SUMMARIES OF CERTAIN DOCUMENTS – Summary of Certain Provisions of the Mead-Phoenix Joint Ownership Agreement – Project Participants’ Shares and Owners’ Interest.” In addition to the Authority Interest (Members), in connection with the development of the Mead-Phoenix Project, the Authority, at the request of Western, acquired a 31.69230% ownership share in the Westwing-Mead Component, a 40.3551% ownership share in the Mead Substation Component, and a 31.3175% ownership share in the Mead-Marketplace Component of the Mead-Phoenix Project on behalf of Western (the “Authority Interest (Western)” in the Mead-Phoenix Project). All costs associated with the Authority Interest (Western) in the Mead-Phoenix Project are funded by Western.

described above. Pursuant to the Mead-Phoenix Transmission Service Contract (LADWP), the Authority will sell, on a “take-or-pay” basis, the entire capability of its Authority Interest (LADWP) in the Mead- Phoenix Project to the Department as described herein. See “SECURITY AND SOURCES OF PAYMENT FOR THE 2016 MEAD-PHOENIX BONDS – Mead-Phoenix Transmission Service Contract (LADWP).”

The Mead-Phoenix Project owners and their respective ownership shares upon the issuance of the 2016 Mead-Phoenix Bonds and the purchase of the ownership interest of M-S-R PPA by the Authority are listed in the following table.

Mead-Phoenix Project Ownership Shares Project Component Mead- Owner Westwing-Mead Mead Substation Marketplace Authority Interest (LADWP) ...... 11.53850% 0 8.0993% Authority Interest (Members) ...... 18.30770(1) 17.7563% 22.4082(1) Authority Interest (Western) ...... 31.69230 40.3551 31.3175 Arizona Public Service Company ...... 18.15385 19.0476 12.7430 Salt River Project ...... 18.15385 19.0476 21.3823 StarTrans IO, L.L.C...... 2.15380 3.7934 4.0497 Total ...... 100.00000% 100.0000% 100.0000% ______(1) As described herein, the Department also has a 31.0924% entitlement share in the Authority’s 18.3077% member-related ownership share of the Westwing-Mead Component and a 17.8313% entitlement share in the Authority’s 22.4082% member-related ownership share of the Mead-Marketplace Component of the Mead- Phoenix Project.

The 2016 Mead-Phoenix Bonds are secured solely by the related Revenues, which consist primarily of payments to be made to the Authority by the Department pursuant to the Mead-Phoenix Transmission Service Contract (LADWP), and other amounts pledged therefor under the Mead-Phoenix Indenture. Payments made by the Mead-Phoenix Project owners under the Mead-Phoenix Project Agreements do not in any manner secure the payment of principal of and interest on the 2016 Mead- Phoenix Bonds.

See APPENDIX C – “SUMMARIES OF CERTAIN DOCUMENTS – Summary of Certain Provisions of the Mead-Phoenix Joint Ownership Agreement” for additional information regarding the Mead-Phoenix Joint Ownership Agreement.

Operation of the Mead-Phoenix Project. The Mead-Phoenix Project is currently operated by Salt River Project and Western, each as an Operation Manager, pursuant to an Operation Agreement, dated as of August 4, 1992, among the Mead-Phoenix Project owners and Western (the “Mead-Phoenix Operation Agreement”). See APPENDIX C – “SUMMARIES OF CERTAIN DOCUMENTS – Summary of Certain Provisions of the Mead-Phoenix Operation Agreement.” As previously noted, the Department also operates the Marketplace Substation as Operating Agent pursuant to the Marketplace Substation Participation Agreement among the Mead-Adelanto Project owners, the Mead-Phoenix Project owners and the Department.

The Mead-Phoenix Project was designed and constructed to operate in compliance with the applicable federal, state and local laws and regulations. The Authority believes that currently all necessary permits, licenses and approvals are in place for the operation of the Mead-Phoenix Project. In the future,

one or more of these permits, licenses and approvals may need to be extended for the continued operation of the Mead-Phoenix Project. The Authority believes that it will be able to secure any such necessary extensions on a timely basis.

The Mead-Phoenix Project has operated reliably since its commercial operation.

CURRENT OWNERS OF THE MEAD-ADELANTO PROJECT AND THE MEAD-PHOENIX PROJECT

The current owners of the Mead-Adelanto Project are the Authority, StarTrans and M-S-R PPA. The current owners of the Mead-Phoenix Project are the Authority, StarTrans, M-S-R PPA, APS and Salt River Project. Upon the issuance and delivery of the 2016 Bonds, the Authority will purchase from M-S-R PPA all of M-S-R PPA’s undivided, tenants-in-common ownership interest in the Mead-Adelanto Project and in the Mead-Phoenix Project (separate and distinct from the Authority’s prior existing rights, title and interest in the Mead-Adelanto Project and the Mead-Phoenix Project pursuant to the respective Joint Ownership Agreements). Operation of each of the Mead-Adelanto Project and the Mead-Phoenix Project is dependent upon, among other things, the respective owners making timely payment of their respective payment obligations under the Project Agreements and upon Western making timely payment of its payment obligations under its transmission service contracts with the Authority relating to the Mead-Adelanto Project and the Mead-Phoenix Project. The capability of the respective owners to provide such payment is dependent upon their continued ability to generate the necessary funds from internal or external sources. If an owner defaults in the performance of its obligations under the respective Project Agreements, or if Western defaults under its transmission service contract, the non- defaulting owners of the corresponding Project may be required to expend funds or undertake other activities. See APPENDIX C – “SUMMARIES OF CERTAIN DOCUMENTS.”

Information concerning certain of the owners is available from a number of sources, but such information is not incorporated by reference into this Official Statement.

APS is subject to the informational requirements of the Securities Exchange Act of 1934 and in accordance therewith file reports and other information with the Securities and Exchange Commission (the “SEC”), which can be obtained at http://www.sec.gov/edgar/searchedgar/companysearch.html. Copies of such material can also be obtained at prescribed rates from the Public Reference Section of the SEC at its principal office at 100 F Street, N.E., Washington, D.C. 20549.

Copies of the most recent Official Statement and annual report of Salt River Project may be obtained on Salt River Project’s webpage, www.srpnet.com or by writing to Salt River Project Agricultural Improvement and Power District, Corporate Communications, PAB340, P.O. Box 52025, Phoenix, Arizona 85072-2025.

Information regarding Western may be obtained from Ron Moulton, Regional Manager for Operations, United States Department of Energy, Western Area Power Administration, Phoenix Area Office, P.O. Box 6457, Phoenix, Arizona 85005.

StarTrans is a limited liability company owned by Starwood Energy Group Global L.L.C., 591 West Putnam Ave., Greenwich, CT 06830. Publicly available information regarding StarTrans may be limited.

SECURITY AND SOURCES OF PAYMENT FOR THE 2016 MEAD-ADELANTO BONDS

Pledge Effected by the Mead-Adelanto Indenture

The Mead-Adelanto Indenture provides that the 2016 Mead-Adelanto Bonds and any other Mead- Adelanto Bonds issued thereunder shall be special, limited obligations of the Authority payable solely from and secured, as to payment of the principal or Redemption Price thereof, and interest thereon, solely by (i) the proceeds of the sale of the Mead-Adelanto Bonds, including the 2016 Mead-Adelanto Bonds, (ii) the Revenues, and (iii) all amounts on deposit in any Fund or Account established by the Mead- Adelanto Indenture (except for such Funds and Accounts that the Mead-Adelanto Indenture provides are not a source of payment for the Mead-Adelanto Bonds or any Parity Swaps and other than any moneys held by the Trustee or the Authority to pay any rebate amount owed to the federal government) including the investments, if any, thereof, and the same are pledged and assigned pursuant to the Mead-Adelanto Indenture, subject only to the provisions of the Mead-Adelanto Indenture permitting the application thereof for the purposes and on the terms and conditions set forth in the Mead-Adelanto Indenture, as security for the payment of the Mead-Adelanto Bonds, the interest thereon, and premium, if any, with respect thereto, as security for the payment obligations of the Authority under any Parity Swaps and as security for the performance of any other obligations of the Authority under the Mead-Adelanto Indenture, all in accordance with the provisions of the Mead-Adelanto Bonds, the Mead-Adelanto Indenture and any Parity Swaps.

“Revenues” under the Mead-Adelanto Indenture are: (a) all revenues, income, rents and receipts derived or to be derived by the Authority from or attributable to the Authority Interest (LADWP) in the Mead-Adelanto Project or to the payment of the costs thereof received or to be received by the Authority or the Trustee under the Mead-Adelanto Transmission Service Contract (LADWP) or under any other contract for the sale by the Authority of transmission capability of the Authority Interest (LADWP) in the Mead-Adelanto Project or any contractual or other arrangement with respect to the use of such Authority Interest (LADWP) or any portion thereof or the services or capability thereof; (b) proceeds received by the Authority of any insurance, including the proceeds of any self-insurance fund, covering business interruption loss relating to the Authority Interest (LADWP); and (c) interest received or to be received on any moneys or securities held pursuant to the Mead-Adelanto Indenture and required to be paid into the Revenue Fund under the Mead-Adelanto Indenture; but excluding (x) interest and other investment income received or to be received on any moneys or securities held pursuant to an indenture of trust entered into by the Authority with respect to bonds, notes or other evidences of indebtedness payable on a basis subordinate to the 2016 Mead-Adelanto Bonds and any other Mead-Adelanto Bonds except to the extent that the Authority specifies that such interest and other investment income shall constitute Revenues under the Mead-Adelanto Indenture, (y) amounts received by or on behalf of the Authority pursuant to any interest rate swap agreement or interest rate cap agreement relating to the Mead-Adelanto Indenture except to the extent that the Authority specifies that such amounts shall constitute Revenues under the Mead-Adelanto Indenture and (z) amounts received by or on behalf of the Authority pursuant to a Letter of Credit relating to the Mead-Adelanto Indenture except to the extent that the Authority specifies that such amounts shall constitute Revenues under the Mead-Adelanto Indenture. Revenues under the Mead-Adelanto Indenture shall not include any Subsidy Payment received by the Authority, which Subsidy Payment shall be applied as provided in the Supplemental Indenture relating to the Series of Mead-Adelanto Bonds for which such Subsidy Payment is received.

The 2016 Mead-Adelanto Bonds are not obligations of the State of California, any public agency thereof (other than the Authority), the Project Participant or any other member of the Authority, and neither the faith and credit nor the taxing power of any of the foregoing (including the Authority) is pledged for the payment of the 2016 Mead-Adelanto Bonds. The 2016 Mead-Adelanto Bonds shall never constitute the debt or indebtedness of the Authority within the meaning of any provision or limitation of

the Constitution or statutes of the State of California and shall not constitute nor give rise to a pecuniary liability of the Authority or a charge against its general credit. The Authority has no taxing power.

See APPENDIX C – “SUMMARIES OF CERTAIN DOCUMENTS – Summary of Certain Provisions of the Indentures” for certain definitions and further discussion of certain of the terms and provisions of the Mead-Adelanto Indenture.

Mead-Adelanto Transmission Service Contract (LADWP)

General. The Authority has entered into the Mead-Adelanto Transmission Service Contract (LADWP) with the Department, as Project Participant, with respect to the Authority Interest (LADWP) in the Mead-Adelanto Project. Pursuant to the Mead-Adelanto Transmission Service Contract (LADWP), the Authority provides to the Department, and the Department purchases from the Authority, use of 100% of the capability of the Authority Interest (LADWP) in the Mead-Adelanto Project. In accordance with the Mead-Adelanto Indenture, payments made by the Department under the Mead-Adelanto Transmission Service Contract (LADWP) constitute Revenues securing the payment of debt service on the Mead- Adelanto Bonds (including the 2016 Mead-Adelanto Bonds).

Term of the Transmission Service Contract. The Mead-Adelanto Transmission Service Contract (LADWP) constitutes an obligation of the Authority and the Department until the expiration of its term on the later of (i) the date the Joint Powers Agreement, including any extension thereof, expires, or (ii) the date on which all Mead-Adelanto Bonds issued by the Authority to finance or refinance costs of the Authority Interest (LADWP) and the interest thereon shall have been paid in full or adequate provision for such payment shall have been made and such Mead-Adelanto Bonds are no longer outstanding. However, the Mead-Adelanto Transmission Service Contract (LADWP) may be otherwise terminated if (a) all such Mead-Adelanto Bonds and all interest thereon shall have been paid in full or adequate provision for such payment shall have been made and such Mead-Adelanto Bonds are no longer outstanding; and (b) the Mead-Adelanto Transmission Service Contract (LADWP) is superseded as a result of the Department having either (1) become the owner of the Authority Interest (LADWP) under the Joint Ownership Agreement or (2) entered into replacement transmission service or other agreements with the Authority. Until all Mead-Adelanto Bonds and the interest thereon shall have been paid in full or adequate provision for such payment has been made, the Mead-Adelanto Transmission Service Contract (LADWP) may not be amended, modified, supplemented or otherwise altered in any manner which will materially reduce the amount of, or extend the time for, the payments which are pledged as security for the Mead-Adelanto Bonds or which will in any manner impair or adversely affect the federal tax exemption of any Mead-Adelanto Bonds that are tax-exempt or which will materially impair or materially adversely affect the rights of the owners of the Mead-Adelanto Bonds.

Payment Obligations of the Project Participant; Annual Budget and Billing. Pursuant to the Mead-Adelanto Transmission Service Contract (LADWP), during each Transmission Service Year, the Department is obligated to pay as Transmission Service Costs all of the Authority’s costs to the extent such costs are attributable to the Authority Interest (LADWP) (and not paid from the proceeds of Mead- Adelanto Bonds), including all items as required by the Mead-Adelanto Indenture. Transmission Service Costs are to be billed to the Department each month for the then current month based on the estimates contained in the applicable Annual Budget (as hereinafter defined) prepared by the Authority prior to the beginning of each Transmission Service Year, as such Annual Budget may be amended during such year.

The Mead-Adelanto Transmission Service Contract (LADWP) requires the Authority to prepare and submit to the Department a proposed annual budget (the “Annual Budget”) at least 60 days prior to the beginning of each Transmission Service Year (i.e., each Fiscal Year, except that the first annual budget shall be prepared, considered, adopted and delivered in the most practical manner available). The Authority will incorporate into the Annual Budget all items comprising a part of Transmission Service

Costs for such Transmission Service Year, including provisions for payment of costs of Capital Improvements which are not being financed by proceeds of Mead-Adelanto Bonds, and including all items required by the Mead-Adelanto Indenture. The Department may then submit to the Authority, at any time until the Annual Budget is adopted, any matters or suggestions relating to the Annual Budget. The Authority is required to adopt the Annual Budget not less than 20 nor more than 45 days prior to the beginning of each such Transmission Service Year and shall cause copies of the adopted Annual Budget to be delivered to the Department; provided, however, that the Annual Budget for the first Transmission Service Year shall be prepared, considered, adopted and delivered in the most practicable manner available. The Annual Budget so adopted will establish the basis for the billing of Transmission Service Costs to the Department. The Mead-Adelanto Indenture provides that during any Transmission Service Year, upon 10 calendar days’ notice to the Department, the Authority may adopt an amended Annual Budget for and applicable to such Transmission Service Year for the remainder of such Transmission Service Year.

Pursuant to the Mead-Adelanto Indenture, each Annual Budget shall set forth in reasonable detail the estimated Revenues required to be collected for the applicable Fiscal Year and the estimated amount to be deposited in each month of the Fiscal Year in the Funds and Accounts under the Mead-Adelanto Indenture, and shall include particularly, provision for the amounts required (or in good faith estimated to be required) for the accrual or payment (as applicable) of Accrued Debt Service on the Mead-Adelanto Bonds, the payment of Authority Operating Expenses, the funding or replenishment of any reserves (including all Accounts in the Debt Service Reserve Fund) required by the Mead-Adelanto Indenture, provision for any general reserve for Authority Operating Expenses and the estimated amount to be deposited in the Reserve and Contingency Fund (if any), and provision for any such other expenditures and deposits as the Authority shall determine shall be necessary or appropriate so as to enable the Authority to comply with the requirements of the Mead-Adelanto Indenture and the Mead-Adelanto Project Agreements, including, where applicable, provision for the payment of the allocable costs of Capital Improvements which are not being financed by proceeds of Mead-Adelanto Bonds for such Fiscal Year. The Mead-Adelanto Indenture provides that if there are at any time during any Fiscal Year extraordinary receipts or payments of unusual costs with respect to the Authority Interest (LADWP), or the amount in the Debt Service Fund or the Debt Service Reserve Fund shall be less than the respective balances required by the Mead-Adelanto Indenture, the Authority shall promptly adopt in accordance with the provisions of the Mead-Adelanto Transmission Service Contract (LADWP) and file with the Trustee an amended Annual Budget for the remainder of such Fiscal Year. The Authority may also at any time adopt in accordance with the provisions of the Mead-Adelanto Transmission Service Contract (LADWP) and file with the Trustee an amended Annual Budget for the remainder of the then current Fiscal Year.

By the fifth calendar day of each Month during each Transmission Service Year, the Authority will bill the Department for the amount of the Transmission Service Costs to be paid by the Department for the current Month by providing the Department with a Monthly Statement pursuant to the provisions of the Mead-Adelanto Transmission Service Contract (LADWP). The Monthly Statement will detail the costs described above. Pursuant to the Mead-Adelanto Transmission Service Contract (LADWP), the Department is obligated to pay or cause to be paid the amount of each Monthly Statement within 20 calendar days after receipt of each such Monthly Statement, in funds immediately available as of the due date thereof.

Within 150 days after the end of each Transmission Service Year, the Authority will submit to the Department a detailed statement of the actual aggregate amounts payable under the Mead-Adelanto Transmission Service Contract (LADWP) for such year and any adjustments to such amounts for any prior year, based on the annual audit required by the Mead-Adelanto Transmission Service Contract (LADWP). If for any Transmission Service Year the actual amounts payable by the Department under the Mead-Adelanto Transmission Service Contract (LADWP) exceed the amount which the Department

has been billed, the Department shall promptly pay the amount of such excess to the Trustee; if such amounts are less than the amounts billed and paid, the Authority will credit the excess against the Department’s next Monthly Statement.

Payments Constitute an Operating Expense. The payment obligations of the Department under the Mead-Adelanto Transmission Service Contract (LADWP) constitute a cost of transmission service and an operating expense of the electric utility system of the Department, payable solely from its electric revenue funds. As an operating expense of its electric system, the payment obligations of the Department under the Mead-Adelanto Transmission Service Contract (LADWP) and all other of its “take-or-pay” contract obligations are payable on a parity with the Department’s electric system revenue bonds.

Project Participant Covenant to Maintain Sufficient Rates. The Department has covenanted in the Mead-Adelanto Transmission Service Contract (LADWP) to establish, maintain and collect rates and charges for the electric service of its electric system so as to provide revenues sufficient, together with its available electric system reserves, to enable it to pay all amounts payable when due under the Mead- Adelanto Transmission Service Contract (LADWP) and to pay all other amounts payable from, and all lawful charges against or liens on, the revenues of its electric system.

“Take-or-Pay” Obligation. Payments are to be made by the Department under the Mead- Adelanto Transmission Service Contract (LADWP) on a “take-or-pay” basis, that is, whether or not the Mead-Adelanto Project or any part thereof is operating or operable, or its service is suspended, interfered with, reduced or curtailed or terminated in whole or in part. Such payments shall not be subject to reduction whether by offset or otherwise and shall not be conditional upon the performance or nonperformance by any party of any agreement for any cause whatsoever.

Remedies Upon Default. In the event of a default or inability of the Department to perform under the Mead-Adelanto Transmission Service Contract (LADWP), the Authority is obligated to proceed to enforce the Department’s covenants or obligations thereunder, or seek damages or injunctive relief for the breach thereof, by action at law. If the Department shall fail to make any payment when due under the Mead-Adelanto Transmission Service Contract (LADWP) and such failure continues for at least 30 calendar days after notice thereof has been given to the Department (a “Payment Default”), the Authority may also, upon 30 days’ written notice to the Department, require the Department to discontinue use of the Mead-Adelanto Project facilities (including without limitation discontinuance of the right to schedule energy with respect thereto) while the default continues.

In the event of a Payment Default by the Department and the discontinuation of the use by the Department of the Mead-Adelanto Project facilities, the Authority will offer for transfer or temporary use such rights to any requesting owner of the Mead-Adelanto Project pursuant to the Joint Ownership Agreement, on a pro rata basis if such requests exceed the amount of the Department’s remaining rights, and then to third parties; provided, however, that the Authority may not offer for transfer or temporary use the Department’s rights and obligations in such a manner as shall, in the opinion of Bond Counsel, adversely affect the federal tax exemption of any Mead-Adelanto Bonds that are tax-exempt. Except as a result of a transfer or disposal of the Department’s rights to transmission service as described above, the discontinuance of transmission service to the Department by the Authority will not reduce the obligation of the Department to make payments under the Mead-Adelanto Transmission Service Contract (LADWP).

See APPENDIX C – “SUMMARIES OF CERTAIN DOCUMENTS – Summary of Certain Provisions of the Mead-Adelanto Transmission Service Contract (LADWP)” for a discussion of certain additional provisions of the Mead-Adelanto Transmission Service Contract (LADWP).

Flow of Funds Under the Mead-Adelanto Indenture

The Mead-Adelanto Indenture establishes the following Funds and Accounts, each of which is held by the Trustee thereunder: (i) Project Fund; (ii) Revenue Fund; (iii) Operating Fund (consisting of the Operating Account and the Operating Reserve Account); (iv) Debt Service Fund; (v) Debt Service Reserve Fund; (vi) Reserve and Contingency Fund; and (vii) General Reserve Fund. The Project Fund under the Mead-Adelanto Indenture includes the following accounts therein: (A) the Mead-Adelanto Project, Authority Interest (LADWP), Revenue Bonds, 2016 Series A Project Account and the Mead- Adelanto Project, Authority Interest (LADWP), Revenue Bonds, 2016 Series A, Costs of Issuance Subaccount therein as established under the First Supplemental Indenture relating to the 2016 Mead- Adelanto Bonds. The Debt Service Fund under the Mead-Adelanto Indenture includes the following accounts therein: (A) the Participating Bonds Debt Service Account; (B) each Series Debt Service Account established pursuant to a Supplemental Indenture providing for the issuance of a Series of Mead- Adelanto Bonds that are not Participating Bonds, including the Mead-Adelanto Project, Authority Interest (LADWP), Revenue Bonds, 2016 Series A, Debt Service Account therein as established under the First Supplemental Indenture relating to the 2016 Mead-Adelanto Bonds (the Participating Bonds Debt Service Account and each Series Debt Service Account under the Mead-Adelanto Indenture being referred to under this caption as a “Debt Service Account”); and (C) each Letter of Credit Account, if any, established pursuant to a future Supplemental Indenture providing for the issuance of a Series of Mead- Adelanto Bonds for which a Letter of Credit is provided. The Debt Service Reserve Fund under the Mead-Adelanto Indenture includes the following accounts therein: (A) the Participating Bonds Debt Service Reserve Account; and (B) each Series Debt Service Reserve Account (if any) established pursuant to a Supplemental Indenture providing for the issuance of a Series of Mead-Adelanto Bonds that are not Participating Bonds, including the Mead-Adelanto Project, Authority Interest (LADWP), Revenue Bonds, 2016 Series A, Debt Service Reserve Account therein (which account is not being funded in connection with the issuance of the 2016 Mead-Adelanto Bonds) as established under the First Supplemental Indenture relating to the 2016 Mead-Adelanto Bonds (the Participating Bonds Debt Service Reserve Account and each Series Debt Service Reserve Account under the Mead-Adelanto Indenture being referred to under this caption as a “Mead-Adelanto Bonds Debt Service Reserve Account”).

Pursuant to the Mead-Adelanto Indenture, all Revenues and, except as otherwise provided in a Supplemental Indenture, any interest and other investment income received on any moneys or securities held pursuant to the Mead-Adelanto Indenture, received by the Trustee are to be deposited promptly in the Revenue Fund. Amounts in the Revenue Fund are to be paid monthly to the following Funds and Accounts in the following order of priority:

(1) To the (i) Operating Account, a sum that is equal to the total moneys appropriated for Authority Operating Expenses for deposit in the Operating Account as provided in the Annual Budget for the then current month and (ii) Operating Reserve Account, the amount required so that the amount in the Operating Reserve Account will equal the amount (if any) required to be in such Account as provided in the Annual Budget. There may be deposited in the Operating Reserve Account proceeds of Mead-Adelanto Bonds or any portion thereof or moneys received in connection with the Authority Interest (LADWP) in the Mead-Adelanto Project or any portion thereof from any other source, as provided in the Mead-Adelanto Indenture, unless required to be applied as otherwise provided in the Mead-Adelanto Indenture. Any excess amounts in the Operating Account or the Operating Reserve Account, as determined by the Authority, will be applied to make up any deficiencies in the other Funds or Accounts established pursuant to the Mead-Adelanto Indenture as described therein; and thereafter any remaining excess shall be transferred to the General Reserve Fund.

(2) To the Debt Service Fund (for the ratable security and payment pursuant to clause (i) and clause (ii) of this paragraph (2) (except as otherwise provided in the Mead-

Adelanto Indenture and subject to the provisions thereof)), (i) (A) for credit to the Participating Bonds Debt Service Account the amount, if any, required so that the balance in said Account shall equal the Accrued Debt Service with respect to Mead-Adelanto Bonds that are Participating Bonds as of the last day of the then current month, and (B) for credit to each Series Debt Service Account, the amount, if any, required so that the balance in each such Account shall equal the Accrued Debt Service with respect to the related Series of Mead-Adelanto Bonds that are not Participating Bonds as of the last day of the then current month (excluding the amount, if any, set aside in such Account from the proceeds of Mead-Adelanto Bonds (including amounts, if any, transferred from the Project Fund) for the payment of interest on the related Mead-Adelanto Bonds, less that amount of such proceeds to be applied in accordance with the Mead-Adelanto Indenture to the payment of interest accrued and unpaid and to accrue on such related Mead- Adelanto Bonds to the last day of the then current calendar month) and (ii) (A) for credit to the Participating Bonds Debt Service Account, the amounts due and payable by the Authority during such month under any Parity Swap which shall be designated to the Trustee by an Authorized Authority Representative as a Parity Swap for Participating Bonds as provided in the related Supplemental Indenture or Supplemental Indentures, and (B) for credit to each Series Debt Service Account, the amounts due and payable by the Authority during such month under any Parity Swap which shall be designated to the Trustee by an Authorized Authority Representative as a Parity Swap for the related Series of Mead-Adelanto Bonds as provided in the related Supplemental Indenture or Supplemental Indentures (with any termination payments under any Parity Swaps to be payable on a basis subordinate and junior to the payments to be made on the Mead-Adelanto Bonds); provided, however, that, in any event, if there is a deficiency of Revenues to make all of the deposits required, such Revenues shall be deposited into each Debt Service Account on a pro rata basis based on the amounts due. The Trustee will apply amounts in the Participating Bonds Debt Service Account to the payment of principal of and interest on the Mead-Adelanto Bonds that are Participating Bonds, and will apply amounts in each Series Debt Service Account to the payment of principal of and interest on the related Series of Mead- Adelanto Bonds. Amounts set aside for the payment of Parity Swaps will be applied by the Trustee to any regularly-scheduled amounts due and payable by the Authority under any such Parity Swap on the due date therefor.

(3) To the Debt Service Reserve Fund, for credit to the Participating Bonds Debt Service Reserve Account and each Series Debt Service Reserve Account, the amount, if any, required to be deposited therein so that the balance in each such Account shall be equal to the requirement therefor as of the last day of the then current month; provided, however, that, in any event, if there shall be a deficiency of Revenues to make all of the deposits required, such Revenues shall be deposited into each Debt Service Reserve Account on a pro rata basis based on the amounts due. Pursuant to the First Supplemental Indenture relating to the 2016 Mead- Adelanto Bonds, the debt service reserve requirement for the 2016 Mead-Adelanto Bonds shall be $0, and no Debt Service Reserve Account will be funded with respect to the 2016 Mead-Adelanto Bonds.

(4) To the Reserve and Contingency Fund, the amount, if any, provided for deposit therein during the then current month as provided in the Annual Budget, in accordance with written instructions from the Authority.

(5) To the General Reserve Fund, the balance, if any, in the Revenue Fund after making the above deposits.

For a more detailed discussion of the application of moneys deposited in the various funds and accounts under the Mead-Adelanto Indenture, see APPENDIX C – “SUMMARIES OF CERTAIN DOCUMENTS – Summary of Certain Provisions of the Indentures – Application of Revenues.”

Authority Rate Covenant

Pursuant to the Mead-Adelanto Indenture, the Authority has covenanted to at all times establish and collect (or cause to be collected) amounts for the use of the Authority Interest (LADWP) in the Mead- Adelanto Project (including amounts payable under the Mead-Adelanto Transmission Service Contract (LADWP)) as shall be required to provide Revenues at least sufficient in each Fiscal Year, together with other available funds, for the payment of the following:

(i) The Authority Operating Expenses during such Fiscal Year;

(ii) An amount equal to the Aggregate Debt Service for such Fiscal Year;

(iii) The amount, if any, to be paid during such Fiscal Year into the Participating Bonds Debt Service Reserve Account and any Series Debt Service Reserve Account created under the Mead-Adelanto Indenture;

(iv) The amount, if any, to be paid during such Fiscal Year into the Reserve and Contingency Fund created under the Mead-Adelanto Indenture;

(v) The amount, if any, required to be paid into any fund or account during such Fiscal Year with respect to bonds, notes or other evidences of indebtedness payable on a basis subordinate to the Mead-Adelanto Bonds;

(vi) The amount, if any, required to be deposited in the General Reserve Fund under the Mead-Adelanto Indenture during such Fiscal Year; and

(vii) The amount, if any, required to pay all other charges or liens whatsoever payable out of Revenues during such Fiscal Year.

No Funded Debt Service Reserve Account

Pursuant to the First Supplemental Indenture relating to the 2016 Mead-Adelanto Bonds, the 2016 Mead-Adelanto Bonds are not “Participating Bonds” under the Mead-Adelanto Indenture and will not be secured by the Participating Bonds Debt Service Reserve Account created under the Mead-Adelanto Indenture. The First Supplemental Indenture relating to the 2016 Mead-Adelanto Bonds further provides that the 2016 Series A Debt Service Reserve Requirement for the 2016 Mead-Adelanto Bonds shall be $0, and therefore, no Series Debt Service Reserve Account will be funded with respect to any of the 2016 Mead-Adelanto Bonds.

Additional Mead-Adelanto Bonds and Other Obligations

In addition to the 2016 Mead-Adelanto Bonds, the Authority reserves the right to issue additional Mead-Adelanto Bonds under the Mead-Adelanto Indenture for the purposes of funding Costs of Acquisition and Operations (as defined in the Mead-Adelanto Transmission Service Contract (LADWP) of the Authority Interest (LADWP), including to pay, if necessary, the costs of any Capital Improvements with respect to the Mead-Adelanto Project attributable to the Authority Interest (LADWP)) on, and subject to, the terms and conditions set forth in the Mead-Adelanto Indenture. Refunding Mead-Adelanto Bonds may also be issued subject to certain terms and conditions. Such Mead-Adelanto Bonds would rank equally as to security and payment with the 2016 Mead-Adelanto Bonds and any other Mead- Adelanto Bonds issued under the Mead-Adelanto Indenture. Although the Authority has no plans to do so, the Authority may also, from time to time, enter into interest rate swap agreements payable (other than with respect to termination payments thereunder, which are required to be payable on a basis junior and

subordinate to the payment of the Mead-Adelanto Bonds) on a parity basis with the payment of the Mead- Adelanto Bonds.

See also APPENDIX C –“SUMMARIES OF CERTAIN DOCUMENTS – Summary of Certain Provisions of the Indentures – Certain Requirements of and Conditions to Issuance of Bonds” and “– Refunding Bonds.”

SECURITY AND SOURCES OF PAYMENT FOR THE 2016 MEAD-PHOENIX BONDS

Pledge Effected by the Mead-Phoenix Indenture

The Mead-Phoenix Indenture provides that the 2016 Mead-Phoenix Bonds and any other Mead- Phoenix Bonds issued thereunder shall be special, limited obligations of the Authority payable solely from and secured, as to payment of the principal or Redemption Price thereof, and interest thereon, solely by (i) the proceeds of the sale of the Mead-Phoenix Bonds, including the 2016 Mead-Phoenix Bonds, (ii) the Revenues, and (iii) all amounts on deposit in any Fund or Account established by the Mead- Phoenix Indenture (except for such Funds and Accounts that the Mead-Phoenix Indenture provides are not a source of payment for the Mead-Phoenix Bonds or any Parity Swaps and other than any moneys held by the Trustee or the Authority to pay any rebate amount owed to the federal government) including the investments, if any, thereof, and the same are pledged and assigned pursuant to the Mead-Phoenix Indenture, subject only to the provisions of the Mead-Phoenix Indenture permitting the application thereof for the purposes and on the terms and conditions set forth in the Mead-Phoenix Indenture, as security for the payment of the Mead-Phoenix Bonds, the interest thereon, and premium, if any, with respect thereto, as security for the payment obligations of the Authority under any Parity Swaps and as security for the performance of any other obligations of the Authority under the Mead-Phoenix Indenture, all in accordance with the provisions of the Mead-Phoenix Bonds, the Mead-Phoenix Indenture and any Parity Swaps.

“Revenues” under the Mead-Phoenix Indenture are: (a) all revenues, income, rents and receipts derived or to be derived by the Authority from or attributable to the Authority Interest (LADWP) in the Mead-Phoenix Project or to the payment of the costs thereof received or to be received by the Authority or the Trustee under the Mead-Phoenix Transmission Service Contract (LADWP) or under any other contract for the sale by the Authority of transmission capability of the Authority Interest (LADWP) in the Mead-Phoenix Project or any contractual or other arrangement with respect to the use of such Authority Interest (LADWP) or any portion thereof or the services or capability thereof; (b) proceeds received by the Authority of any insurance, including the proceeds of any self-insurance fund, covering business interruption loss relating to the Authority Interest (LADWP); and (c) interest received or to be received on any moneys or securities held pursuant to the Mead-Phoenix Indenture and required to be paid into the Revenue Fund under the Mead-Phoenix Indenture; but excluding (x) interest and other investment income received or to be received on any moneys or securities held pursuant to an indenture of trust entered into by the Authority with respect to bonds, notes or other evidences of indebtedness payable on a basis subordinate to the 2016 Mead-Phoenix Bonds and any other Mead-Phoenix Bonds except to the extent that the Authority specifies that such interest and other investment income shall constitute Revenues under the Mead-Phoenix Indenture, (y) amounts received by or on behalf of the Authority pursuant to any interest rate swap agreement or interest rate cap agreement relating to the Mead-Phoenix Indenture except to the extent that the Authority specifies that such amounts shall constitute Revenues under the Mead- Phoenix Indenture and (z) amounts received by or on behalf of the Authority pursuant to a Letter of Credit relating to the Mead-Phoenix Indenture except to the extent that the Authority specifies that such amounts shall constitute Revenues under the Mead-Phoenix Indenture. Revenues under the Mead- Phoenix Indenture shall not include any Subsidy Payment received by the Authority, which Subsidy Payment shall be applied as provided in the Supplemental Indenture relating to the Series of Mead- Phoenix Bonds for which such Subsidy Payment is received.

The 2016 Mead-Phoenix Bonds are not obligations of the State of California, any public agency thereof (other than the Authority), the Project Participant or any other member of the Authority, and neither the faith and credit nor the taxing power of any of the foregoing (including the Authority) is pledged for the payment of the 2016 Mead-Phoenix Bonds. The 2016 Mead-Phoenix Bonds shall never constitute the debt or indebtedness of the Authority within the meaning of any provision or limitation of the Constitution or statutes of the State of California and shall not constitute nor give rise to a pecuniary liability of the Authority or a charge against its general credit. The Authority has no taxing power.

Mead-Phoenix Transmission Service Contract (LADWP)

General. The Authority has entered into the Mead-Phoenix Transmission Service Contract (LADWP) with the Department, as Project Participant, with respect to the Authority Interest (LADWP) in the Mead-Phoenix Project. Pursuant to the Mead-Phoenix Transmission Service Contract (LADWP), the Authority provides to the Department, and the Department purchases from the Authority, use of 100% of the capability of the Authority Interest (LADWP) in the Mead-Phoenix Project. In accordance with the Mead-Phoenix Indenture, payments made by the Department under the Mead-Phoenix Transmission Service Contract (LADWP) constitute Revenues securing the payment of debt service on the Mead- Phoenix Bonds (including the 2016 Mead-Phoenix Bonds).

Term of the Transmission Service Contract. The Mead-Phoenix Transmission Service Contract (LADWP) constitutes an obligation of the Authority and the Department until the expiration of its term on the later of (i) the date the Joint Powers Agreement, including any extension thereof, expires, or (ii) the date on which all Mead-Phoenix Bonds issued by the Authority to finance or refinance costs of the Authority Interest (LADWP) and the interest thereon shall have been paid in full or adequate provision for such payment shall have been made and such Mead-Phoenix Bonds are no longer outstanding. However, the Mead-Phoenix Transmission Service Contract (LADWP) may otherwise be terminated if (a) all such Mead-Phoenix Bonds and all interest thereon shall have been paid in full or adequate provision for such payment shall have been made and such Mead-Phoenix Bonds are no longer outstanding; and (b) the Mead-Phoenix Transmission Service Contract (LADWP) is superseded as a result of the Department having either (1) become the owner of the Authority Interest (LADWP) under the Joint Ownership Agreement or (2) entered into replacement transmission service or other agreements with the Authority. Until all Mead-Phoenix Bonds and the interest thereon shall have been paid in full or adequate provision for such payment has been made, the Mead-Phoenix Transmission Service Contract (LADWP) may not be amended, modified, supplemented or otherwise altered in any manner which will materially reduce the amount of, or extend the time for, the payments which are pledged as security for the Mead-Phoenix Bonds or which will in any manner impair or adversely affect the federal tax exemption of any Mead-Phoenix Bonds that are tax-exempt or which will materially impair or materially adversely affect the rights of the owners of the Mead-Phoenix Bonds.

Payment Obligations of the Project Participant; Annual Budget and Billing. Pursuant to the Mead-Phoenix Transmission Service Contract (LADWP), during each Transmission Service Year, the Department is obligated to pay as Transmission Service Costs all of the Authority’s costs to the extent such costs are attributable to the Authority Interest (LADWP) (and not paid from the proceeds of Mead- Phoenix Bonds), including all items required by the Mead-Phoenix Indenture. Transmission Service Costs are to be billed to the Department each month for the then current month based on the estimates contained in the applicable Annual Budget (as hereinafter defined) prepared by the Authority prior to the beginning of each Transmission Service Year, as such Annual Budget may be amended during such year.

The Mead-Phoenix Transmission Service Contract (LADWP) requires the Authority to prepare and submit to the Department a proposed annual budget (the “Annual Budget”) at least 60 days prior to the beginning of each Transmission Service Year (i.e., each Fiscal Year, except that the first annual budget shall be prepared, considered, adopted and delivered in the most practical manner available). The Authority will incorporate into the Annual Budget all items comprising a part of Transmission Service Costs for such Transmission Service Year, including provisions for payment of costs of Capital Improvements which are not being financed by proceeds of Mead-Phoenix Bonds, and including all items as required by the Mead-Phoenix Indenture. The Department may then submit to the Authority, at any time until the Annual Budget is adopted, any matters or suggestions relating to the Annual Budget. The Authority is required to adopt the Annual Budget not less than 20 nor more than 45 days prior to the beginning of each such Transmission Service Year and shall cause copies of the adopted Annual Budget to be delivered to the Department; provided, however, that the Annual Budget for the first Transmission Service Year shall be prepared, considered, adopted and delivered in the most practicable manner available. The Annual Budget so adopted will establish the basis for the billing of Transmission Service Costs to the Department. The Mead-Phoenix Indenture provides that during any Transmission Service Year, upon 10 calendar days’ notice to the Department, the Authority may adopt an amended Annual Budget for and applicable to such Transmission Service Year for the remainder of such Transmission Service Year.

Pursuant to the Mead-Phoenix Indenture, each Annual Budget shall set forth in reasonable detail the estimated Revenues required to be collected for the applicable Fiscal Year and the estimated amount to be deposited in each month of the Fiscal Year in the Funds and Accounts under the Mead-Phoenix Indenture, and shall include particularly, provision for the amounts required (or in good faith estimated to be required) for the accrual or payment (as applicable) of Accrued Debt Service on the Mead-Phoenix Bonds, the payment of Authority Operating Expenses, the funding or replenishment of any reserves (including all Accounts in the Debt Service Reserve Fund) required by the Mead-Phoenix Indenture, provision for any general reserve for Authority Operating Expenses and the estimated amount to be deposited in the Reserve and Contingency Fund (if any), and provision for any such other expenditures and deposits as the Authority shall determine shall be necessary or appropriate so as to enable the Authority to comply with the requirements of the Mead-Phoenix Indenture and the Mead-Phoenix Project Agreements, including, where applicable, provision for the payment of the allocable costs of Capital Improvements which are not being financed by proceeds of Mead-Phoenix Bonds for such Fiscal Year. The Mead-Phoenix Indenture provides that if there are at any time during any Fiscal Year extraordinary receipts or payments of unusual costs with respect to the Authority Interest (LADWP), or the amount in the Debt Service Fund or the Debt Service Reserve Fund shall be less than the respective balances required by the Mead-Phoenix Indenture, the Authority shall promptly adopt in accordance with the provisions of the Mead-Phoenix Transmission Service Contract (LADWP) and file with the Trustee an amended Annual Budget for the remainder of such Fiscal Year. The Authority may also at any time adopt in accordance with the provisions of the Mead-Phoenix Transmission Service Contract (LADWP) and file with the Trustee an amended Annual Budget for the remainder of the then current Fiscal Year.

By the fifth calendar day of each Month during each Transmission Service Year, the Authority will bill the Department for the amount of the Transmission Service Costs to be paid by the Department for the current Month by providing the Department with a Monthly Statement pursuant to the provisions of the Mead-Phoenix Transmission Service Contract (LADWP). The Monthly Statement will detail the costs described above. Pursuant to the Mead-Phoenix Transmission Service Contract (LADWP), the Department is obligated to pay or cause to be paid the amount of each Monthly Statement within 20 calendar days after receipt of each such Monthly Statement, in funds immediately available as of the due date thereof.

Within 150 days after the end of each Transmission Service Year, the Authority will submit to the Department a detailed statement of the actual aggregate amounts payable under the Mead-Phoenix Transmission Service Contract (LADWP) for such year and any adjustments to such amounts for any prior year, based on the annual audit required by the Mead-Phoenix Transmission Service Contract (LADWP). If for any Transmission Service Year the actual amounts payable by the Department under the Mead-Phoenix Transmission Service Contract (LADWP) exceed the amount which the Department has been billed, the Department shall promptly pay the amount of such excess to the Trustee; if such amounts are less than the amounts billed and paid, the Authority will credit the excess against the Department’s next Monthly Statement.

Payments Constitute an Operating Expense. The payment obligations of the Department under the Mead-Phoenix Transmission Service Contract (LADWP) constitute a cost of transmission service and an operating expense of the electric utility system of the Department, payable solely from its electric revenue funds. As an operating expense of its electric system, the payment obligations of the Department under the Mead-Phoenix Transmission Service Contract (LADWP) and all other of its “take-or-pay” contract obligations are payable on a parity with the Department’s electric system revenue bonds.

Project Participant Covenant to Maintain Sufficient Rates. The Department has covenanted in the Mead-Phoenix Transmission Service Contract (LADWP) to establish, maintain and collect rates and charges for the electric service of its electric system so as to provide revenues sufficient, together with its available electric system reserves, to enable it to pay all amounts payable when due under the Mead- Phoenix Transmission Service Contract (LADWP) and to pay all other amounts payable from, and all lawful charges against or liens on, the revenues of its electric system.

“Take-or-Pay” Obligation. Payments are to be made by the Department under the Mead- Phoenix Transmission Service Contract (LADWP) on a “take-or-pay” basis, that is, whether or not the Mead-Phoenix Project or any part thereof is operating or operable, or its service is suspended, interfered with, reduced or curtailed or terminated in whole or in part. Such payments shall not be subject to reduction whether by offset or otherwise and shall not be conditional upon the performance or nonperformance by any party of any agreement for any cause whatsoever.

Remedies Upon Default. In the event of a default or inability of the Department to perform under the Mead-Phoenix Transmission Service Contract (LADWP), the Authority is obligated to proceed to enforce the Department’s covenants or obligations thereunder, or seek damages or injunctive relief for the breach thereof, by action at law. If the Department shall fail to make any payment when due under the Mead-Phoenix Transmission Service Contract (LADWP) and such failure continues for at least 30 calendar days after notice thereof has been given to the Department (a “Payment Default”), the Authority may also, upon 30 days’ written notice to the Department, require the Department to discontinue use of the Mead-Phoenix Project facilities (including without limitation discontinuance of the right to schedule energy with respect thereto) while the default continues.

In the event of a Payment Default by the Department and the discontinuation of the use by the Department of the Mead-Phoenix Project facilities, the Authority will offer for transfer or temporary use such rights to any requesting owner of the Mead-Phoenix Project pursuant to the Joint Ownership Agreement, on a pro rata basis if such requests exceed the amount of the Department’s remaining rights, and then to third parties; provided, however, that the Authority may not offer for transfer or temporary use the Department’s rights and obligations in such a manner as shall, in the opinion of Bond Counsel, adversely affect the federal tax exemption of any Mead-Phoenix Bonds that are tax-exempt. Except as a result of a transfer or disposal of the Department’s rights to transmission service as described above, the discontinuance of transmission service to the Department by the Authority will not reduce the obligation of the Department to make payments under the Mead-Phoenix Transmission Service Contract (LADWP).

See APPENDIX C – “SUMMARIES OF CERTAIN DOCUMENTS – Summary of Certain Provisions of the Mead-Phoenix Transmission Service Contract (LADWP)” for a discussion of certain additional provisions of the Mead-Phoenix Transmission Service Contract (LADWP).

Flow of Funds Under the Mead-Phoenix Indenture

The Mead-Phoenix Indenture establishes the following Funds and Accounts, each of which is held by the Trustee thereunder: (i) Project Fund; (ii) Revenue Fund; (iii) Operating Fund (consisting of the Operating Account and the Operating Reserve Account); (iv) Debt Service Fund; (v) Debt Service Reserve Fund; (vi) Reserve and Contingency Fund; and (vii) General Reserve Fund. The Project Fund under the Mead-Phoenix Indenture includes the following accounts therein: (A) the Mead-Phoenix Project, Authority Interest (LADWP), Revenue Bonds, 2016 Series A Project Account and the Mead- Phoenix Project, Authority Interest (LADWP), Revenue Bonds, 2016 Series A, Costs of Issuance Subaccount therein as established under the First Supplemental Indenture relating to the 2016 Mead- Phoenix Bonds. The Debt Service Fund under the Mead-Phoenix Indenture includes the following accounts therein: (A) the Participating Bonds Debt Service Account; (B) each Series Debt Service Account established pursuant to a Supplemental Indenture providing for the issuance of a Series of Mead- Phoenix Bonds that are not Participating Bonds, including the Mead-Phoenix Project, Authority Interest (LADWP), Revenue Bonds, 2016 Series A, Debt Service Account therein as established under the First Supplemental Indenture relating to the 2016 Mead-Phoenix Bonds (the Participating Bonds Debt Service Account and each Series Debt Service Account under the Mead-Phoenix Indenture being referred to under this caption as a “Debt Service Account”); and (C) each Letter of Credit Account, if any, established pursuant to a future Supplemental Indenture providing for the issuance of a Series of Mead- Phoenix Bonds for which a Letter of Credit is provided. The Debt Service Reserve Fund under the Mead- Phoenix Indenture includes the following accounts therein: (A) the Participating Bonds Debt Service Reserve Account; and (B) each Series Debt Service Reserve Account (if any) established pursuant to a Supplemental Indenture providing for the issuance of a Series of Mead-Phoenix Bonds that are not Participating Bonds, including the Mead-Phoenix Project, Authority Interest (LADWP), Revenue Bonds, 2016 Series A, Debt Service Reserve Account therein (which account is not being funded in connection with the issuance of the 2016 Mead-Phoenix Bonds) as established under the First Supplemental Indenture relating to the 2016 Mead-Phoenix Bonds (the Participating Bonds Debt Service Reserve Account and each Series Debt Service Reserve Account under the Mead-Phoenix Indenture being referred to under this caption as a “Mead-Phoenix Bonds Debt Service Reserve Account”).

Pursuant to the Mead-Phoenix Indenture, all Revenues and, except as otherwise provided in a Supplemental Indenture, any interest and other investment income received on any moneys or securities held pursuant to the Mead-Phoenix Indenture, received by the Trustee are to be deposited promptly in the Revenue Fund. Amounts in the Revenue Fund are to be paid monthly to the following Funds and Accounts in the following order of priority:

(1) To the (i) Operating Account, a sum that is equal to the total moneys appropriated for Authority Operating Expenses for deposit in the Operating Account as provided in the Annual Budget for the then current month and (ii) Operating Reserve Account, the amount required so that the amount in the Operating Reserve Account will equal the amount (if any) required to be in such Account as provided in the Annual Budget. There may be deposited in the Operating Reserve Account proceeds of Mead-Phoenix Bonds or any portion thereof or moneys received in connection with the Authority Interest (LADWP) in the Mead-Phoenix Project or any portion thereof from any other source, as provided in the Mead-Phoenix Indenture, unless required to be applied as otherwise provided in the Mead-Phoenix Indenture. Any excess amounts in the Operating Account or the Operating Reserve Account, as determined by the Authority, will be applied to make up any deficiencies in the other Funds or Accounts established

pursuant to the Mead-Phoenix Indenture as described therein; and thereafter any remaining excess shall be transferred to the General Reserve Fund.

(2) To the Debt Service Fund (for the ratable security and payment pursuant to clause (i) and clause (ii) of this paragraph (2) (except as otherwise provided in the Mead-Phoenix Indenture and subject to the provisions thereof)), (i) (A) for credit to the Participating Bonds Debt Service Account the amount, if any, required so that the balance in said Account shall equal the Accrued Debt Service with respect to Mead-Phoenix Bonds that are Participating Bonds as of the last day of the then current month, and (B) for credit to each Series Debt Service Account, the amount, if any, required so that the balance in each such Account shall equal the Accrued Debt Service with respect to the related Series of Mead-Phoenix Bonds that are not Participating Bonds as of the last day of the then current month (excluding the amount, if any, set aside in such Account from the proceeds of Mead-Phoenix Bonds (including amounts, if any, transferred from the Project Fund) for the payment of interest on the related Mead-Phoenix Bonds, less that amount of such proceeds to be applied in accordance with the Mead-Phoenix Indenture to the payment of interest accrued and unpaid and to accrue on such related Mead-Phoenix Bonds to the last day of the then current month) and (ii) (A) for credit to the Participating Bonds Debt Service Account, the amounts due and payable by the Authority during such month under any Parity Swap which shall be designated to the Trustee by an Authorized Authority Representative as a Parity Swap for Participating Bonds as provided in the related Supplemental Indenture or Supplemental Indentures, and (B) for credit to each Series Debt Service Account, the amounts due and payable by the Authority during such month under any Parity Swap which shall be designated to the Trustee by an Authorized Authority Representative as a Parity Swap for the related Series of Mead-Phoenix Bonds as provided in the related Supplemental Indenture or Supplemental Indentures (with any termination payments under any Parity Swaps to be payable on a basis subordinate and junior to the payments to be made on the Mead-Phoenix Bonds); provided, however, that, in any event, if there is a deficiency of Revenues to make all of the deposits required, such Revenues shall be deposited into each Debt Service Account on a pro rata basis based on the amounts due. The Trustee will apply amounts in the Participating Bonds Debt Service Account to the payment of principal of and interest on the Mead-Phoenix Bonds that are Participating Bonds, and will apply amounts in each Series Debt Service Account to the payment of principal of and interest on the related Series of Mead-Phoenix Bonds. Amounts set aside for the payment of Parity Swaps will be applied by the Trustee to any regularly-scheduled amounts due and payable by the Authority under any such Parity Swap on the due date therefor.

(3) To the Debt Service Reserve Fund, for credit to the Participating Bonds Debt Service Reserve Account and each Series Debt Service Reserve Account, the amount, if any, required to be deposited therein so that the balance in each such Account shall be equal to the requirement therefor as of the last day of the then current month; provided, however, that, in any event, if there shall be a deficiency of Revenues to make all of the deposits required, such Revenues shall be deposited into each Debt Service Reserve Account on a pro rata basis based on the amounts due. Pursuant to the First Supplemental Indenture relating to the 2016 Mead- Phoenix Bonds, the debt service reserve requirement for the 2016 Mead-Phoenix Bonds shall be $0, and no Debt Service Reserve Account will be funded with respect to the 2016 Mead-Phoenix Bonds.

(5) To the General Reserve Fund, the balance, if any, in the Revenue Fund after making the above deposits.

For a more detailed discussion of the application of moneys deposited in the various funds and accounts under the Mead-Phoenix Indenture, see APPENDIX C – “SUMMARIES OF CERTAIN DOCUMENTS – Summary of Certain Provisions of the Indentures – Application of Revenues.”

Authority Rate Covenant

Pursuant to the Mead-Phoenix Indenture, the Authority has covenanted to at all times establish and collect (or cause to be collected) amounts for the use of the Authority Interest (LADWP) in the Mead- Phoenix Project (including amounts payable under the Mead-Phoenix Transmission Service Contract (LADWP)) as shall be required to provide Revenues at least sufficient in each Fiscal Year, together with other available funds, for the payment of the following:

(i) The Authority Operating Expenses during such Fiscal Year;

(ii) An amount equal to the Aggregate Debt Service for such Fiscal Year;

(iv) The amount, if any, to be paid during such Fiscal Year into the Reserve and Contingency Fund created under the Mead-Phoenix Indenture;

(vi) The amount, if any, required to be deposited in the General Reserve Fund under the Mead-Phoenix Indenture during such Fiscal Year; and

(vii) The amount, if any, required to pay all other charges or liens whatsoever payable out of Revenues during such Fiscal Year.

No Funded Debt Service Reserve Account

Pursuant to the First Supplemental Indenture relating to the 2016 Mead-Phoenix Bonds, the 2016 Mead-Phoenix Bonds are not “Participating Bonds” under the Mead-Phoenix Indenture and will not be secured by the Participating Bonds Debt Service Reserve Account created under the Mead-Phoenix Indenture. The First Supplemental Indenture relating to the 2016 Mead-Phoenix Bonds further provides that the 2016 Series A Debt Service Reserve Requirement for the 2016 Mead-Phoenix Bonds shall be $0, and therefore, no Series Debt Service Reserve Account will be funded with respect to any of the 2016 Mead-Phoenix Bonds.

Additional Mead-Phoenix Bonds and Other Obligations

In addition to the 2016 Mead-Phoenix Bonds, the Authority reserves the right to issue additional Mead-Phoenix Bonds under the Mead-Phoenix Indenture for the purposes of funding Costs of Acquisition and Operations (as defined in the Mead-Phoenix Transmission Service Contract (LADWP) of the Authority Interest (LADWP), including to pay, if necessary, the costs of any Capital Improvements with respect to the Mead-Phoenix Project attributable to the Authority Interest (LADWP)) on, and subject to, the terms and conditions set forth in the Mead-Phoenix Indenture. Refunding Mead-Phoenix Bonds may also be issued subject to certain terms and conditions. Such Mead-Phoenix Bonds would rank equally as

to security and payment with the 2016 Mead-Phoenix Bonds and any other Mead-Phoenix Bonds issued under the Mead-Phoenix Indenture. Although the Authority has no plans to do so, the Authority may also, from time to time, enter into interest rate swap agreements payable (other than with respect to termination payments thereunder, which are required to be payable on a basis junior and subordinate the payment of the Mead-Phoenix Bonds) on a parity basis with the payment of the Mead-Phoenix Bonds.

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY

Formation

The Authority, a joint powers agency and a public entity organized under the laws of the State of California, was created pursuant to the Act and the Joint Powers Agreement for the purpose of the planning, financing, development, acquisition, construction, operation and maintenance of projects for the generation or transmission of electric energy. The Joint Powers Agreement expires in 2030 or on such later date as all bonds and notes of the Authority and interest thereon have been paid in full or adequate provision for such payment has been made in accordance with the instruments governing such bonds and notes.

Organization and Management

The Authority is governed by a Board of Directors which consists of one representative for each of the members. The current representatives are listed on the masthead page of this Official Statement. The management of the Authority is under the direction of its Executive Director, Bill D. Carnahan, who serves at the pleasure of the Board of Directors. Mr. Carnahan also serves as the Treasurer/Auditor of the Authority. Prior to his appointment as Executive Director in 2000, Mr. Carnahan served as the Public Utilities Director of the Public Utilities Department for the City of Riverside beginning in 1986. During a portion of his 48-year career, Mr. Carnahan also served as the manager at various municipal utilities in Colorado. Mr. Carnahan served on the Authority’s Board of Directors from 1986 until 2000 and was the Authority’s President during 1995 and 1996. Mr. Carnahan also served on the American Public Power Association’s Board of Directors from 1979 to 1988 and was its President during 1987. He has also served on the California Municipal Utilities Association’s Board of Governors since 1988 and was its President during 1993 and 1994. Mr. Carnahan also served on the California Independent System Operator Corporation’s Board of Directors between 1996 and early 2001.

The other officers of the Authority are selected by the Board of Directors. The President of the Authority is Fred H. Mason, Electric Utility Director of the City of Banning. Mr. Mason has served as Electric Utility Director of the City of Banning since 2009. Prior to that time he was the City of Banning’s Power Resource & Revenue Administrator since 2001. The Vice President of the Authority is Girish Balachandran, Public Utilities General Manager for the City of Riverside. Mr. Balachandran was appointed the Public Utilities General Manager for the City of Riverside in January 2014. He has 25 years of experience in municipal government, including previously serving as General Manager of Alameda Municipal Power, the electric utility of the City of Alameda, beginning in 2007.

Kevin Crawford joined the Authority as Chief Financial Officer in July of 2015. Before joining the Authority, Mr. Crawford was the Financial Analysis and Compliance Manager, as well as Interim Finance Director at Gainesville Regional Utilities in Gainesville, Florida. With over 20 years of professional accounting experience, Mr. Crawford has been a licensed Certified Public Accountant in Florida since 2008, and is a member of the American Institute of Certified Public Accountants. Mr.

Crawford earned his Bachelor of Science Degree in Accounting from the University of Florida in Gainesville, Florida.

With respect to any matter involving the acquisition and financing or refinancing of an Authority project to be decided by the Board of Directors, each Director is entitled to cast votes weighted according to the size of the entitlement to the project of each project participant in addition to the vote each Director is entitled to cast as a member of the Authority. All such matters must be decided by at least 80% of the votes cast, and no such vote may be taken unless there shall be present at the meeting Directors entitled to cast more than 50% of the votes relative to such matter. The Department is the only member of the Authority with an entitlement to the Authority Interest (LADWP) in the Mead-Adelanto Project and to the Authority Interest (LADWP) in the Mead-Phoenix Project. Voting by the Board of Directors may take place at meetings of the Board of Directors when a quorum is present. A majority of the Board of Directors constitutes a quorum.

Other Bond-Financed Projects of the Authority

In addition to the Authority Interest (LADWP) in the Mead-Adelanto Project and the Authority Interest (LADWP) in the Mead-Phoenix Project being financed with proceeds of the 2016 Bonds, the following are the projects of the Authority that have been financed by bonds issued by the Authority. The principal of and premium, if any, and interest on the 2016 Mead-Adelanto Bonds and the 2016 Mead- Phoenix Bonds are secured solely by and payable solely from the related Revenues and other amounts pledged therefor under the Mead-Adelanto Indenture and the Mead-Phoenix Indenture, respectively. None of the costs associated with the projects described below in this subsection is payable from any such Revenues.

Palo Verde Nuclear Generating Station. The Authority, pursuant to the Arizona Nuclear Power Project Participation Agreement, has a 5.91% ownership interest in Palo Verde Nuclear Generating Station Units 1, 2 and 3 (the “Generating Station”), including certain associated facilities and contractual rights, a 5.44% ownership interest in the Arizona Nuclear Power Project High Voltage Switchyard (the “Switchyard”) and contractual rights, and a 6.55% share of the rights to use certain portions of Arizona Nuclear Power Project Valley Transmission System. The Generating Station and the Switchyard are collectively referred to herein as “PVNGS.”

The Authority has sold the entire capability of the Authority’s interest pursuant to power sales contracts with nine California cities and a California irrigation district, each of which is a member of the Authority. The California cities of Azusa, Banning, Burbank, Colton, Glendale, Pasadena, Riverside and Vernon as well as the Department and the Imperial Irrigation District (“IID”) are PVNGS project participants. Under the PVNGS power sales contracts, the participants are entitled to the Authority generation capability based on their respective PVNGS entitlements and are obligated to make payments on a “take-or-pay” basis.

Commercial operation and initial deliveries from PVNGS Units 1, 2 and 3 commenced in 1986 and 1987. In addition to transmission provided by the Mead-Adelanto Project and the Mead-Phoenix Project, transmission is accomplished through agreements with Salt River Project, the Department and Southern California Edison Company. The Authority had outstanding $24,440,000 aggregate principal amount of revenue bonds with respect to PVNGS as of May 1, 2016.

Mead-Adelanto Project, Authority Interest (Members). In addition to the Authority Interest (LADWP) in the Mead-Adelanto Project, which is to be acquired by the Authority from M-S-R PPA pursuant to the Purchase and Sale Agreement, as described herein (see “THE MEAD-ADELANTO PROJECT”), the Authority has two other separate and independent ownership interests in the Mead- Adelanto Project under the related Joint Ownership Agreement: one interest for certain Authority

members participating in that portion of the project (i.e., the Authority Interest (Members) in such project referenced herein) the acquisition and construction of which was financed with revenue bonds of the Authority, and one interest for Western (i.e., the Authority Interest (Western) in such project referenced herein) the funding for which is provided by Western. The Authority Interest (Members) in the Mead- Adelanto Project provides to the Authority a 67.9167% member-related ownership share in the Mead- Adelanto Project. The Authority has sold, on a “take-or-pay” basis, the entire capability of its Authority Interest (Members) in the Mead-Adelanto Project through transmission service contracts with nine members of the Authority (all of the Authority members with the exception of IID and the California cities of Cerritos and Vernon). The Authority had outstanding $91,095,000 aggregate principal amount of revenue bonds with respect to the Authority Interest (Members) in the Mead-Adelanto Project as of May 1, 2016. See also “– Multiple Project Revenue Bonds” below.

The revenue bonds described in the preceding paragraph are distinct from the 2016 Mead- Adelanto Bonds.

Mead-Phoenix Project, Authority Interest (Members). In addition to the Authority Interest (LADWP) in the Mead-Phoenix Project, which is to be acquired by the Authority from M-S-R PPA pursuant to the Purchase and Sale Agreement, as described herein (see “THE MEAD-PHOENIX PROJECT”), the Authority has two other separate and independent ownership interests in the Mead- Phoenix Project under the related Joint Ownership Agreement: one interest for certain Authority members participating in that portion of the project (i.e., the Authority Interest (Members) in such project referenced herein) the acquisition and construction of which was financed with revenue bonds of the Authority, and one interest for Western (i.e., the Authority Interest (Western) in such project referenced herein) the funding for which is provided by Western. The Authority Interest (Members) in the Mead- Phoenix Project provides to the Authority an 18.3077% member-related ownership share in the Westwing-Mead Component, a 17.7563% member-related ownership share in the Mead Substation Component, and a 22.4082% member-related ownership share in the Mead-Marketplace Component of the Mead-Phoenix Project. The Authority has sold, on a “take-or-pay” basis, the entire capability of its Authority Interest (Members) in the Mead-Phoenix Project through transmission service contracts with nine members of the Authority (all of the Authority members with the exception of IID and the California cities of Cerritos and Vernon). The Authority had outstanding $27,695,000 aggregate principal amount of revenue bonds with respect to the Authority Interest (Members) in the Mead-Phoenix Project as of May 1, 2016. See also “– Multiple Project Revenue Bonds” below.

The revenue bonds described in the preceding paragraph are distinct from the 2016 Mead- Phoenix Bonds.

Multiple Project Revenue Bonds. In January 1990, the Authority issued $647,750,000 of its Multiple Project Revenue Bonds for the purpose of funding electric generation and/or transmission projects undertaken by the Authority. Proceeds of the financing available for the funding of such projects initially amounted to approximately $600,000,000. Upon the request of the Authority’s members, the approval of its Board of Directors, and the meeting of other preconditions, portions of such proceeds could be transferred to fund capital costs of a selected Authority project. In October 1992, the Authority transferred $285,000,000 of such proceeds to fund costs of the Authority Interest (Members) in the Mead- Adelanto Project. In October 1992, the Authority also transferred $103,600,000 of such proceeds to fund costs of the Authority Interest (Members) in the Mead-Phoenix Project. Since July 1, 2013, no Multiple Project Revenue Bonds have been outstanding, but the related indenture of trust remains in effect in connection with the revenue bonds for the Authority Interest (Members) in the Mead-Adelanto Project and the Authority Interest (Members) in the Mead-Phoenix Project described immediately above.

The 2016 Bonds will not be funded with proceeds of the Multiple Project Revenue Bonds and will be unrelated to the Multiple Project Revenue Bonds.

Hoover Uprating Project. The Hoover Uprating Project (as defined below) consists principally of the uprating of the capacity of 17 generating units at the hydroelectric power plant of the Hoover Dam, located approximately 25 miles from Las Vegas, Nevada. Modern insulation technology made it possible to “uprate” the nameplate capacity of existing generators (the “Hoover Uprating Project”). The California cities of Anaheim, Azusa, Banning, Burbank, Colton, Glendale, Pasadena, Riverside and Vernon have obtained entitlements totaling 127 MW of capacity and approximately 143,000 megawatt-hours (“MWh”) of allocated energy annually from the Hoover Uprating Project. In 1987, to reflect these entitlements, these cities entered into contracts with the United States Bureau of Reclamation (the “Bureau”) providing for the advancement of funds for the uprating and with Western for the purchase of power from the Hoover Uprating Project. Subsequently, the California cities of Anaheim, Riverside, Burbank, Azusa, Colton and Banning (the “Hoover Participants”) entered into assignment agreements with the Authority to assign their entitlements in return for the Authority’s agreement to provide funds to the Bureau to pay for the Hoover Participants’ share of the Hoover Uprating Project costs. Based on Western’s allocations and the assignment agreements, the Authority’s share of the Hoover Uprating Project is approximately 94 MW of capacity and approximately 107,000 MWh of associated energy annually. The Hoover Participants and the Authority have executed power sales contracts under which the Hoover Participants have agreed to make monthly payments on a “take-or-pay” basis in exchange for their shares of the Authority’s share of Hoover capacity and allocated energy. As of May 1, 2016, the Authority had outstanding $4,165,000 aggregate principal amount of revenue bonds with respect to the Hoover Uprating Project.

San Juan Unit 3 Project. The San Juan Generating Station (“San Juan”) consists of a 4-unit, coal-fired electric generating station located in northwestern New Mexico, approximately 15 miles northwest of the City of Farmington, in San Juan County. The combined net generating capacity of the four units is 1,647 MW, with the net generating capacity of Unit 3 being 497 MW. The four units were put into operation between 1976 and 1982. In 1993, the Authority and five of its members negotiated a purchase agreement with Century Power Corporation, under which the Authority purchased a 41.8% interest in Unit 3 and related common facilities of San Juan, entitling the Authority to approximately 208 MW of power generated by Unit 3. In this regard, the Authority entered into power sales contracts with the California cities of Azusa, Banning, Colton and Glendale, and IID. Under these power sales contracts, the Authority sells 100% of its entitlement to capacity and energy of Unit 3 on a “take-or-pay” basis. As of May 1, 2016, the Authority had outstanding $21,345,000 aggregate principal amount of revenue bonds with respect to San Juan.

The nine owners of San Juan have reached an agreement on an ownership restructuring of San Juan that, if implemented, would result in the shutdown of Unit 3 by December 31, 2017 as part of the overall settlement of matters regarding emissions at San Juan. Regulatory approvals with respect to the transfer of ownership have been obtained; however, certain appeal proceedings filed by parties opposed to the restructuring plan remain ongoing. No assurances can be given that such ownership restructuring will be completed.

Southern Transmission System. The Southern Transmission System is one component of the Intermountain Power Project of the Intermountain Power Agency (“IPA”). Certain members of the Authority (namely, the Department and the California cities of Anaheim, Burbank, Glendale, Pasadena and Riverside) have entered into power sales contracts with IPA pursuant to which they purchase a share of the generation and transmission capabilities of the Intermountain Power Project, including capacity and energy of the Intermountain Generation Station, a two-unit coal-fired, steam-electric generating plant, located in Millard County, Utah, and operating capabilities of the Southern Transmission System. The Authority acquired from each of such members its entitlement rights to capacity of the Southern Transmission System and agreed in return to issue bonds, notes or other evidences of indebtedness and make payments-in-aid of construction to IPA therefor (the “Southern Transmission Project”). The

Southern Transmission System consists of the following: (a) the AC/DC Intermountain Converter Station adjacent to the Intermountain Power C switchyard in Utah; (b) the ±500-kV direct current (“DC”), bi-pole transmission line (“HVDC transmission line”), 488 miles in length, from the Intermountain Converter Station to the City of Adelanto, California; (c) the AC/DC Adelanto Converter Station, where the Southern Transmission System connects to the switching and transmission facilities of the Department; and (d) related microwave communication system facilities. The HVDC transmission line is designed to have the capability of transmitting in excess of the aggregate output of the Generation Station production anticipated to be delivered to the participants in the Southern Transmission Project. The AC/DC converter stations each consist of two solid state converter valve groups and have a combined rating of 2,400 MW (as upgraded). The microwave communication system facilities are used for Generation Station dispatch, for Intermountain Power Project communication, and for control and protection of the Southern Transmission System. The microwave system facilities are located along two routes between the Generation Station and Adelanto, forming a loop network. All of the facilities of the Intermountain Power Project have been in commercial operation since May 1, 1987. The Authority has sold all of its acquired capability of the Southern Transmission Project, on a “take-or-pay” basis, through transmission service contracts with the Department and the California cities of Anaheim, Burbank, Glendale, Pasadena and Riverside. The Authority had outstanding $607,640,000 aggregate principal amount of revenue bonds with respect to the Southern Transmission Project as of May 1, 2016.

Magnolia Power Project. The Magnolia Power Project consists of a natural gas-fired electric generating plant with a nominally rated net capacity of 242 MW and auxiliary facilities located in Burbank, California. The Magnolia Power Project is owned by the Authority and was constructed and acquired for the primary purpose of providing participants in the Magnolia Power Project with firm capacity and energy to help meet their power and energy requirements. The Magnolia Power Project is operated by Burbank. The Authority has entered into power sales agreements with the California cities of Anaheim, Burbank, Cerritos, Colton, Glendale and Pasadena pursuant to which the Authority has sold 100% of its entitlement to capacity and energy in the Magnolia Power Project to such participants on a “take-or-pay” basis. The commercial operation date for the Magnolia Power Project was September 22, 2005. The Authority had outstanding $315,545,000 aggregate principal amount of revenue bonds with respect to the Magnolia Power Project as of May 1, 2016 (of which $11,615,000 relates exclusively to the City of Cerritos).

Prepaid Natural Gas Project. The Prepaid Natural Gas Project primarily consists of the acquisition by the Authority of the right to receive an aggregate amount of approximately 135 billion cubic feet of natural gas (which amount has been reduced to approximately 90 billion cubic feet as a result of a restructuring described below) from J. Aron & Company (“J. Aron”) pursuant to the terms of five Prepaid Natural Gas Sales Agreements between the Authority and J. Aron, each relating to a separate participant. The gas is delivered by J. Aron to the Authority at designated delivery points on the natural gas pipelines that serve the participants in specified daily quantities each month, over the approximately 30-year term (now 27-year term due to the restructuring) of each of the Prepaid Natural Gas Sales Agreements, in exchange for the lump sum prepayment made to J. Aron by the Authority on the date of issuance of the Authority’s Gas Project Revenue Bonds (Project No. 1) in 2007. The Prepaid Natural Gas Project participants are the California cities of Anaheim, Burbank, Colton, Glendale and Pasadena. On October 22, 2009, the Prepaid Natural Gas Sales Agreements between the Authority and J. Aron were restructured to provide an acceleration of a portion of the long-term savings, reduce the remaining volumes of gas to be delivered and shorten the overall duration of the agreements. As a result of the restructuring, approximately $165,000,000 principal amount of bonds with respect to the Prepaid Natural Gas Project was discharged. On September 19, 2013, the transaction was further restructured to, among other things, (a) provide additional credit support for payments by three of the project participants by amending and restating the associated receivables purchase agreement and The Goldman Sachs Group, Inc. guaranty, (b) replace AIG-FP Broadgate Limited with Mitsubishi UFJ Securities International plc as

the party to the Authority commodity swaps, and (c) create a custodial arrangement with respect to payments owed by J. Aron and guaranteed by The Goldman Sachs Group, Inc. or to J. Aron under corresponding J. Aron commodity swaps in order to mitigate the Authority’s credit exposure to Mitsubishi UFJ Securities International plc as the counterparty. The Authority has sold 100% of its interest in the natural gas, on a “take-and-pay” basis, through gas supply agreements with the California cities of Anaheim, Burbank, Colton, Glendale and Pasadena. The Authority had outstanding $305,540,000 aggregate principal amount of revenue bonds with respect to the Prepaid Natural Gas Project as of May 1, 2016.

Natural Gas Project. The Natural Gas Project includes the Authority’s leasehold interests in (i) certain natural gas resources, reserves, fields, wells and related facilities located near Pinedale, Wyoming (the “Wyoming Subproject”) and (ii) certain natural gas resources, reserves, fields, wells and related facilities in (or near) the Barnett Shale geological formation in Texas (the “Texas Subproject,” and collectively with the Wyoming Subproject, the “Natural Gas Project”). The Authority has sold the entire production capacity of its leasehold interests in the Natural Gas Project by entering into gas sales agreements with the California cities of Anaheim, Burbank and Colton (collectively, the “Natural Gas Project A Participants”) and with the California cities of Glendale and Pasadena on a “take-or-pay” basis (other than with respect to debt service, which is payable only by the Natural Gas Project A Participants on a several basis). On February 6, 2008, the Authority issued revenue bonds in three simultaneous financings (each for the benefit of a Natural Gas Project A Participant). As of May 1, 2016, the Authority had outstanding $75,325,000 aggregate principal amount of revenue bonds with respect to the Natural Gas Project, consisting of $43,415,000, $22,910,000 and $9,000,000 aggregate principal amount of the Anaheim series, the Burbank series and the Colton series, respectively.

Canyon Power Project. The Canyon Power Project consists of a simple cycle, natural gas-fired power generating plant, comprised of four General Electric LM 6000PC Sprint combustion turbines with a combined nominally rated net base capacity of 200 MW, and auxiliary facilities located on approximately 10 acres of land within an industrial area of the City of Anaheim, California. The Canyon Power Project is owned by the Authority and operated and maintained by the City of Anaheim. The Canyon Power Project was constructed for the primary purpose of providing the City of Anaheim with firm capacity and energy to help it meet its current and future capacity and energy requirements and to satisfy certain ancillary services requirements. The Canyon Power Project achieved full commercial operation in 2011. The Authority has entered into a power sales agreement with the City of Anaheim pursuant to which the Authority has sold 100% of its entitlement to capacity and energy in the Canyon Power Project to the City of Anaheim on a “take-or-pay” basis. As of May 1, 2016, the Authority had outstanding $299,385,000 aggregate principal amount of revenue bonds with respect to the Canyon Power Project.

Linden Wind Energy Project. The Linden Wind Energy Project consists of the acquisition by the Authority of an approximately 50 MW nameplate capacity wind powered electric generating facility comprised of 25 wind turbines located near the town of Goldendale in Klickitat County, Washington, including the structures, facilities, equipment, fixtures, improvements and associated real and personal property and other rights and interests necessary for the ownership and operation of the generation facility and the sale of energy therefrom. The Linden Wind Energy Project was developed and constructed by Northwest Wind Partners, LLC (“Northwest Wind”), a Delaware limited liability company. Northwest Wind undertook the development, construction, start-up, testing and commissioning of the project, and upon the completion thereof and subject to the terms of the Asset Purchase Agreement, dated as of June 23, 2009, by and between the Authority and Northwest Wind, the Authority acquired the project from Northwest Wind. The Authority has entered into power sales agreements with the Department and the California city of Glendale pursuant to which the Authority has sold 100% of its entitlement to capacity and energy in the Linden Wind Energy Project to such participants on a “take-or-pay” basis. As

of May 1, 2016, the Authority had outstanding $121,830,000 aggregate principal amount of revenue bonds with respect to the Linden Wind Energy Project.

Tieton Hydropower Project. The Tieton Hydropower Project consists of a 13.6 MW nameplate capacity “run of the reservoir” hydroelectric generation facility, comprised of (i) a powerhouse located near Rimrock Lake in Yakima County approximately 40 miles west of the City of Yakima, Washington, and constructed at the base of the Bureau’s Tieton Dam on the Tieton River, (ii) a 21-mile 115 kV transmission line from the power plant substation to the point of interconnection with the electrical grid, and (iii) related assets, property and contractual rights, acquired by the Authority in November 2009, pursuant to an Asset Purchase Agreement, dated as of October 19, 2009, by and between the Authority and Tieton Hydropower, L.L.C., a Washington limited liability company. The Authority has entered into power sales and acquisition contracts with the California cities of Burbank and Glendale pursuant to which the Authority has sold 100% of its entitlement to capacity and energy in the Tieton Hydropower Project to such participants on a “take-or-pay” basis. As of May 1, 2016, the Authority had outstanding $48,830,000 principal amount of revenue bonds with respect to the Tieton Hydropower Project.

Milford Wind Corridor Phase I Project. The Milford Wind Corridor Phase I Project consists of the purchase by the Authority of all energy generated by a 203.5 MW nameplate capacity, wind powered electric generating facility located near Milford, Utah (the “Milford I Facility”), for a term of 20 years (unless earlier terminated), pursuant to a Power Purchase Agreement, dated as of March 16, 2007, as amended, by and between the Authority and Milford Wind Corridor Phase I, LLC, a Delaware limited liability company, as the owner of the Milford I Facility. The generating facility includes 97 wind turbines, consisting of 58 Clipper C99 wind turbine generators, each with a rated capacity of 2.5 MW, and 39 General Electric 1.5xle wind turbine generators, each with a rated capacity of 1.5 MW. Pursuant to the Power Purchase Agreement, energy from the Milford I Facility is delivered to the Authority over an approximately 88-mile, 345 kV, transmission line extending from the wind generation site to the IPP Switchyard in Delta, Utah, an ownership interest in which transmission line, together with certain structures, facilities, equipment, fixtures, improvements and associated real and personal property interests and other rights and interests necessary for the ownership and operation of the generation facility and the sale of energy therefrom, comprise a part of the Milford I Facility. From the IPP Switchyard, the energy is delivered to the Adelanto Converter Station in California. On February 9, 2010, the Authority issued $237,235,000 aggregate principal amount of revenue bonds in order to finance the purchase by prepayment of a specified quantity of energy from the Milford I Facility over the 20-year delivery term (with a guaranteed annual quantity in each year), commencing on the commercial operation date of the Milford I Facility (i.e., November 16, 2009). The Authority has entered into power sales agreements with the Department and the California cities of Burbank and Pasadena pursuant to which the Authority has sold 100% of its entitlement to capacity and energy in the Milford Wind Corridor Phase I Project to such participants on a “take-or-pay” basis. As of May 1, 2016, the Authority had outstanding $196,375,000 aggregate principal amount of revenue bonds with respect to the Milford Wind Corridor Phase I Project. This project is to be distinguished from the Milford Wind Corridor Phase II Project, which is described below.

Milford Wind Corridor Phase II Project. The Milford Wind Corridor Phase II Project consists of the purchase by the Authority of all energy generated by a 102 MW nameplate capacity, wind powered electric generating facility comprised of 68 wind turbines located near Milford, Utah (the “Milford II Facility”), for a term of 20 years (unless earlier terminated) pursuant to a Power Purchase Agreement, dated as of March 1, 2010, by and between the Authority and Milford Wind Corridor Phase II, LLC, a Delaware limited liability company, as the owner of the Milford II Facility. Pursuant to the Power Purchase Agreement, energy from the Milford II Facility is delivered to the Authority over an approximately 90-mile, 345 kV, transmission line extending from the wind generation site to the IPP Switchyard in Delta, Utah, an ownership interest in which transmission line, together with certain

structures, facilities, equipment, fixtures, improvements and associated real and personal property interests and other rights and interests necessary for the ownership and operation of the generation facility and the sale of power therefrom, comprise a part of the Milford II Facility. From the IPP Switchyard, the energy is delivered to the Adelanto Converter Station in California. On August 25, 2011, the Authority issued $157,465,000 aggregate principal amount of revenue bonds in order to finance the purchase by prepayment of a specified quantity of energy from the Milford II Facility over the 20-year delivery term (with a guaranteed annual quantity in each year), commencing on the commercial operation date of the Milford II Facility (i.e., May 2, 2011). The Authority has entered into power sales agreements with the Department and the California city of Glendale pursuant to which the Authority has sold 100% of its entitlement to capacity and energy in the Milford Wind Corridor Phase II Project to such participants on a “take-or-pay” basis. As of May 1, 2016, the Authority had outstanding $137,365,000 aggregate principal amount of revenue bonds with respect to the Milford Wind Corridor Phase II Project. This project is to be distinguished from the Milford Wind Corridor Phase I Project, which is described above.

Windy Point/Windy Flats Project. The Windy Point/Windy Flats Project consists primarily of the purchase by the Authority of all energy generated by a 262.2 MW nameplate capacity wind powered electric generating facility comprised of 114 wind turbines and related facilities located in the Columbia Hills area of Klickitat County, Washington near the City of Goldendale (the “Windy Point/Windy Flats Facility”), for a term of 20 years (unless earlier terminated), pursuant to the terms of a Power Purchase Agreement (the “Windy Point/Windy Flats Power Purchase Agreement”), dated as of June 24, 2009, by and between the Authority and the Windy Flats Partners, LLC, a Delaware limited liability company, the owner of the Windy Point/Windy Flats Facility. Pursuant to the Windy Point/Windy Flats Power Purchase Agreement, energy from the Windy Point/Windy Flats Facility is delivered to Klickitat Public Utility District (“KPUD”) Dooley and Energizer Substations over the KPUD 230-kV transmission line to the point of delivery at the Bonneville Power Administration Rock Creek Substation. On September 9, 2010, the Authority issued $514,160,000 aggregate principal amount of revenue bonds in order to finance the purchase by prepayment of a specified quantity of energy from the Windy Point/Windy Flats Facility over the 20-year delivery term (with a guaranteed annual quantity in each year), commencing on the commercial operation date of the first phase of the Windy Point/Windy Flats Facility (i.e., January 25, 2010). The Authority has entered into power sales agreements with the Department and the California city of Glendale pursuant to which the Authority has sold 100% of its entitlement to the capacity and energy in the Windy Point/Windy Flats Project to such participants on a take-or-pay basis. As of May 1, 2016, the Authority had outstanding $427,385,000 aggregate principal amount of revenue bonds with respect to the Windy Point/Windy Flats Project.

Apex Power Project. The Apex Power Project consists of a natural gas-fired, combined cycle generating facility, nominally rated at 531 MW, located in Clark County, Nevada, generator interconnection facilities, related assets and property, and interconnection and transmission contractual rights. The facility commenced full commercial operation in May of 2003. The Apex Power Project was acquired by the Authority in March 2014, pursuant to an Asset Purchase Agreement, dated as of October 17, 2013, by and between the Authority and Las Vegas Power Company, LLC, a Delaware limited liability company, the previous owner of the Apex Power Project. Operation and maintenance of the Apex Power Project facility is currently provided pursuant to an Operations and Maintenance Agreement with Wood Group Power Operations (West), Inc. and a Long-Term Service Agreement with General Electric International, Inc., each of which was assumed by the Authority in connection with the acquisition of the project. Firm transmission service for the facility output is provided pursuant to a Large Generator Interconnection Agreement with Nevada Power Company and two Service Agreements for Long-Term Firm Point-to-Point Transmission Service with a point of delivery at the Mead 230 kV Substation. The Apex Power Project was acquired by the Authority for the primary purpose of providing the Department with energy and base-load, combined cycle, gas-fired generating capacity. The Authority has entered into a power sales agreement with the Department pursuant to which the Authority has sold

100% of its entitlement to capacity and energy in the Apex Power Project to the Department on a “take- or-pay” basis. As of May 1, 2016, the Authority had outstanding $309,525,000 aggregate principal amount of revenue bonds with respect to the Apex Power Project.

Other Projects of the Authority Not Financed by Bonds

The following are the projects of the Authority for which no bonds have been issued. The principal of and premium, if any, and interest on the 2016 Mead-Adelanto Bonds and the 2016 Mead- Phoenix Bonds are secured solely by and payable solely from the related Revenues and other amounts pledged therefor under the Mead-Adelanto Indenture and the Mead-Phoenix Indenture, respectively. None of the costs associated with the projects described below in this subsection is payable from any such Revenues.

Projects Currently Operating

Ameresco Landfill Gas Project. The Authority, on behalf of the California cities of Burbank and Pasadena, entered into a power purchase agreement for 10 MW of generating capacity. The agreement expires on November 23, 2030.

Don A. Campbell I Geothermal Project. The Authority, on behalf of the California city of Burbank and the Department, entered into a power purchase agreement for 16 MW of generating capacity. The agreement expires on January 1, 2034.

Don A. Campbell II Geothermal Project. The Authority, on behalf of the Department, entered into a power purchase agreement for 16 MW of generating capacity. The agreement expires on September 17, 2035.

Columbia Two Solar Project. The Authority, on behalf of the California cities of Azusa, Pasadena and Riverside, entered into a power purchase agreement for 15 MW of generating capacity. The agreement expires on December 12, 2034.

Metropolitan Water District Small Hydropower Project. The Authority, on behalf of the California cities of Anaheim, Azusa and Colton, entered into a power purchase agreement for 17 MW of generating capacity. The agreement expires on December 23, 2023.

Ormat Geothermal Power Project. The Authority, on behalf of the California cities of Anaheim, Banning, Glendale and Pasadena, entered into a power purchase agreement for 16 MW of generating capacity. The agreement expires on January 1, 2034.

Pebble Springs Wind Power Project. The Authority, on behalf of the California cities of Burbank and Glendale and the Department, entered into a power purchase agreement for 99 MW of generating capacity. The agreement expires on February 11, 2027.

Copper Mountain Solar 3 Project. The Authority, on behalf of the California city of Burbank and the Department, entered into a power purchase agreement for 250 MW of generating capacity. The agreement expires on April 9, 2035.

Heber 1 Geothermal Project. The Authority, on behalf of the Department and IID, entered into a power purchase agreement for 45 MW of generating capacity. The power purchase agreement expires on February 2, 2026.

Projects Under Development

Antelope Big Sky Ranch Solar Project. The Authority, on behalf of the California cities of Azusa, Pasadena and Riverside, entered into a power purchase agreement for 20 MW of generating capacity. The effective date of the agreement will be determined after certain conditions are satisfied. When such conditions are satisfied, the agreement will expire 25 years thereafter.

Astoria 2 Solar Project. The Authority, on behalf of the California cities of Azusa, Banning, Colton and Vernon, entered into a power purchase agreement for 35 MW of generating capacity from commercial operation (currently expected to be November 15, 2016) to December 31, 2021 and 45 MW of generating capacity from January 1, 2022 until the expected expiration date of December 31, 2036.

Kingbird Solar B Project. The Authority, on behalf of the California cities of Azusa, Colton and Riverside, entered into a power purchase agreement for 20 MW of generating capacity. The commercial operation date is currently expected to be in late April 2016, in which case the agreement will expire in April 2036.

Puente Hills Landfill Gas-to-Energy Project. The Authority, on behalf of the California cities of Azusa, Banning, Colton, Pasadena and Vernon, entered into a power purchase agreement for 43 MW of generating capacity. The commercial operation date is currently expected to be January 1, 2017, in which case the agreement will expire on December 31, 2030.

Springbok I Solar Farm Project. The Authority, on behalf of the Department, entered into a power purchase agreement for 100 MW of generating capacity. The commercial operation date is currently expected to be December 31, 2016, in which case the agreement will expire on January 1, 2041.

Springbok 2 Solar Farm Project. The Authority, on behalf of the Department, entered into a power purchase agreement for 150 MW of generating capacity. The commercial operation date is currently expected to be December 31, 2016, in which case the agreement will expire on January 1, 2041.

Summer Solar Project. The Authority, on behalf of the California cities of Azusa, Pasadena and Riverside, entered into a power purchase agreement for 20 MW of generating capacity. The effective date of the agreement will be determined after certain conditions are satisfied. When such conditions are satisfied, the agreement will expire 25 years thereafter.

Further Information

A copy of the Authority’s most recent Annual Report may be obtained from the Authority, 1160 Nicole Court, Glendora, California 91740. The Authority and the Project Participant each 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 2016 Bonds.

THE DEPARTMENT OF WATER AND POWER OF THE CITY OF LOS ANGELES

Payment of the principal of and interest on the 2016 Bonds shall be made primarily from the Revenues received by the Authority from the Department under the related Transmission Service Contract (LADWP) for the Mead-Adelanto Project or Mead-Phoenix Project as described herein. The Department has pledged to establish, maintain and collect rates and charges for the electric service of its Power System (defined below) so as to provide revenues sufficient, together with any legally available Power System reserves, to enable the Department to pay to the Authority all amounts payable when due under the applicable Transmission Service Contract (LADWP) and to pay all other amounts payable from and all lawful charges against or liens on the revenues of its electric system.

The Department is the largest municipal utility in the United States and is a proprietary department of the City of Los Angeles (the “City”). The Department is responsible for providing the electric and water requirements of its service area. The Department provides electric and water service almost entirely within the boundaries of the City. The City encompasses approximately 473 square miles and is populated by approximately 3.9 million residents.

Under The Charter of The City of Los Angeles (the “Charter”), the Board of Water and Power Commissioners (the “Board”) is granted the possession, management and control of the electric energy rights, lands, facilities and all other interests of the City related to the energy business (the “Power System”). The Board is composed of five members. Certain matters regarding the administration of the Department also require the approval of the Los Angeles City Council (the “City Council”).

While the retail rates for electric service (“Electric Rates”) are subject to approval by the City Council, the authority of the Board to impose and collect retail Electric Rates and charges for service from the Power System is not subject to the general regulatory jurisdiction of the California Public Utilities Commission (the “CPUC”) or any other California state or federal agency. At this time, neither the CPUC nor any other regulatory authority of the State of California nor the Federal Energy Regulatory Commission (“FERC”) approves such retail Electric Rates.

Although its retail Electric Rates are not subject to approval by any federal agency, the Department is subject to certain provisions of the Public Utilities Code and the Public Utility Regulatory Policies Act of 1978 (“PURPA”). PURPA applies to the purchase of the output of “qualified facilities” (“QFs”) at prices determined in accordance with PURPA. The Energy Policy Act of 2005 repealed the mandatory purchase obligation for utilities (including the Department) when FERC determines that the QFs have access to a competitive sales market and open access transmission.

Under federal law, FERC has the authority, under certain circumstances and pursuant to certain procedures, to order any utility (municipal or otherwise), including the Department, to provide transmission access to others at cost-based rates. FERC also has licensing authority over various hydroelectric facilities owned and operated by the Department.

For more information concerning the Department and its Power System, see APPENDIX A – “THE PROJECT PARTICIPANT” and APPENDIX B –“AUDITED FINANCIAL STATEMENTS OF THE DEPARTMENT OF WATER AND POWER OF THE CITY OF LOS ANGELES POWER SYSTEM FOR THE FISCAL YEARS ENDED JUNE 30, 2015 AND JUNE 30, 2014.”

DEVELOPMENTS IN THE CALIFORNIA ENERGY MARKETS

State Legislation

A number of bills affecting the electric utility industry have been introduced or enacted by the California Legislature in recent years. In general, these bills regulate greenhouse gas emissions and provide for greater investment in energy efficiency and environmentally friendly generation and storage alternatives, principally through more stringent renewable resource portfolio standard requirements. The following is a brief summary of certain of these bills that have been enacted.

Greenhouse Gas Emissions – Executive Orders. On June 1, 2005, then Governor Arnold Schwarzenegger signed Executive Order S-3-05, which placed an emphasis on efforts to reduce greenhouse gas emissions by establishing statewide greenhouse gas reduction targets. The targets are: (i) a reduction to 2000 emissions levels by 2010; (ii) a reduction to 1990 levels by 2020; and (iii) a reduction to 80% below 1990 levels by 2050. The Executive Order also called for the California Environmental Protection Agency to lead a multi-agency effort to examine the impacts of climate change

on California and develop strategies and mitigation plans to achieve the targets. On April 25, 2006, then Governor Schwarzenegger also signed Executive Order S-06-06 which directs the State of California to meet a 20% biomass utilization target within the renewable generation targets of 2010 and 2020 for the contribution to greenhouse gas emission reduction.

On April 29, 2015, Governor Jerry Brown signed Executive Order B-30-15, which establishes a new interim statewide greenhouse gas emission reduction target to reduce greenhouse gas emissions to 40% below 1990 levels by 2030. The Executive Order indicates that the new interim target is aimed at ensuring that California meets the target established by Executive Order S-3-05 of reducing greenhouse gas emission to 80% below 1990 levels by 2050. The Executive Order also directs the California Natural Resources Agency to update the State’s climate adaptation strategy every three years and to ensure that its provisions are fully implemented. Among other requirements, the Executive Order provides that the State’s adaptation strategy must identify a lead agency or agencies that are responsible for adaptation efforts in at least the following sectors: water, energy, transportation, public health, agriculture, emergency services, forestry, biodiversity and habitat, and ocean and coastal resources. The Executive Order requires that the lead agencies for each sector outline the actions in their sector that will be taken as identified in the State’s adaptation strategy and report back to the California Natural Resources Agency by June 2016.

Greenhouse Gas Emissions – Global Warming Solutions Act. Then Governor Schwarzenegger signed Assembly Bill 32, the Global Warming Solutions Act of 2006 (the “GWSA”), which became effective as law on January 1, 2007. The GWSA prescribed a statewide cap on global warming pollution with a goal of returning to 1990 greenhouse gas emission levels by 2020. In addition, the GWSA established an annual mandatory reporting requirement for all investor-owned utilities (“IOUs”), local publicly-owned electric utilities (“POUs”) and other load-serving entities (electric utilities providing energy to end-use customers) to inventory and report greenhouse gas emissions to the California Air Resources Board (“CARB”), required CARB to adopt regulations for significant greenhouse gas emission sources (allowing CARB to design a “cap-and-trade” system) and gave CARB the authority to enforce such regulations beginning in 2012.

On December 11, 2008, CARB adopted a “scoping plan” to reduce greenhouse gas emissions. The scoping plan set out a mixed approach of market structures, regulation, fees and voluntary measures. The scoping plan included a cap-and-trade program. In August 2011, CARB revised the scoping plan in response to litigation. The revised scoping plan also included a cap-and-trade program. The scoping plan is required to be updated every five years. CARB issued the proposed first update to the scoping plan update on February 10, 2014, which was approved by CARB on May 22, 2014. The scoping plan update recommends that a plan to extend the cap-and-trade program beyond 2020 be developed by 2017. In addition, CARB approved a resolution at its October 25, 2013 board meeting that directs CARB’s executive officer to develop a plan for a post-2020 program, including a cost containment mechanism, before 2018. CARB is now working on the 2030 Target Scoping Plan Update towards incorporating the 2030 interim emissions reduction target (40% below 1990 emissions levels by 2030); a workshop was held on October 1, 2015 and initial comments were due on October 19, 2015, which was followed by a subsequent workshop on December 14, 2015 with comments due on January 11, 2016. The draft 2030 Target Scoping Plan is currently expected to be released in Spring 2016, with a second hearing before the CARB Board expected in November 2016.

On October 20, 2011, CARB adopted a regulation implementing a cap-and-trade program. The California Office of Administrative Law (“OAL”) approved the regulation on December 13, 2011. The cap-and-trade regulation became effective on January 1, 2012. Emission compliance obligations under the regulation began on January 1, 2013. The cap-and-trade program covers sources accounting for 85% of California’s greenhouse gas emissions, the largest program of its type in the United States.

The cap-and-trade program is being implemented in phases. The first phase of the program (January 1, 2013 to December 31, 2014) introduced a hard emissions cap covering emissions from electricity generators, electricity importers and large industrial sources emitting more than 25,000 metric tons of carbon dioxide-equivalent greenhouse gases (“CDE”) per year. In 2015, the program was expanded to cover emissions from transportation fuels, natural gas, propane and other fossil fuels. The cap will decline each year until the end of the program currently scheduled for 2020 unless otherwise extended.

The cap-and-trade program includes the distribution of carbon allowances equal to the annual emissions cap. Each allowance is equal to one metric ton of CDE. As part of a transition process, initially, most of the allowances were distributed for free. Additional allowances are being auctioned quarterly (auctions began in November 2012). Utilities can acquire more allowances at these auctions or on the secondary market. IOUs are required to auction the allowances they received for free from CARB. This requirement also applies to POUs that sell electricity into the California Independent System Operator Corporation (“ISO”) markets, other than sales of electricity from resources funded by municipal tax-exempt debt where the POU makes a matched purchase to serve its traditional retail customers. Utilities required to sell their allowances in the auctions are then required to purchase allowances to meet their compliance obligations, and use any remaining proceeds from the sale of their allocated allowances for the benefit of their ratepayers and to meet the goals of the GWSA. POUs that do not sell into the ISO markets, and those that sell into the ISO markets only electricity from resources funded by municipal tax- exempt debt, have three options (which are not mutually exclusive) once their allocated allowances are distributed to them. They can (i) place allowances in their compliance accounts to meet compliance obligations, (ii) place allowances in the compliance account of a joint powers agency or public power utility that generates power on their behalf, and/or (iii) auction the allowances and use the proceeds to benefit their ratepayers and meet the goals of the GWSA.

The cap-and-trade program also allows covered entities to use offset credits for compliance (not exceeding 8% of a covered entity’s compliance obligation). Offsets can be generated by emission reduction projects in sectors that are not regulated under the cap-and-trade program. CARB has approved the following types of offset projects: urban forest projects, reforestation projects, destruction of ozone- depleting substances, livestock methane management projects, destruction of fugitive coal mine methane and rice cultivation practices. CARB will continue to consider additional and updated offset protocols, including international, sector-based offsets.

On April 25, 2014, CARB adopted various changes to the cap-and-trade program, including provisions relating to the electricity sector such as “safe harbor” provisions under the “resource shuffling” prohibition. These changes became effective on July 1, 2014.

The California cap-and-trade program is linked to the equivalent program in Quebec, Canada. The link took effect on January 1, 2014, although the first joint auction was delayed until November 25, 2014 in order to resolve certain technical issues. California’s program may be linked to additional Canadian provincial cap-and-trade programs, and possibly other U.S. state cap-and-trade programs, in later years as part of the Western Climate Initiative. The Western Climate Initiative is a regional effort consisting of California and four Canadian provinces (Quebec, British Columbia, Ontario and Manitoba), which have established a greenhouse gas reduction trading framework.

CARB held an October 2, 2015 workshop to begin work towards developing 2016 cap-and-trade program amendments. The proceeding is underway, as noted above. CARB has four stated objectives: (i) to extend the program beyond 2020; (ii) to improve programmatic efficiencies (including for auctions and data reporting); (iii) updates to better reflect the latest technical data on global warming potential and experiences with other emissions trading programs; and (iv) to maintain the environmental and market

integrity of California’s program. Additional workshops and comment periods are continuing in what is expected to be a year-long rulemaking proceeding.

The Authority and the Project Participant are unable to predict at this time the full impact of the cap-and-trade program over the long-term on the Project Participant’s electric utility or on the electric utility industry generally or the likelihood or impact of any additional changes to the program. However, the Project Participant could be adversely affected in the future if CARB changes the allowance allocation methodology, or if the greenhouse gas emissions of its resource portfolio is in excess of the allowances administratively allocated to it and it is required to purchase compliance instruments on the market to cover its emissions. The Project Participant may also be adversely affected depending on how the federal Clean Power Plan (described below) affects the State’s cap-and-trade program. See “OTHER FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY – Environmental Issues – Greenhouse Gas Regulations under the Clean Air Act” for a brief description of the federal Clean Power Plan.

Greenhouse Gas Emissions – Emissions Performance Standard. Senate Bill 1368 (“SB 1368”) became effective as law on January 1, 2007. It provides for an emission performance standard (“EPS”), restricting new investments in baseload fossil fuel electric generating resources that exceed the rate of greenhouse gas emissions for existing combined-cycle natural gas baseload generation. SB 1368 allows the California Energy Commission (the “CEC”) to establish a regulatory framework to enforce the EPS for POUs such as the Project Participant. The CPUC has a similar responsibility for the IOUs. The regulations promulgated by the CEC were approved by the OAL on October 16, 2007. The CEC regulations prohibit any investment in baseload generation that does not meet the EPS of 1,100 pounds of carbon dioxide (“CO2”) per MWh of electricity produced, with limited exceptions for routine maintenance, requirements of pre-existing contractual commitments, or threat of significant financial harm.

In January 2012, the CEC initiated a review of the regulations for enforcement of the EPS for POUs to ensure there is adequate review of investments in facilities that do not meet the EPS. On March 19, 2014, the CEC issued its Final Conclusions in the EPS proceeding. The CEC proposed to expand the public notice requirement so that a POU would have to post a notice of a public meeting at which its governing board would consider any expenditure over $2.5 million to meet environmental regulatory requirements at a non-EPS compliant baseload facility. The CEC further proposed to require each POU to file an annual notice identifying all investments over $2.5 million that it anticipates making during the subsequent 12 months on non-EPS compliant baseload facilities to comply with environmental regulatory requirements. This requirement would be waived for any POU that has entered into a binding agreement to divest within five years of all baseload facilities exceeding the EPS. The CEC did not propose to lower the EPS. Further, by letter from the CPUC to the CEC, the CPUC expressed its view that the EPS not be lowered. A final regulatory package was unanimously adopted at the CEC’s June 18, 2014 business meeting. The adopted regulations had limited changes to the proposed POU reporting requirements. CEC staff has also since confirmed that the $2.5 million threshold applies to an individual investment by each utility – not the combined investment of all participants in a project. These changes and any future changes to the EPS regulations may impact the Project Participant.

Energy Procurement and Efficiency Reporting. Senate Bill 1037 (“SB 1037”) was signed by then Governor Schwarzenegger on September 29, 2005. It requires that each POU, including the Project Participant, 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 Project Participant has complied with such reporting requirements.

California Assembly Bill 2021 (“AB 2021”), signed by then Governor Schwarzenegger on September 29, 2006, requires that the POUs establish, report, and explain the basis of the annual energy efficiency and demand reduction targets by June 1, 2007 and every three years thereafter for a ten-year horizon. A subsequent bill has changed the time interval for establishing annual targets to every four years. The Project Participant has complied with this reporting requirement under AB 2021. Future reporting requirements under AB 2021 include: (i) the identification of sources of funding for the investment in energy efficiency and demand reduction programs; (ii) the methodologies and input assumptions used to determine cost-effectiveness; and (iii) the results of an independent evaluation to measure and verify energy efficiency savings and demand reduction program impacts. The information obtained from the POUs is being used by the CEC to present the progress made by the POUs towards the State of California’s goal of reducing electrical consumption by 10% within ten years and the greenhouse gas targets presented in Executive Order S-3-05. In addition, the CEC will provide recommendations for improvement to assist each POU in achieving cost-effective, reliable, and feasible savings in conjunction with the established targets for reduction. Governor Jerry Brown signed Assembly Bill 802 into law on October 8, 2015 that allows savings to bring buildings up to code to count (rather than only “above code” savings to count) towards energy efficiency and demand reduction targets while setting new benchmarking requirements for California utilities.

Renewables Portfolio Standard. Senate Bill X1-2 (“SBX1-2”), the “California Renewable Energy Resources Act,” was signed into law by Governor Brown on April 12, 2011. SBX1-2 codifies the Renewable Portfolio Standard (“RPS”) target for retail electricity sellers to serve 33% of their loads with eligible renewable energy resources by 2020 as provided in Executive Order S-14-08 (signed by Governor Brown in November 2008). As enacted, SBX1-2 makes the requirements of the RPS program applicable to POUs (rather than just prescribing that POUs meet the intent of the legislation as under previous statutes). However, the governing boards of POUs are responsible for implementing the requirements, rather than the CPUC, as is the case for the IOUs. In addition, the CEC is given certain enforcement authority for POUs and CARB is given the authority to set penalties.

SBX1-2 requires each POU to adopt and implement a renewable energy resource procurement plan. As set out in more detail in the CEC’s RPS enforcement regulation, noted below, the plan must require the utility to procure at least the following amounts of electricity products from eligible renewable energy resources, which may include renewable energy certificates (“RECs”), as a proportion of total kilowatt hours sold to the utility’s retail end-use customers: (i) over the 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.

SBX1-2 grandfathers any facility approved by the governing board of a POU prior to June 1, 2010 as satisfying renewable energy procurement obligations adopted under prior law if the facility is a “renewable electrical generation facility” as defined in the bill (subject to certain restrictions). Renewable electrical generation facilities include certain out-of-state renewable energy generation facilities if such facility: (i) will not cause or contribute to any violation of a California environmental quality standard or requirement, (ii) participates in the accounting system to verify compliance with the RPS program requirements, and (iii) either (a) commenced initial commercial operation after January 1, 2005 or (b) either (x) the electricity generated by the facility is from incremental generation resulting from expansion or repowering of the facility or (y) the electricity generated by the facility was procured by a retail seller or POU as of January 1, 2010. The percentage of a retail electricity seller’s RPS requirements that may be met with unbundled RECs from generating facilities outside California declines over time, beginning at 25% through 2013 and declining to a level of 10% in 2017 and beyond.

The CEC has developed detailed rules to implement SBX1-2. On June 12, 2013, the CEC adopted regulations for the enforcement of the RPS program requirements for POUs. In connection with the implementation of SBX1-2, the CEC is also responsible for certifying electric generation facilities as “eligible renewable energy resources” for purposes of the RPS program, and has adopted guidelines that identify the requirements, conditions and process for certification of facilities as eligible renewable energy resources. These guidelines are revised periodically, including to reflect changes in statute and market conditions, and were most recently updated on June 10, 2015 by the adoption by the CEC of its Renewables Portfolio Standard Eligibility Guidebook, 8th Edition. Certain amendments to the RPS Enforcement Procedures regulations were approved by the CEC on October 14, 2015 that clarify and expand certain eligibility definitions. On March 17, 2016, CEC staff held a scoping workshop to solicit public comment from interested parties on staff proposed revisions to the Renewables Portfolio Standard Eligibility Guidebook in connection with the development of the next edition. The current guidelines identify bio-methane as an eligible renewable energy resource in certain circumstances. Under these guidelines, utilities that procure bio-methane were required to reapply for certification of the generating facilities that use the bio-methane. See APPENDIX A – “THE PROJECT PARTICIPANT – THE POWER SYSTEM – Fuel Supply for Department-Owned Generating Units and Apex Power Project.”

Clean Energy and Pollution Reduction Act of 2015. SB 350, the “Clean Energy and Pollution Reduction Act of 2015,” was signed into law by Governor Jerry Brown on October 7, 2015. SB 350, as enacted, establishes an RPS target of 50% by December 31, 2030 for the amount of electricity generated and sold to retail customers from eligible renewable energy resources for retail sellers and POUs, including interim targets of (i) 40% by the end of the 2021-2024 compliance period, (ii) 45% by the end of the 2025-2027 compliance period and (iii) 50% by the end of the 2028-2030 compliance period.

SB 350 requires each retail seller of electricity (including IOUs, most POUs above a certain size threshold, community choice aggregators and energy service providers) to provide a renewable energy procurement plan on an annual basis, and to file an integrated resource plan (“IRP”), and a schedule for periodic updates to the plan, for approval. This includes addressing how affected utilities plan to meet the 2030 interim emissions reductions goal set by CARB. IRPs for retail sellers other than POUs will be reviewed by the CPUC. For POUs, the governing body of the POU is responsible for adopting the IRP, subject to review by the CEC, which can recommend modifications to correct any shortcomings.

The CEC adopted an order instituting a new rulemaking proceeding on January 13, 2016 to implement the RPS and IRP provisions of SB 350. CARB has begun a public comment process to determine how best to set utility-specific greenhouse gas emissions reduction goals for those utilities, including the Project Participant, that meet the IRP size threshold (i.e., local publicly-owned electrical utilities with an annual electrical demand exceeding 700 gigawatt hours, as determined on a three-year average commencing January 1, 2013).

SB 350 specifies the factors that must be considered in proposed procurement plans and provides that the goals must be balanced by the need to have just and reasonable rates, to ensure system and local reliability, to preserve the resilience of the electric grid, and to enhance distribution system management. The bill specifically requires the CPUC to identify a “balanced portfolio of resources” to ensure “reliability” and “optimal integration” of renewables, and requires that utilities include in their procurement plans a “strategy for procuring best-fit and least cost resources” to meet the portfolio needs the CPUC identifies.

SB 350 further requires the CEC to establish annual targets for statewide energy efficiency savings and demand reduction that will achieve a cumulative doubling of statewide energy efficiency savings in electricity and natural gas final end uses of retail customers by January 1, 2030. The CPUC is required to establish energy efficiency targets for electrical and gas corporations consistent with this goal, and specifies programs that may be used to achieve the goal. POUs are required to establish annual

targets for energy efficiency savings and demand reduction consistent with the goal and to report those targets to the CEC every four years for the next 10-year period. The bill provides guidance as to what measures qualify and requires an evaluation of feasibility and cost effectiveness in setting annual targets for those savings. SB 350 also requires the CEC to adopt a responsible contractor policy and establish consumer protection guidelines.

SB 350 requires the ISO to prepare proposed governance modifications to facilitate the transformation of the ISO into a regional organization but provides that such governance modifications will not take effect prior to completion of a specified process for review and study of the impacts of a regional market and the enactment by the Legislature of future legislation implementing the proposed governance changes by 2019.

Solar Power. On August 21, 2006, then Governor Schwarzenegger signed into law California Senate Bill 1 (also known as the “California Solar Initiative”). This legislation requires POUs, including the Project Participant, to establish a program supporting the stated goal of the legislation to install 3,000 MW of photovoltaic energy in California. POUs are also required to establish eligibility criteria in collaboration with the CEC for the funding of solar energy systems receiving ratepayer-funded incentives. The legislation gives a POU the choice of selecting an incentive based on the installed capacity or based on the energy produced by the solar energy system, measured in kilowatt-hours. Incentives would be required to decrease at a minimum average rate of 7% per year. POUs also have to meet certain reporting requirements regarding the installed capacity, number of installed systems, number of applicants, amount of awarded incentives and the contribution toward the program’s goals. The Project Participant has established a program in accordance with the requirements of the California Solar Initiative.

Future Regulation

The electric industry is subject to continuing legislative and administrative reform. States routinely consider changes to the way in which they regulate the electric industry. Historically, both further deregulation and forms of additional regulation have been proposed for the industry, which has been highly regulated throughout its history. While there is no current proposal to further deregulate the industry, there still are additional regulations or legislative mandates being proposed or considered for the industry such as higher reliance on renewable energy and tighter regulations for greenhouse gas emission reductions. The Authority and the Project Participant are unable to predict at this time the impact any such proposals will have on the operations and finances of the Project Participant’s electric utility or the electric utility industry generally.

Impact of Developments on the Project Participant

The effect of the developments in the California energy markets described above on the Project Participant cannot be fully ascertained at this time. Also, volatility in energy prices in California may return due to a variety of factors that affect both the supply and demand for electric energy in the western United States. These factors include, but are not limited to, the adequacy of generation resources to meet peak demands, the availability and cost of renewable energy, the impact of economy-wide greenhouse gas emission legislation and regulations, fuel costs and availability, weather effects on customer demand, transmission congestion, the strength of the economy in California and surrounding states and levels of hydroelectric generation within the region (including the Pacific Northwest). See “OTHER FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY.” This price volatility may contribute to greater volatility in the revenues of its electric system from the sale (and purchase) of electric energy and, therefore, could materially affect the Project Participant’s financial condition. The Project Participant undertakes resource planning and risk management activities and manages its resource portfolio to mitigate such price volatility and spot market rate exposure.

OTHER FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY

Federal Policy on Cybersecurity

On February 13, 2013, President Obama issued the Executive Order “Improving Critical Infrastructure Security” (“Executive Order”). Among other things, the Executive Order calls for improved information sharing and processing of security clearances for owners and operators of critical infrastructure. The Executive Order further requires 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. NIST released the first version of the voluntary Framework on February 12, 2014. NIST has indicated that it intends for the Framework to be a living document that will continue to be updated and improved as industry provides feedback on implementation.

The Executive Order could result in substantive changes to policy, regulatory, and compliance issues that will affect the electric industry. The Authority and the Project Participant will continue to monitor this issue in order to help ensure that the Framework continues to recognize the existing cybersecurity efforts in the electric sector, and does not undermine them by creating duplicative or inconsistent processes.

The Cybersecurity Information Sharing Act of 2015 was signed into law on December 18, 2015 as part of the year-end Omnibus Appropriations Act. It creates an industry-supported, voluntary cybersecurity information sharing program that will encourage both public and private sector entities to share cyber-related threat information. The Authority supported passage of the bill.

Federal Energy Legislation

Energy Policy Act of 2005. Under the federal Energy Policy Act of 2005 (“EPAct 2005”), FERC was given refund authority over POUs if they sell into short-term markets, like the ISO markets, and sell eight million MWhs or more of electric energy on an annual basis. In addition, FERC was given authority over the behavior of market participants. Under FERC’s authority it can impose penalties on any seller for using a manipulative or deceptive device, including market manipulation, in connection with the purchase or sale of energy or of transmission service. The Commodity Futures Trading Commission also has jurisdiction to enforce certain types of market manipulation or deception claims under the Commodity Exchange Act.

EPAct 2005 authorized FERC to issue permits to construct or modify transmission facilities located in a national interest electric transmission corridor if FERC determines that the statutory conditions are met. EPAct 2005 also required the creation of an electric reliability organization (“ERO”) to establish and enforce, under FERC supervision, mandatory reliability standards (“Reliability Standards”) to increase system reliability and minimize blackouts. Failure to comply with such Reliability Standards exposes a utility to significant fines and penalties by the ERO.

NERC Reliability Standards. EPAct 2005 required FERC to certify an ERO to develop mandatory and enforceable Reliability Standards, subject to FERC review and approval. The Reliability Standards apply to users, owners and operators of the Bulk-Power System, as more specifically set forth in each Reliability Standard. On February 3, 2006, FERC issued Order 672, which certified the North American Electric Reliability Corporation (“NERC”) as the ERO. Many Reliability Standards have since been approved by FERC. Such standards pertain not only to the planning, operations, and maintenance of Bulk-Power System facilities, but also to the cyber and physical security of certain critical facilities.

The ERO or the entities to which NERC has delegated enforcement authority through an agreement approved by FERC (“Regional Entities”), such as the WECC, may enforce the Reliability

Standards, subject to FERC oversight, or FERC may independently enforce them. Potential monetary sanctions include fines of up to $1 million per violation per day. FERC Order 693 further provided the ERO and Regional Entities with the discretion necessary to assess penalties for such violations, while also having discretion to calculate a penalty without collecting the penalty if circumstances warrant.

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. This category includes the Project Participant. 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 Project Participant) 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 Project Participant) 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.

Other Legislation. Congress has considered and is considering numerous bills addressing domestic energy policies and various environmental matters, including bills relating to energy supplies and development (such as a federal energy efficiency standard and expedited permitting for natural gas drilling projects), global warming, and water quality. Many of these bills, if enacted into law, could have a material impact on the Authority, the Project Participant and the electric utility industry generally. In light of the variety of issues affecting the utility sector, federal energy legislation in other areas such as reliability, transmission planning and cost allocation, operation of markets, and environmental requirements is also possible. However, the Authority and the Project Participant are unable to predict the

outcome or potential impacts of any possible legislation on the Project Participant’s electric utility at this time.

Environmental Issues

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

Greenhouse Gas Regulations Under the Clean Air Act. The United States Environmental Protection Agency (the “EPA”) has taken steps to regulate greenhouse gas emissions under existing law. In 2009, the EPA issued a final “endangerment finding,” in which it declared that the weight of scientific evidence requires a finding that six identified greenhouse gases, namely, CO2, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride, cause global warming, and that global warming endangers the public health and welfare. The final rule for the “endangerment finding” was published in the Federal Register on December 15, 2009. As a result of this finding, the EPA determined that it was authorized to issue regulations limiting CO2 emissions from, among other things, motor vehicles and stationary sources, such as electric generating facilities, under the federal Clean Air Act. The EPA subsequently issued the “Tailoring Rule,” published in the Federal Register on June 3, 2010, which regulates greenhouse gas emissions from large stationary sources, including electric generating facilities, if the sources emit more than the specified threshold levels of tons per year of CO2. Large sources with the potential to emit in excess of the applicable threshold will be subject to the major source permitting requirements under the Clean Air Act, including the EPA’s Prevention of Significant Deterioration (“PSD”) permit program and its Title V operating permit program. Permits would be required in order to construct, modify and operate facilities exceeding the emissions threshold. Examples of such permitting requirements include, but are not limited to, the application of Best Available Control Technology (known as BACT) for greenhouse gas emissions, and monitoring, reporting, and recordkeeping for greenhouse gases.

Legislation and joint disapproval resolutions have been introduced in the United States Congress that would repeal the EPA’s endangerment finding or otherwise prevent the EPA from regulating greenhouse gases as air pollutants. The endangerment finding and the Tailoring Rule have also been challenged in court, but were upheld on June 26, 2012 in a decision by the United States Court of Appeals for the District of Columbia Circuit in Coalition for Responsible Regulation, Inc., et al. v. EPA. A petition for rehearing was denied on December 20, 2012. In October 2013, several petitions for review relating to these findings were consolidated in the United States Supreme Court case Utility Air Regulatory Group v. EPA, dealing with the issue of whether the EPA permissibly determined that its regulation of greenhouse gas emissions from new motor vehicles triggered permitting requirements under the Clean Air Act for stationary sources that emit greenhouse gases. On June 23, 2014, the U.S. Supreme Court issued its decision in the Utility Air Regulatory Group v. EPA case. In the decision, the Court invalidated substantial portions of the Tailoring Rule, which purported to modify the emissions thresholds set forth in the Clean Air Act (governing when PSD and Title V permitting would be triggered) to account for greenhouse gases, while preserving various aspects of the EPA’s ability to regulate greenhouse gas emissions from most new major sources. The decision holds that, for facilities that are otherwise subject to PSD permitting obligations (by virtue of their emissions of conventional pollutants), the EPA may

regulate greenhouse gases from those facilities through the PSD BACT standards (without approving the EPA’s current approach to BACT regulation of greenhouse gases, or any other approach that may be adopted).

In December 2010, the EPA announced two settlements with a number of states and environmental groups. Pursuant to one settlement agreement dated December 23, 2010, the EPA on April 13, 2012 proposed establishing New Source Performance Standards limiting CO2 emissions from fossil-fuel fired electric generating units. In response to a June 25, 2013 Presidential memorandum (the “Presidential Memorandum”), the EPA proposed revised, generally more stringent standards on September 20, 2013 and simultaneously rescinded the April 13, 2012 proposal. The EPA stated that the revised standards would apply only to new facilities, not reconstructed or modified facilities. The Presidential Memorandum required the EPA to propose by June 1, 2014, and to finalize by June 1, 2015, standards, regulations, or guidelines that address carbon pollution from existing and modified or reconstructed power plants.

The proposed rule for new power plants was published in the Federal Register on January 8, 2014 for public comment. At the close of the comment period on May 9, 2014, the EPA had received approximately two million comments on the proposed rule.

As contemplated by the Presidential Memorandum, on June 2, 2014, the EPA concurrently released both its “Clean Power Plan” proposal for existing power plants and its proposed revised standards for modified or reconstructed power plants. The proposed rules for existing, and modified or reconstructed, power plants were published in the Federal Register on June 18, 2014; comments on the proposed rules were accepted until December 1, 2014 and October 16, 2014, respectively.

On August 3, 2015, President Obama and the EPA announced the final version of the Clean Power Plan for existing power plants. The EPA further released its final new source performance standards for emissions of CO2 for newly constructed, modified, and reconstructed power plants.

The final version of the Clean Power Plan is designed to reduce CO2 emissions from the power sector by 32% on average nationwide by 2030, from a 2012 baseline. Under the final rule, the EPA will set different interim and final emissions targets for each state based on overall CO2 emissions and the amount of electricity generated in the State and revised the proposed rule to encourage greater regional cooperation (through WECC for California). Under the final rule, States would have until September 2016 to design their state implementation plans to reach the emissions target or could request an extension until September 2018 either alone or in cooperation with other states while working on multi-state plans. States may choose between two plan types in order to comply with the program: a source-based “emission standards” plan type, including source-specific requirements ensuring all affected power plants within the state meet their required emissions performance rates or state-specific rate based or mass-based goal, and a “state measures” plan type, including a mixture of measures implemented by the state, such as renewable energy standards and programs to improve residential energy efficiency, that result in affected power plants meeting the state’s mass-based goal. In both cases, states will have to demonstrate that their plan will meet the CO2 emission performance rates, the state rate-based goal or the state mass-based goal by 2030. Interim standards are to be phased in from 2022 to 2029 prior to the final standards being reached in 2030. Progress towards meeting the target rates may be measured in one of three ways: (i) a rate-based state emissions goal measured in pounds per MWh; (ii) a mass-based state emissions goal measured in total short tons of CO2; and (iii) a mass-based state goal with a new source complement measured in total short tons of CO2. Under the rule, state emission targets may be met in a combination of ways, with emissions targets set based on three “building blocks” identified by the EPA as reflecting a “Best System of Emissions Reduction,” which may include improved efficiency at power plants, switching generation from higher-emitting coal to lower-emitting natural gas, and shifting generation to

zero-emitting renewable or nuclear energy. In the event a state fails to develop a satisfactory implementation plan, the EPA may impose a federal implementation plan instead.

Concurrently with the release of the final Clean Power Plan for existing power plants, on August 3, 2015, the EPA also set standards to limit CO2 emissions from new, modified and reconstructed power plants. These new final carbon pollution standards will apply to: (i) any newly constructed fossil fuel-fired power plant that commenced construction on or after January 8, 2014; (ii) existing power plants subject to modification, which includes a physical or operational change that increases the source’s maximum achievable hourly rate of emissions, which modification occurs on or after June 18, 2014; and (iii) reconstructed power plants, which includes any unit on which the replacement of components occurs on or after June 18, 2014 and to such an extent that the fixed capital costs of the new components exceeds 50% of the fixed capital costs that would be required to construct a comparable entirely new facility. In the final standards, the EPA is establishing separate standards for two types of fossil fuel-fired sources: (a) stationary combustion turbines, generally firing natural gas, and (b) electric utility steam generating units, generally firing coal. The new standards reflect the degree of emissions limitation achievable through the application of the “Best System of Emissions Reduction,” that the EPA has determined has been adequately demonstrated for each type of unit. Under the final standards, new and reconstructed baseload natural gas-fired electricity generating units would be required to meet an emissions limit of 1,000 pounds of CO2 per MWh. Non-base load units would need to meet a clean fuels input-based standard. New coal-fired facilities would be required to meet an emissions limit of 1,400 pounds of CO2 per MWh-gross. Coal-fired electricity generating units subject to modifications resulting in an increase of hourly CO2 emissions of more than 10% relative to the emissions of the most recent five years from that unit would be required to meet a unit-specific emission limit that is consistent with the unit’s best historical annual CO2 emissions rate since 2002. Such standard would be in the form of an emissions limit in pounds of CO2 per MWh on a gross-output basis. Reconstructed coal-fired power plants with a heat input of greater than 2,000 MMBtu/h would be required to meet an emissions limit of 1,800 pounds of CO2 per MWh-gross. Smaller coal-fired units would be required to meet an emission limit of 2,000 pounds of CO2 per MWh-gross. These emissions limits are based on the use of the most efficient generating technology at the affected source.

The final Clean Power Plan and the carbon pollution standards for new, modified and reconstructed power plants became effective on October 23, 2015; the carbon pollution standards for existing power plants became effective on December 22, 2015. A number of lawsuits have been filed challenging the final rules and seeking to prevent the EPA from moving forward to implement the Clean Power Plan. On October 23, 2015, a group of 24 state attorneys general filed an action in the U.S. Court of Appeals for the District of Columbia Circuit seeking a stay of the Clean Power Plan deadlines while its legality is reviewed by the courts. Additional legal and legislative challenges were filed and then consolidated into one case by the U.S. Court of Appeals for the District of Columbia (State of West Virginia, et al. v. EPA). On January 21, 2016, the D.C. Circuit Court denied the request for stay of implementation of the Clean Power Plan and a number of applications for stay were made to the U.S. Supreme Court by parties challenging the Clean Power Plan. On February 9, 2016, the U.S. Supreme Court granted the emergency stay applications filed by opponents of the Clean Power Plan. The orders issued by the Court prevent the EPA from implementing the Clean Power Plan not only until the D.C. Circuit Court issues a judgment on its legality, but also until the U.S. Supreme Court reviews an expected appeal of that ruling. Given the complexity and various approaches available to states towards implementing the final Clean Power Plan, it is too early to determine the impact of the final rule with any degree of certainty in the event it is ultimately upheld. Further, the Authority and the Project Participant are unable to predict at this time the outcome of any ongoing legal challenges to other EPA rulemaking with respect to greenhouse gas emissions or the effect that any final rules promulgated by the EPA regulating greenhouse gas emissions from electric generating units will have on the Project Participant or its electric system.

Air Quality – National Ambient Air Quality Standards. The Clean Air Act requires that the EPA establish National Ambient Air Quality Standards (“NAAQS”) for certain air pollutants. When a NAAQS has been established, each state must identify areas in its state that do not meet the EPA standard (known as “non-attainment areas”) and develop regulatory measures in its state implementation plan to reduce or control the emissions of that air pollutant in order to meet the applicable standard and become an “attainment area.” The EPA periodically reviews the NAAQS for various air pollutants and has in recent years increased, or proposed to increase, the stringency of the NAAQS for certain air pollutants. The EPA revised the NAAQS for particulate matter on December 14, 2012, the NAAQS for sulfur dioxide on June 22, 2010, and the NAAQS for nitrogen dioxide on February 9, 2010, and in each case made the NAAQS more stringent. Based on the revised standards for particulate matter, nitrogen dioxide and sulfur dioxide, some areas may be designated as non-attainment. On December 18, 2014, the EPA issued a final rule making initial area designations for the 2012 NAAQS for fine particulate matter (“PM2.5”), designating 14 areas in six states as non-attainment, including the Los Angeles – San Bernardino Counties and the South Coast Air Basin. These PM2.5 designations became effective on April 15, 2015. These developments may result in stringent permitting processes for new sources of emissions and additional state restrictions on existing sources of emissions, such as power plants. On September 2, 2011, President Obama directed the EPA to withdraw a proposal advanced by the EPA to lower the NAAQS for ozone. As a result of this withdrawal, the EPA resumed the process of issuing non- attainment designations for the ozone NAAQS under the standard set in 2008. On April 30, 2012, the EPA issued ozone non-attainment designations for areas in California, including the Los Angeles – San Bernardino Counties and the South Coast Air Basin. Additional non-attainment areas for ozone have been and may continue to be designated. On May 29, 2013, the EPA proposed a rule to implement the 2008 ozone NAAQS. Comments on the proposed rule were due to the EPA by August 5, 2013. While implementing the 2008 ozone NAAQS, the EPA is continuing its review of this standard. In January 2014, the EPA released draft risk and exposure assessment documents and a draft policy assessment document relating to this review; comments were due by March 24, 2014. In addition, the U.S. Supreme Court found in its review of EPA v. EME Homer City Generation, LP that the EPA has authority to impose a Cross-State Air Pollution Rule (the “Transport Rule”) which curbs air pollution emitted in upwind states to facilitate downwind attainment of three NAAQS. On November 26, 2014, the EPA proposed to strengthen the stringency of the NAAQS for ozone by lowering the existing ozone standard of 75 parts per billion (“ppb”) to between 65 and 70 ppb, although the EPA also sought public comment on a standard as low as 60 ppb. On October 1, 2015, the EPA issued its final rule, lowering the ozone standard to 70 ppb. The final rule was published in the Federal Register on October 26, 2015 and became effective on December 28, 2015. The EPA has until October 1, 2017 to make final non-attainment designations; the South Coast Air Basin is expected to once again have additional time to come into compliance with the new standard given the unique challenges the area faces in meeting ozone standards. Legal challenges have been filed by five states and industry groups.

Mercury and Air Toxics Standards. On December 16, 2011, the EPA signed a rule establishing new standards to reduce air pollution from coal- and oil-fired power plants under sections 111 (new source performance standards, or “NSPS”) and 112 (toxics program) of the Clean Air Act. The final rule was published in the Federal Register on February 16, 2012. The EPA updated the Mercury and Air Toxics Standards (“MATS”) emission limits on November 30, 2012 and again on March 28, 2013. The EPA is currently reconsidering certain aspects of the regulation. Under section 111 of the Clean Air Act, MATS revises the standards that new and modified facilities, including coal- and oil-fired power plants, must meet for particulate matter, sulfur dioxide, and nitrogen oxide. Under section 112, MATS sets new toxics standards limiting emissions of heavy metals, including mercury, arsenic, chromium, and nickel; and acid gases, including hydrochloric acid and hydrofluoric acid, from existing and new power plants larger than 25 MW that burn coal or oil. Power plants have up to four years to meet these standards. While many plants already meet some or all of these new standards, some plants will be required to install new equipment to meet the standards. On November 25, 2014, the U.S. Supreme Court agreed to review

the MATS rule following the filing of petitions for writ of certiorari from 23 states and industry groups. On June 29, 2015, the U.S. Supreme Court issued its decision in the case, finding that the EPA interpreted the Clean Air Act improperly because it did not consider the costs of emissions reductions prior to crafting the MATS rules, and remanded the case back to the District of Columbia Circuit Court. On December 15, 2015, the District of Columbia Circuit Court determined to leave the MATS rule in place while it is being revised on remand as ordered by the U.S. Supreme Court. The EPA issued a final finding on April 14, 2016. On March 3, 2016, the U.S. Supreme Court had denied an application filed by several states to stay the rule during the litigation. The Project Participant purchases power from coal- fired power stations that may be affected by these new rules, and in the event the MATS standards are ultimately upheld, such Project Participant may be exposed to increased costs.

Regulation of Coal Combustion Residuals. On June 21, 2010, the EPA proposed to regulate coal combustion residuals (“CCR”) such as ash. The EPA proposed to list these residuals as a special waste and regulate them as a hazardous waste. This would require a federal or state permitting program covering the storage, treatment, transport, disposal, and other activities related to residuals. The EPA also proposed an alternative regulation that would classify residuals as nonhazardous solid waste. Under the alternative regulation, plants could dispose of residuals in surface impoundments or landfills if they comply with national minimum standards. The disposal standards would address location, liner requirements, groundwater monitoring and other issues, but permits would not be required under the alternative regulation. The EPA solicited additional public comments on its proposed coal combustion residual regulation on October 12, 2011 and again on August 2, 2013. The EPA released its final CCR rule on December 19, 2014, adopting the industry-preferred alternative regulation classifying CCRs as nonhazardous solid waste. Legislation is pending before the U.S. Congress to further change the final rule, though its prospects remain uncertain given the threat of a presidential veto.

Regulation of Cooling Water Intake Structures. On April 20, 2011, the EPA proposed to regulate cooling water intake structures at certain existing power plants in order to reduce the number of fish and other aquatic organisms that are trapped against intake screens or drawn into the generating unit. The EPA proposed to require modified intake screens that would capture and safely return fish to water bodies, or require the facility’s water intake velocity to be reduced, thus allowing fish to move away from intake structures. The best technology to reduce entrainment would be determined on a site-specific basis. A final regulation was released by the EPA on May 16, 2014 and became effective on October 14, 2014. The regulation is expected to increase the cost of power that the Project Participant purchases from certain fossil fuel-fired units.

Effluent Limitations Guidelines and Standards. On June 7, 2013, the EPA proposed to set technology-based effluent limitations guidelines and standards for metals and other pollutants in wastewater discharged from steam electric power plants. The proposal would cover wastewater associated with several types of equipment and processes, including flue gas desulfurization, fly ash, bottom ash, flue gas mercury control and gasification of fuels. The EPA is also considering best management practices for surface impoundments containing CCRs. The EPA proposed four preferred alternatives for regulating wastewater discharges. The stringency of controls, types of waste streams covered, and the costs vary between the four alternatives. The public comment period on this proposal ended on September 20, 2013. The EPA was expected to issue a final rule in May 2014 but in December 2013 it announced that it would need additional time to finalize this rule. The proposed regulation could increase the cost of power that the Project Participant purchases from steam electric power plants. On September 30, 2015, the EPA announced its final Steam Electric Effluent Limitation Guidelines to update the federal limits on toxic metals in discharge wastewater. The EPA will provide the industry more time to coordinate compliance with this and the coal ash rule.

The Authority and the Project Participant are unable to predict the outcome of the legal and legislative challenges to the EPA’s endangerment finding and subsequent rulemaking, or the effect that

any future final rules promulgated by the EPA regulating electric generating units and other stationary sources would have on the Authority’s projects or the Project Participant or its electric system.

Other Factors

The electric utility industry in general has been, or in the future may be, affected by a number of other factors which could 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) changes resulting from a national energy policy, (d) effects of competition from other electric utilities (including increased competition resulting from a movement to allow direct access or from mergers, acquisitions, and “strategic alliances” of competing electric and natural gas utilities and from competitors transmitting less expensive electricity from much greater distances over an interconnected system) and new methods of, and new facilities for, producing low-cost electricity, (e) the repeal of certain federal statutes that would have the effect of increasing the competitiveness of many IOUs, (f) increased competition from independent power producers and marketers, brokers and federal power marketing agencies, (g) “self-generation” or “distributed generation” (such as microturbines and fuel cells) by industrial and commercial customers and others, (h) issues relating to the ability to issue tax-exempt obligations, including severe restrictions on the ability to sell to nongovernmental entities electricity from generation projects and transmission service from transmission line projects financed with outstanding tax-exempt obligations, (i) effects of inflation on the operating and maintenance costs of an electric utility and its facilities, (j) changes from projected future load requirements, (k) increases in costs and uncertain availability of capital, (l) shifts in the availability and relative costs of different fuels (including the cost of natural gas and nuclear fuel), (m) sudden and dramatic increases in the price of energy purchased on the open market that may occur in times of high peak demand in an area of the country experiencing such high peak demand, such as has occurred in California, (n) inadequate risk management procedures and practices with respect to, among other things, the purchase and sale of energy and transmission capacity, (o) other legislative changes, voter initiatives, referenda and statewide propositions, (p) effects of the changes in the economy, (q) effects of possible manipulation of the electric markets, (r) natural disasters or other physical calamities, including, but not limited to, earthquakes and floods and (s) changes to the climate. Any of these factors (as well as other factors) could have an adverse effect on the financial condition of any given electric utility and likely will affect individual utilities in different ways.

The Authority is unable to predict what impact such factors will have on the business operations and financial condition of the Project Participant, but the impact could be significant. This Official Statement includes a brief discussion of certain of these factors. This discussion does not purport to be comprehensive or definitive, and these matters are subject to change subsequent to the date hereof. Extensive information on the electric utility industry is available from the legislative and regulatory bodies and other sources in the public domain, and potential purchasers of the 2016 Bonds should obtain and review such information.

CONSTITUTIONAL CHANGES IN CALIFORNIA

Proposition 218

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 XIIID creates additional requirements for the imposition by most local governments (including the Department) 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. Nevertheless, Proposition 218 could indirectly affect some California municipally-owned electric utilities. For example, to the extent Proposition 218 reduces cities’ general fund revenues, cities could seek to increase the transfers from the electric utilities of those cities to the cities’ general fund. See, however, “Proposition 26” below.

Article XIIIC expressly extends the people’s initiative power to reduce or repeal previously- authorized local taxes, assessments, and fees and charges. The terms “fees and charges” are not defined in Article XIIIC, although the California Supreme Court held in Bighorn-Desert View Water Agency v. Verjil, 39 Cal.4th 205 (2006) that the initiative power described in Article XIIIC may apply to a broader category of fees and charges than the property-related fees and charges governed by Article XIIID. Moreover, in the case of Bock v. City Council of Lompoc, 109 Cal.App.3d 52 (1980), the Court of Appeal determined that electric rates are subject to the initiative power. Thus, electric service charges (which are expressly exempted from the provisions of Article XIIID) may be subject to the initiative provisions of Article XIIIC, thereby subjecting such fees and charges imposed by the Department to reduction by the electorate. The Authority believes that even if the electric rates of the Department are subject to the initiative power, under Article XIIIC or otherwise, its electorate would be precluded from reducing electric rates and charges in a manner materially and adversely affecting the payment of the 2016 Bonds by virtue of the “impairment of contracts clauses” of the United States and California Constitutions.

Proposition 26

The California electorate approved Proposition 26 at the November 2, 2010 election, amending Article XIIIC of the California Constitution. Proposition 26 imposes a majority voter approval requirement on local governments with respect to certain fees and charges for general purposes, and a two-thirds voter approval requirement with respect to certain fees and charges for special purposes. The initiative was designed to supplement tax limitations California voters adopted when they approved Proposition 13 in 1978, and other measures. 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. Proposition 26 may be interpreted to limit fees and charges for electric utility services charged by governmental entities such as the Department to preclude future transfers of electric utility generated funds to a local government’s general fund, if applicable, and/or to require stricter standards for the allocation of costs among customer classes. Three lawsuits have been filed generally alleging that the portion of the Department’s electric system rates providing moneys to make an annual transfer to the City’s reserve fund pursuant to the City Charter constitutes excessive fees and an unauthorized tax for purposes of Article XIIIC of the California Constitution. See APPENDIX A – “THE PROJECT PARTICIPANT – LITIGATION – Litigation Regarding Power Transfer” for additional information regarding such litigation. The Authority and the Department are unable to predict at this time how Proposition 26 will be interpreted by the courts or what its ultimate impact will be.

Other Initiatives

Articles 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, could be adopted affecting the Authority’s and/or the Department’s revenues or operations. Neither the nature and impact of these measures nor the likelihood of qualification for ballot or passage can be predicted by the Authority or the Department.

LITIGATION

At the time of delivery of the 2016 Bonds, an authorized officer of the Authority will certify that, to the knowledge of such officer, there is no litigation or other proceeding pending or threatened in any court, agency or other administrative body (either State of California or federal) restraining or enjoining the issuance, sale or delivery of the 2016 Bonds or the collection of Revenues, or in any way questioning or affecting (i) the proceedings under which the 2016 Bonds are to be issued, (ii) the validity of any provision of the 2016 Bonds or the Indentures, (iii) the pledge by the Authority under the Indentures, (iv) the validity or enforceability of the Transmission Service Contracts (LADWP), (v) the legal existence of the Authority or the title to office of the present officials of the Authority, or (vi) the authority of the Authority to acquire the Authority Interests (LADWP).

TAX MATTERS

The Internal Revenue Code of 1986 (the “Code”) imposes certain requirements that must be met subsequent to the issuance and delivery of the 2016 Bonds for interest thereon to be and remain excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes. Noncompliance with such requirements could cause the interest on the 2016 Bonds to be included in the gross income of the owners thereof for federal income tax purposes retroactive to the date of issue of the 2016 Bonds. The Authority has covenanted in the Indentures, and the Project Participant has covenanted in its Transmission Service Contracts (LADWP), not to take any action or omit to take any action which, if taken or omitted, respectively, would adversely affect the exclusion of the interest on the related 2016 Bonds from the gross income of the owners thereof for federal income tax purposes.

In the opinion of Norton Rose Fulbright US LLP, Los Angeles, California, and Curls Bartling P.C., Oakland, California, Co-Bond Counsel, under existing law interest on the 2016 Bonds is exempt from personal income taxes of the State of California and, assuming compliance with the aforementioned covenants, interest on the 2016 Bonds is excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes. Co-Bond Counsel are of the further opinion that the 2016 Bonds are not “specified private activity bonds” within the meaning of section 57(a)(5) of the Code and, therefore, that the interest on the 2016 Bonds is not treated as an item of tax preference for purposes of computing the alternative minimum tax imposed by section 55 of the Code; however, the receipt or accrual of interest on the 2016 Bonds owned by a corporation may affect the computation of its alternative minimum taxable income. A corporation’s alternative minimum taxable income is the basis on which the alternative minimum tax imposed by section 55 of the Code is computed. In rendering the foregoing opinions, Co-Bond Counsel will rely upon representations and certifications of the Authority and the Project Participant made in certificates dated the date of delivery of the 2016 Bonds pertaining to the use, expenditure, and investment of the proceeds of the 2016 Bonds.

The initial public offering price of certain 2016 Bonds (the “Discount Bonds”) may be less than the amount payable on such 2016 Bonds at maturity. An amount equal to the difference between the initial public offering price of a Discount Bond (assuming that a substantial amount of the Discount Bonds of that maturity are sold to the public at such price) and the amount payable at maturity constitutes

original issue discount to the initial purchaser of such Discount Bond. A portion of such original issue discount allocable to the holding period of such Discount Bond by the initial purchaser will, upon the disposition of such Discount Bond (including by reason of its payment at maturity), be treated as interest excludable from gross income, rather than as taxable gain, for federal income tax purposes, on the same terms and conditions as those for other interest on the 2016 Bonds described above. Such interest is considered to be accrued actuarially in accordance with the constant interest method over the life of a Discount Bond, taking into account the semiannual compounding of accrued interest, at the yield to maturity on such Discount Bond and generally will be allocated to an initial purchaser in a different amount from the amount of the payment denominated as interest actually received by the initial purchaser during the tax year.

The purchase price of certain 2016 Bonds (the “Premium Bonds”) paid by an owner may be greater than the amount payable on such Bonds at maturity. An amount equal to the excess of a purchaser’s tax basis in a Premium Bond over the amount payable at maturity constitutes premium to such purchaser. The basis for federal income tax purposes of a Premium Bond in the hands of such purchaser must be reduced each year by the amortizable bond premium, although no federal income tax deduction is allowed as a result of such reduction in basis for amortizable bond premium. Such reduction in basis will increase the amount of any gain (or decrease the amount of any loss) to be recognized for federal income tax purposes upon a sale or other taxable disposition of a Premium Bond. The amount of premium that is amortizable each year by a purchaser is determined by using such purchaser’s yield to maturity (or, in some cases with respect to a callable bond, the yield based on a call date that results in the lowest yield on the bond). Purchasers of the Premium Bonds should consult with their own tax advisors with respect to the determination of amortizable bond premium on Premium Bonds for federal income tax purposes and with respect to the state and local tax consequences of owning and disposing of Premium Bonds.

Co-Bond Counsel have not undertaken to advise in the future whether any events after the date of issuance of the 2016 Bonds may affect the tax status of interest on the 2016 Bonds or the tax consequences of the ownership of the 2016 Bonds. No assurance can be given that pending or future legislation, or amendments to the Code, if enacted into law, or any proposed legislation or amendments to the Code, will not contain provisions that could directly or indirectly reduce the benefit of the exemption of interest on the 2016 Bonds from personal income taxation by the State of California or of the exclusion of the interest on the 2016 Bonds from the gross income of the owners thereof for federal income tax purposes. Furthermore, Co-Bond Counsel express no opinion as to any federal, state or local tax law consequences with respect to the 2016 Bonds, or the interest thereon, if any action is taken with respect to the 2016 Bonds or the proceeds thereof upon the advice or approval of other counsel.

Although Co-Bond Counsel are of the opinion that interest on the 2016 Bonds is exempt from California personal income tax and that interest on the 2016 Bonds is excluded from the gross income of the owners thereof for federal income tax purposes, an owner’s federal, state or local tax liability may otherwise be affected by the ownership or disposition of such owner’s 2016 Bonds. The nature and extent of these other tax consequences will depend upon the owner’s other items of income or deduction. Without limiting the generality of the foregoing, prospective purchasers of the 2016 Bonds should be aware that (i) section 265 of the Code denies a deduction for interest on indebtedness incurred or continued to purchase or carry the 2016 Bonds, and the Code contains additional limitations on interest deductions applicable to financial institutions that own tax-exempt obligations (such as the 2016 Bonds), (ii) with respect to insurance companies subject to the tax imposed by section 831 of the Code, section 832(b)(5)(B)(i) reduces the deduction for loss reserves by 15% of the sum of certain items, including interest on the 2016 Bonds, (iii) interest on the 2016 Bonds earned by certain foreign corporations doing business in the United States could be subject to a branch profits tax imposed by section 884 of the Code, (iv) passive investment income, including interest on the 2016 Bonds, may be subject to federal income

taxation under section 1375 of the Code for Subchapter S corporations that have Subchapter C earnings and profits at the close of the taxable year if greater than 25% of the gross receipts of such Subchapter S corporation is passive investment income, (v) section 86 of the Code requires recipients of certain Social Security and certain Railroad Retirement benefits to take into account, in determining the taxability of such benefits, the receipt or accrual of interest on the 2016 Bonds, and (vi) under section 32(i) of the Code, receipt of investment income, including interest on the 2016 Bonds, may disqualify the recipient thereof from obtaining the earned income credit. Co-Bond Counsel have expressed no opinion regarding any such other tax consequences.

Co-Bond Counsel’s opinion is not a guarantee of a result, but represents their legal judgment based upon their review of existing statutes, regulations, published rulings and court decisions and the covenants of the Authority and the Project Participant described above. No ruling has been sought from the Internal Revenue Service (the “Service”) with respect to the matters addressed in the opinion of Co- Bond Counsel, and Co-Bond Counsel’s opinion is not binding on the Service. The Service has an ongoing program of auditing the tax-exempt status of the interest on municipal obligations. If an audit of the 2016 Bonds is commenced, under current procedures the Service is likely to treat the Authority as the “taxpayer,” and the owners of the 2016 Bonds would have no right to participate in the audit process. In responding to or defending an audit of the tax-exempt status of the interest on the 2016 Bonds, the Authority may have different or conflicting interests from the owners of the 2016 Bonds. Public awareness of any future audit of the 2016 Bonds could adversely affect the value and liquidity of the 2016 Bonds during the pendency of the audit, regardless of the ultimate outcome.

Existing law may change so as to reduce or eliminate the benefit to holders of the 2016 Bonds of the exclusion of interest thereon from gross income for federal income tax purposes. Proposed legislative or administrative action, whether or not taken, could also affect the value and marketability of the 2016 Bonds. Prospective purchasers of the 2016 Bonds should consult with their own tax advisors with respect to any proposed changes in tax law.

A copy of the form of opinion of Co-Bond Counsel relating to the 2016 Bonds is included in Appendix E.

RATINGS

Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business, and Moody’s Investors Service, Inc. are expected to assign the 2016 Bonds the credit ratings of “AA–” and “Aa2,” respectively. Each such rating should be evaluated independently of any other rating. Each such credit rating reflects only the view of the organization furnishing the rating and any desired explanation of the significance of such credit rating should be obtained from such rating agency. No application has been made to any other rating agency in order to obtain additional ratings on the 2016 Bonds.

The above described ratings are not a recommendation to buy, sell or hold the 2016 Bonds, and each such rating may be subject to revision or withdrawal at any time by the rating agency assigning such rating. The Underwriters undertake no responsibility either to bring to the attention of the owners of the 2016 Bonds the revision or the withdrawal of any rating on the 2016 Bonds, and the Authority and the Underwriters undertake no responsibility to oppose any such downward revision or withdrawal. Any downward revision or withdrawal of a rating may have an adverse effect on the market prices of the 2016 Bonds.

UNDERWRITING

The 2016 Mead-Adelanto Bonds will be purchased jointly and severally for reoffering by the Underwriters, at an aggregate purchase price of $______, representing the par amount of the 2016 Mead-Adelanto Bonds of $______, plus net original issue premium of $______, less the Underwriters’ discount of $______. The 2016 Mead-Phoenix Bonds will be purchased jointly and severally for reoffering by the Underwriters, at an aggregate purchase price of $______, representing the par amount of the 2016 Mead-Phoenix Bonds of $______, plus net original issue premium of $______, less the Underwriters’ discount of $______. The Underwriters will be obligated to purchase all of the 2016 Bonds if any of the 2016 Bonds are purchased.

The Underwriters may offer and sell the 2016 Bonds to certain dealers (including dealers depositing 2016 Bonds into investment trusts) and others at prices lower than the respective public offering prices stated or derived from information stated on the inside cover page hereof. The initial public offering prices may be changed from time to time by the Underwriters.

FINANCIAL ADVISOR

The Authority has retained Public Financial Management, Inc., Los Angeles, California, as financial advisor (the “Financial Advisor”) in connection with the issuance of the 2016 Bonds. The Financial 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 Financial 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 Financial Advisor is contingent upon the issuance and delivery of the 2016 Bonds.

INDEPENDENT AUDITORS

The financial statements of the Power System of the Department as of June 30, 2015 and 2014, and for the years then ended, are included in this Official Statement as Appendix B. These financial statements have been audited by KPMG LLP, independent auditors of the Department (the “Auditor”), as stated in their report appearing therein. The Authority has not requested, nor has the Auditor given, the Auditor’s consent to inclusion in Appendix B of its report on such financial statements.

CERTAIN LEGAL MATTERS

Certain legal matters in connection with the authorization and issuance of the 2016 Bonds are subject to the approval of Norton Rose Fulbright US LLP, Los Angeles, California, and Curls Bartling P.C., Oakland, California, Co-Bond Counsel. The form of opinion that Co-Bond Counsel propose to render with respect to the 2016 Bonds is attached as Appendix E hereto. Certain other legal matters with respect to the Authority will be passed upon by its General Counsel, Richard J. Morillo, Esq. Certain legal matters will be passed upon for the Underwriters by their counsel, Sidley Austin LLP, San Francisco, California.

CERTAIN RELATIONSHIPS

The Underwriters and their respective affiliates are full-service financial institutions engaged in various activities that may include securities trading, commercial and investment banking, municipal advisory, brokerage, and asset management. In the ordinary course of business, the Underwriters and their respective affiliates may actively trade debt and, if applicable, equity securities (or related derivative securities) and provide financial instruments (which may include bank loans, credit support or interest

rate swaps). The Underwriters and their respective affiliates may engage in transactions for their own accounts involving the securities and instruments made the subject of this securities offering or other offerings of the Authority or the Project Participant. The Underwriters and their respective affiliates may make a market in credit default swaps with respect to municipal securities in the future. The Underwriters and their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and publish independent research views in respect of this securities offering or other offerings of the Authority or the Project Participant.

CONTINUING DISCLOSURE UNDERTAKINGS FOR THE 2016 BONDS

Pursuant to the Continuing Disclosure Resolutions of the Authority’s Board of Directors, the Authority has agreed for the benefit of the registered owners and the Beneficial Owners (as defined in the Continuing Disclosure Resolutions) of the respective issues of the 2016 Bonds to provide certain financial information and operating data relating to the Authority and the Department by not later than six months after the end of each of the Authority’s Fiscal Years (presently, by each December 31) commencing with Fiscal Year 2015-16 (the “Annual Report”) and to provide notices of the occurrence of certain enumerated events with respect to the related issue of 2016 Bonds. The Annual Report will be filed by or on behalf of the Authority with the Municipal Securities Rulemaking Board (“MSRB”) through the MSRB’s Electronic Municipal Market Access (“EMMA”) system. The notices of such events will also be filed by or on behalf of the Authority with the MSRB also through the EMMA system. The specific nature of the information to be contained in the Annual Reports and the notices of events is set forth in the forms of the Continuing Disclosure Resolutions that are included in their entirety in Appendix D attached hereto. The Authority’s continuing disclosure undertakings have been made in order to assist the Underwriters in complying with Securities and Exchange Commission Rule 15c2-12.

The Authority is in compliance in all material respects with its continuing disclosure undertakings for the last five years. Filings through EMMA are linked to a particular issue of obligations by CUSIP numbers. During the last five years, the Authority has filed annual reports for 17 different projects for which it has issued revenue bonds. In the last five years, the annual reports for three of the 17 projects for the Fiscal Years ended June 30, 2011 or, as applicable, June 30, 2012, were not appropriately linked to certain CUSIP numbers. The Authority has since linked the applicable filings to these CUSIP numbers. In addition, the annual financial information filed by the Authority for Fiscal Years ended June 30, 2011 through June 30, 2013 in connection with one of the 17 annual reports inadvertently omitted a sentence regarding the amount of gas sold by the Authority to project participants. An amended filing has been posted with EMMA to address this omission. Further, the annual financial information filed by the Authority for Fiscal Years ended June 30, 2012 and June 30, 2013 in connection with one of the 17 annual reports inadvertently omitted certain operating statistics for the related project. An amended filing has been posted with EMMA to correct this omission. Lastly, although the Authority generally routinely filed notices of known instances of rating changes in connection with its revenue bonds, certain instances of rating changes were inadvertently not updated. Filings have been posted with EMMA to update the ratings. The Authority believes it has established processes to ensure it will continue to comply in all material respects with its continuing disclosure undertakings in the future.

AVAILABLE INFORMATION

Copies of the Authority’s most recent audited financial statements and Annual Report, and copies of the forms of the Transmission Service Contracts (LADWP), the Joint Ownership Agreements, the Operations Agreements, the Fiscal Agency Agreements, the Land Rights Agreements and the Indentures are available from the Authority, 1160 Nicole Court, Glendora, California 91740.

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY

By: President

64 APPENDIX A

THE PROJECT PARTICIPANT

The information contained in this Appendix has been furnished to the Southern California Public Power Authority by the Department of Water and Power of the City of Los Angeles. This Appendix presents information as of the respective dates set forth herein, and the Department makes no representations regarding the accuracy of this information subsequent to such dates. The Authority makes no representation regarding the accuracy of the information contained in this Appendix.

THE DEPARTMENT OF WATER AND POWER OF THE CITY OF LOS ANGELES

General The Department of Water and Power of the City of Los Angeles (the “Department”) is the largest municipal utility in the United States and is a proprietary department of the City of Los Angeles (the “City”). Control of Power System assets and funds is vested with the Board, whose actions are subject to review by the City Council. The Department is responsible for providing the electric and water requirements of its service area. The Department provides electric and water service almost entirely within the boundaries of the City. The City encompasses approximately 473 square miles and is populated by approximately 3.9 million residents. Department operations began in the early years of the twentieth century. The first Board of Power Commissioners was established in 1902. Nine years later, the responsibilities for the provision of electricity and water within the City were given to the Los Angeles Department of Public Service (the “Department of Public Service”). The Department of Public Service was superseded in 1925 with passage of the 1925 Charter and the creation of the Department. The Department now operates under a new charter that became effective July 1, 2000 (the “Charter”). The operations and finances of the water system (the “Water System”) are separate from those of the power system (the “Power System”). A copy of the most recent official statement or offering memorandum prepared by the Department for the issuance of securities for its Power System may be obtained from Mario C. Ignacio, CFA, Chief Accounting Employee of the Department of Water and Power of the City of Los Angeles, 111 North Hope Street, Room 465, Los Angeles, California 90012 or are available from the Municipal Securities Rulemaking Board (“MSRB”) through its Electronic Municipal Market Access (“EMMA”) system. Charter Provisions Pursuant to the Charter, the Board of Water and Power Commissioners of the City of Los Angeles (the “Board”) is the governing body of the Department and the General Manager of the Department (the “General Manager”) administers the affairs of the Department. The Charter provides that all revenue from every source collected by the Department in connection with its possession, management and control of the Power System is to be deposited in the Power Revenue Fund. The Charter further provides that the Board controls the money in the Power Revenue Fund and makes provision for the issuance of Department bonds, notes and other evidences of indebtedness payable out of the Power Revenue Fund. The procedure relating to the authorization of the issuance of bonds is governed by Section 609 of the Charter. Section 245 of the Charter provides that, with certain exceptions, actions of City commissions and boards (“Board Action”), including the Board, do not become final until five consecutive City

A-1 Council meetings convened in regular session have passed. During those five City Council meetings, the City Council may, on a two-thirds vote, take up the Board Action. If the Board Action is taken up, the City Council may approve or veto the Board Action within 21 calendar days of taking up the Board Action. If the City Council takes no action to assert jurisdiction over the Board Action during those five meetings, the Board Action becomes final at the end of such period. On January 22, 2016, City Councilmember Felipe Fuentes introduced a motion that instructs the City Attorney, in consultation with the City Administrative Officer, to address amending the Charter and Administrative Code provisions relating to the Department and its governance. This motion is seeking Charter amendments designed to restructure the Department’s governance system in order to increase oversight and transparency, reduce political interference, and streamline Department operations. Any Charter amendment developed in accordance with this motion would need to be approved by the voters of the City. Board of Water and Power Commissioners Under the Charter, the Board is granted the possession, management and control of the Power System. Pursuant to the Charter, the Board also has the power and duty to make and enforce all necessary rules and regulations governing the construction, maintenance, operation, connection to and use of the Power System and to acquire, construct, extend, maintain and operate all improvements, utilities, structures and facilities the Board deems necessary or convenient for purposes of the Department. The Mayor of the City appoints, and the City Council confirms the appointment of, members of the Board. The Board is traditionally selected from among prominent business, professional and civic leaders in the City. The members of the Board serve with only nominal compensation. Certain matters regarding the administration of the Department also require the approval of the City Council. The Board is composed of five members. The current members of the Board are: MEL LEVINE, President. Mr. Levine was appointed to the Board by Mayor Eric Garcetti and confirmed by the City Council on September 11, 2013. He assumed the position of President of the Board on October 1, 2013. Mr. Levine served as a member of the United States Congress from 1983- 1993 and as a member of the California Assembly from 1977-1982. He was a partner at the law firm of Gibson, Dunn & Crutcher from 1993-2012 and continues as an Of Counsel to the firm. Mr. Levine chairs the Advisory Board of the Center on Public Diplomacy at the University of Southern California’s Annenberg School, is a member of the Advisory Board of the Goldman School of Public Policy at the University of California at Berkeley and is a director of the Pacific Council on International Policy. He has served as U.S. Chair of the U.S.-Israel-Palestinian “Anti-Incitement” committee established by the Wye Plantation peace agreement, as a Presidential appointee to the United States Holocaust Memorial Council, as a U.S. government appointee to the U.S.-Israel Science and Technology Advisory Commission, as President of the American Friends of the (Yitzhak) Rabin Center in Israel, and as Board Chair of the Los Angeles Police Foundation. Mr. Levine holds a law degree from Harvard University, a master’s degree in public affairs from Princeton University and a bachelor’s degree from the University of California at Berkeley. WILLIAM W. FUNDERBURK, JR., Vice-President. Mr. Funderburk was appointed to the Board by Mayor Eric Garcetti and confirmed by the City Council on September 11, 2013. He assumed the position of Vice President of the Board on October 1, 2013. Mr. Funderburk is a partner at the law firm of Castellon & Funderburk, handling government initiated and private party enforcement litigation and regulatory compliance. He has served on the National Phase II Storm Water Advisory Board, the California Environmental Liability Insurance Task Force, the Environmental Justice Legal Task Force, and the Los Angeles Environmental Crimes Sentencing Task Force. Mr. Funderburk also has served on the boards of the EnvironMentors Project, Wildlife on Wheels, and the Greater Wilshire Neighborhood Council. He holds a law degree from Georgetown University Law Center and a bachelor’s degree from Yale University.

A-2 JILL BANKS BARAD, Commissioner. Ms. Barad was appointed to the Board by Mayor Eric Garcetti and confirmed by the City Council on September 11, 2013. She owns Jill Barad & Associates, a political consulting, public relations and government affairs firm. Ms. Barad serves on the Sherman Oaks Neighborhood Council, the Valley Alliance of Neighborhood Councils, and the Valley Industry and Commerce Association. Previously, she chaired Mayor Tom Bradley’s Advisory Committee on Education and served on the Citizens Advisory Committee on Student Integration and has taught political public relations, media and fundraising at the University of California at Los Angeles. Ms. Barad founded The Open School to create the first community-initiated magnet school in the Los Angeles Unified School District, which went on to become the first charter school in California. She holds a bachelor’s degree from Temple University. MICHAEL F. FLEMING, Commissioner. Mr. Fleming was appointed to the Board by Mayor Eric Garcetti and confirmed by the City Council on September 11, 2013. He is Executive Director of The David Bohnett Foundation, a charitable grant making foundation whose goal is to improve society through social justice and civic activism. Mr. Fleming also teaches undergraduate humanities and graduate level public policy courses at the University of California at Los Angeles. He began his career as a producer at WGBH-TV, the Boston PBS station and is Chair of the Board of Directors of the KCRW Foundation. Mr. Fleming has served as President of the East Los Angeles Area Planning Commission and as a commissioner of the Board of the Los Angeles Convention Center. He holds a bachelor’s degree from Colorado College and was a Victory Fellow (now Bohnett Fellow) at Harvard University’s John F. Kennedy School of Government. CHRISTINA E. NOONAN, Commissioner. Ms. Noonan was originally appointed to the Board by then-Mayor Antonio Villaraigosa and confirmed by the City Council on August 10, 2010. She was reappointed to the Board by Mayor Eric Garcetti and re-confirmed by the City Council on September 11, 2013. Ms. Noonan is a Senior Vice President of Jones Lang LaSalle’s Los Angeles office, where she develops strategic real estate solutions for her clients by assessing the viability of lease renegotiations, relocations, consolidations, dispositions, building sales and acquisition alternatives. Before being appointed to the Board, Ms. Noonan served on the Los Angeles Convention Center Board as its President. She is a member of Commercial Real Estate Women, the World Affairs Council and Allen Matkins’s Women at the Top – Real Estate Roundtable. Ms. Noonan was appointed by then-Mayor Villaraigosa to the Office of Public Safety Oversight Committee for the City. She also served on the Board of LA, Inc. and on the Mayor’s Trade Advisory Council to promote international business in the City. Ms. Noonan is involved in many charities, including Aviva, Phoenix House, ALS Association, and she has mentored teens through the Fulfillment Fund organization. Ms. Noonan holds a degree in Psychology from the University of California at Santa Cruz and graduated with Highest Honors. Management of the Department The management and operation of the Department are administered under the direction of the General Manager. The Power System is directed by the Department’s Senior Assistant General Manager – Power System. The Department’s financial affairs are supervised by the Department’s Chief Financial Officer. Legal counsel is provided to the Department by the Office of the City Attorney of the City of Los Angeles. Below are brief biographies of the Department’s General Manager, Ms. Marcie L. Edwards and other members of the senior management team for the Power System: MARCIE L. EDWARDS. Ms. Edwards is a 39 year veteran of the utility industry, and presently serves as the General Manager of the Department. Ms. Edwards assumed her current position on March 3, 2014. Ms. Edwards served as the City Manager of the City of Anaheim from May 2013 until February 2014. Prior to her appointment as City Manager, Ms. Edwards was the General Manager of the City of Anaheim’s municipal water and electric utility from January 2001 to May 2013. Prior to her job as Utility General Manager in the City of Anaheim, Ms. Edwards was an Assistant General Manager at

A-3 the Department with experience in oversight of electric operations, engineering, transmission line construction and maintenance, and overall utility customer service. Ms. Edwards is a founding board member of the Association of Women in Water, Energy, and Environment. Ms. Edwards is a past board member of the Anaheim Community Foundation, a past regional member of the National Board of the American Public Power Association (the “APPA”), past President of the California Municipal Utilities Association (the “CMUA”), past Vice Chair of the Board of the Metropolitan Water District of Southern California, and past President of the Southern California Public Power Authority. A past Governor on the California Independent System Operator Board, Ms. Edwards also served as interim CEO of that agency in 2004, and, in that role, assisted in avoiding statewide power outages during the State energy crisis. Ms. Edwards received both her bachelor’s degree in organizational management, as well as her master’s degree in public administration from the University of La Verne. VACANT, Senior Assistant General Manager – Power System. The position of Senior Assistant General Manager – Power System is currently vacant. During the time that the Senior Assistant General Manager – Power System position remains vacant, the Power System has been separated into two functions. Michael S. Webster is providing oversight to Power Planning and Development, Power Engineering, Power and Fuel Purchase, and Power Integrated Support Services. Andrew C. Kendall is providing oversight to Power Transmission and Distribution, Power Construction and Maintenance, and Power Supply and Operations. MICHAEL S. WEBSTER, Director of Power System – Engineering and Technical Services. Mr. Webster is a 33-year veteran of the Department and assumed his current position as Director of Power System – Engineering and Technical Services in July 2015. Mr. Webster is responsible for developing strategies to transform the Power System to meet mandates and strategic goals, executing those strategies and goals, and deploying engineering and technical services. Prior to his current position, Mr. Webster was responsible for managing external generation resources, fuel procurement and wholesale energy activities. Mr. Webster has also led the development of the Department’s renewable portfolio, 20-year integrated resource plan and conventional generation and transmission development. Mr. Webster was part of the core team that established the Department’s wholesale marketing group that successfully navigated the State energy crisis. Mr. Webster holds a bachelor’s degree in mechanical engineering from the University of California at Los Angeles and a master’s degree in business administration from the University of Southern California. ANDREW C. KENDALL, Director of Power System – Construction, Maintenance and Operations. Mr. Kendall assumed his current position as Director of Power System – Construction, Maintenance, and Operations in July 2015. Prior to this position, he served as Director for the Department’s Power Transmission and Distribution Division since December 2014. Mr. Kendall has spent over 32 years working with the Department, including nearly 20 years of experience in supervisory and managerial positions coordinating the work of employees engaged in the construction, maintenance, and emergency repair of the Power System. He was appointed to Electric Distribution Mechanic Supervisor in 1996, Transmission and Distribution District Supervisor in 2000, and Electrical Service Manager in 2012. Mr. Kendall holds a bachelor’s degree in business management from the University of Phoenix. DAVID H. WRIGHT, Chief Operating Officer. Mr. Wright was named Chief Operating Officer of the Department in January 2016, after serving as Interim Chief Administrative Officer of the Department since July 2015 and as Senior Assistant General Manager – Power System earlier in 2015. Mr. Wright has spent 27 years in the public utilities industry, including five years as Utilities Assistant Director of Finance and Administration, five years as Utilities Deputy Director and eight years as the General Manager of Riverside Public Utilities. He also served as the Chief Financial Officer for the Las Vegas Valley Water District and Southern Nevada Water Authority from September 2013 to February 2015. Mr. Wright holds a bachelor’s degree in business and a master’s degree in business administration

A-4 from California State University at Fullerton. Mr. Wright has served as past President of the Southern California Public Power Authority (“SCPPA”) and past President of the CMUA. JEFFERY L. PELTOLA, Chief Financial Officer. Mr. Peltola was named Chief Financial Officer of the Department in July 2015, after previously serving as Chief Financial Officer of the Department in 2009. Mr. Peltola has managed various groups over his 33-year career at the Department, including engineering positions related to the construction and operation of the Department. In 1997, he was appointed Budget Director to focus on the Department’s fiscal responsibility. In 2003, he took on the additional responsibilities for managing the Department’s retail water and power rates and has led over 12 successful rate actions. This includes the restructuring of all water rates and Electric Rates to fund needed infrastructure replacement, encourage water/energy conservation (including tiered rates), and ensure the financial stability of the Department. Mr. Peltola received a bachelor’s degree in mechanical engineering, a master’s degree in Industrial and Systems Engineering, and a master’s degree in business administration, with an emphasis in Technical Economic Planning, from the University of Southern California. ANN M. SANTILLI, Assistant Chief Financial Officer and Controller. Ms. Santilli currently serves as Assistant Chief Financial Officer and Controller of the Department. Prior to holding this position, Ms. Santilli served as Interim Chief Financial Officer from October 2010 through January 2012. Prior to serving as Interim Chief Financial Officer, Ms. Santilli served as Chief Accounting Employee and Assistant Chief Financial Officer and Controller of the Department. She assumed the post as Controller in March 2008, as Assistant Chief Financial Officer in April 2008 and as Chief Accounting Employee in July 2010. Prior to being appointed as the Controller, Ms. Santilli was the Manager of Financial Reporting since 2003. Ms. Santilli has over 28 years of accounting and auditing experience. Ms. Santilli holds a bachelor’s degree in business administration from California State University at Northridge and is a certified public accountant in the State and a certified internal auditor. MARIO C. IGNACIO, CFA, Chief Accounting Employee and Assistant Auditor. Mr. Ignacio serves as the Chief Accounting Employee and Assistant Auditor, as well as the Assistant Chief Financial Officer and Treasurer for the Department. Prior to his appointment as Chief Accounting Employee on October 5, 2010, Mr. Ignacio served as the Interim Chief Financial Officer of the Department. Mr. Ignacio has over 25 years of financial management experience emphasizing taxable fixed income investment and debt administration. His responsibilities include directing and managing trust fund portfolios with assets over $1 billion, administering and implementing debt-restructuring activities for the Department and certain SCPPA projects, overseeing risk management and control, and monitoring credit for the utility’s wholesale marketing activities and natural gas hedging program. Mr. Ignacio holds a bachelor’s degree “with distinction” in business administration and accountancy. He holds a master’s degree in business administration from the University of Southern California, where he was elected to the Beta Gamma Sigma Honor Society. He has earned the right to use the Chartered Financial Analyst (CFA) designation, is a member of the Los Angeles Society of Financial Analysts and the CFA Institute, and was the past president of the Los Angeles Civic Center Chapter of the Association of Government Accountants. Employees As of February 29, 2016, the Department assigned approximately 3,874 Department employees to the Power System on a full time basis. Approximately 3,804 additional Department employees support both the Power System and the Water System on a shared basis. The Department conducts personnel functions in accordance with the Charter-established civil service system (the “Civil Service System”) applicable to most Department employees. In accordance with the Civil Service System, the Department makes appointments on the basis of merit through competitive examinations and civil service procedures. The position of General Manager and 14 other management positions are specifically exempted from the Civil Service System.

A-5 The City Council approves the wages and salaries paid to all Department employees. In accordance with State law (the Meyers-Milias-Brown Act) and a conforming City ordinance (the Employee Relations Ordinance), the Department recognizes fourteen bargaining units of Department employees. Five labor or professional organizations represent these employees’ bargaining units. In the bargaining process the Department and the labor or professional organizations develop memoranda of understanding which set forth wages, hours, overtime and other terms and conditions of employment. The Department entered into ten memoranda of understanding with the International Brotherhood of Electrical Workers (“IBEW”) for a period extending through September 30, 2017. IBEW represents more than 90% of the Department’s employees through ten bargaining units. The agreement, which was approved by the City Council on December 10, 2013, among other things, increased the retirement age for future Power System employees and deferred pay increases for three years. Changes to the Department pension program included the establishment of a second pension tier for new employees (see “Retirement and Other Benefits” below), as well as ending pension system reciprocity with the Los Angeles City Employees Retirement System (LACERS) for employees who transfer between the systems. The Coalition of L.A. City Unions, whose members are not employed at the Department, have challenged the ending of the reciprocity agreement. The Department and City intend to defend the challenge against the decision to end the reciprocity agreement. The Department’s memorandum of understanding with the Service Employees International Union, Security Unit, expires on September 30, 2017, and its memoranda of understanding with the Load Dispatchers Association, Management Employees Association and the Association of Confidential Employees each expire on December 31, 2016. Since the advent of collective bargaining in 1974, work stoppages have been rare, occurring in 1974, 1981 and 1993. Retirement and Other Benefits Retirement, Disability and Death Benefit Insurance Plan. The Department has a funded contributory retirement, disability, and death benefit insurance plan covering substantially all of its employees. The Water and Power Employees’ Retirement, Disability, and Death Benefit Insurance Plan is a retirement system of employee benefits and includes the Water and Power Employees’ Retirement Fund (the “Retirement Plan”), which is more fully described in “Note (11) Retirement Plan” (“Note 11”) and the “Required Supplementary Information” of the Department’s Power System Financial Statements, attached hereto as APPENDIX B – “AUDITED FINANCIAL STATEMENTS OF THE DEPARTMENT OF WATER AND POWER OF THE CITY OF LOS ANGELES POWER SYSTEM FOR THE FISCAL YEARS ENDED JUNE 30, 2015 AND JUNE 30, 2014.” The costs of the Retirement Plan are shared by the Power System and the Water System, with the Power System being responsible for approximately 67% of Retirement Plan costs. Beginning in Fiscal Year 2010-11, the assumed rate of investment return on the Retirement Plan’s assets decreased from 8.0% to 7.75%, which contributed to an increase of the Department’s required contributions to the Retirement Plan after the change to the assumption. The assumed rate of return was re-evaluated in 2013 and the actuary of the Retirement Plan recommended a decrease of the assumed investment rate of return to 7.5%. The actuary’s recommendation was approved by the Retirement Board of Administration for the Retirement Plan in 2014. The full implementation of this change, along with other actuarial factors such as positive investment returns and lower than expected salary increases through June 30, 2015, caused the required contribution by the Department as a percentage of payroll costs to decrease from 50.62% as of July 1, 2014 to 42.77% as of July 1, 2015. The Department adopted the provisions of GASB Statement No. 68, Accounting and Financial Reporting for Pension Plans – an amendment of GASB Statement No. 27 (“GASB No. 68”), effective July 1, 2013 and implemented for the audited financial statements commencing with Fiscal Year 2014-15. The adoption of GASB No. 68 required the Department to restate the July 1, 2013 net position for the Power System and record an unfunded net pension liability of approximately $1.56 billion. As approved

A-6 by the Board, a regulatory asset of the same amount was also recorded, because this liability is expected to be funded by future revenues of the Power System. For more information about how GASB No. 68 affected the financial statements of the Power System, see Note 11 and “Required Supplementary Information” of the Department’s Power System Financial Statements, attached hereto as APPENDIX B – “AUDITED FINANCIAL STATEMENTS OF THE DEPARTMENT OF WATER AND POWER OF THE CITY OF LOS ANGELES POWER SYSTEM FOR THE FISCAL YEARS ENDED JUNE 30, 2015 AND JUNE 30, 2014.” Specifically, see Note 11(k) for a discussion of the Power System’s establishment of the regulatory asset discussed above. According to the latest actuarial valuation and review of the Retirement Plan, which was completed by The Segal Company on September 16, 2015, as of July 1, 2015, the market value of the assets in the Retirement Plan was approximately $10.09 billion, which results in an unfunded actuarial accrued liability (based on the market value of assets) of approximately $1.13 billion and the actuarial value of the assets in the Retirement Plan was approximately $9.75 billion, which would result in an unfunded actuarial accrued liability (based on the actuarial value of assets) of approximately $1.468 billion. As of July 1, 2015, the Retirement Plan had unrecognized investment gains of approximately $236 million. The Retirement Plan employs a 5-year smoothing technique to value assets in order to reduce the volatility in contribution rates. The impact of this will result in “smoothed” assets that are lower or higher than the market value of the assets depending upon whether the remaining amount to be smoothed is a net gain or a net loss. If the unrecognized investment gains for the year ended June 30, 2015 were recognized immediately, required contributions to the Retirement Plan would decrease from approximately 42.77% of total Department covered payroll to 39.97% of total Department covered payroll. Additionally, if the unrecognized investment gains in all available Retirement Plan funds were recognized immediately in the actuarial value of assets, the funded ratio of the Retirement Plan would increase from approximately 86.9% to 89.9%. According to the actuarial valuation and review of the Retirement Plan for Fiscal Year 2014-15, which was completed by The Segal Company on September 16, 2014, as of July 1, 2014, the market value of the assets in the Retirement Plan was approximately $9.71 billion, which results in an unfunded actuarial accrued liability (based on the market value of assets) of approximately $1.27 billion and the actuarial value of the assets in the Retirement Plan was approximately $8.88 billion, which would result in an unfunded actuarial accrued liability (based on the actuarial value of assets) of approximately $2.10 billion. As of July 1, 2014, the Retirement Plan had unrecognized investment gains of approximately $735 million. The Retirement Plan employs a 5-year smoothing technique to value assets in order to reduce the volatility in contribution rates. The impact of this will result in “smoothed” assets that are lower or higher than the market value of the assets depending upon whether the remaining amount to be smoothed is a net gain or a net loss. If the unrecognized investment gains for the year ended June 30, 2014 were recognized immediately, required contributions to the Retirement Plan would decrease from approximately 50.62% of total Department covered payroll to 41.69% of total Department covered payroll. Additionally, if the unrecognized investment gains in all available Retirement Plan funds were recognized immediately in the actuarial value of assets, the funded ratio of the Retirement Plan would increase from approximately 80.9% to 88.5%. Effective January 1, 2014, the Board approved a new tier for new Retirement Plan members called “Tier 2.” Tier 2 provides reduced retirement benefits, requires the employee to contribute a higher percentage of pay to the Retirement Plan, and ends the reciprocity agreement with the City’s retirement plan. The Retirement Plan’s actuary estimates the amount of contribution required to fund the benefit allocated to the current year of service (the “Normal Cost”), as a percentage of payroll, will be 5.61% for Tier 2 (as compared to 16.35% for Tier 1), and the new tier of benefits is projected to generate a present value savings of $877 million over the next 30 years (based on the 7.75% assumed rate of investment return on the Retirement Plan’s assets, which was in effect when Tier 2 was approved).

A-7 Other Postemployment Benefit (Healthcare) Plan (“OPEB”). The Department provides certain healthcare benefits (the “Healthcare Benefits”) to active and retired employees and their dependents. These Healthcare Benefits are more particularly described in “Note (12) Other Postemployment Benefit (Healthcare) Plan” and the “Required Supplementary Information” of the Department’s Power System Financial Statements, attached hereto as APPENDIX B – “AUDITED FINANCIAL STATEMENTS OF THE DEPARTMENT OF WATER AND POWER OF THE CITY OF LOS ANGELES POWER SYSTEM FOR THE FISCAL YEARS ENDED JUNE 30, 2015 AND JUNE 30, 2014.” According to the latest actuarial valuation and review of the Healthcare Benefits, which was completed by The Segal Company on October 30, 2015, as of June 30, 2015, the market value of the assets of the Healthcare Benefits was approximately $1.68 billion, which would result in an unfunded actuarial accrued liability (based on the market value of assets) of approximately $278 million and the actuarial value of the assets in the Healthcare Benefits was approximately $1.64 billion, which would result in an unfunded actuarial accrued liability (based on the actuarial value of assets) of approximately $319 million. As of June 30, 2015, the Healthcare Benefits had unrecognized investment gains of approximately $40.7 million. The actuarial valuations of the Healthcare Benefits employ a smoothing policy which requires that market gains and losses be recognized in even increments over five years. As a result, the impact of this will result in “smoothed” assets that are lower or higher than the market value of the assets depending upon whether the remaining amount to be smoothed is either a net gain or a net loss. Recent market gains will be amortized and evidenced in actuarial valuations and funded status over the next five years. According to the actuarial valuation and review of the Healthcare Benefits for Fiscal Year 2014- 15, which was completed by The Segal Company on October 14, 2014, as of June 30, 2014, the market value of the assets of the Healthcare Benefits was approximately $1.61 billion, which would result in an unfunded actuarial accrued liability (based on the market value of assets) of approximately $336 million and the actuarial value of the assets in the Healthcare Benefits was approximately $1.49 billion, which would result in an unfunded actuarial accrued liability (based on the actuarial value of assets) of approximately $463 million. As of June 30, 2014, the Healthcare Benefits had unrecognized investment gain of approximately $126.7 million. The actuarial valuations of the Healthcare Benefits employ a smoothing policy which requires that market gains and losses be recognized in even increments over five years. As a result, the impact of this will result in “smoothed” assets that are lower or higher than the market value of the assets depending upon whether the remaining amount to be smoothed is either a net gain or a net loss. Recent market gains will be amortized and evidenced in actuarial valuations and funded status over the next five years. For a schedule that provides information about the Department’s overall progress made in accumulating sufficient assets to pay Healthcare Benefits when due, prior to allocations to the Power System and the Water System, see the “Required Supplementary Information” of the Department’s Power System Financial Statements, attached hereto as APPENDIX B – “AUDITED FINANCIAL STATEMENTS OF THE DEPARTMENT OF WATER AND POWER OF THE CITY OF LOS ANGELES POWER SYSTEM FOR THE FISCAL YEARS ENDED JUNE 30, 2015 AND JUNE 30, 2014.” Effective January 1, 2014, the Board approved a new tier for new Retirement Plan members called “Tier 2.” Tier 2 provides reduced retiree healthcare benefits. The Retirement Plan’s actuary estimates the Normal Cost, as a percentage of payroll, will be 2.63% for Tier 2 (as compared to 4.33% for Tier 1), and the new tier of benefits is projected to generate a present value savings of $136.5 million over the next 30 years. GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits other than Pensions (“GASB No. 75”) will be effective for the Department’s Fiscal Year 2017-18 audited financial statements. GASB No. 75 establishes standards for recognizing and measuring OPEB liabilities,

A-8 deferred outflows of resources, deferred inflows of resources, and expenses. GASB No. 75 requires the liability of employers to employees for defined benefit OPEB (net OPEB liability) to be measured as the portion of the present value of projected benefit payments to be provided to current active and inactive employees that is attributed to those employees’ past periods of service (total OPEB liability), less the amount of the OPEB plan’s fiduciary net position. The total OPEB liability generally is required to be determined through an actuarial valuation. The Power System is in the process of evaluating the impact of GASB No. 75 on its financial statements. Transfers to the City Pursuant to the Charter, the City Council may, subject to the provisions of contractual obligations, direct a transfer of surplus money in the Power Revenue Fund to the City’s reserve fund (a “Power Transfer”) with the consent of the Board. The Board may withhold its consent if it finds that making the Power Transfer would have a material adverse impact on the Department’s financial condition in the year the Power Transfer is to be made. In the event the Board does not approve any year’s Power Transfer, the City Administrative Officer is to verify the Department’s findings and make a report thereon and recommendations with respect thereto. After receiving such report, and in consultation with the City Council and the Mayor, the Board shall either amend or uphold its preliminary findings. Pursuant to covenants contained in the Master Resolution, a Power Transfer may not exceed the net income of the prior Fiscal Year or reduce the Power System’s surplus to less than 33-1/3% of total Power System indebtedness. Subject to the restrictions of the Charter and the Master Resolution, the Department’s current practice is to consent to a Power Transfer in each of its Fiscal Years equal to approximately 8% of the Power System’s operating revenues for the preceding Fiscal Year. The Board has approved transfers totaling $266,957,000 to the City during the Fiscal Year ending June 30, 2016. The following table shows the amounts of the Power Transfer in each of the last five Fiscal Years:

POWER TRANSFERS FOR FISCAL YEARS ENDED JUNE 30, 2012 – 2016 (in thousands) Fiscal Year Ended Amount June 30 of Power Transfer 2012 $250,077 2013 246,534 2014 253,000 2015 265,586 2016 266,957* ______Source: Department of Water and Power of the City of Los Angeles. * This amount is to be transferred to the City in installments: an initial payment of $133,500,000 made in April 2016, expected to be followed by equal remaining monthly payments thereafter, so that by June 30, 2016, the full amount has been paid.

Three lawsuits have been filed generally alleging that the portion of the Power System rates providing moneys to make the Power Transfer constitutes excessive fees and an unauthorized tax for purposes of Article XIII C of the California Constitution. See “LITIGATION – Litigation Regarding Power Transfer” for more details regarding such litigation.

A-9 Insurance The Department’s insurance program currently consists of a combination of commercial insurance policies and self-insurance. The Department carries commercial excess general liability insurance in the amount of $160 million, with a $3 million self-insured retention. General liability claims under $3 million are covered under the Department’s self-insurance program. As of February 29, 2016, the portion of the Power Revenue Fund set aside for self-insurance had a balance of approximately $152,475,000. The Department annually reviews the amount retained for self-insurance and may adjust such amount if it deems such adjustment appropriate. Limits maintained by the Department are subject to change depending on insurance market conditions and assessments by the Department as to risk exposure. The Department commercially insures its physical plant through a policy of all risk property insurance, which is written on a replacement cost-basis. The policy covers all risk of physical loss or damage to buildings, structures, auxiliary and main plant equipment. Such insurance has a policy limit of $500 million per occurrence with an aggregate limit for all claims in a single year of $500 million. The all risk property insurance has a multi-tiered deductible structure, with deductibles ranging from $500,000 to $10 million depending on location. The Department does not insure its physical plants located in the State of California (the “State”) against the risk of physical loss or damage due to earthquakes; however assets outside the State are insured against damage from earthquakes. The Department has obtained a waiver from the State Insurance Commissioner’s Office requiring Federal Emergency Management Agency (“FEMA”) insurance that enables the Department to be eligible for reimbursement from FEMA in the event of earthquake loss or damage to facilities in the State. The Department’s physical plant coverage does not provide coverage in certain events including terrorism or war. The Department has purchased a Terrorism Limits and Terrorism Risk Insurance Extension Act of 2005 (“TRIEA”) Endorsement (the “Endorsement”) to its general liability coverage under which coverage is extended to cover losses resulting from certain acts certified by the Secretary of the U.S. Department of the Treasury to be an act of terrorism, as defined in TRIEA. The Endorsement provides that if the total insured losses of all property and casualty insurers reach $100 billion during an applicable period, the Department’s insurers will not be liable under the policy for their portions of such losses that exceed such amount. As a participant in the Navajo Generating Station, Palo Verde Nuclear Generating Station (“PVNGS”) and associated transmission systems, the Department is a named additional insured on various forms of insurance providing protection against property and liability losses relating to such facilities. The amounts of coverage are established by participating owners and procured by the operating agent for each facility. The Department, as the operating agent for the Intermountain Power Project (“IPP”), the Mead- Adelanto Transmission Project, the Pacific DC Intertie and in connection with its relationships with other entities and agencies, includes other entities or agencies as named additional insureds on the various forms of insurance procured for such facilities. The Department continuously evaluates its insurance program and may modify the current configuration of commercial insurance and self-insurance with respect to the Power System. Investment Policy and Controls Department’s Trust Funds Investment Policy. The majority of the Power System funds are held in the Power Revenue Fund, investments of which are managed by the Treasurer of the City. The funds have been invested as part of the City’s investment pool program since 1983. Certain financial assets of the Department that are held in special-purpose trust or escrow funds (“Trust Funds”) more fully described in “Note (7) Cash, Cash Equivalents, and Investments” in Appendix A – “FINANCIAL STATEMENTS” (“Note 7”) with an independent trustee are not included in the City’s investment pool program. The Department manages the investment of the Trust Funds in which approximately $636.55

A-10 million (investments at fair market value) was on deposit as of February 29, 2016. The Department’s investment of such funds complies with the California Government Code in all material respects and such funds are invested according to the Department’s Trust Funds Investment Policy (the “Trust Funds Investment Policy”), which sets forth investment objectives and constraints. For more information about the Trust Funds Investment Policy, see Note 7. Such funds consist of debt reduction trust funds, the nuclear decommissioning trust funds, the natural gas trust fund, and the hazardous waste treatment storage and disposal trust fund. These trust funds are being held by U.S. Bank National Association as trustee/custodian. Amounts in the debt reduction trust fund are to be applied to the retirement (including the payment of debt service, purchase, redemption and defeasance) of Power System debt, including obligations to Intermountain Power Agency (“IPA”) and SCPPA. As of February 29, 2016, the debt reduction trust fund had a balance of approximately $502.00 million (investments at fair market value). Under the Trust Funds Investment Policy, the Department’s investment program seeks to accomplish three specific goals: (i) preserve the principal value of the funds, (ii) ensure that investments are consistent with each individual fund’s liquidity needs and (iii) achieve the maximum yield/return on the investments. The overall responsibility for managing the Department’s investment program for the Trust Funds rests with the Department’s Chief Financial Officer, who directs investment activities through the Department’s Assistant Chief Financial Officer and Treasurer. An Investment Committee, comprised of the City Controller, a Board member designated by the Board President, the General Manager and the Department’s Chief Financial Officer (the “Department Investment Committee”) is charged with oversight responsibility. The Trust Funds Investment Policy is adopted by the Board from time to time, and fund activity is reviewed periodically by the Department Investment Committee to ensure its consistency with the overall objectives of the policy, as well as its relevance to current law and financial and economic trends. The Department’s Assistant Chief Financial Officer and Treasurer or his designee reviews all investment transactions for the Trust Funds on a monthly basis for control and compliance and submits quarterly investment reports that summarize investment income to the Department Investment Committee, the Board and the Mayor for information and evaluation.

A-11 POWER SYSTEM TRUST FUNDS INVESTMENTS ASSETS AS OF FEBRUARY 29, 2016 (Dollars in Thousands) (Unaudited) Fair Market Value U. S. Government Securities $ 30,024 U. S. Sponsored Agency Issues 258,124 Supranational discount notes 28,263 Medium term corporate notes 123,710 Municipal obligations 47,485 California state bonds 19,897 Other state bonds 48,009 Commercial paper 28,728 Certificates of deposit 28,712 Money market funds 23,599 Total $636,551* ______Source: Department of Water and Power of the City of Los Angeles. * Totals may not equal sum of parts due to rounding.

Department Financial Risk Management Policies In order to manage certain financial and operational risk, the Board has adopted a number of policies in addition to its Trust Funds Investment Policy. The Board has adopted a Counterparty Evaluation Credit Policy designed to minimize the Department’s credit risk with its counterparties. This policy applies to wholesale energy, transmission, physical natural gas and financial natural gas transactions entered into by the Department. Pursuant to this policy the Department assigns credit ratings to such counterparties. The policy requires the use of standardized netting agreements which require such counterparties to net positive and negative exposures to the Department and requires credit enhancement from counterparties that do not meet an acceptable level of risk. Sales to such counterparties are only permitted up to the amount of purchases with a netting agreement and, in certain cases, credit enhancement in place. The Board has adopted a Retail Natural Gas Risk Management Policy designed to mitigate the Department’s exposure to unexpected spikes in the price of natural gas used in the production of electricity to serve retail customers. This policy authorizes Department management to enter into transactions for natural gas subject to specified parameters, such as duration of contract and price and volumetric limits. It also establishes internal controls for natural gas risk management activity. See “THE POWER SYSTEM – Fuel Supply for Department-Owned Generating Units and Apex Power Project.” The Board has adopted a Wholesale Marketing Energy Risk Management Policy to establish a risk management program designed to manage the Department’s exposure to risks resulting from purchases and sales of wholesale energy, transmission services and ancillary services. This policy establishes the General Manager’s authority to enter into such transactions, identifies approved transaction types and establishes internal controls for wholesale energy risk management activity. City Investment Policy The City Treasurer invests temporarily idle cash on behalf of the City, including that of the proprietary departments, such as the Department, as part of a pooled investment program. As of February 29, 2016, the Power System had approximately $1.31 billion of unrestricted cash and approximately $158 million of restricted cash on deposit with the City. This amount is in addition to what is on hand in the

A-12 Trust Funds, see “—Department’s Trust Funds Investment Policy” above. The City’s pooled investment program combines general receipts with special funds for investment purposes and allocates interest earnings and losses on a pro-rata basis when the interest is earned and distributes interest receipts based on the previously established allocations. The primary responsibilities of the City Treasurer and the pooled investment program are to protect the principal and asset holdings of the City’s portfolio and to ensure adequate liquidity to provide for the prompt and efficient handling of City disbursements. Funds invested by the Power System in the pooled investment program are available for withdrawal within five business days without penalties. In addition, 13% of the pool, as of June 30, 2015, had maturities less than one month and 24% of the pool, as of June 30, 2015, had maturities of one year or less.

CITY OF LOS ANGELES POOLED INVESTMENT FUND ASSETS AS OF JUNE 30, 2015 (Dollars in Thousands) (Unaudited) Percent Power System Amount of Total Share U.S. Treasury Notes $4,713,955 51.39% $844,993 U.S. Agencies Securities 1,334,695 14.55 239,249 Medium term notes 1,645,006 17.93 294,874 Commercial paper 1,302,850 14.20 233,541 Municipal Bonds 42,496 0.46 7,618 Supranational Coupons 73,074 0.80 13,099 Short-term investment funds 1,678 0.02 301 Securities Lending Cash Collateral: Repurchase Agreement 59,190 0.65 10,610 Total General and Special Pools $9,172,944 100.00% $1,644,285 ______Source: Department of Water and Power of the City of Los Angeles and Los Angeles City Treasurer. Note: Department funds held by the City are both unrestricted and restricted funds. Totals may not equal sum of parts due to rounding.

The City’s investment operations are managed in compliance with the California Government Code and the City’s statement of investment policy, which sets forth permitted investments, liquidity parameters and maximum maturity of investments. The investment policy is reviewed and approved by the City Council on an annual basis. Monthly reports of investment activity are presented to the Mayor, the City Council and the Department to indicate, among other things, compliance with the investment policy. The City’s Office of Finance does not invest in structured and range notes, securities that could result in zero interest accrual if held to maturity, variable rate, floating rate or inverse floating rate investments and mortgage-derived interest or principal-only strips. The investment policy permits the City’s Office of Finance to engage custodial banks to enter into short-term arrangements to lend securities to various brokers. Cash and/or securities (United States Treasuries and Federal Agencies only) collateralize these lending arrangements, the total value of which is at least 102% of the market value of securities loaned out. The securities lending program is limited to a maximum of 20% of the market value of the City’s Office of Finance’s pool by the City’s investment policy and the California Government Code. For more information about the investments in the City’s Office of Finance pool, see Note 7.

A-13 ELECTRIC RATES Rate Setting Pursuant to the Charter, the Board, subject to the approval of the City Council by ordinance (as discussed below), fixes the rates for electric service from the Power System (“Electric Rates”). The Charter provides that the Electric Rates shall be fixed by the Board from time to time as necessary. The Charter also provides that the Electric Rates shall, except as authorized by the Charter, be of uniform operation for customers of similar circumstances throughout the City, as near as may be, and shall be fair and reasonable, taking into consideration, among other things, the nature of the uses, the quantity supplied and the value of the service provided. The Charter further provides that rates for electric energy may be negotiated with individual customers, provided that such rates are established by binding contract, contribute to the financial stability of the Power System and are consistent with such procedures as the City Council may establish. The Board is obligated under the Charter and the rate covenant in the Master Resolution to establish Electric Rates and collect charges in amounts which, together with other available funds, shall be sufficient to service the Department’s Power System indebtedness and to meet the Power System’s expenses of operation and maintenance. The Charter provides that Electric Rates are subject to the approval of the City Council by ordinance (a “Rate Ordinance”). The Charter further requires that the City Council approve Rate Ordinances for the Electric Rates prescribed in the rate covenant in the Charter, which rate covenant is also included in the Master Resolution. The Department’s latest completed rate action resulted in planned annual system average Electric Rate increases for Fiscal Year 2015-16 through Fiscal-Year 2019-20. Average yearly increase during this five-year period will be approximately 2.5% for low-power users, approximately 3.0% for midrange users, and approximately 4.7% for top tier users, with actual rate adjustments that varied depending on actual costs reflected in the pass-through rates. The rate increase over these five Fiscal Years is reflected in the Incremental Electric Rate Ordinance and as a result, effective April 15, 2016, the Department’s electric retail revenue has been funded from the existing Rate Ordinance and the Incremental Electric Rate Ordinance through the following major components: (a) Under the existing Rate Ordinance: (i) Base Rates: Base Rates are used to fund expenditures including debt service arising from capital projects (except projects relating to the Renewable Portfolio Standard) (“RPS”), operational and maintenance expenses (except as RPS related), public benefit spending, property tax, and a prorated portion of the Power Transfer; (ii) Reliability Cost Adjustment (the “RCA”): The RCA is used to recover certain power reliability expenditures; and (iii) Energy Cost Adjustment (the “ECA”): The ECA is used to recover expenditures for fuel, non-renewable purchased power, RPS and energy efficiency-related expenditures. (b) Under the Incremental Electric Rate Ordinance: (i) Incremental Base Rates: The Incremental Base Rates are used to recover costs of providing electric utility service that are not recovered by Base Rates or any of the Rate Ordinance cost adjustments, including labor costs, real estate costs, costs to rebuild and operate local power plants, equipment costs, operation and maintenance costs, expenditures for jointly owned plants and other inflation-sensitive costs; (ii) Incremental Reliability Cost Adjustment (the “IRCA”): The IRCA is used to recover costs associated with operations and maintenance, debt service expense of the Power System Reliability Program and RCA under-collection;

A-14 (iii) Variable Energy Adjustment (the “VEA”): The VEA is used to recover costs associated with fuel, non-renewable portfolio standard power purchase agreements, economy purchases, legacy ECA under-collection and Base Rates decoupling from energy efficiency impact; (iv) Capped Renewable Portfolio Standard Energy Adjustment (the “CRPSEA”): The CRPSEA is used to recover costs associated with RPS operations and maintenance, debt service and energy efficiency programs; and (v) Variable Renewable Portfolio Standard Energy Adjustment (the “VRPSEA”): The VRPSEA is used to recover costs associated with RPS market purchases and costs above any operations and maintenance and debt service payments. The RCA, ECA, IRCA, VEA, CRPSEA and VRPSEA are pass-through cost adjustments applied by factors that the Department may change with approval of the Board, without changes to existing Rate Ordinances. During Fiscal Year 2015-16, the normal adjustments of the pass-through cost adjustments are expected to continue. See Appendix A – “FINANCIAL STATEMENTS – Note (1) – Summary of Significant Accounting Policies – (r) Revenues.” Proposition 26. In 2010, the California voters approved Proposition 26 (“Proposition 26”), an initiative measure amending Article XIII C of the State Constitution to add a new definition of “tax.” Each such tax cannot be imposed, extended, or increased by a local government without voter approval. Article XIII C of the State Constitution, as amended by Proposition 26, defines “tax” to include any levy, charge, or exaction imposed by a local government, except, among other things, (a) charges imposed for benefits conferred, privileges granted, or services or products provided, to the payor (and not to those not charged) that do not exceed the reasonable costs to the local government of conferring, granting or providing such benefit, privilege, service, or product, and (b) property-related fees imposed in accordance with the provisions of Article XIII D of the State Constitution. The Department believes that the Electric Rates and charges do not constitute taxes as defined in Article XIII C of the State Constitution. See “LITIGATION – Litigation Regarding Power Transfer.” Board Adopted Financial Planning Criteria. The Board has directed the Department to use the following criteria when preparing the Power System’s financial plans with respect to Electric Rates: (i) maintain a minimum debt service coverage at 2.25 times, (ii) maintain a minimum operating cash target of the equivalent of 170 days of operating expenses, (iii) maintain full obligation coverage of at least 1.7 times, and (iv) maintain a debt-to-capitalization ratio of less than 68%. These criteria are subject to ongoing reviews and adjustments by the Board with advice from the Department’s financial advisors and were most recently revised on May 20, 2014. Neighborhood Councils. Pursuant to a Memorandum of Understanding with the City’s Neighborhood Councils, the Department agreed to use its best efforts to undertake a 90-day or 120-day notification and outreach period (depending on the duration of the Department’s proposed rate action) prior to submitting a residential or non-residential retail business customer electric rate increase proposal involving changes to the Rate Ordinances to the Board for approval. The Neighborhood Councils have indicated they will use their best efforts to provide written input regarding such rate proposals to the Department within 60 days of receiving the above-discussed notifications. The review by the City’s Neighborhood Councils of the increases to the Incremental Rate Ordinance for Fiscal Year 2015-16 through Fiscal-Year 2019-20 was completed prior to their adoption by City Council and effectiveness. Office of Public Accountability. Section 683 of the Charter establishes the Office of Public Accountability (the “OPA”) with respect to the Department. The primary role of the OPA is providing public, independent analysis to the Board and City Council about Department actions as they relate to the Electric Rates and water rates. The role of the OPA is advisory rather than an approver of Electric Rates.

A-15 The OPA is headed by an Executive Director appointed by a citizens committee, subject to confirmation by the City Council and Mayor, who serves as the Ratepayer Advocate for the OPA. On February 1, 2012, Dr. Frederick H. Pickel was appointed as Executive Director of the OPA (the “Ratepayer Advocate”). The rate action effective April 15, 2016, was supported by the Ratepayer Advocate following his review of the proposed rate changes. The rate action included certain changes proposed by the Ratepayer Advocate. As part of the increases to the Incremental Rate Ordinance for Fiscal Year 2015-16 through Fiscal-Year 2019-20, the Department will be required to provide semi-annual written reports regarding certain Board-established metrics to the Board and the OPA. Rate Regulation While changes in the retail Electric Rate ordinances are subject to approval by the City Council, the authority of the Board to impose and collect retail Electric Rates for service from the Power System is not subject to the general regulatory jurisdiction of the California Public Utilities Commission (the “CPUC”) or any other State or federal agency. The California Public Utilities Code (the “Public Utilities Code”) contains certain provisions affecting all municipal utilities such as the Power System. At this time, neither the CPUC nor any other regulatory authority of the State nor FERC approves the Department’s retail Electric Rates. It is possible that future legislative and/or regulatory changes could subject the Department to the jurisdiction of the CPUC or to other limitations or requirements. Although its retail Electric Rates are not subject to approval by any state or federal agency, the Department is subject to certain provisions of the Public Utilities Code and the Public Utility Regulatory Policies Act of 1978 (“PURPA”). PURPA applies to the purchase of the output of “qualified facilities” (“QFs”) at prices determined in accordance with PURPA. The Energy Policy Act of 2005 repealed the mandatory purchase obligation for utilities (including the Department) when FERC determines that the QFs have access to a competitive sales market and open access transmission. The Department believes that it is currently operating in compliance with PURPA. Under federal law, FERC has the authority, under certain circumstances and pursuant to certain procedures, to order any utility (municipal or otherwise), including the Department, to provide transmission access to others at cost-based rates. FERC also has licensing authority over various hydroelectric facilities owned and operated by the Department. Furthermore, with, among other things, the consent of the Department, the transmission facilities owned or controlled by the Department may be included in the California statewide network administered by the California Independent System Operator Corporation (“Cal ISO”). See “THE POWER SYSTEM – Transmission and Distribution Facilities.” The California Energy Resources Conservation and Development Commission, commonly referred to as the California Energy Commission (the “CEC”), is authorized to evaluate rate policies for electric energy as related to the goals of the Warren-Alquist State Energy Resources Conservation and Development Act (Public Resources Code Section 25000 et seq.) and make recommendations to the Governor of the State, the Legislature and publicly-owned electric utilities. The Department is in the process of updating the Open Access Transmission Tariff, which includes revising the cost-of-service and rate design for the Department’s wholesale transmission rates. Billing and Collections The Department currently bills residential customers on a bimonthly basis and commercial and industrial customers on a monthly basis. The Department prepares bills covering water and electric charges and non-Department charges (such as sewer services, solid resources fee and State and local taxes). Currently, regardless of delinquency, payments are posted in the following order: customer deposits, water charges, electric charges, State and local taxes, sewer service charges, solid resources fees and bulky item fees. In September 2013, the Department launched a new customer information and billing system, designed and implemented by Pricewaterhouse Coopers LLP (“PwC”). Immediately following the launch

A-16 of the new billing system, the Department experienced numerous billing issues in connection with the new system, including, but not limited to, (a) the inability to issue bills to customers, (b) the inability to issue accurate bills to customers, (c) an increase in estimated bills that were sent to customers where metering information was not available, and (d) the inability to generate multiple business reports, including financial reports reflecting the Department’s accounts receivable. See “LITIGATION—Legal Actions.” As a result of the numerous billing issues, in November 2013, the Department temporarily adjusted its collection practices for past due balances until the problems with the new billing system could be resolved. Delayed billing and reduced collection efforts resulted in customer payments below anticipated levels. Commercial collections for past due amounts were recommenced in February 2014 and residential collections for past due amounts were recommenced in June 2014, with both efforts focused on collecting the higher balances of past due amounts. In an effort to reduce the past due balances, the Department offered a late payment penalty waiver to residential customers if such customers’ balances were paid off by the end of June 2014. Collection efforts have resulted in higher customer contacts with the Department’s call center at certain times, causing increases in call wait times. Accordingly, the intensity of collection efforts has been balanced against these increases in call wait times in order to maintain acceptable customer service levels. By late calendar year 2014, with additional staff deployed at the customer call center, call wait times were brought close to the targeted and historical levels, which permitted the Department to again increase its focus on collection efforts. Due in part to these efforts, overdue payments for currently active accounts decreased more than 30% between January 2015 and February 2016. Notwithstanding the billing issues, cumulative Power System collections for Fiscal Year 2014-15 were consistent with budgeted amounts. Prior to the billing issues discussed above and based on annual historical experience of delinquencies, the Department has historically been unable to collect approximately 0.7% of the amounts billed to its customers. This amount has potentially increased in connection with the ongoing resolution of the billing issues noted above, as there has been a higher proportion of customer accounts receivable that are considered past due. In light of this, the allowance for doubtful accounts was increased to approximately 0.72% of Power System sales for Fiscal Year 2014-15, creating an allowance of $114 million as of June 30, 2015. Power System accounts receivables (including utility user’s tax) as of June 30, 2015 were $431 million compared to $468 million as of June 30, 2014. Of these amounts $181 million (42% of total receivables) and $140 million (30% of total receivables) were 120 days or more past the payment due date as of June 30, 2015 and June 30, 2014, respectively. As of March 31, 2016, the Power System’s allowance for doubtful accounts was $141.1 million and accounts receivable were $450.7 million (including utility user’s tax). Of these amounts, $199.6 million (44.3% of total receivables) were 120 days or more past the payment due date. Due to hot weather in the summer and associated higher bills and the Department’s bimonthly billing process, accounts receivable balances generally increase in the late summer and autumn and generally decrease in the winter and spring. These accounts receivable balances include inactive accounts. As a result of the problems with the new customer information and billing system, in March 2015, the State Auditor released an audit of the Department’s implementation of the new system and the billing issues that arose therefrom. The State audit made certain recommendations, which were agreed to by the Department. The new customer information and billing system is currently being used by the Department. The Department continues to work with certain outside consultants to improve the functionality of the system to meet the Department’s original expectations for the new system.

A-17 THE POWER SYSTEM General The Power System is the nation’s largest municipal electric utility with a net maximum plant capacity of 9,586 megawatts (“MWs”) and net dependable capacity of 8,082 MWs as of February 29, 2016, and properties with a net book value of approximately $8.95 billion as of February 29, 2016. The Power System’s highest load registered 6,396 MWs on September 16, 2014. Based on the Department’s September 2014 Retail Electric Sales and Demand Forecast, the Department anticipated that gross customer electricity consumption would increase from Fiscal Year 2015-16 to Fiscal Year 2025-26 at a forecasted rate of approximately 1.24% per year without consideration of the Department’s measures to promote energy efficiency and distributed generation. That load growth rate reflects, in the later part of the ten year planning period, increases due in part to fuel switching in the transportation sector including the increase of plug-in hybrid electric vehicles. In the Power System’s most recent integrated resource plan significant energy efficiency measures are planned as a cost effective resource, along with support for customer solar projects. This, together with the Board’s adoption in August 2014 of a plan to achieve 15% energy efficiency savings by 2020, are anticipated to result in net overall energy consumption that increases by 0.65% per year over this period. For the operating statistics of the Power System, see “OPERATING AND FINANCIAL INFORMATION – Summary of Operations.” The Department estimated that the Power System’s capacity (as of February 29, 2016) and energy mix (actual numbers for calendar year 2014) were approximately as follows:

DEPARTMENT GENERATION MIX PERCENTAGES Resource Capacity Energy Type Percentage(1) Percentage(2) Natural Gas 42% 22% Large Hydro 18 2 Coal 18 40 Nuclear 4 9 Renewables 18 20 Unspecified Sources of Energy(3) -- 7 Total 100% 100% ______(1) Net Maximum Unit Capability as of February 29, 2016. (2) Energy percentage is based on the Department’s calendar year 2014 fuel mix submission as part of the 2014 Annual Power Content Label (APCL) to the California Energy Commission in October 2015. (3) Unspecified sources of energy means electricity from transactions that are not traceable to specific generation sources.

The Department anticipates that its generation mix will change in response to statutory and regulatory developments. Generation and Power Supply The Power System has a number of generating resources available to it. The following discussion describes the Department’s solely owned, jointly owned and contracted generation facilities, as well as fuel and water supplies and spot purchase activities. Currently the Department’s base load requirements are fulfilled primarily by generating capacity at IPP, Navajo Generating Station and PVNGS, and balanced with its natural gas, hydroelectric, renewable resources and spot purchases. The following information concerning the capacities of various facilities is as of February 29, 2016.

A-18 Department-Owned Generating Units The Department’s solely owned generating facilities, as of February 29, 2016, are summarized in the following table:

DEPARTMENT-OWNED FACILITIES Net Net Maximum Dependable Number of Number of Capacity Capacity Type of Fuel Facilities Units (MWs) (MWs) Natural Gas 4(1) 29 3,446(4) 3,320(4) Large Hydro(2) 1 7 1,247 1,175 Renewables 39 208(3) 432(4) 198(4) Subtotal 44 244 5,125 4,693 Less: Payable to the California Department of Water Resources – – (120)(5) (44)(5) Total 44 241 5,005 4,649 ______Source: Department of Water and Power of the City of Los Angeles. (1) Consists of the four Los Angeles Basin Stations (Haynes, Valley, Harbor and Scattergood) discussed and defined below. (2) The Castaic Plant (as defined below) is undergoing modernization work scheduled to be completed by 2017. (3) Includes 21 of the hydro units at the Los Angeles Aqueduct, Owens Valley and Owens Gorge hydro units that are certified as renewable resources by the CEC. Also included are microturbine units at the Lopez Canyon Landfill, Department-built photovoltaic solar installations, the Pine Tree Wind Project, the Linden Wind Energy Project, and a local small hydro plant. Not included are the units that were upgraded at the Castaic Plant or the two Scattergood Generating Station gas-fueled units that partially burn digester gas. (4) Included as Renewables and excluded from Natural Gas are the 16 MWs of renewable energy generated at the Scattergood Generating Station by the burning of digester gas from the Hyperion Sewage Treatment Plant. (5) Energy payable to the California Department of Water Resources for energy generated at the Castaic Plant. This amount varies weekly up to a maximum of 120 MWs.

Los Angeles Basin Stations. The Department is the sole owner and operator of four electric generating stations in the Los Angeles Basin (the “Los Angeles Basin Stations”), with a combined net maximum generating capacity of 3,446 MWs and a combined net dependable generating capacity of 3,320 MWs. Natural gas and digester gas are used as fuel for the Los Angeles Basin Stations. Low- sulfur, low-ash residual distillate is used for emergency back-up fuel. See “—Fuel Supply for Department-Owned Generating Units and Apex Power Project.” See also “—Projected Capital Improvements.” Haynes Generating Station. The largest of the Los Angeles Basin Stations is the Haynes Generating Station, located in the City of Long Beach, California. The Haynes Generating Station currently consists of eleven generating units with a combined net maximum capacity of 1,615 MWs and a net dependable capacity of 1,585 MWs. A Haynes Generating Station combined-cycle generating unit includes two combustion turbines and a common steam turbine. The combustion turbines can each operate with the steam turbine independently or together in a two -on -one configuration (and are counted by the Department as three generating units). In July 2013, the Department completed the repowering of units 5 and 6 with six advanced simple-cycle gas turbine units. The Department expects to demolish the Haynes Generating Station Units 3, 4, 5 and 6 to create a construction area for a future repowering project that will provide space for a cooling system to be built for Haynes Generating Station Units 1 and 2 to eliminate the use of ocean water for cooling. The demolition project is currently scheduled for completion by December 2021. The demolition of Haynes Generating Station Units 3, 4, 5 and 6 is not expected

A-19 to impact the energy output of the Haynes Generating Station. See “– Environmental Regulation and Permitting Factors – Water Quality – Cooling Water Process – State Water Resources Control Board” and “– Regional Requirements – Thermal Discharges at Harbor Generating Station and Haynes Generating Station” for a discussion of potential permitting and related equipment upgrades with respect to cooling water intake structures and thermal discharges. Valley Generating Station. The Valley Generating Station is located in the San Fernando Valley and is comprised of a simple-cycle generating turbine unit and a combined-cycle generating unit consisting of two gas turbines with heat recovery steam generators, which supplies one steam turbine (counted as three units) with 576 MWs of net maximum capacity. The total net dependable capacity for the Valley Generating Station is 556 MWs. The Valley Generating Station also has 50 microturbines located at the Lopez Canyon Landfill in the hills above the City of Sun Valley. The microturbines burn the excess landfill gas and have a 1.5 MWs total combined net capacity. The microturbines are not operational at this time due to insufficient landfill gas production from the Lopez Canyon landfill. Harbor Generating Station. The Harbor Generating Station is located in Wilmington, California. The Harbor Generating Station is comprised of three combined-cycle generating units and five additional peaking combustion turbines for a total of eight generating units. The Harbor Generating Station’s net maximum capacity is 458 MWs with a net dependable capacity of 452 MWs. See “— Environmental Regulation and Permitting Factors – Water Quality – Cooling Water Process – State Water Resources Control Board” and “- Regional Requirements –Thermal Discharges at Harbor Generating Station and Haynes Generating Station” for a discussion of potential permitting and related equipment upgrades with respect to cooling water intake structures and thermal discharges. Scattergood Generating Station. The Scattergood Generating Station is located near El Segundo, California and is comprised of two conventional steam boiler generating units, one combined-cycle generating unit, and two simple-cycle gas turbines with a net maximum capacity of 813 MWs from natural gas and a net dependable capacity of 742.7 MWs from natural gas. Included in the above-referenced figures is 16 MWs of net capacity that can be produced from the burning of digester gas from the adjacent Hyperion Sewage Treatment Plant in Scattergood Generating Station Units 1 and 2. The Department expects to repower Scattergood Generating Station Units 1 and 2 with a combined-cycle generating unit that will utilize air-cooling in lieu of the once-through-cooling water process, in order to comply with the California once-through- cooling requirements. Scattergood Generating Station Unit 3 was decommissioned in December 2015 and will be demolished to create the construction area for the replacement of Scattergood Generating Station Units 1 and 2, which are expected to be constructed by December 2020. The decommissioning and demolition of Scattergood Generating Station Unit 3 does not significantly impact the energy output of the Scattergood Generating Station. See “—Environmental Regulation and Permitting Factors – Water Quality – Cooling Water Process – State Water Resources Control Board” for a discussion of potential permitting and related equipment upgrades with respect to cooling water intake structures. Once-Through-Cooling. The Haynes Generating Station, the Harbor Generating Station and the Scattergood Generating Station use the once-through-cooling process in order to provide cooling in each plant. Once-through-cooling is the process where water is drawn from a source, pumped through equipment at a power plant to provide cooling and then discharged. In once-through-cooling, the water is not chemically changed in the cooling process; however the water temperature can increase. The water drawn into the intake and the thermal discharges are regulated by the federal Clean Water Act and similar state law.

A-20 EPA Requirements. A final regulation implementing Section 316(b) of the Clean Water Act (“Rule 316(b)”) addresses the impacts of water intake by once-through-cooling systems. Rule 316(b) affects intake structures for power generating facilities that withdraw more than two million gallons per day for cooling purposes. The Department has determined it will comply with impingement mortality (“IM”) and entrainment mortality (“EM”) by replacing once-through-cooling with closed cycle cooling by 2029. The Department’s permitting authority for Rule 316(b), the State Water Resources Control Board, has approved the Department’s IM and EM compliance proposal. State Water Resources Control Board. The State Water Resources Control Board established a separate statewide policy with respect to the Clean Water Act Section 316(b) in 2010 published as Section 2922 of Title 23 of the California Code of Regulations (“Regulation Section 2922”). The new regulation generally requires all facilities subject to the Clean Water Act Section 316(b) to either use closed cycle cooling or flow reduction commensurate to that of closed cycle. The Department owns three coastal generating stations that utilize once-through-cooling, that provide approximately 85% of the Department’s in-basin generation and 39% of the total generating plant capacity owned by the Department, which are subject to the new Regulation Section 2922. On July 19, 2011, the State Water Resources Control Board adopted an amendment to Regulation Section 2922 that accelerated the compliance dates for three coastal units and extended the compliance dates until 2024 for two coastal units and 2029 for the remaining four coastal units. The new compliance schedule allows for both grid reliability and a financially sustainable path forward while making the equipment upgrades necessary to remove the coastal generating stations’ units from utilizing once-through-cooling. The total estimated outlay for the accelerated schedule of compliance by 2020 would have cost approximately $2.2 billion. The Department expects to be fully compliant with this amended schedule. Regional Requirements – Thermal Discharges at Harbor Generating Station and Haynes Generating Station. The State Water Resources Control Board’s Water Quality Control Plan for Control of Temperature in the Coastal and Interstate Waters and Enclosed Bay and Estuaries of California (the “California Thermal Plan”) has different thermal criteria for discharges into estuaries and bays than it does for discharges into the ocean. The water discharges from Harbor Generating Station and Haynes Generating Station were originally permitted as ocean discharges. In January 2003, however, the Los Angeles Regional Water Quality Control Board (“LARWQCB”) informed the Department that it (i) reclassified the Harbor Generating Station discharge as an enclosed bay discharge and that (ii) it intends to reclassify the Haynes Generating Station discharge as an estuary discharge during the next permit renewal. The Harbor Generating Station NPDES permit was renewed by the LARWQCB in July 2003, with the new enclosed bay classification and the associated, more stringent, permit limits. Based on the notice of intent to reclassify the Haynes Generating Station discharge and planned changes to be made to the Haynes Generating Station’s flow volume, the Department has completed a hydrological model of the Lower San Gabriel River. Haynes discharges into the San Gabriel River, which in turn flows into the ocean. The hydrological study concluded that the estuary classification does not reflect current site conditions with the operation of the existing power plants. However, the LARWQCB stated that for regulatory purposes, the Lower San Gabriel River would likely represent an estuary. With this designation, the Haynes Generating Station would be unable to comply with the California Thermal Plan and other permit conditions without a permit variance. If the Department is unable to obtain a permit variance, the Haynes Generating Station facility could be limited or unable to operate. The LARWQCB has recognized the need to continue utilizing once-through cooling at the Haynes Generating Station through 2029 for electric grid reliability and is currently working with the Department on a solution for all discharge issues associated with the estuary designation, which could include the issuance of a variance. Castaic Pump Storage Power Plant. The Castaic Pump Storage Power Plant is located near Castaic, California (the “Castaic Plant”) just before the terminus of the west branch of the

A-21 California Aqueduct at Castaic Lake. The Castaic Plant is the Department’s largest source of hydroelectric capacity and consists of seven units. The Castaic Plant’s net dependable capacity for the seven units is 1,175 MWs, however the Castaic Plant is capable of generating 1,247 MW for short periods of time, or extended periods of time if sufficient flow-through water schedules are received. The units are currently being rotated out of service during a modernization process which is expected to continue through June 2017. See “– Projected Capital Improvements.” FERC licenses pursuant to which the Department operates the Castaic Plant expire in 2022. The Castaic Plant provides peaking and reserve capacity and is normally not a source of energy to the Department’s net base load requirements. The Castaic Plant obtains water supply via the water conveyance system (the “State Water Project”) operated by the California Department of Water Resources, which has frequently been the subject of litigation that generally alleges that the California Department of Water Resources is illegally “taking” listed species of fish through operation of the State Water Project export facilities and that the California Department of Water Resources should cease operation of the State Water Project pumps. The California Department of Water Resources has altered the operations of the State Water Project to accommodate certain listed species, which has had the effect of reduced pumping from the affected waters. Future litigation of this nature could influence how the State Water Project is operated and further reduce water flow to the Castaic Plant. The Department cannot predict at this time what effect this type of litigation will have on the Power System. Recent drought conditions in the State are expected to result in reduced energy production from the Castaic Plant, however, such reduction is not expected to have a material adverse effect on the operations of the Power System because of the increased use of alternate resources such as renewables and natural gas and the fact that the Department is entitled to only the power generated from the water returned to Pyramid Lake through pumping operations. See “Water Supply for Department-Owned Generating Units” below. Owens Gorge and Owens Valley Hydroelectric Generation. The Owens Gorge (the “Owens Gorge Hydroelectric Generation”) and Owens Valley Hydroelectric generating units (the “Owens Gorge and Owens Valley Hydroelectric Generation”) are located along the Owens Valley in the Eastern High Sierra region of California. The aggregate net dependable capacity of Owens Gorge and Owens Valley Hydroelectric Generation totals 111 MW. Owens Gorge Hydroelectric Generation consists of three units (Upper Gorge, Middle Gorge, and Control Gorge) and Owens Valley Hydroelectric Generation consists of seven units (Haiwee 1 and 2, Cottonwood 1 and 2, Division Creek, Big Pine, and Pleasant Valley), providing a net dependable capacity of 109.5 MW and 1.2 MW, respectively. The Owens Gorge and Owens Valley Hydroelectric Generation is a network of hydroelectric plants which use water resources of the Los Angeles Aqueduct and three creeks along the Eastern Sierras. The water flow fluctuates from year to year and as a result water flow may be reduced from seasonal norms from time to time. Since 1998, the total aqueduct exports from Owens Valley to the City have gone from approximately 457,000 acre-feet per year to currently 223,000 acre-feet per year. This difference is due to environmental uses in the Owens Valley, including Mono Lake level restoration, Lower Owens River restoration, reduced groundwater pumping and Owens Lake dust mitigation. Consequently, this water use reallocation has resulted in a reduction of downstream hydroelectric generation, which is accounted for in the annual updates of the Power System’s integrated resource plan; however, due to a recent settlement relating to the Owens Lake dust mitigation that allows for waterless dust control methods to be used, less water obtained through aqueduct exports may be used for environmental uses in the future and may result in increased aqueduct exports from Owens Valley to the City. On the other hand, limits on water flow resulting from a permanent injunction agreed to by the Department in January 2015 concluding certain litigation may lead to the reduction of downstream hydroelectric generation. Recent drought conditions in the State are expected to

A-22 result in reduced energy production from the Owens Gorge and Owens Valley Hydroelectric Generation; however, such reduction is not expected to have a material adverse effect on the operations of the Power System and such reduction has been mediated by heavy rains during the winter of 2015-16. A reconditioning and refurbishment to selected components of the Owens Gorge Hydroelectric Generation units is ongoing and it is expected to extend the life of the three units, increase reliability, and improve efficiency of such units. San Francisquito Canyon and the Los Angeles and Franklin Reservoirs. The Department also owns and operates eleven units located north of the City along the Los Angeles Aqueduct in San Francisquito Canyon and at the Los Angeles and Franklin Reservoirs. The net aggregate dependable plant capacity of these smaller units is 24.2 MWs under average water conditions. For a description of litigation arising out of a fire that started near San Francisquito Canyon, see “LITIGATION – Powerhouse Fire.”

[Remainder of page intentionally left blank]

A-23 Jointly-Owned Generating Units and Contracted Capacity Rights in Generating Units The Department has additional generating resources available as capacity rights resulting from undivided ownership interests in facilities that are jointly-owned with other utilities. These interests, as of February 29, 2016, are summarized in the following chart and discussed below. Each project participant with respect to jointly-owned units is responsible for providing its share of construction, capital, operating, decommissioning and maintenance costs.

Department’s Net Department’s Net Number Maximum Capacity Dependable Capacity Type of Facilities Entitlement (MWs) Entitlement (MWs) Coal 2 1,679(1) 1,679 Natural Gas 1 532 480 Large Hydro 1 491(2) 390 Nuclear 1 387(3) 380 Renewables/Distributed (4) Generation (“DG”) 20,577 1,368 460 Total 20,582 4,457 3,389 ______Source: Department of Water and Power of the City of Los Angeles. (1) The Department’s IPP entitlement is 48.62% of the maximum net plant capacity of 1,800 MWs. An additional 18.17% portion of the IPP entitlement is subject to variable recall as set forth under “Intermountain Power Project – Power Recalls” below. The Department’s Navajo Generating Station entitlement is 21.20% of the maximum net plant capacity of 2,250 MWs. See “Intermountain Power Project” and “Navajo Generating Station” below. (2) The Department’s Hoover Power Plant contract entitlement is 491 MWs, 25.16% of the Hoover total contingent capacity. As of November 2015, reduced lake levels have reduced the Department’s dependable capacity to approximately 390 MWs. See “Hoover Power Plant” below. (3) The Department’s PVNGS entitlement is 9.66% of the maximum net plant capacity of 4,003 MWs. See “Palo Verde Nuclear Generating Station” below. (4) The Department’s contract renewable resources in-service include landfill gas units at certain landfills in the Los Angeles area; biogas fuel purchases out of state; hydro unit locally; wind farms in Oregon, Washington, Utah and Wyoming; and customer solar photovoltaic installations and DG units located in the Los Angeles region.

Intermountain Power Project. General. The IPP consists of: (i) a two-unit, coal-fired, steam-electric generating plant with a net rating of 1,800 MW (the “Intermountain Generating Station”) and a switchyard (the “Switchyard”), located near Lynndyl, in Millard County, Utah; (ii) a +500 kV, direct current transmission line approximately 490 miles in length from and including the Intermountain Converter Station (an alternating current/direct current converter station adjacent to the Switchyard) to and including a corresponding converter station at Adelanto, California (collectively, the “Southern Transmission System”) (see “Transmission and Distribution Facilities – Southern Transmission System”); (iii) two 50-mile, 345 kV, alternating current transmission lines from the Switchyard to the Mona Switchyard in the vicinity of Mona, Utah and a 144-mile, 230 kV, alternating current transmission line from the Switchyard to the Gonder Switchyard near Ely, Nevada (collectively, the “Northern Transmission System”); (iv) a microwave communications system; (v) a railcar service center located in Springville, in Utah County, Utah (the “Railcar Service Center”); and (vi) certain water rights and coal supplies (which water rights and coal supplies, together with the Intermountain Generating Station, the Switchyard and the Railcar Service Center, are referred to herein collectively as the “Generation Station”). Pursuant to a Construction Management and Operating Agreement between IPA and the Department, IPA appointed the Department as project manager and operating agent responsible for, among other things, administrating, operating and maintaining the IPP. All of the facilities of IPP have been in full commercial operation since May 1, 1987 and have operated at higher than anticipated capacity and availability levels.

A-24 Power Contracts. Pursuant to a Power Sales Contract with IPA (the “IPP Contract”), the Department is entitled to 48.617% of the capacity of the IPP (currently equal to 875 MWs). The existing IPP Contract terminates in 2027 and contains provisions that allow renewal by the Department under certain circumstances, subject to legal and regulatory mandates. SB 1368 prohibits the Department from making any “long-term financial commitment” in connection with “baseload generation” that does not satisfy the greenhouse gas emissions performance standard specified in the bill. Accordingly, to comply with such prohibition, renewal by the Department of the IPP Contract must be done in connection with IPP compliance with greenhouse gas emissions performance standards. See “–Intermountain Generating Station upon the termination of the IPP Contract” and “DEVELOPMENTS IN THE CALIFORNIA ENERGY MARKETS – Greenhouse Gas Emissions – Emissions Performance Standard” in the front part of this Official Statement. Pursuant to the IPP Contract, the Department is required to pay in proportion to its entitlement share the costs of producing and delivering electricity as a cost of purchased capacity. The Department also has available additional capacity in the IPP through an excess power sales agreement with certain other IPP participants (the “IPP Excess Power Sales Agreement”). Under the IPP Excess Power Sales Agreement the Department is entitled to 18.168% of the capacity of IPP (currently equal to approximately 327 MWs). The IPP Contract requires the Department to pay for such capacity and energy on a “take-or- pay” basis as operating expenses of the Power System. See “OPERATING AND FINANCIAL INFORMATION – Take-or-Pay Obligations.” In Fiscal Year 2014-15, the IPP operated at a plant net capacity factor of 78.22% and provided approximately 12.36 million megawatt-hours (“MWhs”) of energy to its power purchasers, which includes 8.7 million MWhs to the Power System. Intermountain Generating Station upon the termination of the IPP Contract. The Department has been in discussions with IPA and other IPP power purchasers with respect to providing for the sale of the generation and transmission entitlements of IPP following the termination of the IPP Contract in 2027. In order to facilitate the continued participation of the Department and other State power purchasers in the IPP, the IPA Board has issued the Second Amendatory Power Sales Contract that would amend the current Power Sales Contract and allow the plant to replace the coal units with combined cycle natural gas units by July 1, 2025. IPA and the Department have also prepared the Renewal Power Sales Contract to continue taking power from the Intermountain Generating Station fueled by natural gas for the period of 2027 through 2077. The Board and City Council have approved the Second Amendatory Power Sales Contract and the delegated authority to enter into the Renewal Power Sales Contract. All other power purchasers have also approved the Second Amendatory Power Sales Contract, which became effective on March 16, 2016. The Renewal Power Sales Contracts were offered to all IPP power purchasers on March 18, 2016. The process for the Renewal Power Sales Contracts taking effect will extend several months past the renewal offer. In the meantime, the Department is still exploring its many options with respect to the termination of the IPP Contract and its exit from coal fired power plants. The Department is currently evaluating the financial impact of these several options on the finances and operations of the Department, including the effect of the final coal combustion residuals rule under the RCRA. Power Recalls. Certain IPP participants have a right under the IPP Excess Power Sales Agreement to recall from the Department up to 18.168% of the capacity of IPP (currently equal to approximately 327 MWs) for defined future summer or winter seasons or both, following no less than 90 days’ notice and up to 43 MWs of such capacity on a seasonal basis following no less than 90 days’ notice. No capacity has been recalled, as of March 31, 2016, for Fiscal Year 2015-16 from the Department. The Department can give no assurance that the capacity of IPP subject to recall from the Department under the Excess Power Sales Agreement will not be recalled. Fuel Supply. The Department, in its role as the operating agent of IPP, buys coal under contracts to fulfill the supply requirement of approximately 5.5 million tons per year. Coal is purchased under a

A-25 diversified portfolio of fixed price contracts that are of short-, medium- and long-term in duration. From now through 2017, the Department has determined that coal presently under contract is sufficient, with the exercise of available options, to meet the IPP’s annual coal requirements, with lesser amounts of coal under contract thereafter. The average cost of coal delivered to the Intermountain Generating Station in Fiscal Year 2014-15 was approximately $47.16 per ton. During the prior Fiscal Year, the average cost of coal delivered was approximately $48.04 per ton. The Department expects the costs to fulfill IPP’s annual coal supply requirements after 2017 may be higher than its current contract costs due to the continual turnover of mining properties in Utah, difficult mining conditions at the remaining mines, increased mining costs due to regulatory oversight, and the continued increase in rail transportation costs, among other things. To be able to continue to operate the IPP in the event of a coal supply disruption, IPA attempts to maintain a coal stockpile at the Intermountain Generating Station that is sufficient to operate the plant at the IPP’s current plant capacity factors for a minimum of 60 days. Transportation of coal to the Intermountain Generating Station is provided primarily by rail under agreements between IPA and the Utah Railway and the Union Pacific Railroad companies, and the coal is transported in IPA- owned railcars. Coal is also transported to IPP, to some extent, in commercial trucks. Navajo Generating Station. General. The Navajo Generating Station is a coal-fired, electric generating station and consists of three units with a combined capacity of 2,250 MWs located near the City of Page, Arizona. Salt River Project is a co-owner of the Navajo Generating Station as well as its operating agent. The Department has a 21.2% ownership interest in the Navajo Generating Station, currently equal to capacity of approximately 477 MWs. The existing co-tenancy agreement related to the ownership of the facilities terminates in 2019 and may be renewed as provided in such co-tenancy agreement. In response to SB 1368, the Department has agreed to divest its ownership interest in the Navajo Generating Station pursuant to the Navajo Generating Station Asset Purchase and Sale Agreement (the “Navajo Sale Agreement”), entered into with Salt River Project. The timing of the sale will depend on a variety of factors within and outside of the control of the Department, including the impact of the Best Available Retrofit Technology (“BART”) final action, as discussed below. If all of the conditions of sale in the Navajo Sale Agreement are met, the divestment of the Department’s ownership interest is expected to occur in mid-2016. Water Supply. The Navajo Generating Station uses water from nearby Lake Powell for cooling purposes, pursuant to a Water Service Contract with the United States of America. As a result of drought conditions in the Southwest United States over the last several years, water levels in Lake Powell have dropped significantly at various points and may ultimately fall below the former pipeline intake for the Navajo Generating Station. In order to mitigate this issue, the pipeline was relocated in 2009 to a position at which intake is possible at lower elevations. Environmental Considerations. The visual range, or visibility impairment, at national parks and wilderness areas is affected by natural and human-caused sources of air pollution. The visibility program of the United States Environmental Protection Agency (the “EPA”) arising from the federal Clean Air Act requires states to address visibility impairment caused by pollutants from certain large industrial sources through a process to establish BART. The Navajo Generating Station has installed pollution control equipment that significantly reduced sulfur dioxide emissions and particulate matter in order to protect visibility and improve air quality. A BART review process was conducted by the EPA to set the level of nitrogen oxide (“NOx”) emissions allowed for the Navajo Generating Station as well as the proper emissions control technology. On August 8, 2014, the Federal Register noticed the EPA’s final source- specific implementation plan requiring the Navajo Generating Station, through the application of BART, to achieve over an 80% reduction of its current overall NOx emission rate. On November 4, 2014, the Federal Register noticed the EPA’s proposed “Carbon Pollution Guidelines for Existing Stationary Sources: EGUs in Indian Country and U.S. Territories,” which includes the Navajo Generating Station. In the proposal, the EPA states that the Navajo Nation is expected to meet the proposed CO2 goals

A-26 through compliance with other regulations, such as the Navajo Generating Station’s Federal Implementation Plan. The EPA released its Clean Power Plan Final Rule in August 2015. In February 2016, the United States Supreme Court stayed implementation of the Clean Power Plan until resolution of current challenges pending before the United States Court of Appeals for the District of Columbia. The Clean Power Plan Final Rule is not expected to impact the Department’s operations, as the planned divestment of its interests in the Navajo Generating Station is currently scheduled to occur before compliance is required beginning in 2022, and that date is likely to be delayed by the Supreme Court’s stay and the resolution of the ongoing judicial review. Mohave Generating Station. General. The Mohave Generating Station is located near Laughlin, Nevada. It was a coal-fired electric generating station, consisting of two units with a combined capacity of 1,580 MWs. The Department owns a 10% interest in the Mohave Generating Station. The other co-owners are Southern California Edison Company (“Edison”), Salt River Project and the NV Energy (formerly known as Nevada Power Company). Operations Ceased. The Mohave Generating Station generating units were removed from service at the end of 2005. There are currently no plans to return the Mohave Generating Station to service as a coal-fired facility. Staff has been reduced and all major plant decommissioning was completed in 2012. Minor cleanup, ground water monitoring and upkeep of the plant site will continue for a number of years after the decommissioning to ensure that the integrity of the coal ash landfill is maintained and that the groundwater is protected from contamination. The co-owners of the Mohave Generating Station have approved a site disposition plan to implement the proposed sale of approximately 80% of the property through public sale. The remaining property would be retained by the co-owners for ongoing monitoring and maintenance purposes. Through a separate proposed transaction with the co-owners, the Department is seeking to retain 100 acres of land in its individual capacity for potential future utility use. Apex Power Project. The Apex Power Project (the “Apex Power Project”) is located in an unincorporated area of Clark County, north of Las Vegas, Nevada. The Apex Power Project includes the Apex Generating Station, which is a combined cycle generating station consisting of one steam turbine generator, and two simple cycle, 165 MW, combustion turbine generators. The Apex Power Project also includes heat recovery equipment, air inlet filtering, closed cycle cooling system, emission control system, exhaust stack, distributed control system, all necessary noise control equipment, and its associated real property. The Apex Generating Station has a net maximum capacity of 532 MWs and a net dependable capacity of 480 MWs. In March 2014, SCPPA acquired the Apex Power Project for the benefit of the Department, and the Department is entitled to 100% of the capacity and energy of the Apex Power Project under a take-or-pay power sales contract with SCPPA. See “OPERATING AND FINANCIAL INFORMATION – Take-or-Pay Obligations.” Hoover Power Plant. General. The Hoover Power Plant is located on the Arizona-Nevada border approximately 25 miles east of Las Vegas, Nevada and is part of the Hoover Dam facility at Lake Mead, which was completed in 1935 and controls the flow of the Colorado River. The Hoover Power Plant consists of 17 generating units and two service generating units with a total installed capacity of approximately 2,074 MWs. The Department has a power purchase agreement with the United States Department of Energy Western Area Power Administration for 491 MWs of capacity (calculated based on 25.16% of 1,951 MWs of total contingent capacity) and energy from the Hoover Power Plant through September 2017. Due to the enactment of H.R. 470, “Hoover Power Allocation Act of 2011,” the Department expects to be allocated 496 MWs of capacity (calculated based on 23.92% of 2,074 MWs of total contingent capacity) and energy from the Hoover Power Plant from October 2017 through September 2067. The facility is

A-27 owned and operated by the United States Bureau of Reclamation (the “Bureau of Reclamation”). In February 2016, it was announced that an audit of the power purchase agreement between the Bureau of Reclamation and SCPPA was under investigation by the Federal Bureau of Investigation for fraud that may have caused economic damages to SCPPA and SCPPA was informed that it is only viewed as a victim in the matter. Discrepancies were discovered for the awarding of a contract to perform CPA functions of the Hoover Project. The value of the CPA contract was approximately $800,000 and the investigation is focused on the possible conflicts of interest in awarding this contract. A new audit will be requested and SCPPA and other Hoover participants will likely request a refund from the original CPA firm for the approximate $800,000 spent on the audit. The Department does not believe that such investigation or any fraud that is the subject of such investigation will have a material effect on its interest in the Hoover Power Plant. This investigation does not affect the Department’s power purchase agreement relating to the Hoover Power Plant. Drought Conditions. Because of prolonged drought conditions that have resulted in record low levels at Lake Mead, the Department’s capacity entitlement at the Hoover Power Plant has been reduced from time to time. Recent drought conditions have resulted in lower water levels and are expected to result in a material adverse effect on the Hoover Power Plant’s capacity in the near future. According to its April 2016 24-Month Study and the Colorado River Basin Forecast Center’s Most Probable Water Supply Forecast, the Bureau of Reclamation forecasts relatively stable water levels and Hoover Power Plant capacity, with the lowest point forecasted to occur in February 2018 due to low water levels, extended unit outages, and scheduled maintenance activities, with a total minimum Hoover Power Plant capacity of 769.6 MWs, of which the Department’s share is 25.16%. Environmental Considerations. The lower Colorado River has been included in a critical Habitat Designated Area. This required the Bureau of Reclamation to prepare and file with the United States Fish and Wildlife Service a Biological Assessment on the effect of its operations of the lower Colorado River on endangered species therein (the “Biological Assessment”). After the Biological Assessment was filed, the United States Fish and Wildlife Service issued a Biological and Conference Opinion regarding the Bureau of Reclamation’s operations and outlined remedial actions to be taken to correct adverse effects to endangered species. Such remedial actions could affect the operation of the Hoover Power Plant, which would in turn affect the Hoover Power Plant customers, including the Department. The Department believes that any impact of the Biological and Conference Opinion on future operations will be minor; however there is a possibility that future regulatory action will recommend major remediation actions could have a material impact on the Hoover Power Plant customers’ available capacity from the Hoover Power Plant. The Hoover Power Plant customers, including the Department, together with certain other parties, have implemented a plan in cooperation with the Bureau of Reclamation and the United States Fish and Wildlife Service to mitigate negative effects on the Hoover Power Plant’s energy production. Palo Verde Nuclear Generating Station. General. PVNGS is located approximately 50 miles west of Phoenix, Arizona. PVNGS consists of three nuclear electric generating units (numbered 1, 2 and 3), with a net maximum capacity of 1,333 MWs (unit 1), 1,336 MWs (unit 2) and 1,334 MWs (unit 3) and a dependable capacity of 1,311 MWs (unit 1), 1,314 MWs (unit 2) and 1,312 MWs (unit 3). PVNGS’s combined design capacity is 4,003 MWs and its combined dependable capacity is 3,937 MWs. Each PVNGS generating unit has been operating under 40-year Full-Power Operating Licenses granted by the Nuclear Regulatory Commission (the “NRC”) expiring in 2025, 2026, and 2027, respectively. In April 2011, the NRC approved PVNGS’s license renewal application, allowing the three units to extend operation for an additional 20 years until 2045, 2046 and 2047, respectively. The Department obtained Board and City Council approval to renew the participation agreement for PVNGS in January 2014. Arizona Public Service Company (“APS”) is the operating agent for PVNGS. On average, PVNGS provided over 3.1 million MWhs of energy to the Power System. The Department has a 5.7%

A-28 direct ownership interest in the PVNGS (approximately 224 MWs of dependable capacity). The Department also has a 67.0% generation entitlement interest in the 5.91% ownership share of PVNGS that belongs to SCPPA through its “take-or-pay” power contract with SCPPA (totaling approximately 156 MWs of dependable capacity), so that the Department has a total interest of approximately 380 MWs of dependable capacity from PVNGS. Co-owners of PVNGS include APS; the Salt River Project Agricultural Improvement and Power District, a political subdivision of the state of Arizona, and the Salt River Valley Water Users’ Association, a corporation (together, the “Salt River Project”); Edison; El Paso Electric Company; Public Service Company of New Mexico; SCPPA and the Department. Nuclear Regulatory Commission. The NRC has broad authority under federal law to impose licensing and safety-related requirements for the operation of nuclear generation facilities. Events at nuclear facilities of other operators or impacting the industry generally may lead the NRC to impose additional requirements and regulations on existing and new facilities. The aftermath of the earthquake and tsunami that caused significant damage to the Fukushima Daiichi Nuclear Power Plant in Japan prompted the U.S. nuclear industry to form a task force under the direction of PVNGS’s Chief Nuclear Officer to take immediate actions in ensuring the reliability of all U.S. nuclear plants. PVNGS itself has established a task force to evaluate the plant’s safety and emergency preparedness. An initial assessment of the plant systems, safety policies, and emergency procedures revealed significant differences between PVNGS and Fukushima. PVNGS’s low-seismic location, robust pressurized water reactor design, redundant safety features, ample effluent water supply, and multiple back-up power sources make a similar catastrophe in Arizona highly improbable. Despite the seemingly substantial advantages, PVNGS, in conjunction with other nuclear agencies, is continuously working to make sure that the plant is adequately prepared to meet beyond design basis events, respond to extended loss of power supply situations, and mitigate potential fire and flood events. While evaluations are still in progress, among the initial recommendations are plans to accelerate fuel removal from the spent fuel pools and possibly purchase a standby diesel generator as reinforcement to the existing back-up power sources. Decommissioning Costs. The owners of PVNGS have created external trusts in accordance with the PVNGS participation agreement and NRC requirements to fund the costs of decommissioning PVNGS. Based on a 2013 estimate of decommissioning costs (together with a December 2015 internal cost escalation estimate), which uses the extended license expiration date of 2047 and is the most recent estimate available, the Department estimates that its share of the amount required for decommissioning PVNGS relating to the Department’s direct ownership interest in PVNGS was approximately 87% funded and that its share of decommissioning costs through SCPPA was 108% funded. The Department’s direct share of costs is $151.4 million and SCPPA’s share is $160.0 million, of which the Department’s portion is $107.2 million or 67%. Under the current funding plan, the Department estimates that its share of the decommissioning costs relating to the Department’s direct ownership interest in PVNGS will be fully funded by accumulated interest earnings by the extended license expiration date of 2047. Such estimates assume 7% per annum in future investment returns and a 5% per annum cost escalation factor. The Department has received and is receiving less than a seven percent investment return on the decommissioning funds. No assurance or guarantee can be given that investment earnings will fully fund the Department’s remaining decommissioning obligations at current estimated costs or that the decommissioning costs will not exceed current estimates. For a discussion of the Department’s nuclear decommissioning trust fund and other investments held on behalf of the Department, see “THE DEPARTMENT – Investment Policy and Controls.” Nuclear Waste Storage and Disposal. Generally, federal and state efforts to provide adequate interim and long-term storage facilities for low-level and high-level nuclear waste have proven unsuccessful to date. Although federal and state efforts continue with respect to such storage and disposal facilities, the Department is not able to predict the schedule for the permanent disposal of radioactive wastes generated at PVNGS. Since the spent fuel pools ran out of storage capacity, an independent spent

A-29 fuel storage installation was built to provide additional spent fuel storage at the site while awaiting permanent disposal at a federally developed facility. The installation uses dry cask storage and was designed to accept all spent fuel generated by PVNGS during its lifetime. As of February 29, 2016, 131 casks, each containing 24 spent fuel assemblies, have been stored. In addition, beginning in 2018, PVNGS is expected to use newly designed casks, which are currently in fabrication, that contain 36 spent fuel assemblies allowing the dry cask storage facility to accept more spent fuel. The new cask design is currently in fabrication. Storage costs are partially paid using funds received by APS pursuant to a settlement agreement with the United States government relating to nuclear waste disposal fees. Renewable Power Initiatives The Department expects to procure a renewable power resource portfolio that satisfies applicable State requirements, the main provisions of which are currently contained in the California Renewable Energy Resources Act (“SBX1-2”), the California Global Warming Solutions Act (“AB32”), and the Clean Energy and Pollution Reduction Act of 2015 (“SB 350”). Certain components of the Department’s renewable power resource portfolio are described below. Wind power, both obtained through power purchase agreements and resources owned by the Department, provided 14% and 12% of the Department’s energy in 2013 and 2014, respectively, or just over one-half of the renewable energy, which comprised 23% and 20% of the total energy mix in 2013 and 2014, respectively. Large Scale Wind Energy Acquired through Power Purchase Agreements. Through power purchase agreements, the Department has secured large scale wind farm output in a number of areas to provide a diversity of wind power resources. Such wind energy for the Department is being generated in wind farms located in the States of California, Oregon, Washington, Utah and Wyoming. Such power purchase agreements provide for an aggregate of 861 MWs of wind energy. In addition to these power purchase agreements, wind farms with output of approximately 600 MWs are also subject to Department options to purchase such assets. Certain of these projects are described as follows: Milford Wind Corridor Phase I Project. The Milford Wind Corridor Phase I Project (the “Milford I Project”) consists of SCPPA’s purchase of all energy generated by a 203.5 MW nameplate capacity wind farm comprised of 97 wind turbines located near Milford, Utah (the “Milford I Facility”), for a term of 20 years (unless earlier terminated) pursuant to a Power Purchase Agreement, by and between SCPPA and Milford Wind Corridor Phase I, LLC. Energy from the Milford I Facility is delivered to SCPPA over an approximately 90 mile, 345 kV transmission line extending from the wind generation site to the IPP Switchyard in Delta, Utah. SCPPA has issued revenue bonds in order to finance the purchase by prepayment of 6,764,301 MWh of energy from the Milford I Facility over the 20- year delivery term. The Department has entered into a power sales agreement with SCPPA that provides for the Department to pay for its 92.5% share of the Milford I Project on a “take-or-pay” basis as an operating expense of the Power System. See “OPERATING AND FINANCIAL INFORMATION – Take-or-Pay Obligations.” Milford Wind Corridor Phase II Project. The Milford Wind Corridor Phase II Project (the “Milford II Project”) consists of SCPPA’s purchase of all energy generated by a 102 MW nameplate capacity wind farm comprised of 68 wind turbines located near Milford, Utah (the “Milford II Facility”), for a term of 20 years (unless earlier terminated) pursuant to a Power Purchase Agreement, by and between SCPPA and Milford Wind Corridor Phase II, LLC. Energy from the Milford II Facility is delivered to SCPPA over an approximately 88 mile, 345 kV transmission line extending from the wind generation site to the IPP Switchyard in Delta, Utah. SCPPA has issued revenue bonds in order to finance the purchase by prepayment of the energy from the Milford II Facility over the 20-year delivery term. In connection with the issuance of bonds relating to the Milford II Project, the Department has entered into a power sales agreement with SCPPA that provides for the Department to pay for its 95.098% share of the Milford II Project on a “take-or-pay” basis as an operating expense of the Power System. In addition, the Department has purchased the City of Glendale’s (“Glendale”) 4.902% output

A-30 entitlement share of Milford II Project’s output. See “OPERATING AND FINANCIAL INFORMATION – Take-or-Pay Obligations.” Linden Wind Energy Project. The Linden Wind Energy Project (the “Linden Project”) consists of SCPPA’s acquisition of a 50 MW nameplate capacity wind farm comprised of 25 wind turbines located near the town of Goldendale in Klickitat County, Washington. The Linden Project was developed and constructed by Northwest Wind Partners, LLC (“Northwest Wind”). SCPPA acquired the project from Northwest Wind pursuant to the terms of an asset purchase agreement between SCPPA and Northwest Wind. SCPPA has issued revenue bonds to finance the acquisition of the Linden Project. The Department has entered into a power sales agreement with SCPPA that provides for the Department to pay its 90.00% share of the Linden Project on a “take-or-pay” basis as an operating expense of the Power System. In addition, the Department has purchased Glendale’s 10.00% output entitlement share of Linden Project’s output, subject to Glendale’s right to repurchase all or a portion of such output at certain times and under certain circumstances. See “OPERATING AND FINANCIAL INFORMATION – Take- or-Pay Obligations.” Windy Point/Windy Flats Project. The Windy Point/Windy Flats Project is a 262.2 MW nameplate capacity wind farm comprised of 114 wind turbines located in the Columbia Hills area of Klickitat County, Washington near the city of Goldendale (the “Windy Point Project”). The Windy Point Project is owned and operated by Windy Flats Partners, LLC (“Windy Flats”). Pursuant to a power purchase agreement with Windy Flats, SCPPA has agreed to purchase from Windy Flats all energy from the Windy Point Project for a delivery term of 20 years (unless earlier terminated). SCPPA has issued revenue bonds to finance the prepayment of the purchase of specified quantity of energy from the Windy Point Project. The Department has entered into a power sales agreement with SCPPA that provides for the Department to pay its 92.37% share of the Windy Point Project on a “take-or-pay” basis as an operating expense of the Power System. In addition, the Department has purchased Glendale’s 7.63% output entitlement share of Windy Point Project’s output. See “OPERATING AND FINANCIAL INFORMATION – Take-or-Pay Obligations.” Pine Tree Wind Project. The Pine Tree Wind Project is a wind generating facility north of Mojave, California, consisting of 90 wind turbines owned and operated by the Department. The Pine Tree Wind Project has a nameplate capacity of 135 MWs. However, available capacity will vary because wind in this area tends to blow in the afternoons and evenings and drops off during the daytime hours when the Power System load peaks. As part of normal operating procedures, the Department staff has notified Federal and State authorities concerning mortalities of golden eagles. Since June 2009, the Department staff has found nine golden eagle carcasses in the proximity of the Pine Tree Wind Project. The Department is working cooperatively and collaboratively with the U.S. Fish and Wildlife Service and the California Department of Fish and Game to investigate these deaths. The Department is also conducting advanced monitoring studies and surveys to determine potential causes of the eagle mortalities and mitigation options relating to the golden eagles. The Department is currently investigating the effectiveness of radar technology in detecting golden eagles and other birds of prey at the Pine Tree Wind Project. Golden eagles are a protected species, and the death or injury to a golden eagle in some circumstances can result in fines and penalties, including criminal sanctions. The Department is unable to predict the outcome of this investigation. However, to date there has been no adverse impact on the operations of the Pine Tree Wind Project. Solar Power Programs. The Department currently has four programs to encourage the development of solar energy in Los Angeles: (i) the Solar Incentive Program in which residential and commercial customers are encouraged to install eligible solar photovoltaic systems with incentive funding provided by the Department; (ii) Department-built solar projects on City-owned properties; (iii) power purchase agreements for large-scale solar projects located outside the Los Angeles Basin built by solar developers; and (iv) a Feed-in-Tariff (“FiT”) Program, launched on February 1, 2013, which has 13 MWs

A-31 of solar photovoltaic generation installed within the Department’s service territory and connected to the Department’s electric distribution system. Under the California Solar Initiative (“SB-1”) publicly owned electric utilities (“POUs”) are required to establish programs supporting the stated goal of the legislation to install 3,000 MWs of photovoltaic capacity in the State, and to establish eligibility criteria in collaboration with the CEC for the funding of solar energy systems receiving ratepayer funded incentives. The legislation gives a POU the choice of selecting an incentive based on the installed capacity, starting at no less than $2.80 per watt, or the equivalent based on the energy produced by the solar energy system, measured in kilowatt-hours. Incentives are required to decrease at a minimum average rate of 7% per year. The Department’s incentive payment offerings currently range from $0.40 per watt for residential installations to $1.45 for government/non-profit installations. POUs also have to meet certain reporting requirements regarding installed capacity, number of installed systems, number of applicants and awarded incentives. The Solar Photovoltaic Incentive Program includes using $313 million of ratepayer funds mandated by SB-1 to administer the program and subsidize customers for customer-owned solar projects that will offset their electricity use. As of November 30, 2015, the Department has committed $269 million in rebate payments to this program for 149 MWs of installations. The Department currently expects 170 MWs of customer owned net-metered solar by the end of 2016 and, at current installation rates, an additional 140 MWs, for a total of 310 MWs, of customer owned net-metered solar by 2023. The Department currently has 21 MWs of Department–built solar projects on City-owned properties. As one example, the Adelanto Solar Power Project is a 10 MW solar photovoltaic system, which is expected to deliver 500,000 MWhs of energy over the next 25 years, located at the existing Adelanto Switching and Converter Station near Adelanto, California. In addition, the Pine Tree Solar Project was placed into commercial operation in March 2013. The Pine Tree Solar Project is an 8.5 MW solar photovoltaic system expected to deliver 425,000 MWhs of energy over the next 25 years, located at the Department’s existing Pine Tree Wind Farm in the Tehachapi Mountains, California. The Department has entered into the following five power purchase agreements (“PPAs”) for the purchase of renewable energy from 770 MWs of solar photovoltaic projects: • One PPA is a 25-year contract with K Road Moapa Solar, LLC which changed its name to Moapa Southern Paiute Solar, LLC for 250 MW, delivering up to 664,000 MWhs per year located on Moapa Band of Paiute Indians tribal land north of Las Vegas, Nevada. This facility is anticipated to be in full commercial operation in the summer of 2016. • The second PPA is a 20-year contract through SCPPA for 210 MW of the Copper Mountain Solar 3 Project being developed by an affiliate of Sempra U.S. Gas and Power. Copper Mountain Solar 3 Project is near Boulder City, Nevada and is expected to deliver 515,000 MWhs of renewable energy a year to the Department and began full commercial operation in April 2015. • The third PPA is a 20-year contract for 60 MW of the Cinco Solar Project being developed by Recurrent Energy, an affiliate of Canadian Solar Inc. Cinco Solar Project is near the Mojave Desert in Kern County and is expected to deliver an annual average of 174,380 MWhs of renewable energy. This facility is anticipated to be in full commercial operation in the summer of 2016. • The fourth PPA is a 25-year contract through SCPPA for 100 MW of the Springbok I Solar Farm Project being developed by 8minutenergy. Springbok I Solar Farm Project is near the Mojave Desert in Kern County and is expected to deliver an average of 264,684 MWhs of renewable energy a year to the Department. This facility is anticipated to be in full commercial operation in the winter of 2016-17.

A-32 • The fifth PPA is a 27-year contract through SCPPA for 150 MW of the Springbok II Solar Farm Project, which is adjacent to the Springbok I Solar Farm Project and is also being developed by 8minutenergy. Springbok II Solar Farm Project is expected to deliver an average of 407,000 MWhs of renewable energy a year to the Department. In connection with the implementation of these PPAs, the Department is expected to upgrade certain transmission assets to accommodate these projects. The Department is also exploring public private partnerships for large-scale solar projects in the Mojave Desert and other areas outside the Los Angeles Basin by 2020. One such public private partnership is the 2,500-acre property purchased from Beacon Solar LLC in 2012, which is near the Pine Tree Wind Project (the “Beacon Property”). Five 25-year PPAs and associated agreements that have been executed for the development of five solar sites totaling 250 MWs within the Beacon Property are expected to produce up to 617,000 MWhs per year of solar energy. Due to the extension of the federal Business Energy Investment Tax Credit and in order to facilitate financing, the developers have requested amendments to the PPAs. On the Beacon Property, the PPAs provide the Department with an option to purchase the solar projects after the developers exhaust the federal tax benefits. As part of the PPAs for four of the five solar sites, the solar developers have agreed under separate agreements to develop up to 50 MWs of in-basin solar energy as part of the Department’s FiT Program. The Department’s 150 MW FiT Program allows the Department to purchase, through a standard power purchase contract, electricity generated from participants’ renewable energy generating sources. Such sources will be located within the Department service territory and connected to the Power System. The energy purchased through the FiT Program is expected to count toward the Department’s RPS target. The FiT Program consists of two components: 100 MWs with a set pricing structure and 50 MWs with a competitive pricing structure. The 100 MW FiT set pricing program was launched on February 1, 2013. As discussed above, as part of the PPAs for solar development on the Beacon Property, the Beacon Solar developers are expected to fulfill up to 50 MW of in-basin solar energy. Due to market conditions, it is not currently known when all 150 MWs under the FiT Program will be installed. In addition to the current 150 MW FiT Program, the Department is developing an expanded FiT Program, which is expected to add another 300 MWs and bring the total FiT Program to 450 MWs. Geothermal Development. The Department executed a power sales agreement with SCPPA for 100.00% of the energy output of the Don A. Campbell Phase I Geothermal Energy Project (the “Don Campbell Phase I Project”). The Don Campbell Phase I Project consists of SCPPA’s purchase of all energy generated by a 16.2 MW nameplate capacity binary geothermal power plant comprised of eight drilled commercial wells located in Mineral County, Nevada for an initial delivery term of 20 years starting December 31, 2013. The Department has entered into a power sales agreement with SCPPA that provides the Department a 84.62% share of the Don Campbell Phase I Project energy output, or 114 Gigawatt hours (GWhs) annually. In addition, in April 2015, the Department executed a power sales agreement with SCPPA for the Don A. Campbell Phase II Geothermal Energy Project (the “Don Campbell Phase II Project” and, together with the Don Campbell Phase I Project, the “Don Campbell Projects”), located in the same vicinity as the Don Campbell Phase I Project. The Don Campbell Phase II Project is an expansion of the Don Campbell Phase I Project by the same developer, Ormat Nevada, Inc., and began commercial operation in September 2015. The nameplate capacity for the Don Campbell Phase II Project is 16.2 MWs. In addition to the Don Campbell Projects, the Department executed a power sales agreement with SCPPA for the Heber-1 Geothermal Project (the “Heber-1 Project”) in September 2013. The energy delivery commencement date is February 2, 2016 for an initial term of ten years, and an interim delivery period that started on December 16, 2015. The Heber-1 Project is an existing geothermal complex which

A-33 includes the Heber-1 double flash steam unit and the Gould 1 bottoming binary unit, located in Imperial County, California. The net energy generated from the Heber-1 Project is expected to be 46 MW. The Department’s share is 66.67% (30.68 MW) in the first three years and 78.0% (35.88 MW) for the remaining term. The equivalent average energy delivered to the Department is expected to be 285 GWhs annually. In May 2015, the Department entered into an agreement with Salt River Project to purchase through 2021 approximately 55 MWs of renewable geothermal energy from Salt River Project’s interests in the Hudson Ranch Geothermal Project located in the Imperial Valley in Southern California. Imperial Valley Transmission Development. The Department has entered into a Transmission Service Agreement with Imperial Irrigation District (“IID”) to acquire 100 MWs of transmission rights for a three-year term that is expected to begin by the end of 2016. These transmission rights, along with other transmission rights and the use of the Cal ISO Grid, will provide future delivery of energy from certain geothermal and/or solar resources to Los Angeles. Renewable Energy Trust Fund and Energy Efficiency Trust Fund. The Department established the Renewable Energy Trust Fund (the “Renewable Energy Trust Fund”) and the Energy Efficiency Trust Fund (the “Energy Efficiency Trust Fund”) to fund renewable energy sources and development, and energy efficiency programs including incentives and subsidies for commercial and residential solar power. Deposits to the Renewable Energy Trust Fund and the Energy Efficiency Trust Fund will be made at the direction of the Board. Green Power Program. The Department offers its Green Power Program to all customers at a premium over standard rates. “Green Power” is produced from renewable resources such as wind energy and geothermal resources, rather than fossil-fueled or nuclear generating plants. This voluntary program includes customer-selected levels of Green Power purchases, subject to specified minimum requirements. Approximately 14,324 Department customers subscribed to the Green Power Program as of March 2016. The Department is working on Green Power Program improvements that are intended to increase both the number of participants and the amount of green energy purchased through the program. Other Renewable Energy Project Developments. The Department, on its own and through SCPPA, has received proposals from “green” power resources such as solar photovoltaic, wind, biomass, small hydro, solar thermal and geothermal power via solicitations. The Department is also considering opportunities related to utilization of land located in the Owens Valley area of the State for wind or geothermal and for improved transmission access to geothermal energy. Additional renewable energy resources will be obtained; however, the costs and schedules for implementation and feasibility of alternative energy projects may vary materially from initial projections. City Council approval may be required for the Department’s participation in or acquisition of renewable energy projects. Energy Efficiency The Charter authorizes the Department to engage in and finance activities related to the efficient use of energy and a number of State laws expressly require utilities such as the Department to collect and spend funds for these activities. The Department has a commitment to energy efficiency and continues to pursue cost-effective means of reducing or avoiding the need to generate electricity (particularly during peak periods). These activities defer the need to acquire costly new generating facilities, improve the value of electric service to customers and increase the Department’s overall load factor, thereby reducing or avoiding negative environmental impacts from power generation. Moreover, State laws enacted in 2005 and 2006 require POUs, such as the Department, in procuring energy, to first implement all available energy efficiency and demand reduction resources that are cost effective, reliable and feasible, and to provide annual reports to customers and to the CEC describing their investment in energy efficiency and demand reduction programs. Assembly Bill 2021, which became a law in 2007, requires IOUs and POUs to identify energy efficiency potential and establish annual efficiency targets so that the

A-34 State can meet the goal of reducing total forecasted electricity consumption by 10% by 2020. The Department is currently on track to meet or exceed these requirements and adopted a goal in August 2014 of achieving up to 15% energy savings by 2020. The Department offers numerous programs and services for residential customers and commercial, industrial and institutional (“CII”) customers to encourage the installation and use of energy efficient measures and equipment such as: • The Custom Performance Program, which provides incentives for the installation of various high efficiency units related to lighting, thermal energy storage and HVAC and refrigeration including chillers among others, has achieved over 416 GWhs of energy savings since 2007; • The Commercial Lighting Incentive Program (“CLIP”), which provides rebates for a wide variety of high efficiency lighting measures to retrofit existing buildings (commercial lighting programs have achieved over 532 GWhs of energy savings since 2000); • The Small Business Direct Install (“SBDI”) Program, which assists certain small business customers (defined as those customers with a peak demand of 30 kW or below) in the City to become more energy efficient; qualifying customers receive a free energy and water assessment and free lighting retrofits, as well as select gas and water retrofits in partnership with the Southern California Gas Company; SBDI has achieved 208 GWhs of energy savings since its inception in 2008; • The Energy Efficiency Technical Assistance Program for CII customers provides technical and engineering support to help CII customers identify energy efficiency opportunities and develop qualifying projects that can then take advantage of existing incentive programs; • The Home Energy Improvement Program, which continues and expands the Department’s formerly American Recovery and Reinvestment Act of 2009-funded Weatherization Program to serve primarily low-, moderate- and fixed-income residential customers in single- and multi-family housing with a broad spectrum of energy and water efficiency measures; • Free pick-up and recycling of old, inefficient refrigerators in an environmentally sound manner and distribution of free, energy efficient refrigerators to nearly 88,000 low-income residential customers; this program has replaced and recycled more than 61,000 refrigerators since 2007, achieving an energy savings of 63 GWhs; and • The LED streetlight program that provided a $48 million loan to the City of Los Angeles to enable it to ultimately install over 180,000 highly energy efficient LED streetlights and reduce its consumption of electricity as a result. This program is now completed, and the loan has been repaid by the City. As a result, this model is being expanded as a $24 million loan to retrofit decorative street lighting with LED streetlights throughout the City. From 2000 through 2015, the Department has spent approximately $577 million on its energy efficiency programs, and these programs have reduced long-term peak period demand and consumption by approximately 488 MWs and resulted in approximately 2,400 GWhs of energy savings. The Department anticipates spending approximately $100 million on energy efficiency programs for Fiscal Year 2015-16, with the budget increasing to approximately $178 million for Fiscal Year 2016-17. The Department anticipates increasing its expenditures for energy efficiency programs in future years, based on portfolio planning utilizing the results of the Department’s 2014 Energy Efficiency Potential Study. As a result of the Department’s 2014 Energy Efficiency Potential Study, the Board has adopted the goal of reducing usage by 15% by 2020 compared to 2010 levels. This is a significant increase from the 10% energy reduction target set by the State.

A-35 Fuel Supply for Department-Owned Generating Units and Apex Power Project Natural gas (along with biogas) is used to fuel 100% of the Los Angeles Basin Stations. The Department’s fossil fuel requirements for the Los Angeles Basin Stations for the electric load requirements of its customers in the City (referred to as “native load”) were 44.7 billion equivalent cubic feet of natural gas during Fiscal Year 2014-15. In addition, the Department’s fossil fuel requirements for the Apex Power Project were 15.6 billion equivalent cubic feet of natural gas during Fiscal Year 2014-15. The Department determined that acquiring natural gas reserves was advantageous, reasonable and prudent to ensure stable, long-term natural gas supplies to help meet future power generation demands. In June 2005, the Department, the Turlock Irrigation District and SCPPA (acting on behalf of its member California cities of Anaheim, Burbank, Colton, Glendale and Pasadena) acquired rights in natural gas producing properties from the Anschutz Pinedale Corporation. Under the acquisition agreement, the Department obtained an approximately 74.5% ownership interest in a $300 million acquisition of leases of gas producing property in Sublette County, Wyoming. This acquisition provided approximately 13% of the Department’s average daily natural gas requirements for Fiscal Year 2014-15. No increase to this natural gas producing program is expected at this time, however further capital investment in such program will be reevaluated if market conditions change and the price of natural gas rises. The Department obtains its remaining natural gas requirements through a competitively bid spot purchase program or through forward physical gas purchases for a specified period of time. The price of natural gas delivered into Southern California has fluctuated over the past few years and the Department expects prices to continue to fluctuate. To mitigate the effects of natural gas price volatility, the Department includes as part of the Electric Rates certain pass-through cost adjustments that provide recovery of natural gas and other fuel costs. See “ELECTRIC RATES – Rate Setting.” In addition, the City Council enacted an ordinance to authorize the Department to enter into financial hedge contracts with respect to natural gas purchases to stabilize fuel costs for native load. See “Note 9 - Derivative Instruments” of APPENDIX B – “AUDITED FINANCIAL STATEMENTS OF THE DEPARTMENT OF WATER AND POWER OF THE CITY OF LOS ANGELES POWER SYSTEM FOR THE FISCAL YEARS ENDED JUNE 30, 2015 AND JUNE 30, 2014” (“Note 9”). Under this ordinance the Department’s General Manager also may enter into biogas supply agreements for a period not to exceed ten years, so long as certain conditions are met. The use of natural gas swaps, derivatives and other price hedging arrangements are subject to risk management policies and review procedures established by the Board. The Department has developed a natural gas procurement strategy that includes a program of entering into financial hedges with various counterparties that have permitted terms of up to ten years and are intended to mitigate customer exposure to gas price volatility. The policy permits up to 75% of the Department’s natural gas requirements to be hedged through various measures (including such financial hedges), although the amount hedged in a given year may vary. As of June 30, 2015, the Department has entered into financial natural gas hedges in various notional amounts per Fiscal Year for each Fiscal Year through Fiscal Year 2018 with an aggregate notional amount of approximately 9.9 million MMBtus. These hedges cover approximately 4% to 5% of the Department’s average daily natural gas requirements for the Fiscal Years through 2018. Tables describing the notional amount for each Fiscal Year and the durations of the hedges, as well as a discussion of the credit, basis and termination risks associated with such hedges, can be found in Note 9. The Department currently uses a physical delivery natural gas hedge program that is designed to eventually hedge up to 50% of its forecasted usage. Initial purchases of forward physical gas in the amount of approximately 35,000 MMBtu per day for Fiscal Year 2016-17 were completed in late 2015 and early 2016. Due to the temporary suspension of gas injections at the Southern California Gas Company (“SoCalGas”) Aliso Canyon storage facility, there is some uncertainty about interstate gas transmission capacity available for electric generators. Consequently, the Department has suspended its physical delivery natural gas hedge program since the hedged gas may not be able to be transported to in-

A-36 basin power plants. Instead the Department has begun to purchase blocks of power for the summer months that will meet customer load, instead of generating the power with in-basin facilities. The Department signed a fixed price, landfill biogas contract in December 2011 (the “2011 Shell Contract”) with Shell Energy North America (“Shell”) for up to 10,000 MMBtus per day for 118 months beginning January 1, 2012. Energy produced from such gas is qualifying energy for RPS targets. Since production began, it has remained level at about 6,000 MMBtu per day. This purchase is expected to contribute up to 2.0% toward the Department’s RPS target. The CEC has certified the Los Angeles Basin Stations’ use of biogas from the 2011 Shell Contract. The certification is effective as of July 8, 2011 and will remain in effect unless certification is voluntarily withdrawn, any of the Los Angeles Basin Stations are permanently shut down or decommissioned, or the certification is revoked by the CEC because of noncompliance with the applicable RPS requirements. In June 2015, the CEC approved its Renewables Portfolio Standard Eligibility Guidebook, 8th edition, which is used to qualify renewable resources under state legislative directives. Additional classifications of RPS resources will be guided by this document. In 2009, the Department and Shell entered into a contract for landfill biogas (the “2009 Shell Contract”). Also, in 2009, the Department and Atmos Energy Marketing, LLC (“Atmos”) entered into a contract for landfill biogas (the “2009 Atmos Contract”). Such contracts have expired, however, the CEC has denied certification for the use of biogas from the 2009 Shell Contract and the 2009 Atmos Contract as qualifying for the RPS target. The Department has firm interstate natural gas transportation capacity on the Kern River Pipeline System for two different volumes at different rates, to 2016 and 2018, respectively. The 2016 contract has been renewed for the period beginning October 1, 2016 through September 30, 2031. The total amount of capacity is sufficient to transport 90% of the average amount of natural gas needed for the Los Angeles Basin Stations under current Department forecasts. In Fiscal Year 2014-15, the capacity was 92% sufficient. Additional interstate pipeline capacity, if needed, is acquired through federally-approved capacity brokering programs or through gas purchases bundled with interstate transportation delivered into the SoCalGas intrastate system. Intrastate transportation and balancing services are provided to the Department by SoCalGas sufficient to meet 100% of the Los Angeles Basin Stations’ requirements under SoCalGas’s Basic Transportation Service program (“BTS”). This enables the Department to deliver Kern River Pipeline System gas to the BTS receipt points in the State. Approximately 50% and 30% of the Department’s projected natural gas needs have been price hedged for Fiscal Year 2015-16 and Fiscal Year 2016-17, respectively, through financial hedges, physical gas supply contracts and gas reserves. This ratio declines gradually such that by Fiscal Year 2023-24, approximately 10% of projected natural gas needs are hedged. The Department typically hedges a higher percentage of its natural gas needs as the operating year approaches, and is analyzing additional potential hedges for Fiscal Year 2016-17 and beyond. The targets for this program have been temporarily suspended due to the Aliso Canyon gas well leak, which is discussed below. The SoCalGas Aliso Canyon underground natural gas storage facility in the Porter Ranch area of Los Angeles leaked between October 23, 2015 and February 18, 2016 and has been temporarily limited in its injection capability by State agencies until testing of all operating wells has been completed. The volume in this storage field, SoCalGas’s largest, has been reduced for safety reasons to a maximum of only 15 BCF, from its typical maximum of 86 BCF. SoCalGas does not expect the underground storage facility to be refilled to its typical volume in time for the winter heating season, even if it passes all the required safety inspections. This may result in curtailments of service that will reduce or limit how much natural gas the electric utilities, including the Department, may be able to bring in for their air- conditioning summer load. Consequently, the Department has suspended hedge purchases since any additional natural gas purchased may not be able to be brought into the Department’s service area and used. Instead the Department has been buying blocks of power for the summer months to reduce reliance

A-37 on its natural gas-fired generation facilities. Among the risks posed by the loss of Aliso Canyon is the specter that SoCalGas may not be able to deliver enough natural gas through its system to meet high generator ramp rates or overall gas demand needed by electric generators during daily peak periods. In reaction, the Department together with the Cal ISO, the CEC, and the CPUC published a report entitled “Aliso Canyon Action Plan to Preserve Gas and Electric Reliability for the Los Angeles Basin” that proposes specific measures to reduce the possibility of electrical service interruption in the Department’s service area this summer. Natural gas supply to Apex Generating Station is not affected by the Aliso Canyon natural gas link. The Department is also expanding its demand response programs to 60 MW in order to gain increased flexibility in case natural gas supplies are curtailed. The General Manager has also encouraged State regulators to require that SoCalGas offer its core customers incentives for conserving natural gas so enough fuel is available for electric generators. Water Supply for Department-Owned Generating Units Water required for the operation of generating stations owned by the Department is secured from a number of sources. The Harbor Generating Station, Haynes Generating Station and Scattergood Generating Station use Pacific Ocean water for power plant cooling purposes. However, the Department is undertaking a long-term program of replacing the coastal generating units to eliminate the use of ocean water at these three locations in part to meet requirements of the State Water Resources Control Board limitations on the future use of once-through-cooling for these plants. See “See “THE POWER SYSTEM – Department Owned-Generating Units – Los Angeles Basin Stations – Once-Through-Cooling – State Water Resources Control Board” and “- Regional Requirements – Thermal Discharges at Harbor Generating Station and Haynes Generating Station.” The Valley Generating Station, which is located inland, utilizes recycled water for cooling. While the southwest United States is experiencing drought conditions, the water supplies for the Los Angeles Basin Stations are satisfactory for continued operations. Use of ocean water for cooling, transitions to closed cycle cooling, and use of reclaimed water alleviates the high demand for potable water. Nevertheless, due to low snow pack in the eastern Sierra Nevada Mountains, the hydroelectric power generation is forecasted to be lower than average in this geographical area. The Department estimates that production from Owens Gorge and Owens Valley Hydroelectric Generation and the Castaic Plant for Fiscal Years 2014-15 and 2015-16 was and will be 32% and 34% of normal production, respectively. The increase of the use of alternate resources such as renewables and natural gas is expected to reduce the impact of the southwest United States drought on the Power System. Spot Purchases The Department purchases energy from the Bonneville Power Administration and other Pacific Northwest utilities under short-term “spot” arrangements to be delivered over the Pacific DC Intertie. For further information on the Pacific DC Intertie, see “—Transmission and Distribution Facilities – Pacific DC Intertie and Sylmar Converter Station.” These purchases are used by the Department in conjunction with other resources for economical Power System operation. In addition, purchases of economical energy are made from other entities located in the Southwest. The availability of economical energy on the spot market has fluctuated greatly in recent years. Historically the Department has not been dependent on such purchases to meet its customers’ requirements. Although the Department currently continues to find economical spot purchase opportunities (including some for renewable energy), it cannot predict the future availability of power from either the Pacific Northwest or the Southwest for purchases at prices below the Department’s costs for producing power from its own resources. Cogeneration and Distributed Generation Currently thermal cogeneration installed in the Department’s service area consists primarily of cogeneration projects of industrial and commercial customers. This totals approximately 252 MWs

A-38 nameplate capacity. Some cogeneration projects sell excess energy to the Department under interconnection agreements. Distributed generation (the generation of electricity at or near the point of use) within the Department’s service area currently consists primarily of cogeneration projects at customer facilities. Distributed generation also includes smaller generating units such as solar photovoltaic cells, fuel cells, micro-turbines and other smaller combustion engines. The Department manages a new technology demonstration program to assess the viability of some of these technologies. The Department also supports the development of new technologies through customer incentive programs. See “—Renewable Power Initiatives” and “—Energy Efficiency.” These technology advancements may change the nature of energy generation and delivery and may materially affect the operating and financial position of the Department. Excess Capacity The Department uses its extensive transmission network to sell excess generating capacity into the California, Northwest and Southwest energy markets. Net income from those sales is used to reduce costs to the Department’s retail customers (with revenues primarily by being applied to the costs of capital improvements or towards an electric rate stabilization account). With equipment outages, retirement of equipment, anticipated load growth and changes in greenhouse gas regulations which impact emission allowances, the Department anticipates that revenue from excess energy sales will be less certain than in the past. Wholesale revenues, as shown in “SELECTED FINANCIAL INFORMATION” under “OPERATING AND FINANCIAL INFORMATION – Financial Information,” have accounted for less than 2% of overall Power System revenues in recent years. Transmission and Distribution Facilities Electricity from the Department’s power generation sources is delivered to customers over a complex transmission and distribution system. To deliver energy from generating plants to customers, the Department owns and/or operates approximately 19,840 miles of alternating current (“AC”) and direct current (“DC”) transmission and distribution circuits operating at voltages ranging from 120 volts to 500 kilovolts (“kV”). In addition to using its transmission system to deliver electricity from its power generation resources, the Department transmits energy for others through such system when surplus transmission capacity is available and such transmission is permitted by the Master Resolution. As the operating agent of the Pacific DC Intertie, the Southern Transmission System, the Mead-Adelanto Transmission Project and certain Navajo-McCullough transmission facilities (all such facilities being described below), the Department transmits energy for the co-owners of, or participants in, these facilities. Pursuant to Assembly Bill 1890, signed into law on January 1, 1997, as part of the deregulation of the State electric industry, municipal utilities such as the Department, were encouraged, but not required, to transfer operational control of their electric transmission facilities to the Cal ISO. The Department owns and operates in excess of 25% of the transmission facilities in the State. While the Department has not transferred operational control of its transmission facilities to the Cal ISO, the Department interacts with the Cal ISO on a regular basis. The Department serves as the scheduling coordinator for the delivery of that portion of the Department’s energy that requires use of any part of the Cal ISO Grid. The Department also coordinates with the Cal ISO with respect to some lines that are jointly owned by the Department and others. The Department is responsible for the costs associated with its use of the Cal ISO Grid. The Department is registered as a participant in wholesale transactions in the Cal ISO market. In the future, the Department may have more interaction with the Cal ISO in order to transport renewable power and to take advantage of trading opportunities. Legislation considered from time to time by the U.S. Congress and the State could potentially increase the level of jurisdictional control over the generation, transmission and distribution assets that

A-39 comprise the Department’s Power System and could encourage voluntary participation by the Department in a regional transmission organization. The City opposes any participation in a regional transmission organization that would be mandatory. The Department monitors any potential restrictions regarding control of transmission rates, authority to finance the Power System using bonds and use of the Power System to deliver electric power to the City. Certain transmission facilities available to the Department are discussed below. Southern Transmission System. The Southern Transmission System (the “STS”) is an approximately 490-mile, ±500 kV DC transmission line from the Intermountain Power Generating Station, near Delta, Utah, to Adelanto, California, together with an AC/DC converter station at each end of the line. The STS is owned by IPA and is one of three major components of the IPP. The Department entered into a transmission service contract with SCPPA for a 59.5% entitlement in SCPPA’s share of the transfer capability of the STS to provide for the transmission of energy from the IPP Converter Station to the Adelanto Converter Station until 2027. After the completion of an upgrade to its capacity in December 2010, a maximum of 2,400 MWs can be transmitted over the STS. The Department’s entitlement in SCPPA’s share of the transfer capability of the STS is now approximately 1,428 MWs. Northern Transmission System. The Northern Transmission System (the “NTS”) includes two approximately 50-mile, 345 kV transmission lines from IPP to the Mona Substation in Northern Utah, and one approximately 144-mile, 230 kV transmission line from IPP to the Gonder Substation in Nevada. The NTS was constructed for the delivery of power from IPP to certain municipalities in Utah and certain cooperative purchasers. Capacity on the NTS is available to the Department through the IPP Excess Power Sales Agreement. The Department can have up to a maximum NTS share allocation of 43.141% of the total capacity depending on the generation deemed excess by the 29 Utah municipalities and cooperatives that have access to such power. The capacity from IPP to Mona is 1,400 MW; the capacity from Mona to IPP is 1,200 MW; the capacity from IPP to Gonder is 200 MW; and the capacity from Gonder to IPP is 117 MW. Pacific DC Intertie and Sylmar Converter Station. The Pacific DC Intertie is an approximately 846-mile, ±500 kV DC transmission system that connects Southern California to the hydroelectric and wind generation resources of the Pacific Northwest. A maximum of 3,100 MWs can be transmitted over the entire Pacific DC Intertie System. The Department owns a 40% interest in the southern portion of the Pacific DC Intertie from the Nevada-Oregon border to its southern terminus at the Sylmar Converter Station in Sylmar, California and is the operating agent of the southern portion of the Pacific DC Intertie. The northern portion of the Pacific DC Intertie is owned and operated by Bonneville Power Administration (“BPA”) and extends from the Nevada-Oregon border to BPA’s Celilo Station in The Dalles, Oregon. Devers-Palo Verde Transmission Line. The Devers-Palo Verde Transmission Line is an approximately 250-mile, 500 kV AC line owned by Edison that connects the PVNGS with the Devers Substation outside Desert Hot Springs, California. As part of an exchange agreement, the Department purchases up to 368 MWs of bi-directional firm transmission service on the Devers-Palo Verde Transmission Line from Edison (the “Devers-Palo Verde Agreement”) at the rate being charged by the Cal ISO for that same service. The Devers-Palo Verde transmission path now consists of the Devers- Colorado River and Colorado River-Palo Verde transmission lines. The Department has the right to terminate the service upon 12 months written notice. Mead-Phoenix Transmission Project. The Mead-Phoenix Transmission project is an approximately 256-mile, 500 kV AC transmission line which originates at the Westwing substation in Phoenix, Arizona, connects with the Mead substation near Boulder City, Nevada and terminates at the Marketplace substation nearby. The Mead-Phoenix Transmission Project is currently owned by SCPPA, APS, M-S-R Public Power Agency (“M-S-R”), Salt River Project, Western and Startrans IO, L.L.C. In 1992, the Department entered into a transmission service contract with SCPPA that obligates the

A-40 Department until 2030 to pay for its share of SCPPA’s member-related interest in the Mead-Phoenix Transmission Project on a “take-or-pay” basis as an operating expense of the Power System. The Department’s share is 31.0924% of SCPPA’s member-related interest in the Westwing-Mead component of the Mead-Phoenix Transmission Project and 17.8313% of SCPPA’s member-related interest in the Mead-Marketplace component of the Mead-Phoenix Transmission Project. The Department’s average share of the Mead-Phoenix Transmission Project components is 24.75% of SCPPA’s member-related interest in the Mead-Phoenix Transmission Project. Payments made by the Department associated with SCPPA’s member-related interest in the Mead-Phoenix Transmission Project include a share of the fixed operating costs and debt service on bonds issued by SCPPA for SCPPA’s member-related interest in the Mead-Phoenix Transmission Project. See “OPERATING AND FINANCIAL INFORMATION – Take- or-Pay Obligations.” SCPPA, on behalf of the Department, is in the process of acquiring an additional interest in the Mead-Phoenix Transmission Project for the benefit of the Department (referred to herein as SCPPA’s “Department-related interest”) through the purchase of the M-S-R ownership share (11.53850% of the Westwing-Mead component and 8.09930% of the Mead-Marketplace component) of the Mead- Phoenix Transmission Project. The purchase by SCPPA of the Department-related interest in the Mead- Phoenix Transmission Project and the transmission service contract between SCPPA and the Department corresponding to the Department-related interest in the Mead-Phoenix Transmission Project, pursuant to which the Department- is entitled to 100% of the transmission capability associated with SCPPA’s Department-related interest in the Mead-Phoenix Transmission Project were approved by the Board in January 2016 and approved by the City Council in February 2016. SCPPA and M-S-R are in the process of completing all necessary steps to complete the purchase by mid-2016, upon which the purchase and the transmission service contract relating to Department-related interest in the Mead-Phoenix Transmission Project are expected to become effective. Mead-Adelanto Transmission Project. The Mead-Adelanto Transmission Project is an approximately 202-mile, 500 kV AC transmission line between the Adelanto substation, near Victorville, California and the Marketplace substation, near Boulder City, Nevada. The Mead-Adelanto Transmission Project was constructed by its owners, currently, SCPPA, M-S-R, Western and Startrans IO, L.L.C., in connection with the Mead-Phoenix Transmission Project. In 1992, the Department entered into a transmission service contract with SCPPA that obligates the Department until 2030 to pay for its share of SCPPA’s member-related interest in the Mead-Adelanto Transmission Project on a “take-or-pay” basis as an operating expense of the Power System. The Department’s share is 35.7% of SCPPA’s member- related interest of the Mead-Adelanto Transmission Project. Payments made by the Department associated with SCPPA’s member-related interest in the Mead-Adelanto Transmission Project include a share of the fixed operating costs and debt service on bonds issued by SCPPA for SCPPA’s member- related interest in the Mead-Adelanto Transmission Project. See “OPERATING AND FINANCIAL INFORMATION – Take-or-Pay Obligations.” SCPPA, on behalf of the Department, is in the process of acquiring an additional interest in the Mead-Adelanto Transmission Project for the benefit of the Department (referred to herein as SCPPA’s “Department-related interest”) through the purchase of MSR’s 17.5% ownership share of the Mead-Adelanto Transmission Project. The purchase by SCPPA of the Department-related interest in the Mead-Adelanto Transmission Project and the transmission service contract between SCPPA and the Department corresponding to the Department-related interest in the Mead-Adelanto Transmission Project, pursuant to which the Department is entitled to 100% of the transmission capability associated with SCPPA’s Department-related interest in the Mead-Adelanto Transmission Project, were approved by the Board in January 2016 and approved by the City Council in February 2016. SCPPA and M-S-R are in the process of completing all necessary steps to complete the purchase by mid-2016, upon which the purchase and the transmission service contract relating to the Department-related interest in the Mead-Adelanto Transmission Project are expected to become effective. Navajo-McCullough Transmission Line. The Navajo-McCullough Transmission Line is a 274- mile, 500 kV AC transmission line that originates at the Navajo Generating Station near Page, Arizona, connects through the Crystal Substation near Las Vegas, Nevada and terminates at the McCullough

A-41 substation near Boulder City, Nevada. The Department owns 48.9% of the Navajo-McCullough Transmission Line, which was constructed as a part of the Navajo Generating Station. The Crystal Substation was constructed by NV Energy. NV Energy owns 100% of the Crystal Substation on behalf and for the benefit of the Navajo Generating Station, including the Department. Eldorado Transmission System. The Eldorado Transmission System’s major components are the 59-mile, 500 kV AC Mohave-Eldorado transmission line, the 500 kV Mohave Switchyard, the Eldorado substation, which is comprised of a 220 kV switchyard and a 500 kV switchyard, and two parallel 15-mile 220 kV AC Eldorado-Mead transmission lines. Pursuant to a System Conveyance and Co-Tenancy Agreement, the Department is a 30.4% co-owner of the Mohave-Eldorado transmission line, 20% co- owner of the Mohave Switchyard and 21% co-owner of the 500 kV switchyard that is part of the Eldorado substation, which are assets associated with the Eldorado Transmission System. Barren Ridge Renewable Transmission Project (“BRRTP”). The Department’s BRRTP involves expansion of the Barren Ridge Switching Station, construction of a new switching station in Haskell Canyon (the “Haskell Switching Station”), constructing a new 61-mile double circuit 230 kV transmission line between these two stations, installing a new 230 kV circuit between Haskell Switching Station and the existing Castaic Power Plant, and the re-conductoring of the existing 230 kV transmission line from Barren Ridge Switching Station to the Rinaldi Substation in the San Fernando Valley. This project will increase the transmission capacity of renewable energy flowing into the Los Angeles Basin from generating facilities in Owens Valley and the Tehachapi Mountains by 2,000 MWs. Construction has commenced and is expected to be completed by the summer of 2017. The completion date will not impact expected commercial operation dates for renewable projects that are expecting to interconnect to the BRRTP. Projected Capital Improvements The Department has developed a series of Power System integrated resource plans with each plan updating and refining the previous plan. The plans are developed in conjunction with the Department’s strategic planning to meet its goals of continuing to provide reliable service to customers, maintaining a competitive price for the Power System’s services and providing environmental leadership. Such resource plans act as guidance for the Department in implementing more specific short-term and long- term financial plans. The Power System’s most current integrated resource plan was released in December 2015. Based on the Department’s September 2015 Retail Electric Sales and Demand Forecast, the Department anticipated that gross customer electricity consumption would increase from Fiscal Year 2015-16 to Fiscal Year 2025-26 at a forecasted rate of approximately 1.24% per year without consideration of the Department’s measures to promote energy efficiency and distributed generation. That load growth rate reflects, in the later part of the ten year planning period, increases due in part to fuel switching in the transportation sector including the increase of plug-in hybrid electric vehicles. In the Power System’s most recent integrated resource plan significant energy efficiency measures are planned for as a cost effective resource, along with support for customer solar projects. This, together with the Board’s adoption in August 2014 of a plan to achieve 15% energy efficiency savings by 2020, are anticipated to result in net overall energy consumption that increases by 0.65% per year over this period. Enhancement and expansion of electric transmission resources will enable access to renewable energy resources. Continued modernization of the Department’s Castaic Plant and the repowering of in-basin gas-fired generation with more flexible “quick start units” will assist in integrating intermittent renewable resources into the Power System. Capital investments in the transmission and distribution system, including new business service and electric feeder lines, are required to support future growth. New control and monitoring systems are needed to continue to provide reliable and secure system operations. See “ — Power System Reliability Program” below.

A-42 Castaic Power Plant Modernization. The seven units of the Castaic Plant are currently being rotated out of service for modernization in a multi-phase process expected to be completed in 2017. The scope of work includes upgrades to the hydroelectric plant and replacement of turbines, installation of plant automation, installation of generator exciters for all seven units and improvements to the plant relay protection system. This refurbishment is projected to increase efficiency and add up to 80 MWs of capacity. The increased capacity also results in more in-basin capacity that is expected to increase reliability to meet Power System demands. See “—Department-Owned Generating Units — Los Angeles Basin Stations” and “– Castaic Pump Storage Power Plant.” Power System Reliability Program. A significant power outage in 2006 caused the Department to conduct an evaluation of its electrical infrastructure and led to the development of a comprehensive distribution focused power reliability program called “Power Reliability Program” with the following major components: (a) mitigation of problem circuits and stations based on the types of outages specific to the facility, including among other things, timely, permanent repairs of distribution circuits after a failure and fixing poorly performing circuits, (b) proactive maintenance and capital improvements that take into account system load growth and the inspections and routine maintenance that must take place to identify problems before they occur, (c) replacement cycles at the facilities that are in alignment with the equipment’s life cycle such as replacing aging underground cables, overhead poles and circuits and substation equipment and (d) replacement of overloaded transformers. In 2013, another evaluation was completed and the program was expanded and renamed the “Power System Reliability Program.” The Power System Reliability Program assesses all Power System assets affecting reliability in an integrated and comprehensive manner and proposes corrective actions as well as capital expenditures designed to minimize future outages and maintain reliability in the short and long term. The Power System Reliability Program includes the establishment of metrics and indices to help prioritize infrastructure replacement and expenditures for all major functions of the Power System, including distribution, transmission, generation, and substations. The Power System Reliability Program is anticipated to be updated on an annual basis to adjust to varying Power System conditions and resource allocations. Projected Capital Expenditures. As indicated in the table below, for Fiscal Year 2015-16 through Fiscal Year 2019-20, the Department expects to invest approximately $7.7 billion in capital improvements to the Power System.

EXPECTED CAPITAL IMPROVEMENTS TO THE POWER SYSTEM FIVE-YEAR PERIOD BEGINNING JULY 1, 2015 (in Millions) 5-Year Totals Infrastructure Various Generation Station Improvements $2,642 Power System Reliability Program 2,568 Renewable Portfolio Standard (RPS): Wind Projects, Renewable Energy Project Development, Renewable Transmission Projects 1,313 Power Integrated Resource Plan: Haynes and Scattergood Repowering and Castaic Modernization 732 Integrated Support and Other Joint Services: IT, Facilities, Customer Services, Fleet 482 Total Power System Capital Improvements $7,737

Source: Department of Water and Power of the City of Los Angeles. Note: Total may not equal sum of parts due to rounding.

A-43 The table below indicates, for Fiscal Year 2015-16 through Fiscal Year 2019-20, the expected funding sources for the capital improvements to the Power System expected for such Fiscal Years.

EXPECTED FUNDING SOURCES FOR CAPITAL IMPROVEMENTS TO THE POWER SYSTEM (in Millions) Fiscal Year Ending Internally External/Debt Total Capital (June 30) Generated Funds Financing Expenditures(1) 2016 $ 1,057 $ 428(2) $1,485 2017 629 836 1,465 2018 666 874 1,540 2019 706 887 1,593 2020 722 931 1,653 $3,781 $3,956 $7,737 ______Source: Department of Water and Power of the City of Los Angeles. (1) Net of reimbursements to the Department. (2) Consists of expected proceeds of the Department’s anticipated Power System Revenue Bonds, 2016 Series A and the Department’s anticipated Power System Revenue Bonds, 2016 Series B, which are both expected to be issued before June 30, 2016.

The particular programs and commitments for capital improvements to the Power System are subject to review by Department stakeholders and others. The estimated costs of, and the projected schedule for, the expected capital improvements to the Power System and the Department’s other capital projects are subject to a number of uncertainties. The ability of the Department to complete such capital improvements may be adversely affected by various factors including: (i) estimating errors, (ii) design and engineering errors, (iii) changes to the scope of the projects, (iv) delays in contract awards, (v) material and/or labor shortages, (vi) unforeseen site conditions, (vii) adverse weather conditions, (viii) contractor defaults, (ix) labor disputes, (x) unanticipated levels of inflation, (xi) environmental issues, (xii) the ability to access the capital markets at particular times and (xiii) delays in approvals of rate increases. No assurance can be given that the proposed projects will not cost more than the current budget for these projects. Any schedule delays or cost increases could result in the need to issue additional obligations and may result in increased costs to the Department. All payments of project costs associated with projected capital improvements are subject to Board approval. Seismic Activity The City and the Owens River and Mono Basin areas are located in regions of seismic activity. The principal earthquake fault in the Los Angeles area is the San Andreas Fault, which extends an estimated 700 miles from north of the San Francisco area to the Salton Sea. At its nearest point to the City, the San Andreas Fault is about 35 miles north of the Los Angeles Civic Center. In March 2015, the Uniform California Earthquake Rupture Forecast (the “2015 Earthquake Forecast”) was issued by the Working Group on California Earthquake Probabilities. Organizations sponsoring the Working Group on California Earthquake Probabilities include the U.S. Geological Survey, the California Geological Survey, the Southern California Earthquake Center and the California Earthquake Authority. According to the 2015 Earthquake Forecast, the probability of a magnitude 6.7 or larger earthquake over the next 30 years (from 2014) striking the greater Los Angeles area is 60%. From the Uniform California Earthquake Rupture Forecast published in April 2008 (the “2008 Earthquake Forecast”), the estimated rate of earthquakes around magnitude 6.7 or larger decreased by about 30%. However, the estimate for the likelihood that California will experience a magnitude 8.0 or larger earthquake in the next 30 years (from 2014) increased from about 4.7% in the 2008 Earthquake Forecast to about 7.0% in the 2015 Earthquake Forecast. The 2015 Earthquake Forecast considered more than

A-44 250,000 different fault-based earthquakes, including multifault ruptures, whereas the 2008 Earthquake Forecast considered approximately 10,000 different fault-based earthquakes. While it is impossible to accurately predict the cost or effect of a major earthquake on the Power System or to predict the effect of such an earthquake on the Department’s ability to provide continued uninterrupted service to all parts of the Department’s service area, there have been various studies conducted to assist the Department in assessing seismic risks. Based on these studies, the Department completed numerous projects designed to mitigate seismic risks and seismically strengthen Power System infrastructure and facilities. Projects include landslide repairs and bank replacements, the placement of spare transformers and the installation of generating peaking units at the Valley Generating Station and Haynes Generating Station to provide peaking capacity and the ability for generating units to go from a shutdown condition to an operating condition and start delivering power without assistance from the power grid. No studies have been conducted or commissioned by the Department outside of the State. See “THE DEPARTMENT – Insurance.”

[Remainder of page intentionally left blank]

A-45 OPERATING AND FINANCIAL INFORMATION The Department’s service area consists of the City, where over 1.4 million customers are served, and certain areas of Inyo and Mono Counties in the State, where approximately 5,013 customers are served. As of December 31, 2015, 30% of the Power System’s total energy sales (measured in MWhs) were to residential customers, 62% to commercial and industrial customers and the remaining 8% to all other purchasers. Revenues from residential customers, commercial/industrial customers, and other customers were approximately 33%, 64% and 3% of total revenue, respectively.

[Remainder of page intentionally left blank]

A-46 Summary of Operations The table below provides certain operating information with respect to the Power System. POWER SYSTEM SELECTED OPERATING INFORMATION (Unaudited)

Six Month Period Operating Statistics Ended December 31 Fiscal Year Ended June 30 2015 2014 2015 2014 2013 2012 2011 Net Energy Load(1) 14,305 14,368 26,688 26,765 27,147 26,559 26,253 Net Hourly Peak Demand (MWs) 6,234 6,343 6,343 5,862 5,782 5,907 6,142 Annual Load Factor (%) 51.96 51.29 48.03 52.12 53.60 51.19 48.79 Electric Energy Generation, Purchases and Interchanges(1) Generation(2)(3) 8,459 8,778 15,009 15,373 15,787 16,043 15,448 Purchases(3) 7,807 5,702 12,893 12,793 11,295 11,193 11,914 Miscellaneous Energy Receipts ------2 -- Total Energy(1) 16,266 14,483 27,902 28,166 27,082 27,238 27,362 Less: Miscellaneous Energy Deliveries(1)(4) 164 90 129 149 346 151 177 Losses and System Uses(1) 2,550 907 3,300 2,653 1,893 2,771 1,847 On-System Sales(1) 13,552 13,486 24,474 25,364 24,843 24,316 25,338 Sales of Energy(1) Residential 4,208 4,110 7,311 7,819 7,568 7,316 7,230 Commercial and Industrial 8,515 7,008 15,741 15,778 15,717 15,456 15,541 All Other 1,065 2,808 2,330 2,593 2,964 1,843 2,060 Total 13,788 13,926 25,382 26,189 26,249 24,616 24,831 Number of Customers – (Average, in thousands):(5) Residential 1,367 1,359 1,363 1,368 1,338 1,332 1,321 Commercial and Industrial 122 123 123 127 133 134 132 All Other 7 7 7 8 8 8 8 Total 1,496 1,489 1,493 1,503 1,479 1,474 1,461

______Source: Department of Water and Power of the City of Los Angeles. (1) Thousands of MWhs. (2) Does not include energy generated at Hoover Power Plant for plant use and for the use of the Bureau of Reclamation and the cities of Boulder City, Nevada; Burbank, California; Glendale, California and Pasadena, California. (3) Purchases from SCPPA are classified as Generation for quarterly results and Purchases for Fiscal Year end results. (4) Deliveries include BPA AC/DC returns, Pasadena, California, APS, Edison and SCPPA losses, the Navajo Generating Station start-up and Edison Base Service Pump. (5) Customer class definitions were updated in September 2013, and prior year averages have been restated to conform to the new customer class definitions.

[Remainder of page intentionally left blank]

A-47 Financial Information The tables below provide certain financial information with respect to the Power System. POWER SYSTEM SELECTED FINANCIAL INFORMATION (Dollars in Thousands) (Unaudited)

Six Month Period Ended December 31 Fiscal Year Ended June 30(1) 2015 2014 2015 2014 2013 2012 2011 Operating Revenues Residential $ 603,416 $ 610,469 $1,034,127 $1,042,641 $1,019,656 $ 976,820 $ 966,436 Commercial and Industrial 1,168,306 1,217,057 2,201,124 2,232,878 2,061,637 2,039,522 2,046,850 Sales for resale(2) 33,391 55,980 93,867 42,809 67,764 36,136 84,262 Other(3) 14,755 (2,396) 7,845 1,492 13,445 29,202 28,409

Total Operating Revenues $1,819,868 $1,881,110 $3,336,963 $3,319,820 $3,162,502 $3,081,680 $3,125,957

Average Revenue per KWh Sold(4) Residential 0.143 0.149 0.141 0.133 0.135 0.134 0.134 Commercial and Industrial 0.137 0.174 0.140 0.142 0.131 0.132 0.132

Avg. Annual Residential Usage(5) 3 3 5 6 6 6 6

Operating income $ 334,223 $ 358,739 $ 395,716 $ 489,437 $ 477,768 $ 452,139 $ 430,832 As % of revenues 18.4% 19.1% 11.9% 14.7% 15.1% 14.7% 13.8%

Change in Fund Net Position(6) $ 282,705 $ 296,603 $ 302,186 $ 387,500 $ 383,017 $ 368,263 $ 316,456

Change in Fund Net Position(7) $ 15,748 $ 31,017 $ 36,600 $ 134,500 $ 136,483 $ 118,186 $ 57,641 ______Source: Department of Water and Power of the City of Los Angeles. (1) Derived from the Power System Financial Statements. (2) Includes sales of power and transmission services to other utilities. (3) Net of Uncollectible Accounts. (4) The calculated Average Revenue per KWh Sold is based on dividing reported Operating Revenues by customer class by volumes for that customer class, including deferred revenues. The actual customer rates may differ from these calculated figures due to a variety of factors, including (1) demand and energy charges for commercial rates, (2) changes in usage between rate tiers within a customer class and between years, and (3) other factors including customer classification issues. (5) MWh use per residential customer. (6) Before Power Transfer. (7) After Power Transfer.

[Remainder of page intentionally left blank]

A-48 POWER SYSTEM SUMMARY OF REVENUES, EXPENSES AND DEBT SERVICE COVERAGE (Dollars in Thousands) (Unaudited) Six Month Period (1) Ended December 31 Fiscal Year Ended June 30 2015 2014 2015 2014 2013 2012 2011 Operating Revenues Sales of Electric Energy: Residential $ 603,416 $ 610,469 $1,034,127 $1,042,641 $1,019,656 $ 976,820 $ 966,436 Commercial and industrial 1,168,306 1,217,057 2,201,124 2,232,878 2,061,637 2,039,522 2,046,850 Sales for resale 33,391 55,980 93,867 42,809 67,764 36,136 84,262 Other(2) 14,755 (2,396) 7,845 1,492 13,445 29,202 28,409 Total Operating Revenues $1,819,868 $1,881,110 $3,336,963 $3,319,820 $3,162,502 $3,081,680 $3,125,957 Operating Expenses Production: Fuel for Generation $ 193,725 $ 231,915 $ 377,343 $ 436,643 $ 446,450 $ 403,406 $ 435,812 Purchased Power 518,659 534,765 1,022,271 977,187 895,092 909,910 853,745 Energy Cost $ 712,384 $ 766,680 $1,399,614 $1,413,830 $1,341,542 $1,313,316 $1,289,557 Maintenance and Other Operating Expenses 512,405 511,853 1,045,444 950,027 924,707 922,206 1,018,631 Total Operating Expenses(3) $1,224,789 $1,278,533 $2,445,058 $2,363,857 $2,266,249 $2,235,522 $2,308,188

Income from Operations(3) $ 595,079 $ 602,577 $ 891,905 $ 955,963 $ 896,253 $ 846,158 $ 817,769

Allowance for funds used during construction 25,029 17,082 38,110 18,636 33,672 32,187 11,806 Other nonoperating income and expenses, net 50,574 40,482 100,166 112,036 99,552 127,081 122,732 Contributions in aid of construction 20,325 26,322 66,988 45,239 46,860 26,731 27,983 Change in Fund Net Position(4) $ 691,007 $ 686,463 $1,097,169 $1,131,874 $1,076,337 $1,032,157 $ 980,290 Debt Service Interest 175,792 168,321346,900 318,871 297,576 280,935 277,026 Principal 113,383 110,705 110,943 132,382 129,249 62,158 123,820 Total debt service $ 289,175 $ 279,026 $ 457,933 $ 451,253 $ 426,825 $ 343,093 $ 400,846

Debt Service Coverage Ratio 2.39 2.46 2.40 2.51 2.52 3.01 2.45

Depreciation, amortization and accretion $ 260,856 $ 243,838 $ 496,188 $ 466,526 $ 418,485 $ 394,019 $ 386,937

Transfers to the Reserve Fund of the City $ 266,957 $ 265,586 $ 265,586 $ 253,000 $ 246,534 $ 250,077 $ 258,815 ______Source: Department of Water and Power of the City of Los Angeles. (1) Derived from the Power System Financial Statements. (2) Net of Uncollectible Accounts. (3) Excluding depreciation, amortization, accretion and loss on asset impairment and abandoned projects. (4) Before depreciation, amortization, accretion, interest, extraordinary loss and the Power Transfer.

[Remainder of page intentionally left blank]

A-49 Indebtedness As of February 29, 2016, a total of approximately $8.12 billion in principal amount of indebtedness payable from the Power Revenue Fund was outstanding, comprised of approximately $7.92 billion of revenue Bonds and $200 million of commercial paper. In connection with the Department’s expected capital improvements to the Power System, the Department anticipates that it will issue approximately $3.96 billion of additional debt through June 30, 2020 payable from the Power Revenue Fund. As part of the Department’s expected additional debt issuance prior to June 30, 2016, the Department anticipates issuing its Power System Revenue Bonds in the approximate aggregate principal amount of $428 million. See “THE POWER SYSTEM – Projected Capital Improvements” and “Note 10 of APPENDIX B – “AUDITED FINANCIAL STATEMENTS OF THE DEPARTMENT OF WATER AND POWER OF THE CITY OF LOS ANGELES POWER SYSTEM FOR THE FISCAL YEARS ENDED JUNE 30, 2015 AND JUNE 30, 2014” attached hereto. On May 6, 2014, the Department sold $200 million in principal amount (which is included in the total indebtedness figure above) of its Power System Revenue Bonds, 2014 Series A (the “2014 Series A Bonds”) to Wells Fargo Municipal Capital Strategies, LLC pursuant to a Continuing Covenant Agreement (the “2014A Continuing Covenant Agreement”). The 2014 Series A Bonds are Variable Rate Indebtedness, maturing on July 1, 2038 in an initial SIFMA-based index period ending on May 5, 2017. In the event the amounts become due with respect to the principal of the 2014 Series A Bonds before their maturity or mandatory sinking fund payments, whether upon mandatory tender or acceleration upon an event of default under the 2014A Continuing Covenant Agreement relating to the 2014 Series A Bonds, the Department expects to pay such principal from the remarketing or refunding of the 2014 Series A Bonds or from reserves available to the Power System. The Department does not believe that its obligations with respect to the 2014 Series A Bonds will result in a default under the Department’s other Parity Obligations. On December 17, 2015, the Department entered into a revolving credit agreement (the “Wells RCA”) with Wells Fargo Bank, National Association in a principal amount not-to-exceed $300 million. As of April 28, 2016, the Department has no obligations outstanding under the Wells RCA payable from the Power Revenue Fund. Under the Wells RCA, which expires on December 14, 2018, amounts due may be paid by the Department at any time at its option and in the event of default under the Wells RCA, amounts outstanding would be due immediately. The Department expects to pay principal amounts due under the Wells RCA from proceeds of subsequent borrowings or from reserves available to the Power System. Amounts borrowed under the Wells RCA payable from the Power Revenue Fund are considered Parity Obligations under the Master Resolution. The Department does not believe that its obligations with respect to the Wells RCA will result in a default under the Department’s other Parity Obligations. In addition, as of February 29, 2016, the Department was obligated on a “take-or-pay” basis under power purchase or transmission capacity contracts for debt service payments (its share representing approximately $2.22 billion principal amount of bonds) and for operating and maintenance costs of the related projects. The Department has entered into, and may in the future enter into additional, “take-or- pay” contracts in connection with renewable energy projects and other projects undertaken by the joint powers agencies in which it participates. The Department’s obligations to make payments under such “take-or-pay” contracts are unconditional payment obligations. See “—Take-or-Pay Obligations” for the “take-or-pay” contracts the Department has entered as of February 29, 2016. All commercial paper and “take-or-pay” contract obligations rank on a parity with the Department’s Bonds as to payment from the Power Revenue Fund. Take-or-Pay Obligations The Department entered into the IPP Contract and the IPP Excess Power Sales Agreement to purchase up to a 66.79% share of the output of the IPP. See “THE POWER SYSTEM – Jointly-Owned Generating Units and Contracted Capacity Rights in Generating Units – Intermountain Power Project.”

A-50 The Department is also a member of SCPPA and participates in a number of SCPPA projects, including a number of renewable energy projects. See “THE POWER SYSTEM – Renewable Power Initiatives.” The Department’s obligations to make payments with respect to the IPP and the SCPPA projects in which it participates are unconditional “take-or-pay” payment obligations, obligating the Department to make such payments as operating expenses of the Power System whether or not the applicable project is operating or operable, or the output thereof is suspended, interfered with, reduced, curtailed or terminated in whole or in part. The IPP Contract, the IPP Excess Power Sales Agreement and the agreements with respect to the SCPPA projects contain provisions obligating the Department to pay a share of the cost of any deficit in funds for operating expenses, debt service, other costs related to the project and reserves as a result of a defaulting participant. The Department’s participation and share of bond debt service obligation (without giving effect to any provisions requiring the Department to contribute to any deficiencies upon default by another participant) as of February 29, 2016, for each of the foregoing projects are shown in the following table:

POWER SYSTEM TAKE-OR-PAY OBLIGATIONS FOR BONDS As of February 29, 2016 (Dollars in Millions) (Unaudited) Principal Amount Department Share of of Outstanding Department Principal Amount of Debt Participation Outstanding Debt Intermountain Power Agency IPP $1,284(1) 48.62%(2) $ 624(3) Southern California Public Power Authority PVNGS 24 67.00(5) 16 Mead-Adelanto Transmission Project(4) 91 35.70(5) 32 Mead-Phoenix Transmission Project(4) 28 24.75(5) 7 Linden Wind Energy Project 122 100.00(6) 122 Milford Wind Corridor Phase I Project 196 92.50(5) 182 Milford Wind Corridor Phase II Project 137 100.00(6) 137 Southern Transmission System 608 59.50(5) 362 Windy Point Project 427 100.00(6) 427 Apex Power Project 310 100.00(5) 310 Total $3,227 $2,219 ______Source: Department of Water and Power of the City of Los Angeles. (1) Includes $100.0 million of commercial paper. (2) Includes the Department’s obligations under the IPP Contract (48.617%) as described under the caption “THE POWER SYSTEM – Jointly- Owned Generating Units and Contracted Capacity Rights in Generating Units – Intermountain Power Project.” (3) The Department is the payee of a note receivable from IPA of approximately $688 million as of February 29, 2016, due to the Department’s prepayment of a portion of its share of IPA’s debt. (4) Includes obligations associated with SCPPA’s member related interests only. The Department is expected to acquire a total of approximately $50 million in additional take-or-pay obligations relating to SCPPA’s Department-related interests in the Mead-Adelanto Transmission Project and the Mead-Phoenix Transmission Project upon the acquisition by SCPPA from M-S-R of its ownership shares in such projects, which is expected to occur in May 2016. See “THE POWER SYSTEM – Transmission and Distribution Facilities – Mead- Phoenix Transmission Project” and “ – Mead-Adelanto Transmission Project.” (5) Equals the Department’s share of SCPPA’s entitlement. (6) Equals the Department’s share of SCPPA’s and Glendale’s entitlements. See “THE POWER SYSTEM – Renewable Power Initiatives.”

A-51 LITIGATION

General A number of claims and suits are pending against the Department with respect to the Power System for alleged damages to persons and property and for other alleged liabilities arising out of its operations. Certain of these suits are described below. In the opinion of the Department, any ultimate liability which may arise from any of the pending claims and suits is not expected to materially impact the Power System’s financial position, results of operations, or cash flows. Dairy Cow Litigation In February 2005, a number of dairy farmers in Utah filed a lawsuit in the State of Utah, entitled Gunn Hill Dairy Properties, LLC, et al. v. Los Angeles Department of Water and Power, et al., Case No. 120600029, naming the Department, IPA and others as defendants (the “Utah Dairy Case”). The Department is named in the Utah Dairy Case in both its individual capacity and as operating agent for IPA. The suit generally alleges that since 1987, “stray voltage” emitted from the IPP facilities through the ground and ground water damaged the dairy herds, including causing higher than normal death rates, a reduction in milk production and an impairment to the cows’ immune systems. The matter proceeded with six of the original plaintiffs (the “Original Six Plaintiffs”) involved in an initial trial. It is contemplated that the remainder of the plaintiffs will have one or more additional trials. The Original Six Plaintiffs amended their economic damages report to seek compensatory damages in excess of $515,000,000, plus punitive damages. The separate trial or trials for the other two plaintiff groups have not yet commenced. In November 2013, a mistrial was declared in the Utah Dairy Case relating to the Original Six Plaintiffs. The mistrial was declared based on juror misconduct involving communications between a juror and some of her family members concerning the litigation. After the mistrial, the defendants filed a motion for judgment notwithstanding the verdict asserting that the Original Six Plaintiffs had failed to produce enough evidence to submit the case to a jury. On April 29, 2014, the court granted the motion in part and denied it in part. The court dismissed all but one of the Original Six Plaintiffs’ claims, including their claim for punitive damages, but left open for a further jury trial the Original Six Plaintiffs’ claim of negligence. Neither party sought an interlocutory appeal of the court’s order with respect to the motion. Also following the mistrial, the Original Six Plaintiffs filed a motion for sanctions and for a change of venue. On August 29, 2014, the court denied the motion both for sanctions and for a change of venue. On October 6, 2014, the court entered a formal order to that effect. On October 9, 2014, the Original Six Plaintiffs filed a petition for leave to appeal the October 6 order. The Utah Supreme Court transferred the petition to the Utah Court of Appeals. On November 5, 2014, the Utah Court of Appeals granted the petition for leave to appeal the denial of the motion to change venue, but denied permission to appeal the trial court’s denial of the Original Six Plaintiffs’ motion for sanctions. The Original Six Plaintiffs then filed a motion in the trial court to stay the proceedings in the trial court pending the outcome of the appeal. The Department and other defendants opposed the motion. By order dated December 2, 2014, the trial court stayed all proceedings before it, pending resolution of the appeal. The interlocutory appeal to the Utah Court of Appeals was fully briefed and argued in May 2015. In October 2015, the Utah Court of Appeals, in a unanimous decision, affirmed the trial court’s denial of the Original Six Plaintiffs’ motion to change venue. The Original Six Plaintiffs filed a petition for a writ of certiorari to the Utah Supreme Court in December 2015, which asked the Utah Supreme Court to review the Utah Court of Appeals’ ruling. Defendants responded to the petition in February 2016. In March 2016, the petition was denied and the Department expects the case to be remanded to the trial court in Juab County, Utah, for further proceedings.

A-52 Because a mistrial was declared during the first trial, the claims of the Original Six Plaintiffs will need to be re-tried at some point in the future. The trial date for the re-trial has not been set and it is likely there will be some additional pretrial activities to prepare the case for trial given the lengthy delay caused by the Plaintiffs’ appeals. The Department believes that on the law and facts, defendants should prevail, and thus the Department does not expect that the Utah Dairy Case, or any similar claims, would have a material adverse effect on the Power System. However, given, among other factors, that the court declined to dismiss the Original Six Plaintiffs’ negligence claim and will allow it to be presented to a jury, and the unpredictable nature of a jury trial, the Department cannot predict the outcome of the Plaintiffs’ claims. In the event there is an adverse judgment in this litigation, the award of substantial damages from such claims could materially affect the costs of power from IPP, may affect the continued economic viability of IPP, and could impact the costs of operating the Power System. Powerhouse Fire In May 2013, a fire ignited in the San Francisquito Canyon area, in close proximity to the Department’s generating unit named Powerhouse No. 1 (“Powerhouse No. 1”), which ultimately burned 53 structures, including 24 homes, and over 30,000 acres (the “Powerhouse Fire”). For information about the facilities located near San Francisquito Canyon, see “THE POWER SYSTEM – Department-Owned Generating Units – San Francisquito Canyon and the Los Angeles and Franklin Reservoirs.” Approximately 650 claims for damage have been received and 24 Superior Court lawsuits have been served against the Department by individuals and insurance carriers (subrogation actions) that involve several hundred plaintiffs. In general, the cases allege that the Department caused the Powerhouse Fire by negligently operating and maintaining the power lines and related equipment at or near Powerhouse No. 1. The main alternative theory is that the fire was an inverse condemnation, the taking of private property without just compensation. The one year statute of limitations for the filing of government code related claims terminated in June 2014, and lawsuits based on those tort claims can no longer be filed. The three year statute of limitations for inverse condemnation based lawsuits, for which no claim for damage needs to be filed, terminates in June 2016. Pursuant to a court order, all present and future State litigation matters relating to the Powerhouse Fire have been coordinated and deemed complex and assigned to the Complex Civil Litigation Program of the Los Angeles Superior Court. In addition to the pending litigation cases in the Los Angeles Superior Court, the United States of America filed a lawsuit on behalf of the United States Forest Service (“USFS”) in the United States District Court for the Central District of California (United States of America v. City of Los Angeles, Acting by and through the Los Angeles Department of Water and Power, USDC Case No. CV15-3919), which was served on the Department in August 2015. Counsel for the Department and the USFS have held one mediation hearing with a second mediation hearing scheduled for May 2016. A report issued by the USFS concluded that the cause of the Powerhouse Fire was Department Power System equipment and the USFS has asserted claims of monetary damages. The United States Attorney and counsel for the Department have been cooperating and are coordinating federal court appearances. The Department has also been conducting an investigation into all potential causes of the Powerhouse Fire, which remains ongoing. Experts retained by the Department are focusing on both liability and damage issues. The Department’s financial exposure regarding this matter include USFS fire suppression and forest ecological damage, insurance subrogation claims and cases, and individual property damage and loss claims and cases. The Department cannot predict the ultimate liability of the Department; however, due to the Department’s general liability insurance and current financial condition (including available self-insurance reserve funds), any liability relating to the Powerhouse Fire is not expected to have a material adverse effect on the operations or financial condition of the Power System. Claims by certain plaintiffs have been vacated due to the Department reaching a settlement with such plaintiffs. Trials relating to the Powerhouse Fire have been continued until November 2016.

A-53 Litigation Regarding Power Transfer Three lawsuits have been filed generally alleging that the portion of the Power System rates providing moneys to make the Power Transfer (the “Challenged Rates”) constitutes excessive fees and an unauthorized tax for purposes of Article XIII C of the California Constitution. See “CONSTITUTIONAL CHANGES IN CALIFORNIA” in the front part of this Official Statement. The Department and the City were named as defendants in one suit (Chapman v. The City of Los Angeles et al., Los Angeles Superior Court Case No. BS 153395) and the City, but not the Department, was named as a defendant in the other two cases (Eck v. The City of Los Angeles, Los Angeles Superior Court Case No. BC 577028 and Eisan v. The City of Los Angeles, Los Angeles Superior Court Case No. BC 583788). The lawsuits seek refunds of the Challenged Rates for various periods and injunctions against the Department charging Power System rates to provide moneys to make the Power Transfer. The lawsuits have been consolidated for trial. On April 25, 2016, the court granted the defendants’ motion for judgment on the pleadings pursuant to Public Utilities Code Section 10004.5. Plaintiffs were granted 45 days leave to amend. While the lawsuits involve unsettled areas of the law, the Department does not expect that the lawsuits will have a material adverse effect on the Department’s operations or financial position. Tesoro Refinery Litigation On September 22, 2010, the Court of Appeal of the State of California issued its decision in the case of City of Los Angeles v. Tesoro Refining and Marketing Company (No. B217790). The case involved providing power to the oil refinery (the “Refinery”) of Tesoro Refining and Marketing Company (“Tesoro”) in connection with the Tesoro’s development of facilities to self-serve the electric requirements of the Refinery, which requires the provision of stand-by service at a single voltage level. The Refinery straddles the service territory, and was a partial requirements customer, of both the Department and Edison, with each utility providing service at different voltage levels. The court disagreed with the City’s position that the State Constitution and the Charter provided the City the right to sell all power consumed within the City limits. The court relied on a 1955 California Supreme Court case as authority for the principles that the regulation of private utilities is a statewide concern which the State has delegated to the PUC and not a municipal affair subject to city charters. The court relied on the same case as authority for the principle that the franchise powers of cities are limited to authorizing the use of public streets and other public property and do not extend to regulating the business of an entity in providing utility service. The court concluded that neither the State Constitution nor the Charter prohibited Tesoro from buying electricity from Edison at a point outside the City, transporting that electricity over the Refinery’s internal wiring, and using that electricity in those portions of the Refinery located within the City. The City submitted a petition for review of the decision to the California Supreme Court, but the California Supreme Court has denied such petition. Given Tesoro’s self-generation plan, the Department does not expect that the decision in the litigation will have a material adverse effect on the financial condition of the Power System. The Department cannot predict what effect the precedent of the decision to this litigation will have on the Power System with respect to other instances of entities providing electric service on private property within the City, that is service which does not require the use of any public streets or other public property. The issues raised by the litigation may apply more broadly than just to the Department. Legal Actions Related to New Customer Information and Billing System Lawsuits Brought Against the Department. As discussed in more detail under “ELECTRIC RATES—Billing and Collections” above, numerous issues arose after the implementation of the new customer information and billing system. As a result of these problems, several class action lawsuits were instituted against the Department by ratepayers claiming damages due to certain of the billing issues. The Department has reached a settlement in certain of those lawsuits (Sharon Bransford, Steven Shrager and Rachel Tash v. City of Los Angeles et al., Los Angeles Superior Court Case No. BC565618;

A-54 Haley Fontaine, et al. v. City of Los Angeles et al., Los Angeles Superior Court Case No. BC571644; Yaar Kimhi, Tahl Beckerman Megerdichian and Yelena Novak v. The City of Los Angeles, et al., Los Angeles Superior Court Case No. BC536272; and Jones v. City of Los Angeles, Los Angeles Superior Court Case No. BC577267 (collectively, the “Settled Billing Class Actions”)). The next hearing date for the court’s consideration of preliminary approval of this settlement is set for July 29, 2016. The settlement provides for, among other things: (1) a review by the Department of all customer accounts for accuracy from September 2013 going forward; (2) the Department making whole any customer who was overcharged, regardless of how small the error, resulting from the failed implementation of the customer information and billing system; (3) the Department setting benchmarks and key performance indicators to improve its customer service (an independent monitor will review the progress made and report to the Court every three months while also verifying the accuracy of the credits and refunds processed); and (4) the Department adopting a new billing policy that will reduce the number of months that back billing can occur from 36 months to 9 months for residential customers who meet certain characteristics. The Department currently estimates that full implementation of the settlement associated with the Settled Billing Class Actions will result in refunds of approximately $44 million. The Department has already reserved revenue for estimated refunds related to billing accuracy through June 30, 2015. The Department has also increased its allowance for doubtful accounts so that as inactive uncollectible accounts are identified, the receivables can be reduced to reflect active, collectible account balances. Further, to meet the benchmarks and key performance indicators required by the settlement and to enable the Department to address remaining billing system concerns, over the next 3 to 5 years, the Department will need to invest in additional staff and resources in customer service and information technology in order to clear backlogs and optimize the billing system. The Department estimates this will cost up to $300 million, approximately $210 million of which will be allocated to the Power System. The final cost of these measures will be reduced by any monetary damages recovered in connection with the litigation against PwC described below. The Department has concluded that prudence and efficiency dictate that it provide for immediate funding of, and appropriately financially account for the costs of the settlement of the Settled Billing Class Actions. Pursuant to GASB Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements (“GASB No. 62”), the Board can direct the Department to capitalize costs that would normally be expensed under Generally Accepted Accounting Principles so as to more evenly match costs with the revenue that will be recovered through rates. In accordance with GASB No. 62, the Department plans to seek approval from the Board at an upcoming Board meeting to establish a regulatory asset to account for costs associated with the resolution of the Settled Billing Class Actions. The Current Power Rate Ordinance will allow expenses for legal and court costs or any judgment or settlement, including interest thereon, to be passed through to the Department’s customers. Thus, to the extent the Department spends $300 million on the settlement of the Settled Billing Class Actions, the Power System would recover its $210 million portion through future rates over a planned ten-year period, or $21 million a year for ten years. If settlement costs are lower and monetary damages are recovered from the PwC litigation described below, this amount could be lower. The remaining class action lawsuits are (a) Morski v. City of Los Angeles by, and through, the Los Angeles Department of Water & Power, erroneously sued as the Los Angeles Department of Water & Power, Case No BC 568722 (the “Morski Action”) and (b) Macias, et al. v. Los Angeles Department of Water and Power, Case No. BC594049 (the “Macias Action”). The Morski Action generally alleges that the Department’s practice of tiered billing violates applicable City Ordinances insofar as the Department bases such tiered billing on anything other than regular actual monthly meter reads (“Non-Monthly Tiered Billing”). The Macias Action includes such Non-Monthly Tiered Billing claims, and also alleges that the Department violated California’s Bane Act by threatening customers with termination of their utility services. Finally, the Macias Action broadly alleges claims that overlap with those being settled. Both

A-55 cases are in their early stages, and it is therefore difficult to estimate the potential financial exposure to the Department. Lawsuit Brought by the Department Against PwC. As a result of the problems with the new customer information and billing system, the Department filed a lawsuit against PwC. The Department contracted with PwC to design and implement the new customer information and billing system. The City, by and through the Department, is suing PwC for fraudulent inducement and breach of contract (City of Los Angeles, acting by and through its Department of Water and Power v. Pricewaterhouse Coopers, LLP, Los Angeles Superior Court Case No. BC574690). The Department is seeking to recover monetary damages from PwC that were caused by the problems with the billing system, the recovery of which will reduce the amount of the regulatory asset described above. The Department cannot predict the ultimate outcome of this litigation. City Lawsuit Against Certain Underwriters On July 23, 2008, the City filed a complaint in the Superior Court for the County of Los Angeles, California, Case Number BC394944, which named a number of defendants, some of which serve, or have affiliates that serve, as underwriters of bonds issued by the Department. The complaint alleges that the defendants conspired to manipulate the municipal derivatives market by various means to decrease the returns the City earned on municipal derivatives instruments, including guaranteed investment contracts and swaps. The complaint was removed to federal district court in the Central District of California on August 25, 2008 and subsequently transferred for pre-trial coordination with other related actions in the Multidistrict Litigation (“MDL”) pending in the Southern District of New York, MDL No. 1950, Master Docket Number 08-CV-02516 (VM). On April 26, 2010, the court presiding over the MDL denied certain defendants’ motions to dismiss the City’s complaint. The case has now entered into the discovery phase. Neither the City nor the derivative provider affiliates of such underwriters can predict the outcome of the lawsuit. The Department is not a party to the municipal derivatives litigation; however the Department has filed a complaint against several bond insurance providers alleging among other things, fraud and deceit. There can be no assurance that the Department will not become a party to the pending litigation or other similar litigation against any of the municipal derivative provider affiliates of the underwriters of bonds issued by the Department.

[Remainder of page intentionally left blank]

A-56

APPENDIX B

AUDITED FINANCIAL STATEMENTS OF THE DEPARTMENT OF WATER AND POWER OF THE CITY OF LOS ANGELES POWER SYSTEM FOR THE FISCAL YEARS ENDED JUNE 30, 2015 AND JUNE 30, 2014

[THIS PAGE INTENTIONALLY LEFT BLANK]

LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Financial Statements and Required Supplementary Information

June 30, 2015 and 2014

(With Independent Auditors’ Report Thereon)

LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM

Table of Contents

Page(s)

Independent Auditors’ Report 1–2

Management’s Discussion and Analysis (unaudited) 3–14

Financial Statements:

Statements of Net Position 15–16

Statements of Revenues, Expenses, and Changes in Net Position 17

Statements of Cash Flows 18–19

Notes to Financial Statements 20–78

Required Supplementary Information (unaudited) 79–83

KPMG LLP Suite 700 20 Pacifica Irvine, CA 92618-3391

Independent Auditors’ Report

The Board of Water and Power Commissioners Department of Water and Power City of Los Angeles:

Report on the Financial Statements We have audited the accompanying financial statements of the City of Los Angeles’ Department of Water and Power’s Power Revenue Fund (Power System), an enterprise fund of the City of Los Angeles, California, as of and for the years ended June 30, 2015 and 2014, and the related notes to the financial statements, which collectively comprise the Power System’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 U.S. generally accepted accounting principles; 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 an opinion 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 and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the 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 entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Power System as of June 30, 2015 and 2014, and the respective changes in financial position and its cash flows for the years then ended in accordance with U.S. generally accepted accounting principles.

KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative (“KPMG International”), a Swiss entity.

Emphasis of Matters As discussed in Note 1a, the financial statements present only the Power System and do not purport to, and do not, present fairly the financial position of the City of Los Angeles, California, as of June 30, 2015 and 2014, the changes in its financial position, or where applicable, its cash flows for the years ended in accordance with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter.

As discussed in Note 2 to the financial statements, effective July 1, 2013, the Power System adopted the provisions of Governmental Accounting Standards Board (GASB) Statement No. 68, Accounting and Financial Reporting for Pensions – an amendment of GASB Statement No. 27, and GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date – an amendment of GASB Statement No. 68. Our opinion is not modified with respect to this matter.

Other Matters Required Supplementary Information U.S. generally accepted accounting principles require that the management’s discussion and analysis and required supplementary information on pages 3–14 and pages 79–83 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the GASB who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 23, 2015 on our consideration of the Power System’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Power System’s internal control over financial reporting and compliance.

Los Angeles, California December 23, 2015

LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Management’s Discussion and Analysis June 30, 2015 and 2014 (unaudited)

The following discussion and analysis of the financial performance of the City of Los Angeles’ (the City) Department of Water and Power’s (the Department) Power Revenue Fund (the Power System) provides an overview of the financial activities for the fiscal years ended June 30, 2015 and 2014. Descriptions and other details pertaining to the Power System are included in the notes to the financial statements. This discussion and analysis should be read in conjunction with the Power System’s financial statements, which begin on page 15.

Using this Financial Report This annual financial report consists of the Power System’s financial statements and required supplementary information and reflects the self-supporting activities of the Power System that are funded primarily through the sale of energy, transmission, and distribution services to the public it serves.

Statements of Net Position; Statements of Revenues, Expenses, and Changes in Net Position; and Statements of Cash Flows The financial statements provide an indication of the Power System’s financial health. The statements of net position include all of the Power System’s assets, deferred outflows, liabilities, and deferred inflows using the accrual basis of accounting, as well as an indication about which assets can be utilized for general purposes and which assets are restricted as a result of bond covenants and other commitments. The statements of revenues, expenses, and changes in net position report all of the revenues and expenses during the time periods indicated. The statements of cash flows report the cash provided by and used in operating activities, as well as other cash sources and uses, such as investment income and cash payments for bond principal and capital additions and betterments.

3 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Management’s Discussion and Analysis June 30, 2015 and 2014 (unaudited)

The following table summarizes the financial condition and changes in net position of the Power System as of and for the fiscal years ended June 30, 2015, 2014, and 2013: Table 1 – Condensed Schedule of Assets, Deferred Outflows, Liabilities, Deferred inflows, and Net Position (Amounts in millions) June 30 2014 Assets and Deferred Outflows 2015 (as restated) 2013* Utility plant, net $ 9,926 9,213 8,621 Restricted investments 642 641 634 Other noncurrent assets 3,078 3,495 2,523 Current assets 2,446 2,264 1,960 Deferred outflows 619 335 98 $ 16,711 15,948 13,836 Liabilities, Deferred Inflows, and Net Position Long-term debt, net of current portion $ 8,568 7,937 7,526 Other long-term liabilities 962 1,318 177 Current liabilities 898 891 836 Deferred inflows 867 423 138 11,295 10,569 8,677 Fund net position: Net investment in capital assets 1,235 1,268 1,325 Restricted 1,582 1,562 1,554 Unrestricted 2,599 2,549 2,280 Total net position 5,416 5,379 5,159 $ 16,711 15,948 13,836

* – 2013 data was not restated for the implementation of Governmental Accounting Standards Board (GASB) Statement No. 68, Accounting and Financial Reporting for Pensions – an amendment of GASB Statement No. 27, and GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date – an amendment of GASB Statement No. 68, as the data necessary to restate was not available.

4 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Management’s Discussion and Analysis June 30, 2015 and 2014 (unaudited)

Table 2 – Condensed Schedule of Revenues, Expenses, and Changes in Net Position (Amounts in millions) Year ended June 30 2014 2015 restated 2013 Operating revenues: Residential $ 1,034 1,043 1,020 Commercial and industrial 2,201 2,233 2,062 Sales for resale 94 43 68 Other 8 1 13 Total operating revenues 3,337 3,320 3,163 Operating expenses: Fuel for generation and purchased power (1,400) (1,414) (1,342) Maintenance and other operating expenses (1,045) (950) (925) Depreciation and amortization (496) (466) (418) Total operating expenses (2,941) (2,830) (2,685) Operating income 396 490 478 Nonoperating revenues (expenses): Investment income 50 58 46 Federal bond subsidies 33 33 34 Other nonoperating revenue and expenses, net 17 21 20 Debt expense, net (260) (259) (244) Total nonoperating expense (160) (147) (144) Income before capital contributions and transfers 236 343 334 Capital contributions 67 45 47 Transfers to the reserve fund of the City of Los Angeles (266) (253) (247) Increase in net position 37 135 134 Beginning balance, as previously reported 5,379 5,159 5,025 Effect of change in accounting for pensions — 85 — Beginning balance of net position, as restated 5,379 5,244 5,025 Ending balance of net position $ 5,416 5,379 5,159

5 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Management’s Discussion and Analysis June 30, 2015 and 2014 (unaudited)

Assets Utility Plant During fiscal years 2015 and 2014, the Power System capitalized $720 million and $719 million of additions, respectively, including transfers from construction work in progress to utility plant in service. Of the $720 million, $385 million, or 53%, is related to distribution plant assets and mostly attributable to the Power Reliability Program (PRP) to improve distribution system reliability including replacement of aging poles, crossarms, cables, station equipment, and transformers. Other distribution system additions included construction of new business line facilities and customized customer station designs. In addition, $183 million, or 25%, is related to generation plant assets including upgrade and overhaul of generator turbines at the upper/middle/control gorges, Haynes capital purchase of spare parts, Haynes repowering of units 11–16, and Scattergood unit 2 turbine overhaul. In addition, $151 million, or 21%, is mostly related to general plant and transmission plant assets including fleet purchase of transportation and construction equipment, additions to the Customer Information System replacement project, upgrade of oil depot, and replacement of circuit breakers at Castaic Power Plant. Of the $719 million during fiscal year 2014, $373 million, or 52%, is related to distribution plant assets and mostly attributable to the PRP to improve distribution system reliability including replacement of aging poles, crossarms, cables, station equipment, and transformers. Other distribution system additions included construction of new Distribution Station 144 and installations of new business line facilities. In addition, $182 million, or 25%, is related to general plant assets including replacement of the Customer Information System, new digital mobile radio system, server/system implementation, fleet purchases, and fiber optic network installations. In addition, $159 million, or 22%, is mostly related to generation plant assets including Castaic Modernization for Unit 1 and upgrade of main generating units, repowering Haynes Generating Station Units 5 and 6, installing electrical auxiliary boilers for Haynes Unit 8, overhaul of auxiliary systems at Scattergood Generating Station Unit 1, and installation of solar system on City property.

Construction work in progress increased by $485 million in fiscal year 2015 and increased by $352 million in fiscal year 2014. The 2015 increases are mostly attributable to capitalization of generation system and transmission system assets including repowering of Scattergood Generating Station Unit 3, constructing 15 miles of Scattergood 230kv underground cable, constructing 65 miles of Barren Ridge to Haskell switching station 230kv transmission line, building a collector station for Beacon solar generation, and constructing a new Haskell Canyon switching station. Also, some increases in 2015 are mostly attributable to capitalization of generation system assets including repowering of Scattergood Generating Station Unit 3, constructing Scattergood 230kv underground cable, Owens Valley Upper/Middle/Control Gorge generator upgrades, and improvements at Haynes Generating Station.

Additional information regarding the Power System’s utility plant assets can be found in note 4 to the accompanying financial statements.

6 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Management’s Discussion and Analysis June 30, 2015 and 2014 (unaudited)

The tables that follow summarize the generating resources available to the Department as of June 30, 2015. These resources include those owned by the Department (either solely or jointly with other utilities) as well as resources available through long-term purchase agreements. Generating station capacity is measured in megawatts (MWs). Table 3 – Department-owned Generation Facilities Notional Net Net amount maximum dependable (number of Number of capability capability Type of fuel facilities) units (MWs) (MWs) (1) Natural gas 4 26 3,450 3,373 Large hydro 1 7 (2) 1,247 1,175 Renewables 39 208 (3) 432 (4) 198 Subtotal 44 241 5,129 4,746 (5) CDWR — — (120) (44) Total 44 241 5,009 4,702

(1) Consists of the following generating stations: Harbor Station, Haynes Station, Scattergood Station, and Valley Station. (2) The Castaic Plant is re-rated at 1,1175 MWs, but is capable of generating 1,247 MWs for short periods if sufficient flow-through water schedules are received. (3) The Department-owned renewable resources in service include the Los Angeles Aqueduct, Owens Valley, and Owens Gorge small hydro units that qualify under the Department’s renewable resource definition. Also included are microturbine units at the Lopez Canyon Landfill and Department-built photovoltaic solar installations, the Pine Tree Wind Project, Linden Wind Farm, and a local small hydro plant. Not included in the counts are the units that were upgraded at the Castaic Plant. Also not included are the two Scattergood gas-fueled units that partially burn digester gas in which the output related to the digester gas also qualifies under the Department’s renewable resource definition. (4) Included are the 16 MWs of renewable energy generated at the Scattergood Station by burning digester gas from the Hyperion Treatment Plant. (5) Energy payable to the California Department of Water Resources (CDWR) for energy generated at the Castaic Plant. This amount varies weekly up to maximum of 120 MWs.

7 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Management’s Discussion and Analysis June 30, 2015 and 2014 (unaudited)

Table 4 – Jointly Owned and Contracted Facilities Net Net maximum dependable Number of capability capability Type facilities (MWs) (MWs) (1) Large hydro 1 491 390 Nuclear 1 387 (2) 380 Coal 2 1,679 (3) 1,679 Natural gas 1 532 480 Renewables/DG 16,695 (4) 1,230 345 Total 16,700 4,319 3,274

(1) The Department’s Hoover Plant contract entitlement is 25.16% of the Hoover total contingent capacity of 1,951 MWs. Current reduced lake level has reduced available capacity to about 390 MWs annual average. (2) The Department’s Palo Verde Nuclear Generating Station (PVNGS) entitlement is 9.66% of the maximum net plant capability of 4,003 MWs. (3) The Department’s current Intermountain Power Project (IPP) Station entitlement is 66.79% of the maximum net plant capability of 1,800 MWs. A portion of the IPP entitlement is subject to variable recall. The Department’s Navajo Station entitlement is 21.20% of the maximum net plant capability of 2,250 MWs. (4) The Department’s contracted renewable resources in service include units at several landfill sites in the Los Angeles area; biogas fuel purchases outside of California; local hydro unit; wind farms in Wyoming, Oregon, Utah, and Washington; customer solar photovoltaic installations locally; and customer distributed generation (DG) units located in Los Angeles also provide energy resources. Liabilities and Net Position Long-Term Debt As of June 30, 2015, the Power System’s total outstanding long-term debt balance was approximately $8.798 billion. The increase of $633 million over the prior year’s balance resulted from the sale of $1.398 billion in Power System revenue bonds plus $221.6 million in issue premiums, offset by scheduled maturities of $110.9 million, defeasance of $807.5 million in Power System revenue bonds, and $67.5 million in net amortized premiums and discounts.

As of June 30, 2014, the Power System’s total outstanding long-term debt balance was approximately $8.165 billion. The increase of $390 million over the prior year’s balance resulted from the sale of $522 million in Power System revenue bonds plus $44.4 million in issue premiums, offset by scheduled maturities of $132.4 million and $44.7 million in net amortized premiums and discounts.

8 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Management’s Discussion and Analysis June 30, 2015 and 2014 (unaudited)

Outstanding principal, plus scheduled interest as of June 30, 2015, is scheduled to mature as shown in the chart below:

Chart: Debt Service Requirements

$3,000,000

$2,500,000

$2,000,000

$1,500,000 In In $000s

$1,000,000

$500,000

$- 2020 2025 2030 2035 2040 2045 2050

Five-Year Period Ending

In addition, the Power System had $500.0 million and $496.8 million on deposit in funds restricted for the use of debt reduction as of June 30, 2015 and 2014, respectively.

In August 2015, Standard & Poor’s Rating Services, Moody’s Investors Service, and Fitch Ratings affirmed the Power System’s bond rating of AA-, Aa3, and AA-, respectively, due to the Power System’s broad revenue stream and a competitive power supply portfolio that has historically provided competitive retail electricity rates and evident strategic focus on positioning the utility to improve system reliability while meeting state mandated greenhouse emission rules and renewable energy standards. Additional information regarding the Power System’s long-term debt can be found in note 10 to the financial statements.

Current Assets During fiscal year 2014, current assets increased $182 million. Cash and cash equivalents, unrestricted, increased $331 million due to reimbursements from the construction fund for capital expenditures; cash and cash equivalents, restricted, increased $28 million due to higher semiannual debt service payments ($18 million) and funds set aside to increase the balance of the self-insurance fund ($10 million); and cash collateral received from securities lending increased $9 million. The current portion of long-term notes receivable increased $17 million and materials and services and prepayments increased by $3 million, offset by a $114 million decrease in the current portion of under recovered costs and a $36 million decrease in a receivable, due from the City of Los Angeles’ Department of Water and Power’s Water Revenue Fund (Water System) for materials and services. Accrued unbilled revenue decreased $4 million.

9 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Management’s Discussion and Analysis June 30, 2015 and 2014 (unaudited)

During fiscal year 2014, current assets decreased $304 million. Cash and cash equivalents increased $178 million due to reimbursements from the construction fund for capital expenditures; the current portion of underrecovered costs increased $87 million; a receivable, due from the City of Los Angeles’ Department of Water and Power’s Water Revenue Fund (Water System) for materials and services, increased $16 million; and prepayments and other current assets increased by $25 million, offset by a $4 million decrease in customer and other accounts receivables and a $4 million decrease in the current portion of long-term notes receivable.

Other Noncurrent Assets and Deferred Outflows During fiscal year 2015, other noncurrent assets decreased $417 million primarily due to a decrease of $256 million in the regulatory asset for pension due to amortization, which is calculated as the difference between the Power System’s contributions to the retirement plan and the pension expense for the year; $108 million decrease in restricted cash and cash equivalents for construction purposes; $83 million decrease in long-term notes receivable due to maturities; and a $29 million decrease in underrecovered costs due to the allowable recovery of legacy unrecovered energy and power reliability costs. These decreases were offset by a $57 million increase in certain regulatory assets due to greater customer participation in the Departments’ Solar Incentive and Energy Efficiency programs and an increase of $1 million in the postemployment asset due to higher funding than actuarially required contributions.

During fiscal year 2014, other noncurrent assets increased $1.2 billion primarily due to the adoption of GASB No. 68, Accounting and Financial Reporting for Pensions. A regulatory asset for pension costs in the amount of $1.45 billion was recorded. A decrease of $254 million of restricted cash and cash equivalents for construction purposes, $67 million decrease in long-term notes receivable due to maturities, and a $29 million decrease in underrecovered costs were offset by a $113 million increase in regulatory assets due to greater customer participation in the Departments’ Solar Incentive and Energy Efficiency programs, an increase of $16 million in the postemployment asset due to higher funding than actuarially required contributions, and a $6 million increase in restricted investments.

10 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Management’s Discussion and Analysis June 30, 2015 and 2014 (unaudited)

Changes in Net Position Operating Revenues The operating revenues of the Power System are generated from wholesale and retail customers. There are four major customer categories of retail revenue. These categories include residential, commercial, industrial, and other, which includes public street lighting. Table 5 summarizes the percentage contribution of retail revenues from each customer segment in fiscal years 2015 and 2014:

Table 5 – Revenue and Percentage of Revenue by Customer Class (Amounts in thousands) Fiscal year 2015 Fiscal year 2014 Fiscal year 2013 Revenue Percentage Revenue Percentage Revenue Percentage Type of customer: Residential $ 1,034,127 32% $ 1,042,641 32% $ 1,019,656 33% Commercial 1,939,870 60 1,964,465 60 1,826,307 59 Industrial 261,254 8 268,413 8 235,330 8 Other 7,845 — 1,492 — 13,445 — $ 3,243,096 100% $ 3,277,011 100% $ 3,094,738 100%

While commercial customers consume the most electricity, residential customers represent the largest customer class. As of June 30, 2015 and 2014, the Power System had approximately 1.5 million customers. As shown in Table 6, 1.4 million or 91% of total customers were in the residential customer class in fiscal years 2015 and 2014.

Table 6 – Number of Customers and Percentage of Customers by Customer Class (Amounts in thousands) Fiscal year 2015 Fiscal year 2014 Fiscal year 2013 Number Percentage Number Percentage Number Percentage Type of customer: Residential 1,363 91% 1,368 91% 1,338 91% Commercial 113 8 117 8 121 8 Industrial 10 1 11 1 12 1 Other 7 — 7 — 8 — 1,493 100% 1,503 100% 1,479 100%

Fiscal Year 2015 Retail revenues decreased $34 million from fiscal year 2014. The decrease in retail revenue was mainly due to lower consumption during the year. Consumption of electricity decreased approximately 587 million kWhs year over year.

11 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Management’s Discussion and Analysis June 30, 2015 and 2014 (unaudited)

Fiscal Year 2014 Retail revenues increased $182 million from fiscal year 2013. The increase in retail revenue was mainly due to an average rate increase of 9%, which includes a 6% increase in the Incremental Energy Cost Adjustment Factor (IECAF) defined as such on page 25. The IECAF in June 2013 was $0.05854 cents/kWh and increased to $0.06200 cents/kWh in June 2014.

Operating Expenses Fuel for generation and purchased power are two of the largest expenses that the Power System incurs each fiscal year. Fuel for generation expense includes the cost of fuel that is used to generate energy. The majority of fuel costs include the cost of natural gas, coal, and nuclear fuel.

Purchased power expense includes the cost of buying power on the open market and paying the current portion of the Power System’s purchased power contracts. Under these purchase power contracts, the Department has an entitlement to the energy that is produced at various generating stations and an entitlement to the use of various transmission facilities. Most of these contracts require the Department to pay for these services regardless of whether the energy or transmission is used. These types of contracts are referred to as “take-or-pay” contracts.

Depreciation expense is computed using the straight-line method based on service lives for all projects completed after July 1, 1973, and for all office and shop structures, related furniture and equipment, and transportation and construction equipment. Depreciation for facilities completed prior to July 1, 1973 is computed using the 5% sinking-fund method based on estimated service lives. The Department uses the composite method of depreciation and, therefore, groups assets into composite groups for purposes of calculating depreciation expense. Estimated service lives range from 5 to 75 years. Amortization expense for computer software is computed using the straight-line method over 5 to 15 years.

The table below summarizes the Power System’s operating expenses during fiscal years 2015 and 2014:

Table 7 – Operating Expenses and Percentage of Expense by Type of Expense (Amounts in thousands) Fiscal year 2015 Fiscal year 2014 Fiscal year 2013 Expense Percentage Expense Percentage Expense Percentage Type of expense: Fuel for generation $ 377,343 13% $ 436,643 15% $ 446,450 17% Purchased power 1,022,271 35 977,187 35 895,092 33 Other operating expenses 720,066 24 654,809 23 623,033 23 Maintenance 325,378 11 295,218 10 301,674 11 Depreciation and amortization 496,188 17 466,526 17 428,485 16 $ 2,941,246 100% $ 2,830,383 100% $ 2,694,734 100%

12 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Management’s Discussion and Analysis June 30, 2015 and 2014 (unaudited)

Fiscal Year 2015 Fiscal year 2015 operating expenses were $111 million higher as compared to fiscal year 2014, driven primarily by a $45 million increase in purchased power costs, a $65 million increase in other operating expenses, a $30 million increase in maintenance expenses, and a $30 million increase in depreciation and amortization expense, and offset by $59 million decrease in fuel for generation costs.

The $45 million increase in purchased power costs can be primarily attributed to a full year of energy from the Apex Power and Copper Mountain Solar 3 projects. The $30 million increase in depreciation and amortization expense is primarily due to capital additions to distribution plant, as well as additional amortization expense from the regulatory assets. The $65 million increase in other operating expenses is due to higher transmission ($8 million) due to an increase in safety and training costs and other operating costs; customer accounting ($17 million) due to an increase in staffing costs and costs associated with the customer billing system; administrative and general ($23 million) due to an increase in insurance costs, injuries and damages, and miscellaneous general expenses; distribution ($15 million) due to an increase in safety and training costs and other distribution costs; and marketing ($4 million), offset by lower other production expense ($6 million).

The $30 million increase in maintenance expense was mainly due to higher maintenance costs associated with production plant ($22 million), distribution plant ($6 million), and transmission plant ($3 million) capital assets.

Fiscal Year 2014 Fiscal year 2014 operating expenses were $146 million higher as compared to fiscal year 2013, driven primarily by a $82 million increase in purchased power costs, a $48 million increase in depreciation and amortization expense, and a $32 million increase in other operating expenses, offset by lower fuel for generation costs and maintenance expenses.

The $82 million increase in purchased power costs can be primarily attributed to a higher volume of economy purchases year over year and energy from the Apex power project. The $48 million increase in depreciation and amortization expense is primarily due to capital improvements in production plant, as well as additional amortization expense from the regulatory assets. The $32 million increase in other operating expenses is due to higher other production ($15 million), transmission ($4 million), customer accounting ($4 million), administrative and general ($6 million), distribution ($1 million), and marketing ($1 million) expenses.

The decrease in maintenance expense was mainly due to lower maintenance costs associated with production plant ($6 million) and transmission plant ($5 million) capital assets offset by an increase in maintenance costs for production plant – hydraulic ($2 million) and distribution plant ($1 million) capital assets.

Nonoperating Revenues and Expenses Fiscal Year 2015 The major nonoperating activities of the Power System for fiscal year 2015 included the transfer of $266 million to the City’s General Fund, interest income earned on investments of $50 million, $33 million in federal bond subsidies, and $261 million in debt expenses.

13 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Management’s Discussion and Analysis June 30, 2015 and 2014 (unaudited)

The transfer to the City is based on 8% of the previous year’s operating revenues. Operating revenues for fiscal year 2014 were $3.32 billion, which generated a city transfer of $266 million.

The $8 million decrease in investment income is due mainly to lower revenue earned on the long-term notes receivable and changes in market values of investments.

The $21 million increase in interest on debt is mainly due to the interest expense for new money bonds issued during the fiscal year offset by higher capitalized interest Allowance For Use During Construction (AFUDC) of $20 million year over year due to major Construction Work In Progress (CWIP) projects.

The $22 million increase in capital contributions is mainly due to funds received from the federal government, the city of Los Angeles, and customers.

Fiscal Year 2014 The major nonoperating activities of the Power System for fiscal year 2014 included the transfer of $253 million to the City’s General Fund, interest income earned on investments of $58 million, $33 million in federal bond subsidies, and $259 million in debt expenses.

The transfer to the City is based on 8% of the previous year’s operating revenues. Operating revenues for fiscal year 2013 were $3.162 billion, which generated a city transfer of $253 million.

The $12 million increase in investment income is due mainly to changes in market values of investments.

The $16 million increase in debt expenses is mainly due to the interest expense for new money bonds issued during the fiscal year offset by lower capitalized interest (AFUDC) year over year due to the transfer of major CWIP projects to utility plant accounts.

14 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Statements of Net Position June 30, 2015 and 2014 (Amounts in thousands)

Restated 2015 2014 Assets and Deferred Outflows Noncurrent assets: Utility plant: Generation $ 5,495,985 5,313,866 Transmission 1,135,172 1,095,472 Distribution 7,416,426 7,031,862 General 1,649,586 1,541,640 Total 15,697,169 14,982,840 Accumulated depreciation (7,760,357) (7,298,042) Total 7,936,812 7,684,798 Construction work in progress 1,720,822 1,235,945 Nuclear fuel, at amortized cost 39,469 42,931 Natural gas field, net 228,797 248,923 Total 9,925,900 9,212,597 Restricted investments 641,521 640,094 Cash and cash equivalents - restricted 85,272 193,701 Long-term notes and other receivables, net of current portion 620,125 703,576 Underrecovered costs 215,585 244,712 Regulatory assets – other 549,105 492,104 Regulatory assets – pension 938,205 1,193,971 Net postemployment asset 669,892 668,451 Total noncurrent assets 13,645,605 13,349,206 Current assets: Cash and cash equivalents – unrestricted 1,106,651 775,890 Cash and cash equivalents – restricted 441,682 414,072 Cash collateral received from securities lending transactions 10,680 1,419 Customer and other accounts receivable, net of $114,000 and $90,000 allowance for losses for 2015 and 2014, respectively 351,977 402,494 Current portion of long-term notes receivable 87,242 69,838 Current portion of underrecovered costs — 114,290 Due from Water System 3,899 40,314 Accrued unbilled revenue 171,242 175,162 Materials and fuel 165,564 163,484 Prepayments and other current assets 107,263 106,850 Total current assets 2,446,200 2,263,813 Total assets 16,091,805 15,613,019 Deferred outflows on derivative instruments 43,244 48,517 Deferred outflows on debt refunding 30,199 26,796 Deferred outflows – pension 287,599 — Deferred outflows – pension contributions made after measurement date 258,603 260,077 Total deferred outflows 619,645 335,390 Total assets and deferred outflows $ 16,711,450 15,948,409

15 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Statements of Net Position June 30, 2015 and 2014 (Amounts in thousands)

Restated 2015 2014 Net Position, Liabilities, and Deferred Inflows Net position: Net investment in capital assets $ 1,235,431 1,268,339 Restricted: Debt service 616,042 606,509 Capital projects 129,347 126,521 Other postemployment benefits 669,892 668,451 Other purposes 165,937 160,508 Unrestricted 2,599,126 2,548,846 Total net position $ 5,415,775 5,379,174 Long-term debt, net of current portion 8,568,281 7,937,180 Other noncurrent liabilities: Accrued liabilities 3,607 5,327 Accrued workers' compensation claims 54,508 56,650 Derivative instrument liabilities 43,244 48,517 Net pension liability 860,748 1,207,513 Total other noncurrent liabilities 962,107 1,318,007 Current liabilities: Current portion of long-term debt 230,165 227,575 Accounts payable and accrued expenses 339,997 394,150 Accrued interest 170,896 159,647 Accrued employee expenses 115,159 107,939 Overrecovered energy cost 31,343 — Obligations under securities lending transactions 10,680 1,419 Total current liabilities 898,240 890,730 Total liabilities 10,428,628 10,145,917 Deferred inflows on debt refunding 7,495 — Deferred inflow - pension 682,995 246,535 Deferred inflow from regulated business activities 176,557 176,783 Total deferred inflows 867,047 423,318 Total liabilities, and deferred inflows $ 11,295,675 10,569,235

See accompanying notes to financial statements

16 LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Statements of Revenues, Expenses, and Changes in Net Position Years ended June 30, 2015 and 2014 (Amounts in thousands)

2015 2014 Operating revenues: Residential $ 1,034,127 1,042,641 Commercial and industrial 2,201,124 2,232,878 Sales for resale 93,867 42,809 Other 32,696 59,383 Uncollectible accounts (24,851) (57,891) Total operating revenues 3,336,963 3,319,820 Operating expenses: Fuel for generation 377,343 436,643 Purchased power 1,022,271 977,187 Maintenance and other operating expenses 1,045,444 950,027 Depreciation and amortization 496,188 466,526 Total operating expenses 2,941,246 2,830,383 Operating income 395,717 489,437 Nonoperating revenues: Investment income 50,348 58,099 Federal bond subsidies 33,328 33,417 Other nonoperating income 19,094 23,033 Total nonoperating income 102,770 114,549 Other nonoperating expenses (2,604) (2,513) Total nonoperating revenues 100,166 112,036 Debt expenses: Interest on debt 298,794 277,848 Allowance for funds used during construction (38,110) (18,636) Total debt expenses 260,684 259,212

Income before capital contributions and transfers 235,199 342,261 Capital contributions 66,988 45,239 Transfers to reserve fund of the City of Los Angeles (265,586) (253,000) Increase in net position 36,601 134,500 Net position: Beginning of year, as previously reported 5,379,174 5,159,140 Effect of accounting for adoption of GASB Statement No.68 — 85,534 Beginning of year, as restated 5,379,174 5,244,674 End of year $ 5,415,775 5,379,174

See accompanying notes to financial statements

17 LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Statements of Cash Flows Years ended June 30, 2015 and 2014 (Amounts in thousands)

2015 2014 Cash flows from operating activities: Cash receipts: Cash receipts from customers $ 3,658,234 3,353,723 Cash receipts from customers for other agency services 636,357 601,332 Cash receipts from interfund services provided 644,338 589,327 Cash disbursements: Cash payments to employees (605,291) (548,956) Cash payments to suppliers (1,721,316) (1,668,524) Cash payments for interfund services used (773,758) (733,801) Cash payments to other agencies for fees collected (639,346) (603,596) Other operating cash payments (37,598) (46,748) Net cash provided by operating activities 1,161,620 942,757 Cash flows from noncapital financing activities: Payments to the reserve fund of the City of Log Angeles (265,586) (253,000) Interest pain on noncapital revenue bonds (167) (233) Net cash used in noncapital financing activities (265,753) (253,233) Cash flows from capital and related financing activities: Additions to plant and equipment, net (1,207,813) (1,112,681) Capital contributions 63,624 65,485 Principal payments and maturities on long-term debt (110,943) (132,382) Proceeds from issuance of bonds and revenue certificates 793,661 566,419 Debt interest payments (332,314) (303,394) Federal bond subsidies 33,328 33,417 Net cash used in capital and related financing activities (760,457) (883,136) Cash flows from investing activities: Purchases of investment securities (950,597) (698,514) Sales and maturities of investment securities 949,621 697,696 Proceeds from notes receivable 83,451 66,919 Investment income 32,057 51,096 Net cash provided by investing activities 114,532 117,197 Net increase (decrease) in cash and cash equivalents 249,942 (76,415) Cash and cash equivalents: Cash and cash equivalents at July 1 (including $607,773 and $862,553 reported in restricted accounts, respectively) 1,383,663 1,460,078 Cash and cash equivalents at June 30 (including $526,954 and $607,773 reported in restricted accounts, respectively) $ 1,633,605 1,383,663

18 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Statements of Cash Flows Years ended June 30, 2015 and 2014 (Amounts in thousands)

2015 2014 Reconciliation of operating income to net cash provided by operating activities: Operating income $ 395,717 489,437 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation and amortization 496,188 466,526 Depletion expense 20,035 23,564 Amortization of nuclear fuel 13,621 13,934 Provision for losses on customer and other accounts receivables 24,851 57,891 Changes in assets and liabilities: Customer and other accounts receivable 29,466 (76,621) Accrued unbilled revenue 3,920 473 Underrecovered costs 29,127 29,127 Current portion underrecovered costs 114,290 (87,072) Materials and fuel (2,080) (396) Regulatory assets 198,765 4,784 Due from Water System 36,415 (16,254) Deferred outflows (280,852) (9,172) Accounts payable and accrued expenses (51,378) 96,211 Overrecovered energy cost 31,343 — Net pension liability (346,765) (355,499) Deferred inflows 436,234 284,995 Net other postemployment benefit asset (1,441) (16,012) Prepayments and other 14,164 36,841 Net cash provided by operating activities $ 1,161,620 942,757

Supplemental disclosure of noncash capital and relating financing activities: During the year ended June 30, 2015, the Power System issued capital bonds to refund previously issued debt. The $822.75 million of proceeds were deposited immediately into an irrevocable trust for the defeasance of $807.49 million of debt. The net gain on refunding, after the write-off of previously recorded unamortized discounts, resulted in $0.11 million, which will be amortized over the debt repayment period.

During fiscal year ended June 30, 2014, the Power System did not refund any capital bonds.

See accompanying notes to financial statements

19 LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

(1) Summary of Significant Accounting Policies The Department of Water and Power of the City of Los Angeles (the Department) exists as a separate proprietary department of the City of Los Angeles (the City) under and by virtue of the City Charter enacted in 1925 and as revised effective July 2000. The Department’s Power Revenue Fund (the Power System) is responsible for the generation, transmission, and distribution of electric power for sale in the City. The Power System is operated as an enterprise fund of the City.

(a) Method of Accounting The accounting records of the Power System are maintained in accordance with U.S. generally accepted accounting principles (GAAP) for governmental entities. The financial statements have been prepared using the economic resources measurement focus and the accrual basis of accounting. The Power System is accounted for as an enterprise fund and applies all applicable Governmental Accounting Standards Board (GASB) pronouncements in its accounting and reporting.

The financial statements of the Power System are intended to present the net position, and the changes in net position and cash flows, of only that portion of the business-type activities and each major fund of the City that is attributable to the transactions of the Power System. They do not purport to, and do not, present fairly the financial position of the City as of June 30, 2015 and 2014, the changes in its financial position, or, where applicable, its cash flows for the years then ended, in conformity with GAAP.

The Department’s rates are determined by the Board of Water and Power Commissioners (the Board) and are subject to review and approval by the Los Angeles City Council (City Council). As a regulated enterprise, the Department follows the regulatory accounting criteria set forth in GASB Codification (GASB Statement No. 62), which requires that the effects of the rate-making process be recorded in the financial statements. Such effects primarily concern the time at which various items enter into the determination of changes in net position. Accordingly, the Power System records various regulatory assets and liabilities to reflect the Board’s actions and with City Council approval. Regulatory liabilities are recorded as deferred inflows and regulatory assets are included as regulatory assets and underrecovered costs in the statement of net position. Management believes that the Power System meets the criteria for continued application, but will continue to evaluate its applicability based on changes in the regulatory and competitive environment (see notes 3 and 14(d)(i)).

(b) Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(c) Utility Plant The costs of additions to utility plant and replacements of retired units of property are capitalized. Costs include labor, materials, an allowance for funds used during construction (AFUDC), and allocated indirect charges, such as engineering, supervision, transportation and construction

20 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

equipment, retirement plan contributions, healthcare costs, and certain administrative and general expenses. The costs of maintenance, repairs, and minor replacements are charged to the appropriate operations and maintenance expense accounts.

(d) Intangibles The Department follows GASB Statement No. 51, Accounting and Financial Reporting for Intangible Assets (GASB Statement No. 51), which requires that an intangible asset be recognized in the statement of net position only if it is considered identifiable. Additionally, it establishes a specified-conditions approach to recognize intangible assets that are internally generated. Effectively, outlays associated with the development of such assets are not capitalized until certain criteria are met. Outlays incurred prior to meeting these criteria are expensed as incurred. The capitalized amounts are included in general utility plant on the statement of net position.

(e) Impairment of Long-Lived Assets The Department follows GASB Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries (GASB Statement No. 42). Governments are required to evaluate prominent events or changes in circumstances affecting capital assets to determine whether impairment of a capital asset has occurred. A capital asset is considered impaired when its service utility has declined significantly and unexpectedly. Under GASB Statement No. 42, impaired capital assets that will no longer be used by the government should be reported at the lower of carrying value or fair value. Impairment losses on capital assets that will continue to be used by the government should be measured using the method that best reflects the cause of the diminished service utility of the capital asset.

(f) Depreciation and Amortization Depreciation expense is computed using the straight-line method based on service lives for all projects completed after July 1, 1973, and for all office and shop structures, related furniture and equipment, and transportation and construction equipment. Depreciation for facilities completed prior to July 1, 1973 is computed using the 5.0% sinking-fund method based on estimated service lives. The Department uses the composite method of depreciation and, therefore, groups assets into composite groups for purposes of calculating depreciation expense. Estimated service lives range from 5 to 75 years. Amortization expense for computer software is computed using the straight-line method over 5 to 15 years. Depreciation and amortization expense as a percentage of average depreciable utility plant in service was 3.1% and 3.2% for fiscal years 2015 and 2014, respectively.

(g) Nuclear Decommissioning The Department owns a 5.70% direct ownership interest in the Palo Verde Nuclear Generating Station (PVNGS). In addition, through its participation in the Southern California Public Power Authority (SCPPA), the Department is party to a contract for an additional 3.95% of the output of PVNGS. Nuclear decommissioning costs associated with the Power System’s output entitlement are included in purchased power expense (see note 6).

21 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

Decommissioning of PVNGS is expected to commence subsequent to the year 2044, since the Nuclear Regulatory Commission (the NRC) approved a request for license extension in April 2011. As of April 28, 2014, all of the owners of PVNGS have executed the amendment to the participation agreement to extend the term of the agreement to cover the license extension of PVNGS. The total cost to decommission the Power System’s direct ownership interest in PVNGS is estimated to be $137 million in 2013 dollars. This estimate is based on an updated site-specific study prepared by an independent consultant in 2013. As of June 30, 2015 and 2014, the Power System has recorded $148.9 million and $146.1 million, respectively, to accumulated depreciation to provide for the decommissioning liability.

Prior to December 1999, the Power System reserved $70.2 million in accordance with the PVNGS participation agreement and NRC requirements. During fiscal year 2000, the Department suspended contributing additional amounts to the reserve funds, as management believes that contributions made, combined with reinvested earnings, will be sufficient to fully fund the Department’s share of decommissioning costs. The Department will continue to reinvest its investment income into the decommissioning reserves. The balance in the decommissioning funds increased in fiscal year 2015 by $2.8 million, after increasing by $3.9 million in fiscal year 2014. Decommissioning funds, which are included in restricted investments, totaled $129.3 million and $126.5 million as of June 30, 2015 and 2014 (at fair value), respectively. The Department’s current accounting policy recognizes any realized and unrealized investment earnings from nuclear decommissioning reserves as a component of accumulated depreciation.

(h) Nuclear Fuel Nuclear fuel is amortized and charged to fuel for generation on the basis of actual thermal energy produced relative to total thermal energy expected to be produced over the life of the fuel. Under the provisions of the Nuclear Waste Policy Act of 1982, the federal government assesses each utility with nuclear operations, including the Power System, $1 per megawatt hour of nuclear generation. The Power System includes this charge as a current year expense in fuel for generation. See note 14 for discussion of spent nuclear fuel disposal.

(i) Natural Gas Field In July 2005, the Power System acquired approximately a 74.5% ownership interest in gas properties located in Pinedale, Wyoming. The Power System uses the successful-efforts method of accounting for its investment in gas-producing properties. Costs to acquire the mineral interest in gas-producing properties, to drill and equip exploratory wells that find proven reserves, and to drill and equip development wells are capitalized. Costs to drill exploratory wells that do not find proven reserves are expensed. Capitalized costs of gas-producing properties are depleted by the unit-of-production method based on the estimated future production of the proven wells.

Depletion expense related to the gas field is recorded as a component of fuel for generation expense. During fiscal years 2015 and 2014, the Power System recorded $20.0 million and $23.6 million of depletion expense, respectively.

22 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

(j) Cash and Cash Equivalents As provided for by the State of California Government Code (the Code), the Power System’s cash is deposited with the City Treasurer in the City’s general investment pool for the purpose of maximizing interest earnings through pooled investment activities. Cash and cash equivalents in the City’s general investment pool are reported at fair value and changes in unrealized gains and losses are recorded in the statements of revenues, expenses, and changes in net position. Interest earned on such pooled investments is allocated to the participating funds based on each fund’s average daily cash balance during the allocation period. The City Treasurer invests available funds of the City and its independent operating departments on a combined basis. The Power System classifies all cash and cash equivalents that are restricted either by creditors, the Board, or by law as restricted cash and cash equivalents in the statement of net position. The Power System considers its portion of pooled investments in the City’s pool to be cash and cash equivalents and the unspent construction funds as long-term restricted cash as cash equivalents.

At June 30, 2015 and 2014, restricted cash and cash equivalents include the following (amounts in thousands):

June 30 2015 2014 Bond redemption and interest funds $ 287,880 270,273 Self-insurance fund 153,802 143,799 Cash and cash equivalents – current portion 441,682 414,072 Construction funds – classified as long-term restricted cash 85,272 193,701 Total restricted cash and cash equivalents $ 526,954 607,773

(k) Materials and Fuel Materials and supplies are recorded at average cost. Fuel is recorded at lower of cost or market, on an average-cost basis.

(l) Accrued Unbilled Revenue Accrued unbilled revenue is the receivable for estimated energy sales during the period for which service has been provided but the customer has not been billed.

(m) Restricted Investments Restricted investments include primarily commercial paper, U.S. government and governmental agency securities, and corporate bonds. Investments are reported at fair value and changes in unrealized gains and losses are recorded in the statements of revenues, expenses, and changes in net position except for Nuclear Decommissioning Funds. The stated fair value of investments is generally based on published market prices or quotations from major investment dealers (see note 7). 23 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

(n) Accrued Employee Expenses Accrued employee expenses include accrued payroll and an estimated liability for vacation leave, sick leave, and compensatory time, which is accrued when employees earn the rights to the benefits. Below is a schedule of accrued employee expenses as of June 30, 2015 and 2014 (amounts in thousands): June 30 2015 2014 Type of expenses: Accrued payroll $ 36,398 30,957 Accrued vacation 50,348 49,583 Accrued sick leave 11,895 11,835 Compensatory time 16,518 15,564 Total $ 115,159 107,939

(o) Debt Expenses Debt premiums and discounts are capitalized and amortized to interest expense using the effective-interest method over the lives of the related debt issues. Gains and losses on refundings related to bonds redeemed by proceeds from the issuance of new bonds are amortized to interest expense using the effective-interest method over the shorter of the life of the new bonds or the remaining term of the bonds refunded.

(p) Accrued Workers’ Compensation Claims Liabilities for unpaid workers’ compensation claims are recorded at their net present value (see note 13).

(q) Customer Deposits Customer deposits represent deposits collected from customers upon opening of new accounts. These deposits are obtained when the customer does not have a previously established credit history with the Department. Original deposits plus interest are paid to the customer once a satisfactory payment history is maintained, generally after one to three years.

The Department’s Water Revenue Fund (Water System) is responsible for collection, maintenance, and refunding of these deposits for all the Department customers, including those of the Power System. As such, the Water System’s statement of net position includes a deposit liability of $137.9 million and $113.3 million as of June 30, 2015 and 2014, respectively, for all customer deposits collected. In the event that the Water System defaults on refunds of such deposits, the Power System would be required to pay amounts it owes its customers.

(r) Revenues The Power System’s rates are established by a rate ordinance set by the Board of Water and Power Commissioners based on the Board’s powers and duties established in Section 676 of the City Charter.

24 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

The Power System recognizes energy costs in the period incurred and accrues for estimated energy sold but not yet billed.

Through a set of rate ordinances, the Power System bills its revenue through fixed and pass-through factors. As of November 11, 2012, pass-through factors consist of Capped Energy Cost Adjustment Factor (CECAF), Variable Energy Adjustment Factor (VEAF), Variable Renewable Portfolio Standard Energy Adjustment Factor (VRPSEAF), Capped Renewable Portfolio Standard Energy Adjustment Factor (CRPSEAF), Reliability Cost Adjustment Factor (RCAF), Incremental Reliability Cost Adjustment Factor (IRCAF), and Energy Subsidy Adjustment Factor (ESAF).

On October 1, 2006, the Energy Cost Adjustment Factor (ECAF) and now known as the CECAF was unfrozen from its 2.94 cents/kWh charge. This change allows the Power System to increase or decrease the factor on a quarterly basis to adjust for fuel and purchased power expenses incurred in the production of energy. On November 10, 2012, CECAF has reached 5.69 cents/kWh and is once again frozen (or capped) by the City Council. To continue to recover fuel and purchased power expenses, the City Council enacted the VEAF, VRPSEAF, and CRPSEAF, which are aggregately known as the Incremental Energy Cost Adjustment Factors (IECAFs) to supplement the CECAF that is capped. The VEAF is used to recover nonrenewable energy expenses; the VRPSEAF is used to recover variable renewable energy expenses; and the CRPSEAF is used to recover fixed renewable energy expenses (i.e., debt service and Operating and Maintenance).

On May 1, 2008, the RCAF was established to recover expenses incurred on Power System reliability related work and was set at 0.1 cents/kWh for residential customers or 0.32 cents/kW for commercial customers. The RCAF reached its maximum allowable limit of 0.3 cents/kWh for residential customers and 0.96 cents/kWh for commercial customers in fiscal year 2010–2011. To allow further recovery of reliability related expenses, the City Council established the IRCAF on November 11, 2012. Currently, the IRCAF is a fixed pass-through predetermined for fiscal years 2013–2014 and 2014–2015.

On November 11, 2012, a pass-through factor, Base Rate Revenue Target Adjustment Factor (BRRTAF) was established by the City Council to adjust base revenue collection (non-pass-through revenue) to reach its annual target. This action will decouple the risks to the Department on retail load sales, which are dependent on economic health or weather-driven events. Effectively, the Department is assured its revenue requirement to operate the Power System.

On April 1, 1998, the ESAF was frozen and continued to be frozen at 0.147 cents/kWh for residential customers and 0.46 cents/kWh for commercial customers.

As of June 30, 2015 and 2014, the amount of underrecovered costs, including the CECAF and the RCAF was $215.6 million and $244.7 million, respectively. The balances for the CECAF and the RCAF are recorded as noncurrent assets in the statement of net position. As of June 30, 2015, the amount of overrecovered costs, including the VEAF, VRPSEAF, CRPSEAF, and the BRRTAF was $31.3 million. The balances for the VEAF, VRPSEAF, CRPSEAF, and the BRRTAF are recorded as current liabilities in the statement of net position.

25 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

(s) Capital Contributions Capital contributions and other grants received by the Department for constructing utility plant and other activities are recognized when all applicable eligibility requirements, including time requirements, are met.

(t) Allowance for Funds Used during Construction (AFUDC) An AFUDC charge represents the cost of borrowed funds used for the construction of utility plant. Capitalized AFUDC is included as part of the cost of utility plant and as a reduction of interest expenses. As of June 30, 2015 and 2014, the average AFUDC rates were 3.8% and 4.0%, respectively.

(u) Use of Restricted and Unrestrictive Resources The Power System’s policy is to use unrestricted resources prior to restricted resources to meet expenses to the extent that it is prudent from an operational perspective. Once it is not prudent, restricted resources will be utilized to meet intended obligations.

(v) Pensions For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Water and Power Employees’ Retirement Fund (the Fund or Plan) and additions to/deductions from the Fund’s fiduciary net position have been determined on the same basis as they are reported by Fund. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value.

(2) Recent Accounting Pronouncements In June 2012, the GASB issued Statement No. 68, Accounting and Financial Reporting for Pension Plans - an amendment of GASB Statement No. 27 (GASB No. 68). This statement establishes standards for measuring and recognizing liabilities, deferred outflows of resources, and deferred inflows of resources, and expense/expenditures. For defined-benefit pensions, this statement identifies the methods and assumptions that should be used to project benefit payments, discount projected benefit payments to their actuarial present value, and attribute that present value to periods of employee service.

In November 2013, the GASB issued Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date—an Amendment of GASB Statement No. 68 (GASB Statement No. 71). The primary objective of this statement is to address an issue regarding application of the transition provisions of Statement No. 68, Accounting and Financial Reporting for Pensions. This statement is effective for financial statements for fiscal years beginning after June 15, 2014. The Power System adopted

26 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

the provision of Statements Nos. 68 and 71, effective July 1, 2013, and accordingly, net position was restated as follows as of July 1, 2013 (amounts in thousands): Net position, as previously reported $ 5,159,140 Effect of change in accounting for pensions: Pension obligation (1,563,012) Deferred outflows 250,905 Amounts previously reported as net pension liability 85,534 Recognition of regulatory asset related to pensions 1,312,107 Net position, as restated $ 5,244,674

(a) GASB Statement No. 70 In April 2013, the GASB issued Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees (GASB Statement No. 70). This statement establishes standards for financial guarantees that are nonexchange transactions extended or received by state or local government. A nonexchange financial guarantee is a guarantee of an obligation of a legally separate entity or individual, including a blended or discretely presented component unit, which requires the guarantor to indemnify a third-party obligation holder under specific conditions. The Power System implemented this statement in fiscal year 2014. This statement has no material impact on the Power System’s financial statements.

(b) GASB Statement No. 72 In February 2015, the GASB issued Statement No. 72, Fair Value Measurement and Application (GASB Statement No. 72). This statement addresses accounting and fair value reporting issues related to fair value measurements by clarifying the definition of fair value, establishing general principles for measuring fair value, providing additional fair value application guidance, and enhancing disclosures about fair value measurements. This statement establishes a three-level hierarchy of inputs to valuation techniques used to measure fair value. This statement is effective for financial statements for years beginning after June 15, 2015. The Power System is currently evaluating the effects the adoption of this statement will have on the financial statements.

(c) GASB Statement No. 75 In June 2015, the GASB issued Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (GASB Statement No. 75). This statement replaces the requirements of Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, as amended, and establishes standards for recognizing and measuring liabilities, deferred outflows of resources, deferred inflows of resources, and expenses/expenditures. This statement is effective for financial statements for years beginning after June 15, 2017. The Power System is currently evaluating the effects the adoption of this statement will have on the financial statements

27 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

(3) Regulatory Matters (a) Federal Energy Legislation of 2005 On August 8, 2005, the Energy Policy Act of 2005 (EP Act) was enacted, the first comprehensive energy legislation in over a decade. One of the most significant provisions of the EP Act empowers the Federal Energy Regulatory Commission (FERC) to certify an Electric Reliability Organization (ERO) to improve the reliability of the nation’s “bulk power system” through mandatory and enforceable electric reliability standards (in contrast to the long-standing voluntary system). The definition of “bulk power system” does not include facilities used in the local distribution of electric energy. The ERO is to file any proposed reliability standard or modification with FERC. “Reliability standards” are a set of criteria and requirements relating to the reliable operation of the bulk power system. Such a standard includes requirements for the operation of existing transmission facilities or the design of planned additions or modifications (to the extent necessary) to provide for reliable operation. It does not include, and the ERO may not impose, any requirement to enlarge existing or to construct new transmission or generation facilities. All users, owners, and operators of the bulk-power system are required to comply with the electric reliability standards. The ERO may impose a penalty on a user, owner, or operator for violating a reliability standard, and FERC may order compliance with such a standard and impose a penalty if it finds that a user, owner, or operator is about to engage in an act that would violate a reliability standard.

Based on the EP Act authority vested upon the FERC, the FERC approved the North American Electric Reliability Corporation (NERC) as the ERO. Currently, there are more than 100 mandatory NERC and Western Electricity Coordinating Council (WECC) reliability standards, all of which are subject to penalties ranging from $1,000 to $1,000,000, depending on the impact of the violation to reliability and other factors. The Department has implemented a NERC/WECC Reliability Standards Compliance Program to proactively prevent, monitor, and stop potential violations to these standards.

The Department currently believes it complies with the mandatory NERC/WECC Reliability Standards.

(b) Cybersecurity Congress and the White House have been working to address the nation’s cybersecurity concerns for a number of years. The last few years, the White House and the Senate Democrats have supported a comprehensive regulatory approach that defines critical infrastructure and regulates cybersecurity through the Department of Homeland Security. Senate Republicans have sought to address concerns through voluntary actions. Senate did not get the necessary support of 60 Senators to consider a comprehensive legislative approach twice in 2012.

On November 22, 2013, the FERC issued Order 791, approving Version 5 of Critical Infrastructure Protection (CIP) NERC Reliability Standards. CIP Version 5 classifies the Bulk Electric System (BES) Cyber Systems into Low, Medium, and High categories, unlike its Version 3 predecessor, which only required Critical Assets to comply with standards. The tiered classification and new “bright line” approach of Version 5 brings all BES facilities and most operational systems within its scope and ensures coverage under at least some requirements. Despite significant expansion of systems that are

28 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

in scope for NERC CIP Version 5, there is still room for improvement. Before official enforcement date for Version 5 in 2016, NERC has already begun revisions of its standard development for CIP Version 6 and Version 7.

The Department currently believes it complies with current cybersecurity NERC Reliability Standards.

(c) Final Rule on Transmission Planning and Cost Allocation – FERC Order No. 1000 (RM10-23-000) On July 21, 2011, the FERC issued its order on transmission planning and cost allocation (Order 1000). On May 17, 2012, FERC issued Order 1000-A, stating that nonjurisdictional entities (such as the Department) must formally enroll in a transmission planning region before it can be assessed costs under the regional cost allocation methodology. FERC also stated that nonjurisdictional entities must have a right to withdraw and avoiding cost allocations from the region.

However, Order 1000 and 1000A contain language that would significantly broaden FERC’s authority to allocate transmission costs. FERC takes the unprecedented position that transmission costs may be allocated to entities in the absence of a contract or service relationship.

Most jurisdictional transmission providers filed their compliance filings to amend their tariffs to include a regional planning process in October 2012. FERC has recently issued orders with findings that many of the compliance filings in planning regions did not meet the requirements of Order 1000 with respect to cost allocation. The Department as a nonjurisdictional entity was not required to make a filing.

The Final Rule urges, but does not require, government-owned utilities such as the Department and cooperative utilities to participate in regional transmission planning and cost allocation. FERC indicates that if “nonjurisdictional” transmission owners do not comply with Order No. 1000, they may not meet reciprocity requirements and, thus, may have access to third-party transmission services limited.

Even though Order 1000 does not require nonpublic Transmission operators to enroll in a region, the Department decided to enroll in WestConnect as a Coordinated Transmission Owner (CTO) because it may benefit from the regional planning process that can identify transmission regional needs. A board package for the enrollment of WestConnect was put together and was presented in the November board meeting.

(d) Dodd-Frank Wall Street Reform and Consumer Protection Act On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) was signed into law. Dodd-Frank was enacted to minimize systemic risk to the U.S. financial system, in part by establishing new rules related to swaps and other derivatives.

 First, Dodd-Frank generally requires that parties to swap transactions provide collateral for their swaps. This “margining” requirement means that a party to a swap must set aside cash or other collateral to secure its obligations under the swap.

29 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

 Second, Dodd-Frank generally requires that swap transactions be conducted or “cleared” through financial intermediaries. This clearing requirement means that parties generally cannot enter into a swap that is customized to the needs of the parties, as is typically the case for public power and other electric utilities. Dodd-Frank did, however, provide exceptions to both the margining and clearing requirements for “end users” that are using swaps to hedge commercial risks.  Third, Dodd-Frank is to impose reporting requirements on swap transactions, including additional reporting for end-user transactions.  Finally, Dodd-Frank imposed additional limitations on swaps with “special entities,” including public power and other governmental entities, to ensure that these special entities are being properly advised and dealt with fairly in consummating swap transactions. These rules require that swap counterparty ensure that a special entity has an independent swap advisor and impose on the advisor a duty to act in the best interests of the special entity.

The Commodity Futures Trading Commission (CFTC) finalized a swap dealer definition exempting entities doing less than $3 billion ($8 billion during a transition period) in swaps from being regulated as a “swap dealer” and has further exempted transactions done between not-for-profit utilities from being considered swaps. The initial swap dealer definition also included a $25 million subthreshold over a 12-month period for entities doing business with “special entities.”

Various organizations representing the “special entities” requested the CFTC to exclude government-owned utilities’ swap transactions related to utility operations from counting toward the $25 million de minimis threshold and be subjected to the overall $3 billion threshold. The CFTC considered the request for special entities and amended the rules to now be consistent with threshold definitions similar to investor-owned utilities.

There is a proposed legislation (H.R.1038: Public Power Risk Management Act of 2013) that provides that the CFTC, in making a determination to exempt swap dealing activities below a de minimis threshold, cannot treat a utility operations-related swap with a utility special entity any differently than a utility operations-related swap with an entity that is not a special entity.

The overall impact of these CFTC rulings on the Department cannot be predicted at this time.

(e) SB-350 Clean Energy and Reduction Act of 2015 On April 2011, SBX1-2 was signed into law by Governor Brown requiring that all retail sellers of electricity serve 33 percent of their load with renewable energy by 2020. In his 2015 State of the State Address, Governor Brown announced new energy goals that would extend state clean energy policy beyond 2020. Governor Brown proposed 50 percent of California’s electricity to come from renewable energy resources, to double the energy efficiency savings in electricity and natural gas by 2030, and to expand and promote transportation electrification. On October 7, 2015, the “Clean Energy and Pollution Reduction Act of 2015” (SB-350) was signed into law ensuring that California remain a global leader on climate change. SB-350 is intended to bring many important benefits to California, which included stimulating investment in green technologies in the state, creating tens of thousands of

30 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

new jobs, improving local air quality, promoting energy independence, and reducing greenhouse gas emissions.

The Department expects to meet the new goals set by SB-350. Furthermore, the Department plans to develop various scenario to enable the Department to comply with Governor Brown’s proposed 50 percent initiative.

(4) Utility Plant The Power System had the following activities in utility plant during fiscal year 2015 (amounts in thousands):

Balance Retirements Balance June 30, 2014 Additions and disposals Transfers June 30, 2015 Nondepreciable utility plant: Land and land rights $ 197,104 — (118) — 196,986 Construction work in progress 1,235,945 622,065 — (137,188) 1,720,822 Nuclear fuel 42,931 10,159 (13,621) — 39,469 Natural gas field 248,923 (20,126) — 228,797 Total nondepreciable utility plant 1,724,903 632,224 (33,865) (137,188) 2,186,074 Depreciable utility plant: Generation 5,245,359 101,375 (1,270) 82,134 5,427,598 Transmission 1,015,364 28,153 (117) 11,663 1,055,063 Distribution 6,989,145 360,170 (254) 24,648 7,373,709 General 1,535,868 92,886 (3,683) 18,743 1,643,814 Total depreciable utility plant 14,785,736 582,584 (5,324) 137,188 15,500,184 Accumulated depreciation: Generation (2,853,528) (146,686) 1,270 — (2,998,944) Transmission (443,992) (28,600) 117 — (472,475) Distribution (3,139,166) (239,892) 254 — (3,378,804) General (861,356) (52,462) 3,683 — (910,135) Total accumulated depreciation (7,298,042) (467,640) 5,324 — (7,760,358) Total utility plant, net $ 9,212,597 747,168 (33,865) — 9,925,900

Depreciation and amortization expense during fiscal year 2015 was $496.2 million.

31 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

The Power System had the following activities in utility plant during fiscal year 2014 (amounts in thousands):

Balance Retirements Balance June 30, 2013 Additions and disposals Transfers June 30, 2014 Nondepreciable utility plant: Land and land rights $ 197,405 44 (345) — 197,104 Construction work in progress 884,378 622,824 — (271,257) 1,235,945 Nuclear fuel 44,686 12,179 (13,934) — 42,931 Natural gas field 272,158 330 (23,565) — 248,923 Total nondepreciable utility plant 1,398,627 635,377 (37,844) (271,257) 1,724,903 Depreciable utility plant: Generation 5,089,796 59,903 (3,401) 99,061 5,245,359 Transmission 1,009,771 13,829 (157) (8,079) 1,015,364 Distribution 6,616,751 297,675 (219) 74,938 6,989,145 General 1,359,434 76,771 (5,674) 105,337 1,535,868 Total depreciable utility plant 14,075,752 448,178 (9,451) 271,257 14,785,736 Accumulated depreciation: Generation (2,711,487) (145,442) 3,401 — (2,853,528) Transmission (416,441) (27,708) 157 — (443,992) Distribution (2,908,894) (230,491) 219 — (3,139,166) General (816,767) (50,263) 5,674 — (861,356) Total accumulated depreciation (6,853,589) (453,904) 9,451 — (7,298,042) Total utility plant, net $ 8,620,790 629,651 (37,844) — 9,212,597

Depreciation and amortization expense during fiscal year 2014 was $466.5 million.

(5) Jointly Owned Utility Plant The Power System has direct interests in several electric generating stations and transmission systems, which are jointly owned with other utilities. As of June 30, 2015 and 2014, utility plant includes the following

32 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

amounts related to the Power System’s ownership interest in each jointly owned utility plant (amounts in thousands, except as indicated):

Utility plant in service Utility plant in service Share of June 30, 2015 June 30, 2014 Ownership capacity Accumulated Accumulated interest (MWs) Cost depreciation Cost depreciation Palo Verde Nuclear Generating Station 5.7% 224 $ 592,420 383,107 581,271 367,042 Navajo Generating Station 21.2 477 352,163 322,561 349,781 320,216 Mohave Generating Station 10.0 — 65,564 57,852 65,550 57,852 Pacific Intertie DC Transmission Line 40.0 1,240 185,796 67,623 183,253 63,072 Other transmission systems — Various 101,520 60,619 96,144 57,571 $ 1,297,463 891,762 1,275,999 865,753

The Power System will incur certain minimal operating costs related to the jointly owned facilities regardless of the amount or its ability to take delivery of its share of energy generated. The Power System’s proportionate share of the operating costs of the joint plants is included in the corresponding categories of operating expenses.

(6) Purchased Power Commitments As of June 30, 2015, the Power System has entered into a number of energy and transmission service contracts, which involve substantial commitments as follows (dollar amounts in thousands):

The Power System's interest in agency's share Agency Capacity Outstanding Agency share Interest (MWs) commitment**

Intermountain Power Project IPA 100.0% 70.6% 1,271 $ 816,787 Palo Verde Nuclear Generating Station SCPPA 5.9 67.0 151 24,207 Mead-Adelanto Project SCPPA 68.0 35.7 313 38,836 Mead-Phoenix Project SCPPA 17.8–22.4 24.8 148 8,227 Southern Transmission System SCPPA 100.0 59.5 1,429 393,131 Milford I Wind SCPPA 100.0 92.5 188 189,805 Windy Point SCPPA 100.0 92.4 262* 412,820 Linden Wind Energy SCPPA 100.0 90.0 50* 112,950 Milford II Wind SCPPA 100.0 95.1 102* 135,893 Apex Power Project SCPPA 100.0 100 531 318,860 *Power System will receive 100%, unless City of Glendale exercises its option to repurchase any of its contract output entitlement share. **Portion of purchased power commitment based upon related agency's bond principal not including interest requirements.

33 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

IPA – The Intermountain Power Agency (IPA) is an agency of the State of Utah established to own, acquire, construct, operate, maintain, and repair the Intermountain Power Project (IPP). The Power System serves as the project manager and operating agent of IPP.

SCPPA – The Southern California Public Power Authority is a California Joint Powers Agency that finances the construction or acquisition of generation, transmission, and renewable energy projects.

The above agreements require the Power System to make certain minimum payments, which are based primarily upon debt service requirements. In addition to average annual fixed charges of approximately $302 million during each of the next five years, the Power System is required to pay for operating and maintenance costs related to actual deliveries of energy under these agreements (averaging approximately $607 million annually during each of the next five years). The Power System made total payments under these agreements of approximately $892 million and $827 million in fiscal years 2015 and 2014, respectively. These agreements are scheduled to expire from 2027 to 2040.

The Power System earned fees under the IPP project manager and operating agent agreements totaling $27.9 million and $24.1 million in fiscal years 2015 and 2014, respectively.

(a) Long-Term Notes Receivable Under the terms of its purchase power agreement with IPA, the Department is charged for its output entitlements based on its share of IPA’s costs, including debt service. During fiscal year 2000, the Department restructured a portion of this obligation by transferring $1.11 billion to IPA in exchange for long-term notes receivable. The funds transferred were obtained from the debt reduction funds and through the issuance of new variable rate debentures (see notes 7 and 10). IPA used the proceeds from these transactions to defease and to tender bonds with par values of approximately $618 million and $611 million, respectively.

On September 7, 2000, the Department paid $187 million to IPA in exchange for additional long-term notes receivable. IPA used the proceeds to defease bonds with a face value of $198 million.

On July 20, 2005, the Department paid $97 million to IPA in exchange for additional long-term notes receivable. IPA used the proceeds to defease bonds with a face value of $92 million.

The IPA notes are subordinate to all of IPA’s publicly held debt obligations. The Power System’s future payments to IPA will be partially offset by interest payments and principal maturities from the subordinated notes receivable. The net IPA notes receivable balance totaled $707 million and $773 million as of June 30, 2015 and 2014, respectively.

The IPA notes pay interest and principal monthly and mature on July 1, 2023. The interest rates range from 4.1% to 5.9%, subject to adjustments related to IPA bond refundings.

(b) Energy Entitlement The Department has a contract through 2017 with the U.S. Department of Energy for the purchase of available energy generated at the Hoover Power Plant. The Department’s contractual share of contingent capacity at Hoover is 491 MW (maximum rated capability). The cost of power

34 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

(approximately 455 MW of capacity and 599,000 MWH of energy) purchased under this contract, including the Lower Colorado River Basin Development Fund Contribution Charge, was approximately $14.5 million and $17.3 million as of June 30, 2015 and 2014, respectively.

On December 20, 2011, the President signed H.R. 470, the Hoover Power Allocation Act of 2011, into law. The legislation reallocates, for 50 more years, power from the Hoover Dam Power Plant to existing contractors while creating an additional pool of 5% power for new entrants.

The Department has a contract through 2026 with SCPPA for the purchase of available energy generated at the Pebble Springs Wind Project located in Gilliam County, Oregon. The Power System’s share of capacity at Pebble Springs is approximately 69 MWs (maximum capacity). The cost of power purchased under this contract was $12.4 million and $18.5 million as of June 30, 2015 and 2014, respectively.

(c) Electricity Swap and Forward Contracts In order to obtain the highest market value on energy that is sold into the wholesale market, the Department monitors the sales price of energy, which varies based on which hub the energy is to be delivered. There are three primary hubs within the Department’s transmission region: Palo Verde, California Oregon Border, and Mead. The Department enters into various locational swap transactions with other electric utilities in order to effectively utilize its transmission capacity and to achieve the most economical exchange of energy purchased and sold.

The Department procures renewable energy resources located remotely. These resources provide intermittent and limited source of energy and these resources are not directly connected to the Department’s transmission system. In order to receive firm renewable energy, the Department entered into a green-for-green energy exchange with the same or different Renewable Energy Credit source.

The Department enters into power and natural gas forward contracts in order to meet the electricity requirements to serve its customers. To assist the Department in achieving its Renewable Portfolio Standards (RPS) goal of 20%, some of the forward purchases made are renewable energy and biomethane gas.

The Department does not enter into swap and forward transactions for trading purposes. All of these transactions are intended to be used in the Department’s normal course of operations. The Department is exposed to risk of nonperformance if the counterparties default or if the swap agreements are terminated.

35 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

As of June 30, 2015, the Power System had the following Electricity Swap and Forward Contracts, which are not recorded in the Power System’s financial statements based on the criteria in GASB Statement No. 53 (amounts in thousands):

Notional amount Contract First Last (total contract price range effective termination Fair Cash received Description quantities) dollar per unit date date value at inception

Electricity swaps: Purchases 176,640 mWh $ 30.58–40.72 07/01/15 12/31/15 $ (1,157) — Sales 176,640 mWh 33.58–43.72 07/01/15 12/31/15 1,819 —

Call Options Sales 92,400 mWh $Ht Rate x SoCal 07/01/15 09/30/15 $ 408 $ 190

Forward contracts: Electricity 776,560 mWh $ 31.00–80.00 07/01/15 10/31/16 $ (26,313) — Natural gas 27,857,500 MMBtu 2.89–10.85 07/01/15 10/31/21 (114,073) — As of June 30, 2014, the Power System had the following Electricity Swap and Forward Contracts, which are not recorded in the Power System’s financial statements based on the criteria in GASB Statement No. 53 (amounts in thousands):

Notional amount Contract First Last (total contract price range effective termination Fair Cash paid Description quantities) dollar per unit date date value at inception

Electricity swaps: Purchases 284,960 mWh $ 42.50–51.50 07/01/14 12/31/14 $ (12,991) — Sales 284,960 mWh 45.00–55.00 07/01/14 12/31/14 13,874 —

Forward contracts: Electricity 676,157 mWh $ 38.35–65.00 07/01/14 06/30/15 $ 1,731 — Natural gas 35,973,600 MMBtu 4.33–10.85 07/01/14 10/31/21 (162,738) —

36 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

(7) Cash, Cash Equivalents, and Investments (a) Restricted and Other Investments A summary of the Power System’s restricted and other investments is as follows (amounts in thousands): June 30 2015 2014 Restricted and other investments: Restricted investments: Debt Reduction Funds $ 500,017 496,841 Nuclear Decommissioning Funds 129,347 126,521 Natural Gas Fund 216 292 Hazardous Waste Treatment Fund 2,217 2,204 SCPPA Palo Verde investment 9,724 14,236 Total restricted investments $ 641,521 640,094

The Power System also has $10.7 million and $1.4 million of cash collateral received from securities lending transactions in the City’s securities lending program as of June 30, 2015 and 2014, respectively (see notes 7(b) and 8).

All restricted and other investments are to be used for a specific purpose as follows:

i. Debt Reduction Funds The debt reduction funds were established during fiscal year 1997 to provide for the payment of principal and interest on long-term debt obligations and purchased power obligations arising from the Department’s participation in IPP and SCPPA (see note 6). The Department has transferred funds from purchased power precollections into these funds. Funds from operations may also be transferred by management as funds become available.

ii. Nuclear Decommissioning Funds Nuclear decommissioning funds will be used to pay the Department’s share of decommissioning PVNGS at the end of its useful life (see note 1).

iii. Natural Gas Fund The natural gas fund was established to serve as a depository to pay for costs and to post margin or collateral in connection with contracts for the purchase and delivery of financial transactions for natural gas. These transactions are entered into to stabilize the natural gas portion of the Department’s fuel for generation costs.

37 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

iv. Hazardous Waste Treatment Storage and Disposal Fund The hazardous waste treatment storage and disposal fund was established to provide financial assurance for closure of the Main Street treatment and disposal facility. v. SCPPA Palo Verde Investment The SCPPA Palo Verde investment is a fixed-rate investment held by SCPPA to be drawn down over the next two years to pay for purchased power obligations arising from the Department’s participation in the SCPPA Palo Verde project. The fixed interest rate is 4.97% and the maturity date is June 25, 2017.

As of June 30, 2015, the Power System’s restricted investments and their maturities are as follows (amounts in thousands):

Investment maturities 1 to 30 31 to 60 61 to 365 366 days Over Investment type Fair value days days days to 5 years 5 years

U.S. government securities $ 5,005 — — 5,005 — — U.S. agencies 289,155 4,447 — 120,320 123,706 40,682 Medium-term corporate notes 125,860 6,130 3,840 36,399 79,491 — Commercial paper 77,726 32,749 24,996 19,981 — — Certificates of deposit 21,001 6,000 10,001 5,000 — — California local agency bonds 27,100 3,375 5,740 5,727 12,258 — California state bonds 21,422 — — 14,907 6,515 — Other state bonds 47,519 5,000 4,552 12,253 25,714 — Bankers’ acceptances 300 — 300 — — — Money market funds 16,709 16,709 — — — — SCPPA Palo Verde investment 9,724 — — — 9,724 — $ 641,521 74,410 49,429 219,592 257,408 40,682

38 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

As of June 30, 2014, the Power System’s restricted investments and their maturities are as follows (amounts in thousands):

Investment maturities 1 to 30 31 to 60 61 to 365 366 days Over Investment type Fair value days days days to 5 years 5 years

U.S. government securities $ 5,001 — — — 5,001 — U.S. agencies 322,519 — — 55,966 209,977 56,576 Medium-term corporate notes 113,687 262 — 31,990 81,435 — Commercial paper 54,748 49,749 4,999 — — — Certificates of deposit 11,001 1,000 — 10,001 — — California local agency bonds 28,901 — 8,189 3,635 17,077 — California state bonds 17,636 — — 3,478 14,158 — Other state bonds 55,487 — 596 6,004 48,887 — Bankers’ acceptances 260 — 260 — — — Money market funds 16,618 16,618 — — — — SCPPA Palo Verde investment 14,236 — — — 14,236 — $ 640,094 67,629 14,044 111,074 390,771 56,576

Interest Rate Risk: The Department’s investment policy limits the maturity of its investments to a maximum of 30 years for U.S. government and U.S. government agency securities; 5 years for medium-term corporate notes, California local agency obligations, California state obligations, and other state obligations; 270 days for commercial paper; 397 days for certificates of deposit; and 180 days for bankers’ acceptances.

Credit Risk: Under its investment policy and the Code, the Department is subject to the prudent investor standard of care in managing all aspects of its portfolios. The prudent investor standard requires that the Department “shall act with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs of the agency, that a prudent person acting in a like capacity and in familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency.”

The U.S. government agency securities in the portfolio consist of securities issued by government-sponsored enterprises, which are not explicitly guaranteed by the U.S. government. Of the U.S. government agency securities in the portfolio as of June 30, 2015, $281,809,203 (97%) was rated with either the highest or second highest possible credit ratings by the Nationally Recognized Statistical Rating Organizations (NRSROs) that rated them and $7,345,461 (3%) was not rated. Of the U.S. government agency securities in the portfolio as of June 30, 2014, $315,164,889 (98%) was rated with either the highest or second highest possible credit ratings by the NRSROs that rated them and $7,353,673 (2%) was not rated.

39 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

The Department’s investment policy specifies that medium-term corporate notes must be rated in a rating category of “A” or its equivalent or better by a NRSRO. Of the Power System’s investments in corporate notes as of June 30, 2015, $5,088,865 (4%) was rated in the category of AAA, $63,151,049 (50%) was rated in the category of AA, and $57,491,795 (46%) was rated in the category of A by at least one NRSRO. The remaining $128,455 (less than 1%) of investments in corporate notes was not rated. Of the Power System’s investments in corporate notes as of June 30, 2014, $3,014,835 (3%) was rated in the category of AAA, $63,948,291 (56%) was rated in the category of AA, and $46,462,252 (41%) was rated in the category of A by at least one NRSRO. The remaining $261,455 (less than 1%) of investments in corporate notes was not rated.

The Department’s investment policy specifies that commercial paper must be of the highest ranking or of the highest letter and number rating as provided for by at least two NRSROs. As of June 30, 2015 and 2014, all of the Power System’s investments in commercial paper were rated with at least the highest letter and number rating as provided by at least two NRSROs.

The Department’s investment policy provides that negotiable certificates of deposit must be of the highest ranking or letter and number rating as provided for by at least two NRSROs and that for nonnegotiable certificates of deposit, the full amount of principal and interest is insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration. As of June 30, 2015, the Power System’s investments in certificates of deposits included $20,001,170 of negotiable certificates of deposit with at least the highest letter and number rating as provided by at least two NRSROs and $1,000,000 of nonnegotiable certificates of deposit fully insured by the FDIC. As of June 30, 2014, the Power System’s investments in certificates of deposits included $10,000,550 of negotiable certificates of deposit with at least the highest letter and number rating as provided by at least two NRSROs and $1,000,000 of nonnegotiable certificates of deposit fully insured by the FDIC.

The Department’s investment policy specifies that California local agency obligations, which include municipal commercial paper, must be rated in a rating category of “A” or its equivalent or better by a NRSRO. Of the Power System’s investments in California local agency bonds as of June 30, 2015, $1,375,000 (5%) was rated in the category of AAA; $23,681,297 (87%) was rated in the category of AA; $2,043,950 (8%) was rated in the category of A. Of the Power System’s investments in California local agency bonds as of June 30, 2014, $25,842,130 (89%) was rated in the category of AA; $2,060,050 (7%) was rated in the category of A; and $999,260 (4%) was rated with the highest short-term letter and number rating as provided by at least one NRSRO.

The Department’s investment policy specifies that State of California obligations must be rated in a rating category of “A” or its equivalent or better by a NRSRO. Of the Power System’s investments in State of California obligations as of June 30, 2015, $3,643,316 (17%) was rated in the category of AAA and $17,779,027 (83%) was rated in the category of AA by at least one NRSRO. Of the Power System’s investments in State of California obligations as of June 30, 2014, $3,643,456 (21%) was rated in the category of AAA and $13,992,573 (79%) was rated in the category of AA by at least one NRSRO.

The Department’s investment policy specifies that obligations of other states in addition to California must be rated in a rating category of “A” or its equivalent or better by a NRSRO. Of the Power

40 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

System’s investments in other state obligations as of June 30, 2015, $17,845,705 (38%) was rated in the category of AAA, $29,181,265 (61%) was rated in the category of AA, and $492,617 (1%) was rated in the category of A by at least one NRSRO. Of the Power System’s investments in other state obligations as of June 30, 2014, $21,963,990 (39%) was rated in the category of AAA, $32,522,446 (59%) was rated in the category of AA, and $1,000,520 (2%) was rated in the category of A by at least one NRSRO.

The Department’s investment policy specifies that banker’s acceptances must be of the highest ranking or letter and number rating as provided for by at least two NRSROs. As of June 30, 2015 and 2014, all of the Power System’s investments in banker’s acceptances were rated with at least the highest letter and number rating as provided by three NRSROs.

The Department’s investment policy specifies that money market funds may be purchased as allowed under the Code, which requires that the fund must have either (1) attained the highest ranking or highest letter and numerical rating provided by not less than two NRSROs or (2) retained an investment advisor registered or exempt from registration with the Securities and Exchange Commission with not less than five years’ experience in managing money market mutual funds with assets under management in excess of $500 million. As of June 30, 2015 and 2014, each of the money market funds in the portfolio had the highest possible ratings by at least two NRSROs.

Concentration of Credit Risk: The Department’s investment policy specifies that there is no percentage limitation on the amount that can be invested in U.S. government agency securities, except that a maximum of 30% of the cost value of the portfolio may be invested in the securities of any single U.S. government agency issuer.

Of the Power System’s total investments as of June 30, 2015, $124,165,202 (19%) was invested in securities issued by the Federal Home Loan Bank, $73,806,433 (12%) was invested in securities issued by the Federal Home Loan Mortgage Corporation, and $67,743,647 (11%) was invested in securities issued by the Federal National Mortgage Association.

Of the Power System’s total investments as of June 30, 2014, $105,810,853 (17%) was invested in securities issued by the Federal Home Loan Mortgage Corporation, $98,248,817 (15%) was invested in securities issued by the Federal Home Loan Bank, and $97,438,516 (15%) was invested in securities issued by the Federal National Mortgage Association.

(b) Pooled Investments The Power System’s cash, cash equivalents, and its collateral value of the City’s securities lending program (SLP) are included within the City Treasury’s general and special investment pool (the Pool). As of June 30, 2015 and 2014, the Power System’s share of the City’s general and special investment pool was $1,644,285,000 and $1,385,082,000, which represents approximately 17.9% and 15.9% of the Pool, respectively.

The cash balances of substantially all funds on deposit in the City Treasury are pooled and invested by the City Treasurer for the purpose of maximizing interest earnings through pooled investment activities but safety and liquidity still take precedence over return. Special pool participants include

41 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

the City, Airports, DWP, Harbor, Sewer, and MICLA. Interest earned on pooled investments is allocated to and recorded in certain participating funds, as authorized by the Council and permitted by the City Charter and the California Government Code, based on each fund’s average daily deposit balance. Unless allocation provisions are specifically stipulated in City ordinance, Council action, or funding source, interest earned on certain funds are allocated to and recorded in the General Fund. Investments in the City Treasury are stated at fair value based on quoted market prices except for money market investments that have remaining maturities of one year or less at time of purchase, which are reported at amortized cost.

Pursuant to California Government Code Section 53607 (State Code) and the Council File No. 94- 2160, the City Treasury shall render to the Council a statement of investment policy (the Policy) annually. Council File No. 11-1740 was adopted on February 12, 2014, as the City’s investment policy. This Policy shall remain in effect until the Council and the Mayor approve a subsequent revision. The Policy governs the City’s pooled investment practices. The Policy addresses soundness of financial institutions in which the City Treasurer will deposit funds and types of investment instruments permitted by California Government Code Sections 53600-53638, 16340 and 16429.1. The City Treasury further reports that the current policy allows for the purchase of investments with maturities up to thirty (30) years.

At June 30, 2015, the investments held in the City Treasury’s General and Special Investment Pool Programs and their maturities are as follows (in thousands):

Investment Maturities 1 to 30 31 to 60 61 to 365 366 Days Over Type of Investments Amount Days Days Days to 5 Years 5 Years

U.S. Treasury Notes $ 4,713,956 — — — 4,682,761 31,195 U.S. Agencies Securities 1,334,694 171,585 75,705 345,657 724,212 17,535 Medium Term Notes 1,645,006 40,001 — 202,001 1,403,004 — Commercial Paper 1,302,850 939,479 261,856 101,515 — — Municipal Bonds 42,496 — — — 42,496 — Supranational Coupons 73,074 7,844 — — 65,230 — Short Term Investment Funds 1,678 1,678 — — — — Securities Lending Short-Term Repurcase Agreement 59,190 59,190 — — — — Total General and Special Pools $ 9,172,944 1,219,777 337,561 649,173 6,917,703 48,730

Interest Rate Risk. The Policy limits the maturity of its investments to five years for the U.S. Treasury and government agency securities, medium term notes, CD placement service, negotiable certificates of deposit, collateralized bank deposits, mortgage pass-through securities, and bank/time deposits; one year for repurchase agreements; 270 days for commercial paper; 180 days for bankers’ acceptances; and 92 days for reverse repurchase agreements. The Policy also allows City funds with longer-term investments horizons, to be invested in securities that at the time of the investment have a term remaining to maturity in excess of five years, but with a maximum final maturity of thirty years.

Credit Risk. The Policy establishes minimum credit ratings requirement for investments. There is no credit quality requirement for local agency bonds, U.S. Treasury Obligations, State of California

42 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

Obligations, California Local Agency Obligations, and U.S. Agencies (U.S. government sponsored enterprises) securities. The City’s $1.3 billion investments in U.S. government sponsored enterprises consist of securities issued by the Federal Home Loan Bank - $316.2 million, Federal National Mortgage Association (Fannie Mae) - $582.5 million, Federal Home Loan Mortgage Corporation (Freddie Mac) - $317.6 million, Federal Farm Credit Bank - $42.1 million, Federal Agriculture Mortgage Corporation - $56.1 million and Tennessee Valley Authority - $20.2 million. Of the City’s $1.3 billion investments in U.S. Agencies securities, $799.5 million were rated “AA+” by S&P and “Aaa” by Moody’s; $535.2 million were not rated individually by S&P nor Moody’s (issuers of these securities are rated “AA+/A-1+” by S&P and “Aaa/P-1” by Moody’s).

Medium term notes must be issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States. Medium term notes must have at least an “A” rating at the time of purchase. The City’s $1.6 billion investments in medium term notes consist of securities issued by banks and corporations that comply with these requirements and were rated “A” or better by S&P and “A3” or better by Moody’s. Subsequent to purchase, one issuer of $25.1 million medium term notes were downgraded to “BBB+” by S&P and “Baa1” by Moody’s, one issuer of $8.1 million medium term notes was downgraded to “BBB+” by S&P and “Baa2” by Moody’s, one issuer of $8.1 million medium term notes was downgraded to “A-” by S&P and “Baa1” by Moody’s, one issuer of $5.0 million medium term notes was downgraded to “A-1” by S&P and “Baa2” by Moody’s and one issuer of $7.0 million medium term notes was downgraded to “BBB+” by S&P and “A3” by Moody’s. Of the City’s $1.6 billion investments in medium term notes, one issuer of $25.0 million was not rated by S&P but rated “A3” by Moody’s.

Commercial paper issues must have a minimum of “A-1” or equivalent rating. If the issuer has issued long-term debt, it must be rated “A” without regard to modifiers. Issuing corporation must be organized and operating within the United States and have assets in excess of $500.0 million. The City’s $1.3 billion investments in commercial paper were rated “A-1+/A-1” by S&P and “P-1/P-2” by Moody’s.

Municipal bonds have no minimum rating requirement. The City’s $42.5 million investments in municipal bonds were rated “AA/A+” by S&P and “Aa2/Aa3” by Moody’s.

Investments in supranational coupons must have a minimum of “AA” rating. This investment was not included in the Policy effective February, 2014, but were authorized for purchase by state municipalities upon revisions made to California Code Section 53601 effective January, 2015. The City’s investments in supranational coupons of $65.2 million were rated “AAA” by S&P and “Aaa” by Moody’s. Investments of $7.8 million were rated “A1+” by S&P and “P1” by Moody’s. These short-term securities are backed by the full faith of the issuing entity which is rated AAA/Aaa.

Concentration of Credit Risk. The Policy does not allow more than 40% of its investment portfolio be invested in commercial paper and bankers’ acceptances, 30% in certificates of deposit and medium term notes, 20% in mutual funds, money market mutual funds and mortgage pass-through securities. The Policy further provides for a maximum concentration limit of 10% in any one issuer including its related entities. There is no percentage limitation on the amount that can be invested in the U.S. Treasury and government agencies. The City’s pooled investments comply with these requirements.

43 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

GAAP requires disclosure of certain investments in any one issuer that represent 5% or more of total investments. Of the City’s total pooled investments as of June 30, 2015, $582.5 million (6%) was invested in securities issued by Federal National Mortgage Association.

The following table identifies the investment types that are authorized by the Policy as of June 30, 2015: Specified Minimum Maximum Percentage of Quality Authorized Investment Type Maturity A Portfolio B Requirements Local Agency Bonds 5 years None None U.S. Treasury Obligations 5 years* None None State Obligations - CA and Others 5 years None None CA Local Agency Obligations 5 years None None U.S. Agency Obligations 5 years* None None Bankers' Acceptances 180 days 40% *C None Commercial Paper - Selected Agencies *D 270 days 25% of the "A-1A if agency's long-term "A" money E without regard to modifiers. F Commercial Paper - Others Agencies *G 270 days 40% of the "A-1A if agency's long-term "A" money H without regard to modifiers. F Negotiable Certificates of Deposits 5 years 30% I None CD Placement Service 5 years 30% I None Repurchase Agreements 1 year None None Reverse Repurchase Agreements and Securities Lending 92 days J 20% None K Medium-Term Notes *L 5 years 30% "A" Rating" Mutual Funds and Money Market Mutual Funds N/A 20% M Multiple O, P Collateralized Bank Deposits 5 years None None Mortgage Pass-Through Securities 5 years 20% "AA" Rating Q Bank/Time Deposits 5 years None None County Pooled Investments Funds N/A None None Joint Powers Authority Pool N/A None Multiple R Local Agency Investment Fund (LAIF) N/A None None Voluntary Investment Program Fund S N/A None None

* Represents where the City’s investment policy is more restrictive than the California Government Code. The Sources used are Sections 16340, 16429.1, 53601, 53601.8, 53635, 53635.2 and 53638. Municipal Utilities Districts have the authority under the Public Utilities Code Section 12871 to invest in certain securities not addressed here.

44 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

Other restrictions on investments are summarized as follows:

A. Section 53601 provides that the maximum term or any investment authorized under this section, unless otherwise stated, is five years. However, the legislative body may grant express authority to make investments either specifically or as a part of an investment program approved by the legislative body that exceeds this five year maturity limit. Such approval must be issued no less than three months prior to the purchase of any security exceeding the five-year maturity limit.

B. Percentages apply to all portfolio investments regardless of source of funds. For instance, cash from a reverse repurchase agreement would be subject to the restrictions.

C. No more than 30 percent of the agency’s money may be in bankers’ acceptances of anyone commercial bank.

D. “Select Agencies” are defined as a “city, a district’ or other local agency that do[es] not pool money in deposits or investment with other local agencies, other than local agencies that have the same governing body.”

E. No more than 10 percent of agency’s money may be invested in any one issuer’s commercial paper.

F. Issuing corporation must be organized and operating within the U.S. and have assets in excess of $500.000.000.

G. “Other Agencies” are counties, a city and county, or other local agency “that pools money in deposits or investments with other local agencies, including local agencies that have the same governing body.” Local agencies that pool exclusively with other local agencies that have the same governing body must adhere to the limits set for “Select Agencies.” above.

H. No more than 10 percent of the agency’s money may be invested in the commercial paper of any one corporate issuer.

I. No more than 30 percent of the agency’s total funds may be invested in CDs authorized under Sections 53601.8.53635.8 and 5360 I (i) combined.

J. Reverse repurchase agreements or securities lending agreements may exceed the 92-day term if the agreement includes a written codicil guaranteeing a minimum earning or spread for the entire period between the sale of a security using a reverse repurchase agreement or securities lending agreement and the final maturity dates of the same security.

K. Reverse repurchase agreements must be made with primary dealers of the Federal Reserve Bank of New York or with a nationally or state chartered bank that has a significant relationship with the local agency. The local agency must have held the securities used for the agreements for at least 30 days.

L. “Medium-term notes” are defined in Section 53601 as “all corporate and depository institution debt securities with a maximum remaining maturity of five years or less, issued by corporations 45 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

organized and operating within the U.S. or by depository institutions licensed by the U.S. or any state and operating within the U.S.”

M. No more than 10 percent invested in anyone mutual fund.

N. A mutual fund must receive the highest ranking by not less than two nationally recognized rating agencies or the fund must retain an investment advisor who is registered with the SEC (or exempt from registration), has assets under management in excess of $500 million, and has at least five years’ experience investing in instruments authorized by Sections 53601 and 53635.

O. A money market mutual fund must receive the highest ranking by not less than two nationally recognized statistical rating organizations or retain an investment advisor registered with the SEC or exempt from registration and who has not less than five years’ experience investing in money market instruments with assets under management in excess of$500 million.

P. Issuer must have an “A” rating or better for the issuer’s debt as provided by a nationally recognized rating agency.

Q. A joint powers authority pool must retain an investment advisor who is registered with the SEC (or exempt from registration), has assets under management in excess of $500 million, and has at least five years’ experience investing in instruments authorized by Section 53601, subdivisions (a) to (0).

R. Local entities can deposit between $200 million and $10 billion into the Voluntary Investment Program Fund, upon approval by their governing bodies. Deposits in the fund will be invested in the Pooled Money Investment Account (PMIA).

At June 30, 2014, the investments held in the City Treasury’s General and Special Investment Pool Programs and their maturities are as follows (in thousands):

Investment Maturities 1 to 30 31 to 60 61 to 365 366 Days Over Investment type Amount Days Days Days To 5 Years 5 Years

U.S. Treasury bills $ 248,766 248,746 — 20 — — U.S. Treasury notes 4,121,579 — — 4,085,830 35,749 U.S. Sponsored Agency Issues 1,915,548 606,056 213,475 352,807 730,202 13,008 Medium-term notes 1,443,640 — — 191,976 1,231,654 20,010 Commercial paper 904,407 867,252 26,998 10,157 — — Municipal bonds 30,207 — — — 30,207 — Certificates of deposit 7,000 — — 7,000 — — Short-term investment funds 5,609 5,609 — — — — Securities lending short-term collateral investment pool 11,425 11,425 — — — — Total general and special pools$ 8,688,181 1,739,088 240,473 561,960 6,077,893 68,767

46 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

Interest Rate Risk: The Policy limits the maturity of its investments to five years for the U.S. Treasury and government agency securities, medium-term notes, CD placement service, negotiable certificate of deposits, collateralized bank deposits, mortgage pass-through securities, and bank/time deposits; one year for repurchase agreements; 270 days for commercial paper; 180 days for bankers’ acceptances; and 92 days for reverse repurchase agreements. The Policy also allows City funds with longer-term investments horizons, to be invested in securities that at the time of the investment have a term remaining to maturity in excess of five years, but with a maximum final maturity of thirty years.

Credit Risk: The Policy establishes minimum credit ratings requirement for investments. There is no credit quality requirement for local agency bonds, U.S. Treasury Obligations, State of California Obligations, California Local Agency Obligations, and U.S. Sponsored Agencies (U.S. government sponsored enterprises) securities. The City’s $1.9 billion investments in U.S. government sponsored enterprises consist of securities issued by the Federal Home Loan Bank – $896.7 million, Federal National Mortgage Association – $675.8 million, Federal Home Loan Mortgage Corporation – $279.7 million, Federal Farm Credit Bank – $17.3 million, and Tennessee Valley Authority – $46.2 million. Of the City’s $1.9 billion investments in U.S. Sponsored Agencies securities, $798.3 million were rated “AA+” by S&P and “Aaa” by Moody’s; $1,117.3 million were not rated individually by S&P nor Moody’s (issuers of these securities are rated “AA+/A-1+” by S&P and “Aaa/P-1” by Moody’s).

Medium-term notes must be issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States. Medium-term notes must have at least an “A” rating. The City’s $1.4 billion investments in medium-term notes consist of securities issued by banks and corporations that comply with these requirements and were rated “A” or better by S&P and “A3” or better by Moody’s. Subsequent to purchase, two issuers of $38.7 million medium-term notes were downgraded to “A-1” by S&P and “Baa1” by Moody’s and one issuer of $7.0 million medium-term notes was downgraded to “BBB+” by S&P and “A3” by Moody’s.

Commercial paper issues must have a minimum of “A-1” or equivalent rating. If the issuer has issued long-term debt, it must be rated “A” without regard to modifiers. Issuing corporation must be organized and operating within the United States and have assets in excess of $500.0 million. The City’s $904.4 million investments in commercial paper were rated “A-1+/A-1” by S&P and “P-1” by Moody’s.

Municipal bonds have no minimum rating requirement. The City’s $30.2 million investments in municipal bonds were rated “AA/A” by S&P and “Aa2/Aa3” by Moody’s.

The issuers of the certificates of deposit were not rated.

Concentration of Credit Risk: The Policy does not allow more than 40% of its investment portfolio be invested in commercial paper and bankers’ acceptances, 30% in certificates of deposit and medium-term notes, 20% in mutual funds, money market mutual funds and mortgage pass-through securities. The Policy further provides for a maximum concentration limit of 10% in any one issuer including its related entities. There is no percentage limitation on the amount that can be invested in

47 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

the U.S. government agencies. The City’s pooled investments comply with these requirements. GAAP requires disclosure of certain investments in any one issuer that represent 5% or more of total investments. Of the City’s total pooled investments as of June 30, 2014, $896.7 million (10%) was invested in securities issued by Federal Home Loan Bank, and $675.8 million (8%) was invested in securities issued by Federal National Mortgage Association.

(8) Securities Lending Transactions The Power System participates in an SLP. As of June 30, 2015 and 2014, amounts held in the City of Los Angeles Program are as follows (collateral amounts in thousands): June 30 Program 2015 2014 City of Los Angeles Program $ 10,680 1,419

General Investment Pool Program The Power System participates in the City’s SLP through the pooled investment fund. The Department recognizes its proportionate share of the cash collateral received for securities loaned and the related obligation for the general investment pool. Securities lending is permitted and limited under provisions of California Government Code Section 53601. The Council approved the Securities Lending Program (the SLP) on October 22, 1991 under Council File No. 91-1860, which complies with the California Government Code. The objectives of the SLP in priority order are: safety of loaned securities; and prudent investment of cash collateral to enhance revenue from the investment program. The SLP is governed by a separate policy and guidelines.

The City’s custodial bank acts as the securities lending agent. In the event a counterparty defaults by reason of an act of insolvency, the bank shall take all actions which it deems necessary or appropriate to liquidate permitted investment and collateral in connection with such transaction and shall make a reasonable effort for two business days (Replacement Period) to apply the proceeds thereof to the purchase of securities identical to the loaned securities not returned. If during the Replacement Period the collateral liquidation proceeds are insufficient to replace any of the loaned securities not returned, the bank shall, subject to payment by the City of the amount of any losses on any permitted investments, pay such additional amounts as necessary to make such replacement.

Under the provisions of the SLP, and in accordance with the California Government Code, no more than 20% of the market value of the General Investment Pool (the Pool) is available for lending. The City loans out U.S. Treasury and U.S. agencies securities, i.e. Fannie Mae, Freddie Mac, Federal Home Loan Bank, Federal Agricultural Mortgage Corporation (Farmer Mac), Federal Farm Credit Bank and Tennessee Valley Authority. The City receives cash as collateral on the loaned securities, which is reinvested in securities permitted under the Policy. In addition, the City receives securities as collateral on loaned securities, which the City has no ability to pledge or sell without borrower default. In accordance with the California Government Code, the securities lending agent marks to market the value of both the collateral and the reinvestments daily. Except for open loans where either party can terminate a lending contract on demand,

48 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

term loans have a maximum life of 60 days. Earnings from securities lending accrue to the Pool and are allocated on a pro-rata basis to all Pool participants.

During the fiscal year 2015, collateralizations on all loaned securities were compliant with the required 102% of the market value. The City can sell collateral securities only in the event of borrower default. The lending agent provides indemnification for borrower default. There were no violations of legal or contractual provisions and no borrower or lending agent default losses during the fiscal year. There was no credit risk exposure to the City because the amounts owed to the borrowers exceeded the amounts borrowed. Loaned securities are held by the City’s agents in the City’s name and are not subject to custodial credit risk.

(9) Derivative Instruments In June 2008, GASB issued GASB Statement No. 53. The statement specifically requires governments to measure and report most derivative instruments at fair value in their financial statements that are prepared using the economic resources measurement focus and the accrual basis of accounting. The requirement of reporting the derivative instruments at fair value on the face of the basic financial statements gives the users of those statements a clearer look into the risks their governments are sometimes exposed to when they enter into these transactions and how those risks are managed. The statement also addresses hedge accounting requirements and improves disclosures, providing a summary of the government’s derivative instrument activity, its objectives for entering into derivative instruments, and its significant terms and risks. The Power System implemented GASB Statement No. 53 in the 2010 fiscal year.

In accordance with GASB Statement No. 53, the Power System records the fair value of its hedging derivative instruments, financial natural gas hedges, on the statement of net position. As of June 30, 2015 and 2014, the fair values of the financial natural gas hedges were approximately $43.2 million and approximately $48.3 million, respectively.

(a) Financial Natural Gas Hedges The Department enters into natural gas hedging contracts in order to stabilize the cost of gas needed to produce electricity to serve its customers. It is designed to cap gas prices over a portion of the forecasted gas requirements.

The Department does not speculate when entering into financial transactions. Financial hedges are variable to fixed-rate swaps and are layered by volumetric averaging. The Department is exposed to financial settlement risk if the counterparties default and/or the agreements are terminated. The Department did not receive any payments at the inception of any swap transaction.

49 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

As of June 30, 2015, the Power System’s financial natural gas hedges by fiscal year are the following (fair value in thousands):

Notional amount (Total Contract First Last contract price range effective termination Derivative description quantities*) dollar per unit date date Fair value Financial natural gas: FY 2015–16 4,488,000 $ 6.42–9.85 07/01/15 06/30/16 $ (21,020) FY 2016–17 3,197,500 6.61–9.83 07/01/16 06/30/17 (14,210) FY 2017–18 2,190,000 6.76–7.14 07/01/17 06/30/18 (8,014) Total 9,875,500 $ 6.37–9.85 07/01/13 06/30/18 $ (43,244)

* Contract quantities in MMBtu – Million British Thermal Units

As of June 30, 2014, the Power System’s financial natural gas hedges by fiscal year are the following (amounts in thousands): Notional amount (Total Contract First Last contract price range effective termination Derivative description quantities*) dollar per unit date date Fair value Financial natural gas: FY 2014–15 5,384,500 $ 6.37–9.38 07/01/14 06/30/15 $ (16,366) FY 2015–16 4,488,000 6.42–9.85 07/01/15 06/30/16 (15,647) FY 2016–17 3,197,500 6.61–9.83 07/01/16 06/30/17 (10,831) FY 2017–18 2,190,000 6.76–7.14 07/01/17 06/30/18 (5,673) Total 15,260,000 $ 6.37–9.85 07/01/13 06/30/18 $ (48,517)

* Contract quantities in MMBtu – Million British Thermal Units

The fair value of the natural gas hedges decreased by $5.08 million during the year ended June 30, 2015 and is reported as a liability and is offset by a deferred outflow on the statement of net position. All fair values were estimated using forward market prices available from broker quotes and exchanges.

(b) Credit Risk The Power System is exposed to credit risk related to nonperformance by its wholesale counterparties under the terms of contractual agreements. In order to limit the risk of counterparty default, the Department has implemented a Wholesale Marketing Counterparty Evaluation Policy, which was amended and renamed as Counterparty Evaluation Credit Policy (the Counterparty Policy), and was 50 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

approved by the Board on May 6, 2008. Under the new policy, the scope has been expanded beyond physical power to include transmission, physical natural gas, and financial natural gas. Also, the credit limit structure has been categorized into short-term and long-term structures where the short-term structure is applicable to transactions with terms of up to 18 months and the long-term structure to cover transactions beyond 18 months.

The Policy includes provisions to limit risk including the assignment of internal credit ratings to all Department’s counterparties based on counterparty and/or debt ratings; the use of expected default frequency equivalent credit rating for short-term transactions; the requirement for credit enhancements (including advance payments, irrevocable letters of credit, escrow trust accounts, and parent company guarantees) for counterparties that do not meet an acceptable level of risk; and the use of standardized agreements, which allow for the netting of positive and negative exposures associated with a single counterparty.

As of June 30, 2015, the 10 financial natural gas hedge counterparties were rated by Moody’s as follows: two at Aa3, one at Aa2, two at A3, two at A2, two at A1, and one WR. The counterparties were rated by S&P as follows: two at AA-, one at A+, four at A, and three at A-. As of June 30, 2014, the 10 financial natural gas hedge counterparties were rated by Moody’s as follows: three at Aa3, four at A2, one at Baa1, one at Baa2, and one WR. The counterparties were rated by S&P as follows: two at AA-, one at A+, five at A, and two at A-.

Based on the International Swap Dealers Association agreements, the Department or the counterparty may be required to post collateral to support the financial natural gas hedges subject to credit risk in the form of cash, negotiable debt instruments (other than interest-only and principal-only securities), or eligible letters of credit. Collateral posted is held by a custodian. As of June 30, 2015 and 2014, the fair values of the financial natural gas hedges are within the credit limits and collateral posting was not required.

(c) Basis Risk The Department is exposed to basis risk between the financial natural gas hedges, which are settled monthly at NW Rocky Mountains Index, and the hedged gas deliveries, which are daily spot purchases at Kern River, Opal prices. However, these pricing points are in the same region and are highly correlated.

(d) Termination Risk The Power System or its counterparties may terminate the contractual agreements if the other party fails to perform under the terms of the contract. No termination events have occurred and there are no out-of-the-ordinary termination events contained in contractual documents.

(10) Long-Term Debt Long-term debt outstanding as of June 30, 2015 and 2014 consists of revenue bonds and refunding revenue bonds due serially in varying annual amounts as follows (amounts in thousands):

51 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

Fiscal year Effective- of last Date of interest scheduled Principal outstanding Bond issues issue rate % maturity 2015 2014 Issue of 2001, Series B 06/05/01 Variable 2035 $ 580,800 580,800 Issue of 2001, Series C1 11/15/01 4.788 2017 1,972 2,008 Issue of 2002, Series A 08/22/02 Variable 2036 388,500 388,500 Issue of 2002, Series C2 11/22/02 4.375 2018 5,291 5,403 Issue of 2004, Series C3 04/07/04 4.298 2020 4,486 7,147 Issue of 2005, Series A1 12/28/05 4.700 2041 25,000 530,285 Issue of 2005, Series A2 12/28/05 4.700 2031 — 315,195 Issue of 2006, Series C4 03/01/06 4.040 2017 5,010 5,149 Issue of 2007, Series A1 10/18/07 4.659 2040 320,020 330,630 Issue of 2007, Series A2 10/18/07 4.638 2033 191,125 191,125 Issue of 2008, Series A1 11/25/08 5.583 2039 200,000 200,000 Issue of 2008, Series A2 11/25/08 5.039 2033 326,045 330,880 Issue of 2009, Series A 02/19/09 4.773 2040 117,055 119,425 Issue of 2009, Series B 06/02/09 4.563 2025 172,125 172,125 Issue of 2010, Series A 06/02/10 3.898 2041 616,000 616,000 Issue of 2010, Series B 06/02/10 3.015 2023 33,190 38,675 Issue of 2010, Series C 08/25/10 2.188 2028 139,775 139,775 Issue of 2010, Series D 12/02/10 4.342 2046 760,200 760,200 Issue of 2011, Series A 06/30/11 2.715 2023 507,100 564,430 Issue of 2012, Series A 10/25/12 2.936 2036 100,355 104,075 Issue of 2012, Series B 10/25/12 4.164 2044 350,000 350,000 Issue of 2012, Series C 10/25/12 0.958 2016 300,000 300,000 Issue of 2013, Series A 04/02/13 2.504 2032 515,925 526,570 Issue of 2013, Series B 06/04/13 3.347 2033 452,145 452,145 Issue of 2013, Series C 06/04/13 4.441 2038 27,855 27,855 Issue of 2014, Series A 05/06/14 Variable 2039 200,000 200,000 Issue of 2014, Series B 06/10/14 4.008 2044 322,000 322,000 Issue of 2014, Series C 08/05/14 2.912 2030 198,750 — Issue of 2014, Series D 10/23/14 3.785 2045 450,000 — Issue of 2014, Series E 01/08/15 3.833 2045 229,000 — Issue of 2015, Series A 04/16/15 3.636 2041 520,280 — Total principal amount 8,060,004 7,580,397 Revenue certificates 200,000 200,000 Unamortized premiums and discounts 538,442 384,358 Debt due within one year (including current portion of variable rate debt) (230,165) (1) (227,575) $ 8,568,281 7,937,180

(1) On August 4, 2015, the Board of Water and Power Commissioners adopted Resolution No. 4893 which authorized the issuance of $300 million of fixed-rate, tax-exempt Power System Revenue Bonds, 2015 Series B ("Power 2015 B Bonds") for the purpose of providing funds to refund all of the outstanding Power 2012 C Bonds. The Power 2015 B Bonds were closed on September 15, 2015 and amounts related to Power 2012 C Bond originally due within one year have been removed from debt due within one year in the table above.

52 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

Revenue bonds generally are callable 10 years after issuance. The Department has agreed to certain covenants with respect to bonded indebtedness. Significant covenants include the requirement that the Power Systems’ net income, as defined, will be sufficient to pay certain amounts of future annual bond interest and of future annual aggregate bond interest and principal maturities. Revenue bonds and refunding bonds are collateralized by the future revenues of the Power System.

(a) Long-Term Debt Activity The Power System had the following activity in long-term debt for the fiscal years ended June 30, 2015, and 2014 (amounts in thousands):

Balance, Balance, Current July 1, 2014 Additions Reductions June 30, 2015 portion Long-term debt: Bonds $ 7,964,755 1,619,620 (985,929) 8,598,446 210,165 Revenue certificates 200,000 — — 200,000 20,000 Total $ 8,164,755 1,619,620 (985,929) 8,798,446 230,165

Balance, Balance, Current July 1, 2013 Additions Reductions June 30, 2014 portion Long-term debt: Bonds $ 7,574,509 567,341 (177,095) 7,964,755 207,575 Revenue certificates 200,000 — — 200,000 20,000 Total $ 7,774,509 567,341 (177,095) 8,164,755 227,575

(b) New Issuances i. Fiscal Year 2015 In August 2014, the Power System issued $198.75 million of Power System Revenue Bonds, 2014 Series C. The net proceeds of $235.41 million, including a $36.66 million issue premium net of underwriter’s discount, were used to refund a portion of the Power System Revenue Bonds, 2005 Series A, Subseries A1, amounting to $27.0 million, and Subseries A2, amounting to $197.6 million. The transaction resulted in a net present value savings of $28.13 million and a net loss for accounting purposes of $7.47 million, which was capitalized and is being amortized over the life of the new bonds.

In October 2014, the Power System issued $450 million of Power System Revenue Bonds, 2014 Series D. The net proceeds of $526.04 million, including a $76.04 million issue premium net of underwriter’s discount, were deposited into the construction fund to be used for capital improvements.

53 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

In January 2015, the Power System issued $229 million of Power System Revenue Bonds, 2014 Series E. The net proceeds of $267.62 million, including a $38.62 million issue premium net of underwriter’s discount, were deposited into the construction fund to be used for capital improvements.

Lastly, in April 2015, the Power System issued $520.28 million of Power System Revenue Bonds, 2015 Series A. The net proceeds of $587.34 million, including a $67.06 million issue premium net of underwriter’s discount, were used to refund a portion of the Power System Revenue Bonds, 2005 Series A, Subseries A1, amounting to $465.29 million, and all of the $117.60 million outstanding Power System Revenue Bonds, 2005 Series A, Subseries A 2. The transaction resulted in a net present value savings of $100.63 million and a net gain for accounting purposes of $7.58 million, which was capitalized and is being amortized over the life of the new bonds.

ii. Fiscal Year 2014 In May 2014, the Power System issued $200 million of variable rate Power System Revenue Bonds, 2014 Series A under a Direct Purchase structure. The net proceeds of $200 million were deposited into the construction fund to be used for capital improvements.

In June 2014, the Power System issued $322 million of Power System Revenue Bonds, 2014 Series B. The net proceeds of $366.42 million, including a $44.42 million issue premium net of underwriter’s discount, were deposited into the construction fund to be used for capital improvements.

(c) Outstanding Debt Defeased The Power System defeased certain revenue bonds in current and prior years by placing cash or the proceeds of new revenue bonds in irrevocable trusts to provide for all future debt service payments on the old bonds. Accordingly, the trust account assets and the liability for the defeased bonds are not included in the Power System’s financial statements.

At June 30, 2015, the following revenue bonds outstanding are considered defeased (amounts in thousands): Principal Bond issues outstanding Second issue of 1993 $ 6,555 Refunding issue of 1994 8,610 Issue of 1994 4,370 Issue of 2005 Series A, Subseries A 1 347,285 Issue of 2005 Series A, Subseries A 2 315,195 $ 682,015

54 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

(d) Variable Rate Bonds In May 2014, the Power System entered into a Continuing Covenant Agreement (CCA) with Wells Fargo Bank whereby the former will sell to the latter $200 million of Power System Revenue Bonds, 2014 Series A, in an index-floating rate mode under a Direct Purchase structure. The bonds will pay interest at a fixed spread of 20 basis points (0.20%) above the Securities Industry and Financial Markets Association (SIFMA) Index for the initial three-year term. At the end of the three-year term, the Power System would have the option to either renegotiate and renew a new index floating rate term with Wells Fargo or another bank or convert the bonds to another mode, such as a fixed-rate mode or a traditional variable rate mode that utilizes a standby agreement. Under the terms of the CCA, the Power System has the option to call the bonds at par any time after one year with a 30-day notice.

As of June 30, 2015 and 2014, the Power System had $1.169 billion in variable rate bonds. The variable rate bonds currently bear interest at weekly and daily rates ranging from 0.01% to 0.28% as of June 30, 2015 and 0.01% to 0.26% as of June 30, 2014. The Power System can elect to change the interest rate period of the bonds with certain limitations. The bondholders have the right to tender the bonds to the tender agent on any business day with seven days’ prior notice. The Power System has entered into standby and line-of-credit agreements with a syndicate of commercial banks in an initial amount of $580.8 million and $388.5 million to provide liquidity for the variable rate bonds. The extended standby agreements expire in February 2016 for the $206 million, February 2017 for the $106 million, and February 2018 for the $268.8 million for a total of $580.8 million; and in June 2017 for the $388.5 million.

Under the agreements, the $580.8 million variable rate bonds will bear interest that is payable quarterly at the greatest of (a) the Prime Rate plus 1.00%; (b) the Federal Funds Rate plus 2.00%; and (c) 7.50%, while the $388.5 million variable rate bonds will bear interest that is payable quarterly at the greatest of (a) the Prime Rate plus 2.00%; (b) the Federal Funds Rate plus 2.00%; (c) the Daily One-Month LIBOR plus 0.5%; and (d) 7.50%. The unpaid principal of each liquidity advance made by the liquidity provider is payable in 10 equal semiannual installments 90 days immediately following the related liquidity advance. At its discretion, the Power System has the ability to convert the outstanding bonds to fixed-rate obligations, which cannot be tendered by the bondholders.

The variable rate bonds have been classified as long term in the statement of net position as the liquidity facilities give the Power System the ability to refinance on a long-term basis and the Power System intends to either renew the facility or exercise its right to tender the debt as a long-term financing. The portion that would be due in the next fiscal year in the event that the outstanding variable rate bonds were tendered and purchased by the commercial banks under the standby agreements has been included in the current portion of long-term debt and was $96.3 million at both June 30, 2015 and 2014.

(e) Revenue Certificates As of June 30, 2015 and 2014, the Power System has outstanding $200 million of commercial paper bearing interest at an average rate of 0.08%. The commercial paper matures not more than 270 days from the date of issuance.

55 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

The Department entered into a letter-of-credit and reimbursement agreement (the Agreement) with a commercial bank in the amount of $200 million to provide liquidity and credit support for the Department’s commercial paper program. The agreement secures the payment when due of the principal and interest on commercial paper issued on or after July 1, 2013. Drawings on the agreement will represent advances to the Department and will bear interest that is payable monthly at the highest of (a) the Prime Rate plus 1.00%, (b) Federal Funds Rate plus 2.00%, (c) the Daily One-Month LIBOR plus 3.00%, and (d) 7.00%. The unpaid principal of each advance is payable in 10 equal semiannual installments, commencing on the date six months after the advance. The Agreement terminates on July 1, 2016.

The revenue certificates have been classified as long-term debt in the statement of net position as the Agreement gives the Power System the ability to refinance on a long-term basis and the Power System intends to either renew the Agreement or exercise its option to draw on the Agreement. The portion that would be due in the next fiscal year in the event that the outstanding revenue certificates were advanced by the commercial bank under the Agreement has been included in the current portion of long-term debt and was $20 million at both June 30, 2015 and 2014.

(f) Scheduled Principal Maturities and Interest Scheduled annual principal maturities and interest are as follows (amounts in thousands): Interest and Principal amortization Fiscal year(s) ending June 30: 2016 $ 113,235 311,254 2017 104,210 316,713 2018 141,924 320,573 2019 164,682 319,622 2020 195,359 313,665 2021–2025 1,169,911 1,461,175 2026–2030 1,461,493 1,212,917 2031–2035 1,587,730 916,633 2036–2040 1,423,220 619,265 2041–2045 1,532,640 218,196 2046–2050 165,600 — Total requirements $ 8,060,004 6,010,013

Interest and amortization are net of $515.74 million of unamortized discount/premium and gain/loss due to issuances of new and refunding bonds.

The maturity schedule presented above reflects the scheduled debt service requirements for all of the Power System’s long-term debt. The schedule is presented assuming that the tender options on the variable rate bonds, as discussed on the previous page, will not be exercised and that the full amount

56 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

of the revenue certificates will be renewed. Should the bondholders exercise the tender options and the Power System convert all of the revenue certificates under the line of credit, the Power System would be required to redeem the $1,369.3 million in variable rate bonds and revenue certificates outstanding over the next six years, as follows: $116.93 million in fiscal year 2016, $433.86 million in fiscal year 2017, $233.86 million in fiscal year 2018, $233.86 million in each of the fiscal years 2019 through 2020, and $116.93 million in fiscal year 2021. Accordingly, the statements of net position recognize the possibility of the exercise of the tender options and reflect the $116.93 million that could be due in fiscal year 2016 as a current portion of long-term debt payable. Interest and amortization include interest requirements for variable rate bonds. Variable debt interest rate in effect at June 30, 2015 averages 0.110%.

(11) Retirement Plan (a) Plan Description The Department has a funded contributory retirement plan covering substantially all of its employees. The Water and Power Employees’ Retirement Fund (the Fund or Plan) operates as a single-employer defined benefit plan to provide pension benefits to eligible department employees. The Retirement Fund’s assets are held in a special trust fund of the City. Plan benefits are generally based on years of service, age at retirement, and the employee’s highest 12 consecutive months of salary before retirement. Active participants who joined the Plan on or after June 1, 1984 are required to contribute 6% of their annual covered payroll. Participants who joined the Plan prior to June 1, 1984 contribute an amount based upon an entry-age percentage rate. A new Tier 2 was added to the Plan and applies to members hired on or after January 1, 2014. Tier 2 plan participants are required to contribute 10% of their salary and plan benefits are based on a three-year final average salary period.

Under the provisions of the City Charter, the Retirement Board of Administration (the “Retirement Board”) has the responsibility and authority to administer the Plan and to invest its assets. The Retirement Board members serve as trustees and must act in the exclusive interest of the Plan’s members and beneficiaries. The Retirement Board has seven members: one member of the Retirement Board of Water and Power Commissioners, the General Manager, the Chief Accounting Employee, three employee members who are elected for three-year terms by active members of the Plan, and one retiree who is appointed by the Board of Water and Power Commissioners for a three-year term.

Plan amendments must be approved by both the Retirement Board and the Board. The Plan issues separately available financial statements on an annual basis. Such financial statements can be obtained from the Department of Water and Power Retirement Office, 111 North Hope, Room 357, Los Angeles, California 90012.

(b) Benefits Provided The Plan provides retirement benefits to eligible employees. Most employees of the Los Angeles Department of Water and Power become members of the Plan effective on the first day of biweekly payroll following employment or immediately following transfer from another city department. Members employed prior to January 1, 2014 are designated as Tier 1 and those hired on or after

57 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

January 1, 2014 are designated as Tier 2 (unless a specific exemption applies to employee providing a right to Tier 1 status).

Tier 1 members are eligible to retire once they attain the age of 60 with 5 or more years of service or at age 55 with 10 or more years of service credit acquired in the last 12 years prior to retirement. A Tier 1 member with 30 years of service is eligible to retire regardless of age. Tier 2 members are eligible to retire once they attain the age of 60 with 10 or more years of service or at any age with 30 years of service. For both tiers, combined years of service between the Plan and LACERS is used to determine retirement eligibility and at least 5 years must be actual employment at the Department or City (not purchased). For both tiers, members receiving Permanent Total Disability benefits may retire regardless of age. For Tier 1, to be eligible for a Formula Pension, the employee must have worked or been paid disability four of the last five years immediately preceding eligibility to retire or while eligible to retire.

The Formula Pension benefit the member will receive is based upon age at retirement, monthly average salary base, and years of retirement service credit. The Tier 1 Formula Pension is equal to 2.1% times years of service credit times monthly average salary base. In addition, members retiring after attaining age 55 with 30 years of service credit receive an increase in the benefit factor from 2.1% to 2.3%. A reduced early retirement benefit is paid for those members attaining age 55 with 10 years of service or any age (under 55) with 30 years of service. The reduction is 1.5% for each year of retirement age between 60 and 55 and 3.0% for each year of retirement before age 55.

Under Tier 2, there are various benefit factors that apply as shown below:

 2.0% at age 55 with 30 years of service credit  1.5% at age 60 with 10 years of service credit  2.0% at age 63 with 10 years of service credit  2.1% at age 63 with 30 years of service credit

Reduced early retirement benefits are still available at any age (under 55) with 30 years of service and the reduction factors are the same as Tier 1. Note that these reduction factors continue to include the reduction from age 60 to 55 and from 55 to age at retirement.

For Tier 1 members, the maximum monthly retirement allowance is 100% of monthly average salary base. For Tier 2 members, the maximum monthly retirement allowance is 80% of monthly average salary base. Under Tier 1, pension benefits are calculated based on the highest average salary earned during a 12-month period. Under Tier 2, pension benefits are calculated based on the average salary earned during a 36-month period.

The member may elect the full allowance or choose an optional retirement allowance. The full allowance provides the highest monthly benefit and up to a 50% continuance to an eligible surviving spouse or domestic partner. There are five optional retirement allowances the member may choose. Each of the optional retirement allowances requires a reduction in the full allowance in order to allow

58 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

the member the ability to provide various benefits to a surviving spouse, domestic partner, or named beneficiary.

Retired members or beneficiaries currently receiving benefits 8,739 Vested terminated members entitled to, but not yet receiving benefits 1,484 Active members 8,960 Total 19,183

(d) Contributions The Department contributes $1.10 for each $1.00 contributed by participants plus an actuarially determined annual required contribution (ARC) as determined by the Plan’s independent actuary. The required contributions are allocated between the Power System and the Water System based on the current year labor costs.

Employer contribution rates are adopted annually based upon recommendations received from the Plan’s actuary after the completion of the annual actuarial valuation. The average employer contribution rate as of June 30, 2014 (based on the July 1, 2013 valuation) was 47.30% of compensation. The average member contribution rate as of June 30, 2014 (based on the July 1, 2013 valuation) was 6.66% of compensation. Most Tier 1 members contribute at 6% of compensation and all Tier 2 members contribute at 10% of compensation.

(e) Actuarial assumptions The Department’s net pension liability as of June 30, 2015 and June 30, 2014 was determined by actuarial valuations as of July 1, 2014 and July 1, 2013, respectively. The actuarial assumptions used in the July 1, 2014 valuation were based on the results of an experience study for the period from July 1, 2009 through June 30, 2012 and are the same assumptions used in July 1, 2014 funding

59 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

actuarial valuation for the Plan. The following assumptions were applied to all periods included in the measurement for the July 1, 2014 and 2013 actuarial valuations:

Actuarial Assumptions 2014 2013 Inflation 3.25% 3.50% Salary increases 4.75% to 10.00% 5.35% to 10.50% Investment rate of return 7.50% 7.75% 3.00% (actual increases are 3.00% (actual increases are contingent upon CPI increases contingent upon CPI increases Cost of living adjustments with a 3.00% maximum for Tier 1, with a 3.00% maximum for Tier 1, 2.00% maximum for Tier 2) 2.00% maximum for Tier 2) Healthy: RP-2000 Combined Healthy: RP-2000 Combined Mortality Mortality Table set back one year Mortality Table set back two years projected to 2030 with Scale AA for males and one year for females

(f) Discount Rate The discount rates used to measure the pension liability were 7.50% and 7.75% as of June 30, 2015 and June 30, 2014, respectively. The projection of cash flows used to determine the discount rate assumed plan member contributions will be made at the current contribution rate and that employer contributions will be made at rates equal to the actuarially determined contribution rates. For this purpose, only employee and employer contributions that are intended to fund benefits for current plan members and their beneficiaries are included. Projected employer contributions that are intended to fund the service costs for future plan members and their beneficiaries, as well as projected contributions from future plan members, are not included. Based on those assumptions, the Plan’s fiduciary net position was projected to be available to make all projected future benefit payments for current and inactive plan members. 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 at June 30, 2015 and June 30, 2014.

The long-term expected rate of return on pension 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 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 proportionate share, adding expected inflation and subtracting expected investment expenses. The target allocation and projected best estimates of arithmetic real rates of return for each major asset

60 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

class, after deducting inflation, but before deducting investment expenses, used in the derivation of the long-term expected investment rate of return assumption are summarized in the following table:

Long-Term Target Expected Real Asset Class Allocation Rate of Return Domestic Equity 33% 6.13% Developed International Equity 21% 7.00% Fixed Income 24% 0.77% Real Estate 5% 4.90% Real Return 6% 2.85% Private Equity 5% 9.00% Covered Calls 5% 4.88% Cash and Cash Equivalents 1% 0.00% Total 100%

(g) Sensitivity of the Net Pension Liability to Changes in the Discount Rate The following presents the net pension liability of the Department as of June 30, 2015, calculated using the discount rate of 7.50%, as well as what the Department’s pension liability would be if it were calculated using a discount rate that is one/ percentage point lower (6.50%) or one/ percentage point higher (8.50%) than the current rate (amounts in thousands):

Current 1% Decrease Discount 1% Increase Net Pension Liability (6.50%) Rate (7.50%) (8.50%)

June 30, 2015 $ 1,815,375 860,748 59,098 (h) Changes in the Net Pension Liability At June 30, 2015 and 2014, the pension liability was measured as of June 30, 2014 and 2013, respectively, and determined based upon the results of the actuarial valuations as of July 1, 2014 and July 1, 2013, respectively. The Retirement Fund’s fiduciary net position and the pension liability were valued as of the measurement date and are not adjusted or rolled forward to June 30, 2015 and June 30, 2014, respectively. Below are the Power System’s proportionate share of the Department’s changes in

61 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

the components of the total pension liability, Plan fiduciary net position and the net pension liability for the measurement periods (amounts in thousands).

June 30 Total pension liability 2015 2014 Beginning total pension liability $ 6,806,659 6,541,919 Service cost 130,580 128,078 Interest 528,452 498,469 Differences between expected and actual experience (103,987) (66,121) Changes of assumptions 354,290 — Benefit payments, including refunds of member contributions (312,590) (295,686) Ending total pension liability $ 7,403,404 6,806,659

June 30 Fiduciary net position 2015 2014 Beginning fiduciary net position $ 5,599,146 4,978,907 Contributions 311,134 298,333 Net investment income 947,812 620,112 Benefit payments, including refunds of member contributions (312,590) (295,686) Administrative (2,846) (2,520) Ending fiduciary net position $ 6,542,656 5,599,146

June 30 Net pension liability 2015 2014 Beginning net pension liability $ 1,207,513 1,563,012 Pension expense 62,172 141,941 Employer contributions (260,077) (250,905) New net deferred inflows/outflows (209,860) (246,535) Recognition of prior deferred inflows/outflows 61,000 — Ending net pension liability $ 860,748 1,207,513

(i) Pension Plan Fiduciary Net Position Detailed information about the pension plan’s fiduciary net position is available in the separately issued Plan financial report.

(j) Pension Expense, Deferred Outflow of Resources, and Deferred Inflow of Resources At June 30, 2015 and 2014, the Power System has reported deferred outflow of resources of $287,599 and $0, and deferred inflow of resources of $682,995 and $246,535, respectively. The below table 62 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

summarizes the deferred inflow of resource and deferred outflow of resources at June 30, 2015 and 2014 (amounts in thousands).

June 30 Deferred Outflow of Resources 2015 2014 Changes in proportion and differences between entity contributions and proportionate share of contributions $ 1,400 — Changes of assumptions and other inputs 286,199 — Total deferred outflow of resources $ 287,599 —

June 30 Deferred Inflow of Resources 2015 2014 Changes in proportion and differences between entity contributions and proportionate share of contributions $ 4,311 5,641 Net difference between projected and actual earnings on pension plan investments 553,659 187,392 Difference between expected and actual experience in the total pension liability 125,025 53,502 Total deferred inflow of resources $ 682,995 246,535

In addition to the deferred outflows noted above, there are also $258,603 and $260,077 of deferred outflows related to pension contributions made after the measurement date as of June 30, 2015 and 2014, respectively. These deferred outflows of resources are recognized as a reduction of the net pension liability in the subsequent fiscal year. The net amount of deferred outflows of resources and deferred inflows of resources related to pensions that will be recognized in pension expense during the next five years and thereafter is as follows (amounts in thousands):

June 30 2015 2014 2015 — (60,797) 2016 (114,861) (60,797) 2017 (114,861) (60,797) 2018 (114,861) (60,797) 2019 (57,223) (3,347) 2020 6,410 — Total (395,396) (246,535)

63 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

(k) Pension Regulatory Asset In connection with the recognition of the net pension liability under GASB 68, the Power System established a regulatory asset in the amount of $1,563,012, equal to the net pension liability reported at July 1, 2013. The pension regulatory asset is expected to be amortized over a period not to exceed 15 years. Amortization of the regulatory asset totaled $255,766 and $369,041 for the years ended June 30, 2015 and 2014, respectively.

(12) Other Postemployment Benefit (Healthcare) Plan (a) Plan Description The Department provides certain other postemployment benefits (OPEB), such as medical and dental plans, to active and retired employees and their dependents. The healthcare plan is administered by the Department. The Retirement Board and the Board have the authority to approve provisions and obligations. Eligibility for benefits for retired employees is dependent on a combination of age and service of the participants pursuant to a predetermined formula. Any changes to these provisions must be approved by the Retirement Board and the Board. The total number of active and retired Department participants entitled to receive benefits was approximately 16,792 and 16,491 for the fiscal years ended June 30, 2015 and 2014, respectively.

The health plan is a single-employer defined benefit plan. During fiscal year 2007, the Retiree Health Benefits Fund (the Fund) was created to fund the postemployment benefits of the Department. The Fund is administered as a trust and has its own financial statements. Such financial statements can be obtained from the Department of Water and Power Retirement Office, 111 North Hope, Room 357, Los Angeles, California 90012.

(b) Funding Policy The Department pays a monthly maximum subsidy of $1,802 for medical and dental premiums depending on the employee’s work location and benefits earned. Participants choosing plans with a cost in excess of the subsidy they are entitled to are required to pay the difference.

Although no formal funding policy has been established for the future benefits to be provided under this plan, the Department has made significant contributions into the Fund during previous years. In fiscal year 2015, the Department paid $73.3 million in retiree medical premiums. In fiscal year 2014, the Department paid $74.6 million in retiree medical premiums. No additional transfers to the Fund were made in fiscal years 2015 and 2014. The Power System’s portion of retiree medical premium payments was $47.8 million and $50.7 million for 2015 and 2014, respectively. The remaining portion was paid by the Water System.

(c) Annual OPEB Cost and Net OPEB Obligation The annual OPEB cost (expense) is calculated based on the employer ARC, an amount actuarially determined in accordance with the parameters of GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. The ARC represents a

64 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

level of funding that, if paid on an ongoing basis, is projected to cover normal cost under each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years.

The following table shows the components of the Department’s annual OPEB cost for the year, the amount actually contributed to the Plan, and changes in the net OPEB asset (amounts in thousands): Year ended June 30 2015 2014 Annual required contribution $ 73,354 60,676 Interest on net OPEB asset (75,980) (76,461) Adjustment to annual required contribution 70,776 66,869 Annual OPEB costs 68,150 51,084 Department contributions made (73,343) (74,625) Change in net OPEB asset (5,193) (23,541) Net OPEB asset – beginning of year (978,231) (954,690) Net OPEB asset – end of year $ (983,424) (978,231)

The following table shows the components of the Power System’s share in annual OPEB cost for the year, the amount actually contributed to the Plan, and changes in the net OPEB asset (amounts in thousands): Year ended June 30 2015 2014 Annual required contribution $ 49,880 41,259 Interest on net OPEB asset (51,666) (51,993) Adjustment to annual required contribution 48,128 45,471 Annual OPEB costs 46,342 34,737 Department contributions made (47,783) (50,749) Change in net OPEB asset (1,441) (16,012) Net OPEB asset – beginning of year (668,451) (652,439) Net OPEB asset – end of year $ (669,892) (668,451)

65 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

The Department’s annual OPEB cost, the percentage of ARC contributed to the Plan, and the net postemployment asset for fiscal years 2015, 2014, and 2013 were as follows (amounts in thousands): 2015 2014 2013 Annual OPEB cost $ 68,150 51,084 38,311 Percentage of OPEB costs contributed 108% 146% 180% Net postemployment asset at end of year $ 983,424 978,231 954,690

The Power System’s share in the annual OPEB cost, the percentage of ARC contributed to the Plan, and the net retirement asset for fiscal years 2015, 2014, and 2013 were as follows (amounts in thousands): 2015 2014 2013 Annual OPEB cost $ 46,342 34,737 26,051 Percentage of OPEB costs contributed 103% 146% 180% Net postemployment asset at end of year $ 669,892 668,451 652,439

(d) Funded Status and Funding Progress Based on Latest Actuarial Study On October 30, 2015, the latest actuarial study as of July 1, 2015 was completed for fiscal year 2015. As of July 1, 2015, the Department’s actuarial value of assets was $1.64 billion and AAL for benefits was $1.96 billion, resulting in a UAAL of $0.32 billion. The covered payroll (annual payroll of active employees covered by the Plan) was $920 million, and the ratio of the UAAL to the covered payroll was 35%.

As of July 1, 2014, the Department’s actuarial value of assets was $1.49 billion and AAL for benefits was $1.95 billion, resulting in a UAAL of $0.46 billion. The covered payroll (annual payroll of active employees covered by the Plan) was $900 million, and the ratio of the UAAL to the covered payroll was 51%.

As of July 1, 2013, the Department’s actuarial value of assets was $1.33 billion and AAL for benefits was $1.74 billion, resulting in a UAAL of $0.41 billion. The covered payroll (annual payroll of active employees covered by the Plan) was $900 million, and the ratio of the UAAL to the covered payroll was 46%.

Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined

66 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

regarding the funded status of the Plan and ARCs of the Department are subject to continual revision as actual results are compared with past expectations and new estimates are made for the future. The schedule of funding progress, presented as required supplementary information, presents information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the AAL for benefits.

(e) Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan understood by the Department and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the Department and the plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in AAL and the actuarial value of assets, consistent with the long-term perspective of the calculations.

In the July 1, 2015 actuarial valuation, the entry age normal cost method was used. The actuarial assumptions include 7.50% discount rate, which represents the expected long-term return on plan assets, and an annual healthcare cost trend rate of 6.75% initially, reduced by decrements to an ultimate rate of 5.00% over seven years. Both rates include a 3.25% inflation assumption. The actuarial value of assets was determined using techniques that spread UAAL being amortized as a level percentage of projected payroll over a closed 30-year period with 20 years remaining.

In the July 1, 2014 actuarial valuation, the entry age normal cost method was used. The actuarial assumptions include 7.50% discount rate, which represents the expected long-term return on plan assets, and an annual healthcare cost trend rate of 7.00% initially, reduced by decrements to an ultimate rate of 5.00% over seven years. Both rates include a 3.25% inflation assumption. The actuarial value of assets was determined using techniques that spread UAAL being amortized as a level percentage of projected payroll over a closed 30-year period with 21 years remaining.

In the July 1, 2013 actuarial valuation, the entry age normal cost method was used. The actuarial assumptions include 7.75% discount rate, which represents the expected long-term return on plan assets, and an annual healthcare cost trend rate of 8.0% initially, reduced by decrements to an ultimate rate of 5.00% over seven years. Both rates include a 3.50% inflation assumption. The actuarial value of assets was determined using techniques that spread UAAL being amortized as a level percentage of projected payroll over a closed 30-year period with 22 years remaining.

(f) Healthcare Reform Legislation The Patient Protection and Affordable Care Act (PPACA) was signed into law on March 23, 2010. One key provision of the PPACA is the assessment of the excise tax on high-cost plans (Cadillac Plans) beginning in 2018. Under this act, a 40% excise tax applies to plans with costs exceeding certain annual thresholds for non-Medicare retirees aged 55–64 ($11,850 for single coverage; $30,950 for family coverage). For all other retirees, the thresholds in 2018 are $10,200 for single coverage and $27,500 for family coverage. Significant uncertainties exist regarding the impact of the excise tax on high-cost plans without further regulatory guidance. Management estimated the potential impact of this tax on the liability is based on unadjusted thresholds and assuming the tax is shared between the Department

67 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

and its participants in the same way that the current costs are shared. The estimated impact of the 40% excise tax provision on high-cost plans beginning in 2018, under the healthcare reform, is reflected in all actuarial valuation reports after July 1, 2010.

(g) Death and Disability Benefits The Power System's allocated share of death and disability benefit plan costs and administrative expenses totaled $20.7 million and $19.4 million for fiscal years 2015, and 2014, respectively.

(13) Other Long-Term Liabilities and Deferred Inflows (a) Other Long-Term Liabilities and Deferred Inflows The Power System has the following other long-term liabilities and deferred inflows (amounts in thousands):

Balance Balance July 1, June 30, Current 2014 Additions Reductions 2015 portion Accrued liabilities $ 5,327 — (1,720) 3,607 — Deferred inflows: Rate stabilization 174,001 — — 174,001 — Other 2,782 — (226) 2,556 — $ 176,783 — (226) 176,557 —

Accrued workers’ compensation claims $ 56,650 — (2,142) 54,508 — Derivative instrument liabilities $ 48,517 — (5,273) 43,244 —

Balance Balance July 1, June 30, Current 2013 Additions Reductions 2014 portion Accrued liabilities $ 7,047 — (1,720) 5,327 — Deferred inflows: Purchased power 18,069 — (18,069) — — Rate stabilization 117,443 56,558 — 174,001 — Other 2,811 — (29) 2,782 — $ 138,323 56,558 (18,098) 176,783 —

Accrued workers’ compensation claims $ 52,221 4,429 — 56,650 — Derivative instrument liabilities $ 67,275 — (18,758) 48,517 —

68 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

(b) Deferred Inflows from Regulated Business Activities The Department has deferred inflows that are related to revenues collected from customers, but have not been earned. These funds are deferred and recognized as costs related to these deferrals are incurred.

i. Purchased Power Deferrals During fiscal year 2006, the Board approved the suspension of deferring precollected purchased power costs and the reversal of the precollected purchased power costs recorded in prior years. The amount reversed is the cost of energy from IPP less the amount designated in rates for out-of-market purchased power costs. The reversal of the deferred credit is credited to retail sales. During fiscal year 2014, the Power System reversed $18.1 million related to precollected purchased power costs. At June 30, 2015 and 2014, $0 and $18.1 million, respectively, remain as part of deferred inflows related to precollected purchased power costs.

ii. Rate Stabilization Account In April 2008, the City Council approved an amendment to the electric rate ordinance, which required the balance of the Rate Stabilization Account to be maintained separately from the Energy Cost Adjustment Account. The ordinance also directed that the deferred amount within the Energy Cost Adjustment Account be the beginning balance of the Rate Stabilization Account. As of June 30, 2015 and 2014, the balance in the Rate Stabilization Fund was $174 million.

(c) Accrued Workers’ Compensation Claims Liabilities for unpaid workers’ compensation claims are recorded at their present value when they are probable of occurrence and the amount can be reasonably estimated. The liability is actuarially determined, based on an estimate of the present value of the claims outstanding and an amount for claim events incurred but not reported based upon the Department’s loss experience, less the amount of claims and settlements paid to date. The discount rate used to calculate this liability at its present value was 4% at June 30, 2015 and 2014. The Department has third-party insurance coverage for workers’ compensation claims in excess of $1 million.

Overall indicated reserves for workers’ compensation claims, for both the Water System and the Power System, undiscounted, have decreased from $100 million as of June 30, 2014 to $95 million as of June 30, 2015. The decrease is mainly attributable to a decrease in the number of cases filed at the Department. Workers’ compensation claims typically take longer than one year to settle and close out. The entire discounted liability is shown as long-term in the statement of net position as of June 30, 2015 and 2014.

69 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

Changes in the Department’s undiscounted liability since June 30, 2013 are summarized as follows (amounts in thousands): June 30 2015 2014 2013 Balance at beginning of year $ 99,519 90,894 74,300 Current year claims and changes in estimates 26,727 33,945 37,561 Payments applied (30,867) (25,320) (20,967) Balance at end of year $ 95,379 99,519 90,894

The Power System’s portion of the discounted reserves as of June 30, 2015 and 2014 is $54.5 million and $56.7 million, respectively.

(14) Commitments and Contingencies (a) Transfers to the Reserve Fund of the City of Los Angeles Under the provisions of the City Charter, the Power System transfers funds at its discretion to the reserve fund of the City. Pursuant to covenants contained in the bond indentures, the transfers may not be in excess of the increase in net position before transfers to the reserve fund of the City of the prior fiscal year. Such payments are not in lieu of taxes and are recorded as a transfer in the statements of revenues, expenses, and changes in net position.

The Department authorized total transfers of $266 million and $253 million in fiscal years 2015 and 2014, respectively, from the Power System to the reserve fund of the City.

(b) PVNGS Matters As a joint project participant in PVNGS, the Department has certain commitments with respect to nuclear spent fuel and waste disposal. Under the Nuclear Policy Act, the Department of Energy (DOE) was to develop facilities necessary for the storage and disposal of spent fuel and to have the first such facility in operation by 1998; however, the development of the repository designated at Yucca Mountain in the state of Nevada was postponed indefinitely for political reasons after DOE spent billions of dollars conducting feasibility studies. A Blue Ribbon Committee was formed by the federal government to look into other alternatives for nuclear waste disposal. In 2012, the committee submitted a final list of recommendations, which include prompt efforts to develop a new geological disposal facility and one or more consolidated storage facilities, and early preparation for eventual large-scale transport of spent fuel to storage and disposal facilities.

Capacity in existing fuel storage pools at PVNGS was exhausted in 2003. A Dry Cask Storage Facility (also called the Independent Spent Fuel Storage Installation, ISFSI) was built and completed in 2003 at a total cost of $33.9 million (about $1.9 million for the Department). The facility has the capacity to store all the spent fuel generated by the plant until the end of its life in 2027. With the current operating license extension granted by the Nuclear Regulatory Commission, PVNGS is allowed to

70 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

operate until 2047. The Dry Cask Storage Facility will be expanded as needed to accommodate additional spent fuel until it is removed by DOE. As of June 30, 2015, 129 dry casks, each containing 24 spent fuel assemblies, have been stored. In addition, beginning in 2016, PVNGS is expected to use the newly designed “Magnastor” casks that contain 36 spent fuel assemblies, allowing the dry cask storage facility to accept more spent fuel.

The Department accrues for current nuclear fuel storage costs as a component of fuel expense as the fuel is used. The Department’s share of spent nuclear fuel costs related to its indirect interest in PVNGS is included in purchased power expense.

Because of the DOE’s inability to provide a disposal site, the PVNGS operating agent filed damages actions against the DOE to recover costs incurred by the PVNGS participants. A settlement was reached in August 2010 in the amount of $30.2 million from DOE, of which $1.7 million is the Department’s share of the settlement that covers costs incurred up to 2006. In June 2015, the Deptartment received a payment in the amount of $2.4 million for its share of settlement with DOE. Additional cost recovery is being pursued for the period post-2006.

The Price Anderson Act (the Act) requires that all utilities with nuclear generating facilities share in payment for claims resulting from a nuclear incident. Participants in PVNGS currently insure potential claims and liability through commercial insurance with a $375 million limit; the remainder of the potential liability is covered by the industry-wide retrospective assessment program provided under the Act. This program limits assessments to a maximum of $118 million per reactor for each licensee for each nuclear incident occurring at any nuclear reactor in the United States; payments under the program are limited to $18 million per reactor, per incident, per year. Based on the Department’s 5.70% direct interest, the Department would be responsible for a maximum assessment of $20 million per incident for all three units, limited to payments of $3 million per incident annually.

The NRC guidelines require improved security in immediate areas surrounding the reactor buildings. PVNGS has enlarged the protected area with the inclusion of an outage support facility, a new warehouse, a minor vehicle maintenance facility, and a fuel depot to reduce vehicular traffic in and out of the protected area. While some of these facilities have already been constructed and are currently in service, the estimated cost for the remaining facilities is approximately $1.1 million to the Department.

Other major capital projects that are currently in progress include the cybersecurity upgrade, digital upgrade of the Generrex generator excitation system, the life extension of the Water Reclamation Facility’s clarifiers, the spray pond concrete replacement, the Nuclear Administrative and Technical Manual replacement, and the construction of the Learning Center-In Processing facility. These, along with other regulatory plant modifications, are currently estimated at $235 million in 2014, which translates to approximately $13.4 million for the Department. Also anticipated in the long-range plan are $224 million ($12.7 million for the Department) worth of capital projects, which include the cooling tower life extension long-range plan; upgrades to the high-pressure turbines and electrohydraulic controls; and the replacement of the reactor coolant pumps, Control Element Drive Mechanism Control System (CEDMCS), plant cooling water pipelines, and the Site Work Management System (SWMS).

71 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

In response to the nuclear event in Fukushima, Japan, the NRC has required PVNGS to increase the redundancy in its power supply to emergency cooling systems, reinforce its spent fuel pool, accelerate the transfer of spent fuel from the pool to the dry cask storage, and add pipelines and associated equipment necessary for supplying additional cooling water to the reactors. To date, the station has purchased additional diesel generators, pumps, and fire trucks and has also accelerated the movement of its spent fuel casks to the ISFSI. In addition to these, Palo Verde has allotted approximately $82 million (approximately $4.7 million for the Department) for Fukushima initiatives, which include fuel building modifications, an emergency equipment storage facility, temporary power connections, seismic and flood hazards validation, and corresponding mitigating strategies, among several others. All Fukushima-upgrade-related activities are expected to be complete by end of 2016. Additional NRC-mandated requirements are anticipated, but the costs associated with these future projects are unknown at this time.

(c) Environmental Matters Numerous environmental laws and regulations affect the Power System’s facilities and operations. The Department monitors its compliance with laws and regulations and reviews its remediation obligations on an ongoing basis. The following topics highlight some of the major environmental compliance issues affecting the Power System:

i. Air Quality – Nitrogen Oxide (NOx) Emissions The Power System’s generating station facilities are subject to the Regional Clean Air Incentives Market (RECLAIM) NOx emission reduction program adopted by the South Coast Air Quality Management District (SCAQMD). In accordance with this program, SCAQMD established annual NOx allocations for RECLAIM NOx facilities based on historical emissions and type of emission sources operated. These allocations are in the form of RECLAIM trading emission credits (RTCs). Facilities that exceed their allocations may buy RTCs from other companies that have emissions below their allocations. The Department has a program of installing emission controls and purchasing RTCs, as necessary, to meet its emission requirements.

As a result of the installation of NOx control equipment and the repowering of existing units, the Department has sufficient RTCs to meet its native load requirements for normal operations.

ii. Air Quality – Greenhouse Gas Emissions In September 2006, the state of California adopted two new laws designed to reduce greenhouse gas (GHG) emissions in California. The first, Assembly Bill 32, the California Global Warming Solutions Act of 2006, requires the California Air Resources Board (ARB) to develop regulations to reduce statewide GHG emissions back to 1990 levels by 2020. In 2007, the ARB established California’s 1990 GHG emissions baseline and developed a mandatory reporting regulation to require California sources to report their GHG emissions annually starting with 2008 data. In December 2008, the ARB adopted its Initial AB 32 Climate Change Scoping Plan, which serves as California’s blueprint for reducing GHG emissions.

72 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

The Initial Scoping Plan includes the following emission reduction measures applicable to the electricity sector: (1) increase renewable energy to 33%, (2) expand energy efficiency programs, (3) reduce SF6 emissions from gas insulated electrical switchgear, and (4) establish a GHG cap-and-trade program. The cap-and-trade program sets a statewide cap on GHG emissions beginning in January 2013, with the cap declining two to three percent per year from 2013 to 2020. The cap-and-trade program covers GHG emissions from all electricity generated in California or imported from other states, in-state industrial, and manufacturing facilities, as well as natural gas and transportation fuels consumed in California.

In May 2014, ARB adopted the First Update to the AB 32 Scoping Plan, which describes process made to meet the near-term objectives of AB 32 and establishes California’s climate change priorities and activities over the next several years. It also states activities and issues facing California as it develops an integrated framework for achieving climate goals and federal clean air standards in California beyond 2020.

The second bill adopted by the state of California is designed to reduce greenhouse gas emissions from the generation of electricity consumed in California. Senate Bill 1368 requires the California Public Utilities Commission (CPUC) and the California Energy Commission (CEC) to establish a greenhouse gas emissions performance standard and implement regulations governing long-term financial commitments in base load generation made by load serving entities (LSEs) including publicly owned electric utilities (POUs). These regulations are intended to prohibit any California LSE from entering into or renewing a long-term financial commitment with a base load generating resource that exceeds the greenhouse gas emissions performance standard, currently set at 1,100 pounds carbon dioxide per megawatt hour of electricity generated. This means that when existing contracts with high-emitting generating resources expire, those resources will be replaced by lower emitting generating resources that comply with the greenhouse gas emissions performance standard.

At the federal level, several legislative bills have been proposed or introduced, but none have passed Congress. However, the United States Environmental Protection Agency (EPA) adopted its Prevention of Significant Deterioration (PSD) and Title V Greenhouse Gas Tailoring Rule in June 2010, which established a phased timetable for implementing Clean Air Act permitting requirements for GHG emissions from new and modified major stationary sources. In June 2014, the U.S. Supreme Court held that the Clean Air Act does not permit EPA to adopt an interpretation of the Act requiring a source to obtain a PSD or Title V operating permit on the sole basis of its potential GHG emissions. The court also held that EPA reasonably interpreted the Clean Air Act to require sources that would need permits based on their emission of conventional pollutants to comply with Best Available Control Technology GHG requirements. The Power System’s in-basin repowering projects would be subject to the permitting requirements under EPA’s Tailoring Rule. Also, any new GHG requirements will be incorporated in the Power System’s generating stations’ Title V operating permits when the permits are renewed.

In addition to the PSD permit program, EPA is also in the process of developing a GHG regulatory program under the New Source Performance Standards (NSPS) provisions of the

73 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

Clean Air Act. On December 23, 2010, the EPA entered a settlement agreement and agreed to issue NSPS and emissions guidelines for GHG emissions from new and modified fossil-fuel-fired electric generating units (EGUs). On April 13, 2012, the EPA published in the Federal Register its proposed rule for GHG NSPS for new EGUs. EPA received over 2.5 million comments, the most ever for a proposed EPA rule.

On June 25, 2013, President Obama announced initiatives addressing climate change. In his announcement, he directed EPA to repropose GHG emission standards for new EGUs by September 20, 2013. He also directed EPA to propose guidelines for existing EGUs by June 2014 and finalize them a year later.

EPA released the reproposed standards on September 20, 2013 and proposed to set an emission’s limit of 1,100 pounds of CO2 per megawatt-hour (MWh) of electricity generated by new coal-fired EGUs and an emission limit of either 1,000 or 1,100 lb/MWh (depending on size) for new natural gas-fired EGUs. Written comments were due to EPA on May 9, 2014. The Department cannot predict the outcome of this rulemaking.

On June 18, 2014, EPA’s proposed Clean Power Plan for reducing CO2 from existing power plants was published in the Federal Register. The proposal requires each state with fossil-fuel-fired generation to meet state-specific rate-based (lb/MWh) CO2 emission goals by 2030 as well as an interim reduction target, which is an average emission rate required to be met over the period 2020 to 2029. The proposal also allows states to convert their emission rate goals to a mass-based limit (tons CO2/year) and provides guidelines for states to follow in developing plans to achieve the state-specific goals. Clean Air Act Section 111(d) provides states with the primary responsibility and authority to establish and implement performance standards for existing sources and states will have broad discretion to develop their plans. The Department cannot predict how the guidelines will impact its operations at this time. iii. EPA Coal Combustion Residuals Proposed Rules On June 21, 2010, the U.S. Environmental Protection Agency (EPA) proposed to establish federal standards to regulate coal combustion residuals (coal ash). The two options being considered are to designate coal ash as either hazardous or nonhazardous. The hazardous waste proposal would phase out the disposal of ash in wet storage ponds. The nonhazardous designation would set federal guidelines for state disposal that require the installation of additional liners on new wet storage pond. Both options set new requirements for storing and monitoring the waste in dry landfills.

On April 17, 2015, the EPA promulgated the final coal combustion residuals (CCR) rule. The rule regulates CCR as a nonhazardous waste under Subtitle D of RCRA and became effective on October 19, 2015. The rule is self-implementing; it does not require regulated facilities to obtain permits and therefore cannot be enforced by EPA. The rule’s only compliance mechanism is for a state or citizen group to bring a RCRA citizen suit in federal district court.

The rule is applicable to all coal fired power plants operating as of the effective date. Upon analysis of the new CCR rule requirements, the IPP may not meet the design criteria required

74 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

for surface impoundments and identified four options to meet the compliance requirements. The IPP is considering two of those options to meet operational needs. One option would require the IPP to close surface impoundments by 2023 and to construct a system to manage bottom ash. The other option would be to cease operations of the coal-fired boilers no later than 2028 and switch to another fuel source for generation. The IPP has until 2018 to make a final decision on which option they will choose. The cost of compliance for the two options is estimated to range from $48 million to $85 million.

The IPP is on schedule to meet all interim compliance requirements for the new CCR including those that went into effect October 19, 2015 which include:

 Set up public website and posting CCR operating records

 Develop new groundwater monitoring wells, sampling plans and begin quarterly sampling

 Develop and implement fugitive dust monitoring plan iv. Power Plant Once-through Cooling Water Systems Once-through cooling (OTC) is the process where water is drawn from a source, pumped through equipment to provide cooling, and then discharged. Some type of cooling process is necessary for nearly every type of traditional electrical generating station, and the OTC process is utilized by many electrical generating stations located next to large bodies of water. Typically, the water used for cooling is not chemically changed in the process although its temperature is increased.

Due to the Second Circuit Court’s decision to remand most of the EPA’s 316(b) Rule finalized in July 2004, EPA suspended this rule and drafted a new rule that was signed by EPA on May 16, 2014, a prepublished version was released on May 19, 2014. The final rule was published in the Federal Register on August 15, 2014, and became effective on October 14, 2014. The new rule requirements applies to cooling water intake structures for all existing power generating facilities that withdraw more than 2 million gallons per day of water from waters of the United States and use at least 25% of the water they withdraw exclusively for cooling purposes. Under this rule, an owner or operator of an existing facility will be able to choose from seven different compliance options for impingement mortality (IM): Option 1 – operate a closed-cycle recirculating system; Option 2 – reduce the maximum design through screen velocity not to exceed 0.5 feet per second (fps) during minimum source water levels; Option 3 – demonstrate actual through screen velocity is less than or equal to 0.5 fps under all ambient conditions; Option 4 – Have an existing (minimum 800 feet offshore) velocity cap; Option 5 – install modified traveling water screens and optimize performance in a two-year study; Option 6 – integrated technologies, practices, and operational measures that are optimized in a two-year study; Option 7 – demonstrate that impingement mortality is reduced to no more than 24% annually based on monthly monitoring. In addition to these options, compliance requirements can be waived by the permitting director if it can be demonstrated that (1) impingement is de minimis, (2) if the capacity utilization rate is less than 8% averaged over a 24-month contiguous period, and (3) if the intake is located on a manmade lake or reservoir and the fishery is managed 75 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

(but does not include any federal threatened and endangered species or critical habitat). For entrainment mortality, the rule requires entrainment studies and evaluation of entrainment technologies (including closed-cycle cooling, fine mesh/narrow slot screens, grey and reused water) as well as environmental impacts and benefits. Determination of compliance is by the permitting authority and could result in retrofitting to closed-cycle cooling. The compliance schedule for both IM and Entrainment is on a case-by-case, site-specific basis, determined by the permitting authority. The Department’s compliance for IM and E and schedule has already been determined by its permitting authority, the State Water Resource Control Board, which is to eliminate the use of OTC by 2029 with closed-cycle cooling. The Department is evaluating if there are any other potential impacts of the rule on its facilities.

During the absence of the EPA’s 316(b) Rule, the California State Water Resources Control Board (State Board) decided to move forward and adopt its own statewide 316(b) Policy on May 4, 2010. The 316(b) Policy became effective on October 1, 2010. This policy requires the Department’s coastal power plants to reduce OTC by 93%–equivalent to wet cooling towers using seawater. This is referred to as the Track 1 compliance path. If the Track 1 compliance path is found to be infeasible, with concurrence from the State Board, a Track 2 compliance path can be pursued, which requires that the cooling water intake structure (CWIS) achieve an IM/E reduction level of 90% of the Track 1 compliance standard or 83.7% on a unit-by-unit basis. The Department has made a decision to pursue the Track 1 compliance path, in order to comply with the 316(b) Policy and completely eliminate the use of OTC. The Department was successful in having the 316(b) Policy amended to extend the compliance dates, for six out of the nine remaining OTC units, to 2024 for Scattergood and 2029 for Haynes and Harbor. The other three OTC units have already or are still on schedule to be repowered with eliminating OTC by December 31, 2015. The Amendment to the 316(b) Policy was adopted on July 19, 2011. The Amendment required the Department to submit additional information responsive to the Statewide Advisory Committee on Cooling Water Intake Structures (SACCWIS) resolution by December 31, 2012 in order for the State Board to decide whether or not modifications to the 2029 compliance dates were warranted. The additional information required by SACCWIS was submitted by the Department and the State Board did not make any modifications to the Department’s 2029 compliance dates. Furthermore, the amendment requires implementation of interim measures; these measures include a proposal to study new and/or viable existing technologies to reduce IM and E. The proposal must be submitted to the State Board no later than December 31, 2015. Upon approval of the proposal, the interim measures must be in place no later than December 31, 2020. These interim measures will include the funding of a mitigation project or the use of screens or an equivalent alternative measure at each OTC unit or intake until the facility is in full compliance. On November 4, 2014, the Department submitted proposals for each Haynes and Harbor generating stations and is awaiting a response back from the State Board. The Scattergood generating station proposal will be submitted by December 31, 2015 as required.

In addition, other regulatory changes have been made that could significantly impact operations at the Haynes and Harbor generating stations. The Regional Water Quality Control Board reclassified the body of water that the OTC water is discharged to an enclosed bay for the Harbor

76 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

generating station, and sent a letter of intent to reclassify the receiving water body of water as an estuary for the Haynes generating station discharge. Even though the Haynes generating station will be repowering existing units, should there be a reclassification for the water body discharges at the Haynes generating station, there will be requirements that cannot be met with its existing cooling or future repowered configuration. The Department is in the process of working with the Regional Board on a resolution to this issue.

v. Pollution and Remediation Obligations The Department follows GASB Statement No. 49, Accounting and Financial Reporting for Pollution and Remediation Obligations (GASB Statement No. 49). This statement addresses accounting and financial reporting standards for pollution (including contamination) remediation obligations, which are obligations to address the current or potential detrimental effects of existing pollution by participating in pollution remediation activities such as site assessments and cleanups. The scope of the statement excludes pollution prevention or control obligations with respect to current operations, and future pollution remediation activities that are required upon retirement of an asset, such as landfill closure and postclosure care and nuclear power plant decommissioning. The Power System’s obligations were approximately $25.1 million and $25.6 million as of June 30, 2015 and 2014, respectively.

(d) Litigation i. Capital Facilities Fee Claims In June 2007, the Department received a tentative decision in favor of the state and a number of local government agencies that are electric customers of the Department that claimed that the Department has rates that include a capital facilities’ charge that violates the state’s statute. However, in October 2008, the Department settled the case and recorded the $160 million settlement amount. Additionally, as permitted by the regulatory accounting criteria set forth per the GASB Codification (GASB Statement No. 62), the Board approved to defer all potential costs associated with the resolution of this litigation and establish a corresponding long-term deferred asset to be recovered through future revenues over a period of up to 10 years, if necessary.

ii. Other A number of claims and suits are also pending against the Department for alleged damages to persons and property and for other alleged liabilities arising out of its operations. In the opinion of management, any ultimate liability, which may arise from these actions, is not expected to materially impact the Power System’s financial position, results of operations, or cash flows as of June 30, 2015.

(e) Risk Management The Power System is subject to certain business risks common to the utility industry. The majority of these risks are mitigated by external insurance coverage obtained by the Power System. For other significant business risks, however, the Power System has elected to self-insure. Management believes

77 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Notes to Financial Statements June 30, 2015 and 2014

that exposure to loss arising out of self-insured business risks will not materially impact the Power System’s financial position, results of operations, or cash flows as of June 30, 2015.

(f) Credit Risk Financial instruments, which potentially expose the Power System to concentrations of credit risk, consist primarily of retail and wholesale receivables. The Power System’s retail customer base is concentrated among commercial, industrial, residential, and governmental customers located within the City. Although the Power System is directly affected by the City’s economy, management does not believe significant credit risk exists at June 30, 2014, except as provided in the allowance for losses. The Power System manages its credit exposure by requiring credit enhancements from certain customers and through procedures designed to identify and monitor credit risk.

(g) Subsequent Events In October 2015, the Power System issued $268.59 million of fixed-rate, tax-exempt Power System Revenue Bonds, 2015 Series B. The net proceeds of $300 million, including a $31.41 million issue premium net of underwriter’s discount, were used to refund all of the $300 million outstanding Power System Revenue Bonds, 2012 Series C (the “Refunded Bonds”). The transaction resulted in a net gain for accounting purposes of $2.79 million, which was deferred and is being amortized over the life of the Refunded Bonds.

On October 20, 2015, the Board of Water and Power Commissioners approved Resolution No. 4900 which authorized LADWP to establish and maintain up to a combined $500 million Revolving Line of Credit for both the Water and Power Systems. On November 17, 2015, the Board authorized the execution of a Revolving Credit Agreement (RCA) with Wells Fargo Bank, National Association (Wells Fargo) of up to $300 million. On December 17, 2015, the Department entered into a RCA with Wells Fargo in the principal amount not-to-exceed $300 million. Under the RCA, which expires on December 14, 2018, amounts due may be paid by the Department at any time at its option. The Department expects to pay principal amounts due under the RCA from proceeds of subsequent borrowings.

On December 1, 2015, the Board of Water and Power Commissioners approved a resolution authorizing the adoption of an ordinance by the Los Angeles City Council to transfer money from the Power Revenue Fund to the Reserve Fund of the City of Los Angeles during Fiscal Year 2015/16 in the amount of $266,957,000. City Council approval by ordinance is required.

78 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Required Supplementary Information June 30, 2015 and 2014 (Unaudited)

Pension Plan - Schedule of Changes in the Power System’s Net Pension Liability and Related Ratios Last 10 Fiscal Years

(Amounts in thousands other than percentages)

Measurement Date of June 30 2014 2013 Total pension liability Service cost $ 130,580 128,078 Interest 528,452 498,469 Differences between expected and actual experience (103,987) (66,121) Changes of assumptions 354,290 — Benefit payments, including refunds of employee contributions (312,590) (295,686) Net change in total pension liability 596,745 264,740 Total pension liability – beginning 6,806,659 6,541,919 Total pension liability – ending (a) $ 7,403,404 6,806,659 Plan fiduciary net position Contributions – employer $ 262,384 251,382 Contributions – employee 48,750 46,951 Net investment income 947,812 620,112 Benefit payments, including refunds of employee contributions (312,590) (295,686) Administrative expenses (2,846) (2,520) Net change in plan fiduciary net position 943,510 620,239 Plan fiduciary net position – beginning 5,599,146 4,978,907 Plan fiduciary net position – ending (b) $ 6,542,656 5,599,146 Power system's net pension liability (a)-(b) $ 860,748 1,207,513 Plan fiduciary net position as a percentage of total pension liability 88.4% 82.3% Covered-employee payroll $ 554,731 551,159

Net pension liability as a percentage of covered-employee payroll 155.2% 219.1%

The Power System implemented GASB Statement No. 68 effective July 1, 2013, therefore, no information is available for the measurement periods prior to June 30, 2013.

See independent auditors’ report and accompanying notes to schedule of changes in Power System’s net position liability and related ratios.

79 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Required Supplementary Information June 30, 2015 and 2014 (Unaudited)

Notes to Schedule and Changes in Power System’s Net Position Liability and Related Ratios Changes of assumptions: The following is a summary of the changes in assumptions. June 30 2014 2013 Actuarial assumptions: Investment rate of return 7.50% 7.75% Inflation rate 3.25% 3.50% Projected salary increases 4.75% to 10.00% 5.35% to 10.50%

See accompanying independent auditors’ report.

80 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Required Supplementary Information June 30, 2015 and 2014 (Unaudited)

Schedule of Department Contributions Last 10 Fiscal Years

(Amounts in thousands other than percentages)

Contributions Contributions in Relation to as a Percentage Actuarially the Actuarially Contributions Covered- of Covered Determined Determined Deficiency Employee Employee June 30 Contributions Contributions (Excess) Payroll Payroll

2015 $ 455,683 376,902 78,781 900,126 41.87% 2014 387,824 384,266 3,558 819,924 46.87% 2013 376,668 368,426 8,242 817,421 45.07% 2012 336,875 321,689 15,186 805,607 39.93% 2011 304,432 286,699 17,733 791,760 36.21% 2010 200,579 201,035 (456) 767,912 26.18% 2009 141,292 145,941 (4,649) 696,704 20.95% 2008 134,651 141,862 (7,211) 623,675 22.75% 2007 110,269 101,556 8,713 574,316 17.68% 2006 80,785 75,490 5,295 554,840 13.61% See independent auditors’ report and accompanying notes to schedule of Department contributions.

81 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Required Supplementary Information June 30, 2015 and 2014 (Unaudited)

Notes to Schedule of Department Contributions: Actuarially determined contribution rates are calculated as of June 30, one year prior Valuation date to the end of the fiscal year in which contributions are reported. Actuarial cost method Entry age actuarial cost method

Amortization method Level dollar amortization The July 1, 2004 Unfunded Actuarial Accrued Liability is amortized over a 15-year period commencing July 1, 2004. Any subsequent changes in Unfunded Actuarial Remaining amortization period Accrued Liability are amortized over separate 15-year periods effective with that valuation. The market value of assets less unrecognized returns in each of the last five years. Unrecognized return is equal to the difference between the actual market returns and Asset valuation method the expected returns on a market value basis, and is recognized over a five-year period. As directed by the Retirement Office, the actuarial valuation of assets may be reduced by an amount classified as a nonvaluation reserve.

June 30, 2014 June 30, 2013

Actuarial assumptions: Investment rate of return 7.50% 7.75% Inflation rate 3.25% 3.50% Real across the board salary increase 75.00% 0.75% Project salary increase* 4.75% to 10.00% 5.35% to 10.50% 3.00% (actual increases are contingent 3.00% (actual increases are contingent upon CPI increases with a 3.00% upon CPI increases with a 3.00% maximum for Tier 1, 2.00% maximum maximum for Tier 1, 2.00% maximum Cost of living adjustments for Tier 2) for Tier 2) Healthy: RP-2000 Combined Healthy Healthy: RP-2000 Combined Healthy Mortality Table with ages set back one Mortality Table set back two years for Mortality year projected to 2030 with Scale AA males and one year for females Same as those used in the July 1, 2014 Same as those used in the July 1, 2013 Other assumptions funding actuarial valuation funding actuarial valuation All members hired on or after January 1, Other information 2014 enter Tier 2.

82 (Continued) LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM Required Supplementary Information June 30, 2015 and 2014 (Unaudited)

Postemployment Healthcare Plan – Schedule of Funding Progress The following schedule provides information about the Department’s overall progress made in accumulating sufficient assets to pay benefits when due, prior to allocations to the Water System and the Power System (amounts in thousands):

Actuarial UAAL as a Actuarial accrued Unfunded percentage Actuarial valuation value liability AAL Funded Covered of covered date July 1 of assets (AAL) (UAAL) ratio payroll payroll

2015 $ 1,637,578 1,956,230 318,652 84% $ 920,781 35% 2014 $ 1,485,140 1,947,912 462,772 76% $ 900,126 51% 2013 $ 1,332,136 1,743,727 411,591 76% $ 900,254 46%

See accompanying independent auditors’ report.

83 [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX C

SUMMARIES OF CERTAIN DOCUMENTS

TABLE OF CONTENTS Page

Summary of Certain Provisions of the Indentures ...... C-1 Summary of Certain Provisions of the Mead-Adelanto Agreements ...... C-27 Summary of Certain Provisions of the Mead-Adelanto Transmission Service Contract (LADWP) ...... C-27 Summary of Certain Provisions of the 1992 Mead-Adelanto Transmission Service Contracts (Members) .... C-33 Summary of Certain Provisions of the Mead-Adelanto Transmission Service Contract (Western) ...... C-41 Summary of Certain Provisions of the Mead-Adelanto Joint Ownership Agreement ...... C-41 Summary of Certain Provisions of the Mead-Adelanto Operation Agreement ...... C-45 Summary of Certain Provisions of the Mead-Adelanto Fiscal Agency Agreement ...... C-49 Summary of Certain Provisions of the Mead-Phoenix Agreements ...... C-50 Summary of Certain Provisions of the Mead-Phoenix Transmission Service Contract (LADWP) ...... C-50 Summary of Certain Provisions of the 1992 Mead-Phoenix Transmission Service Contracts (Members) ..... C-51 Summary of Certain Provisions of the Mead-Phoenix Transmission Service Contract (Western) ...... C-53 Summary of Certain Provisions of the Mead-Phoenix Joint Ownership Agreement ...... C-54 Summary of Certain Provisions of the Mead-Phoenix Operation Agreement ...... C-55 Summary of Certain Provisions of the Mead-Phoenix Fiscal Agency Agreement ...... C-57 Summary of Certain Provisions of the Land Rights Agreement ...... C-57

[THIS PAGE INTENTIONALLY LEFT BLANK]

SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURES

The Mead-Adelanto Indenture and the Mead-Phoenix Indenture are identical in all material respects. The following is a summary of certain provisions of the Indentures. This summary is not to be considered a full statement of the terms of the Indentures and accordingly is qualified by reference thereto and is subject to the full text thereof. As used in this summary, references to the “Indenture” shall mean either the Mead-Adelanto Indenture or the Mead-Phoenix Indenture, as applicable. References to “Bonds” shall mean either Mead-Adelanto Bonds or Mead-Phoenix Bonds, as applicable, and references to “2016 Series A Bonds” shall mean either 2016 Mead-Adelanto Bonds or 2016 Mead-Phoenix Bonds, as applicable. References to “Project” shall mean either the Mead-Adelanto Project or the Mead-Phoenix Project, as applicable. Capitalized terms not defined in this summary or elsewhere in the Official Statement have the meanings set forth in the respective Mead-Adelanto Indenture or Mead-Phoenix Indenture, as applicable.

Definitions

Accrued Debt Service shall mean, as of any date of calculation, an amount equal to the sum of the amounts of Debt Service with respect to any Series, calculating the accrued Debt Service with respect to such Series at an amount equal to the sum of (i) interest on the Bonds of such Series accrued and unpaid and to accrue to the end of the then current calendar month and (ii) Principal Installments due and unpaid and that portion of the Principal Installment for such Series next due that is to become due (if deemed to become due in the manner set forth in the definition of Debt Service) by the end of such calendar month.

Aggregate Debt Service for any period shall mean, as of any date of calculation, the sum of the amounts of Debt Service for such period with respect to all Series.

Annual Budget shall mean the Annual Budget relating to the Authority Interest (LADWP) described in the Indenture and prepared pursuant to the Transmission Service Contract (LADWP), adopted or in effect for a particular Fiscal Year as provided in the Indenture.

Authority Agent shall mean any agent appointed by the Authority pursuant to an agency agreement to act as an agent with respect to the Project.

Authority Expenses shall have the meaning ascribed thereto in the Transmission Service Contract.

Authority Operating Expenses shall mean, without duplication, each of the following as they relate to the Transmission Service Contract (LADWP) (i) Monthly Costs, (ii) any other current expenses or obligations required to be paid by the Authority under the provisions of the Indenture, or under the Project Agreements or by law to the extent properly allocable to Authority Interest (LADWP), or required or permitted to be incurred under or in connection with the performance of the Transmission Service Contract (LADWP), (iii) the fees and expenses of the Fiduciaries, (iv) to the extent not provided for in the most recently approved construction budget, Authority Expenses to the extent properly allocable to Authority Interest (LADWP), and (v) any other costs, expenses or obligations (other than the payment of principal, interest or premium on any Authority bonds, notes or other evidences of indebtedness relating to the Project) incurred by the Authority in carrying out its duties, responsibilities and obligations, and exercising its rights, under the Act, the Indenture, the Transmission Service Contract (LADWP), the Project Agreements and any other agreement with respect to the Project, all to the extent properly allocable to Authority Interest (LADWP).

Authorized Authority Representative shall mean (i) the President of the Authority, (ii) the Vice President of the Authority, (iii) the Executive Director of the Authority and (iv) any other officer or

C-1

employee of the Authority (including any officer or employee of an Authority Agent) authorized to perform specific acts or duties by resolution duly adopted by the Authority (or, in the case of an Authority Agent, by the applicable agency agreement therefor).

Bank shall mean the issuer of a Letter of Credit.

Bond or Bonds shall mean any bonds, notes or other evidences of indebtedness, as the case may be, authenticated and delivered under and pursuant to the Indenture and the Act.

Capital Improvement shall mean a Mead-Adelanto Capital Improvement or a Mead-Phoenix Capital Improvement, as applicable, as defined in the related Transmission Service Contract (LADWP).

Code shall mean the Internal Revenue Code of 1986.

Cost of Acquisition and Operations shall have the meaning ascribed thereto in the Transmission Service Contract (LADWP).

Debt Service for any period shall mean, as of any date of calculation and with respect to any Series, an amount equal to the sum of (i) interest accruing during such period on Outstanding Bonds of such Series, except to the extent that such interest is to be paid from deposits into the related Debt Service Account for such Series made from Bond proceeds and (ii) that portion of each Principal Installment of Outstanding Bonds of such Series that would become due during such period if such Principal Installment were deemed to become due daily in equal amounts from the next preceding Principal Installment due date for such Series (or, if there shall be no such preceding Principal Installment due date, from a date one year preceding the due date of such Principal Installment or from the date of issuance of the Bonds of such Series, whichever date is later); provided, however, that interest with respect to Paired Obligations shall be deemed to accrue at the combined fixed rate of such Paired Obligations. Such interest and Principal Installments for such Series shall be calculated on the assumption that no Bonds of such Series Outstanding at the date of calculation will cease to be Outstanding except by reason of the payment of each Principal Installment on the due date thereof; provided, however, that if the Authority certifies to the Trustee that any Principal Installment and, if applicable, interest to accrue with respect to such Principal Installment is expected to be refunded on or prior to the due date therefor, no such amounts need be included in the calculation of Debt Service and set aside toward such Principal Installment and, if applicable, the interest thereon to be so refunded.

Debt Service Account shall mean the Participating Bonds Debt Service Account or a Series Debt Service Account, as the context may require.

Debt Service Fund shall mean the Debt Service Fund established by the Indenture.

Debt Service Reserve Account shall mean the Participating Bonds Debt Service Reserve Account or a Series Debt Service Reserve Account, as the context may require.

Debt Service Reserve Account Policy shall mean any surety bond, insurance policy, line of credit, letter of credit or similar instrument issued to the Trustee by an entity licensed to issue a surety bond, insurance policy, line of credit, letter of credit or similar instrument guaranteeing the timely payment of debt service on one or more Series of Bonds (such entity, a “municipal bond insurer”), which municipal bond insurer, at the time any such surety bond, insurance policy, line of credit, letter of credit or similar instrument is issued, shall have its claims paying ability rated in not lower than the second highest rating category (without regard to any gradations within any such category) by at least two nationally- recognized credit rating agencies.

C-2

Debt Service Reserve Fund shall mean the Debt Service Reserve Fund established by the Indenture.

Debt Service Reserve Requirement shall mean, as of any date of calculation: (i) with respect to the Participating Bonds Debt Service Reserve Account, the amount, if any, specified as the Debt Service Reserve Requirement for all Participating Bonds in the first Supplemental Indenture relating to a Series of Bonds which are Participating Bonds; and (ii) with respect to any Series Debt Service Reserve Account, the amount, if any, specified as the Debt Service Reserve Requirement for the related Series of Bonds in the Supplemental Indenture establishing such Series Debt Service Reserve Account.

Defeasance Obligations shall mean, except as otherwise provided in a Supplemental Indenture:

(i) non-callable, direct obligations of the United States of America, or obligations fully and unconditionally guaranteed as to payment of principal and interest by the United States of America including, but not limited to, the interest components of Resolution Funding Corporation securities and obligations of the United States Agency for International Development, and non-callable, senior debt obligations of the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Federal Home Loan Bank System, and the Federal Farm Credit System (collectively, “Government Obligations”); or

(ii) any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local 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) rated no lower than the then- current rating on direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by an agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), or (b)(1) which are fully secured as to principal and interest and redemption premium, if any, by a fund consisting only of cash and/or Government Obligations, which fund 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 (2) which fund is sufficient, as verified by a nationally recognized independent certified public accountant or independent arbitrage consultant, to pay principal of and interest and redemption premium, if any, on the bonds or other obligations described in this clause (ii) on the maturity date or dates thereof or on the redemption date or dates specified in the irrevocable instructions referred to above, as appropriate.

Fiduciary or Fiduciaries shall mean the Trustee, the Bond Registrar, the Paying Agent, or any or all of them, as may be appropriate.

Fiscal Year shall mean the twelve-month period commencing at 0000 hours on July 1 of each year and ending at 2400 hours on the following June 30, or such other 12-month period as the Authority may adopt as its Fiscal Year.

Interest Payment Date shall mean with respect to any Series of Bonds, the dates specified as such, or determined as provided, in the Supplemental Indenture providing for the issuance of such Series of Bonds.

Investment Securities shall mean and include: (i) any of the securities that are at the time of purchase legal for investment of the Authority’s funds under applicable law (including California

C-3

Government Code Sections 53601 and 53635); (ii) investment agreements (including, but not limited to, guaranteed investment contracts, repurchase agreements, forward purchase agreements and reserve fund put agreements) with a domestic or foreign bank or corporation (other than a life or property casualty insurance company) the long-term debt of which, or, in the case of a monoline financial guaranty insurance company, claims paying ability of the guaranty for which, is rated at the time of execution of such investment agreement in not lower than the second highest rating category (without regard to any gradations within any such category) by at least two nationally-recognized credit rating agencies or at such lower rating as permitted by the then current investment policies of the Authority; or (iii) other forms of investment for which confirmation is received from each Rating Agency then rating any of the Bonds that such investment will not adversely affect such Rating Agency’s rating on such Bonds.

Letter of Credit shall mean, with respect to any Series of Bonds, a lending, liquidity or credit facility or agreement as provided in the Supplemental Indenture authorizing such Series of Bonds.

Letter of Credit Account shall mean each Account (if any) so designated within the Debt Service Fund and established by a Supplemental Indenture with respect to a Series of Bonds to which a Letter of Credit relates.

Maximum Interest Rate shall mean, with respect to any particular Variable Interest Rate Bonds, a numerical rate of interest, which shall be set forth in the Supplemental Indenture authorizing such Bonds, that shall be the maximum rate of interest such Bonds may at any time bear.

Minimum Interest Rate shall mean, with respect to any particular Variable Interest Rate Bonds, a numerical rate of interest, which may (but need not) be set forth in the Supplemental Indenture authorizing such Bonds, that shall be (if so set forth in such Supplemental Indenture) the minimum rate of interest such Bonds may at any time bear.

Monthly Costs shall have the meaning ascribed thereto in the Transmission Service Contract (LADWP).

Outstanding, when used with reference to Bonds, shall mean, as of any date, Bonds theretofore or thereupon being authenticated and delivered under the Indenture except for:

(iii) Bonds cancelled by the Trustee on or prior to such date;

(iv) Bonds (or portions of Bonds) for the payment or redemption of which moneys, equal to the principal amount or Redemption Price thereof, as the case may be, with interest, if any, to the date of maturity or redemption date, shall be held in trust under the Indenture and set aside for such payment or redemption (whether at or prior to the maturity or redemption date), provided that if such Bonds (or portions of Bonds) are to be redeemed, notice of such redemption shall have been given as provided in the Indenture or provision satisfactory to the Trustee shall have been made for the giving of such notice;

(v) Bonds in lieu of or in substitution for which other Bonds shall have been authenticated and delivered pursuant to the Indenture; and

(vi) Bonds deemed to have been paid as provided in the Indenture.

Owner shall mean each person who is the registered owner of any Bond or Bonds.

C-4

Parity Swap shall mean any interest rate exchange or swap agreement, cash flow exchange or swap agreement or other similar financial agreement (including all confirmations, schedules, exhibits, attachments, appendices and other documentation attached to such agreement or forming a part thereof or incorporated therein) (a) that is entered into by the Authority and a Parity Swap Provider (and, if applicable, the Trustee), (b) that is permitted to be entered into by the Authority under the laws of the State of California applicable thereto at the time the Authority enters into such agreement, as evidenced by an opinion of counsel acceptable to the Authority, (c) as to which the documentation thereof provides that payments to be made by the Authority pursuant to such agreement (other than termination payments thereunder, which shall be payable on a basis subordinate and junior to the payments to be made on the Bonds and other payments due on the Parity Swap) constitute obligations payable on a parity basis with the payments to be made on the Bonds as and to the extent provided in the Indenture and (d) designated in writing to the Trustee by an Authorized Authority Representative as a Parity Swap under the Indenture.

Parity Swap Provider shall mean, with respect to each Parity Swap, the entity (other than the Authority and, if applicable, the Trustee) that is a party thereto, and its permitted successors and assigns, whose public credit ratings, or whose obligations under a Parity Swap are guaranteed by a financial institution whose public credit ratings, are (at the time the applicable Parity Swap is entered into), unless otherwise approved by the Authority, in not lower than the second highest rating category (without regard to any gradations within any such category) by any two nationally recognized credit agencies.

Participating Bonds shall mean all Bonds other than any Series of Bonds issued pursuant to a Supplemental Indenture that provides that such Series of Bonds are not Participating Bonds in accordance with the provisions of the Indenture.

Participating Bonds Debt Service Account shall mean the Account so designated established in the Debt Service Fund pursuant to the Indenture.

Participating Bonds Debt Service Reserve Account shall mean the Account so designated established in the Debt Service Reserve Fund pursuant to the Indenture.

Paying Agent shall mean any bank or trust company organized under the laws of any state of the United States or any national banking association designated as paying agent for the Bonds of any Series, and its successor or successors hereafter appointed in the manner provided in the Indenture.

Principal Installment shall mean, as of any date of calculation and with respect to any Series, so long as any Bond of such Series is Outstanding, (i) the principal amount of Bonds of such Series due on a certain future date for which no Sinking Fund Installments have been established, or (ii) the unsatisfied balance (determined as provided in the Indenture) of any Sinking Fund Installments due on a certain future date for Bonds of such Series, plus the amount of the sinking fund redemption premiums, if any, that would be payable upon redemption of such Bonds on such future date in a principal amount equal to said unsatisfied balance of such Sinking Fund Installments, or (iii) if such future dates coincide as to different Bonds of such Series, the sum of such principal amount of Bonds and of such unsatisfied balance of Sinking Fund Installments due on such future date plus such applicable redemption premiums, if any.

Project Agreements shall have the meaning ascribed thereto in the Transmission Service Contract (LADWP).

Project Participant shall mean the Department of Water and Power of The City of Los Angeles as party to the Transmission Service Contract (LADWP).

C-5

Purchase and Sale Agreement shall mean the Purchase and Sale Agreement dated as of August 31, 2015, by and between M-S-R Public Power Agency and the Authority, as amended by that certain Letter Agreement dated December 1, 2015, and as the same may hereafter be further amended from time to time.

Rating Agency shall mean each of Moody’s Investors Service, Inc., Standard & Poor’s Ratings Services and Fitch Ratings, Inc., if then rating the Bonds. Except as otherwise provided in the Indenture, if more than one Rating Agency maintains a credit rating with respect to the Bonds, then any action, approval or consent by or notice to a Rating Agency shall be effective only if such action, approval, consent or notice is given by or to each such Rating Agency.

Redemption Price shall mean, with respect to any Bond to be redeemed, the principal amount thereof plus the applicable premium, if any, payable upon redemption thereof pursuant to such Bond or the Indenture.

Refunding Bonds shall mean all Bonds, whether issued in one or more Series, authenticated and delivered on original issuance pursuant to the Indenture to refund all or a portion of any Outstanding Bonds, and any Bonds thereafter authenticated and delivered in lieu of or in substitution for such Bonds pursuant to the Indenture.

Revenues shall mean: (a) all revenues, income, rents and receipts derived or to be derived by the Authority from or attributable to the applicable Authority Interest (LADWP) or to the payment of the costs thereof received or to be received by the Authority or the Trustee under the related Transmission Service Contract (LADWP) or under any other contract for the sale by the Authority of transmission and electrical capability of the applicable Authority Interest (LADWP) or any contractual or other arrangement with respect to the use of the applicable Authority Interest (LADWP) or any portion thereof or the services or capability thereof; (b) proceeds received by the Authority of any insurance, including the proceeds of any self-insurance fund, covering business interruption loss relating to the applicable Authority Interest (LADWP); and (c) interest received or to be received on any moneys or securities held pursuant to the Indenture and required to be paid into the Revenue Fund; but excluding (X) interest and other investment income received or to be received on any moneys or securities held pursuant to an indenture of trust entered into by the Authority with respect to bonds, notes or other evidences of indebtedness payable on a basis subordinate to the Bonds except to the extent that the Authority specifies that such interest and other investment income shall constitute Revenues, (Y) amounts received by or on behalf of the Authority pursuant to any interest rate swap agreement or interest rate cap agreement relating to the Indenture except to the extent that the Authority specifies that such amounts shall constitute Revenues and (Z) amounts received by or on behalf of the Authority pursuant to a Letter of Credit relating to the Indenture except to the extent that the Authority specifies that such amounts shall constitute Revenues. Revenues shall not include any Subsidy Payment received by the Authority, which Subsidy Payment shall be applied as provided in the Supplemental Indenture relating to the Series of Bonds for which Subsidy Payment is received.

Series shall mean all of the Bonds authenticated and delivered on original issuance and identified pursuant to the Indenture and the Supplemental Indenture authorizing such Bonds as a separate Series of Bonds, and any Bonds thereafter authenticated and delivered in lieu of or in substitution for such Bonds pursuant to the Indenture, regardless of variations in maturity, interest rate, Sinking Fund Installments, or other provisions.

Series Debt Service Account shall mean each Account so designated within the Debt Service Fund and established by a Supplemental Indenture with respect to a Series of Bonds that are not Participating Bonds.

C-6

Series Debt Service Reserve Account shall mean each Account (if any) so designated within the Debt Service Reserve Fund and established by a Supplemental Indenture with respect to a Series of Bonds that are not Participating Bonds.

Sinking Fund Installment shall mean an amount so designated that is established pursuant to applicable provisions of the Indenture.

Subsidy Payment shall mean the payment (or reimbursement) from the United States Treasury to the Authority (or its designee) that is authorized by the Code and is calculated by reference to the interest due on a Series of Bonds (or portion thereof) on or about each Interest Payment Date therefor based upon the designation of such Series of Bonds (or portion thereof) as a “build America bond” or other similar direct payment obligation that may be authorized in the future under the Code.

Supplemental Indenture shall mean any indenture supplemental to or amendatory of the Indenture, executed by the Authority in accordance with the Indenture.

Trustee shall mean the trustee under the Indenture, initially being U.S. Bank National Association, and its permitted successor or successors and any other corporation that may at any time be substituted in its place pursuant to the Indenture.

Variable Interest Rate shall mean a variable interest rate to be borne by a Series of Variable Interest Rate Bonds or any one or more maturities within a Series of Variable Interest Rate Bonds. The method of computing such variable interest rate shall be specified in the Supplemental Indenture authorizing such Series of Variable Interest Rate Bonds and shall, unless otherwise provided in the Supplemental Indenture, be based on (i) a percentage or percentages or other function of an objectively determinable interest rate or rates (e.g., the prime lending rate) or a function of such objectively determinable interest rate or rates as may be in effect from time to time or at a particular time or times, provided, however, that such variable interest rate shall be subject to a Maximum Interest Rate and may be subject to a Minimum Interest Rate and that there may be an initial rate specified in each case as provided in such Supplemental Indenture, or (ii) a stated interest rate that may be changed from time to time as provided in the Supplemental Indenture authorizing such Series. Such Supplemental Indenture shall also specify either (a) the particular period or periods of time for which each value of such variable interest rate shall remain in effect or (b) the time or times upon which any change in such variable interest rate shall become effective and the method by which such variable interest rate shall be determined.

Variable Interest Rate Bond shall mean any Bond that bears a Variable Interest Rate.

Pledge Effected by the Indenture

Under the Indenture, the Authority has pledged and assigned to the Trustee, for the benefit of the Bondowners and any Parity Swap Providers, (1) the proceeds of the sale of the Bonds, (2) the Revenues, and (3) all amounts on deposit in any Fund or Account established by the Indenture (other than such other Funds and Accounts that the Indenture provides are not a source of payment for the Bonds or any Parity Swaps and other than any moneys held by the Trustee or the Authority to pay any rebate amount owed to the federal government) including the investments, if any, thereof, subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth in the Indenture, as security for the payment of the Bonds, the interest thereon, and premium, if any, with respect thereto, as security for the payment obligations of the Authority under any Parity Swaps and as security for the performance of any other obligations of the Authority under the Indenture, all in accordance with the provisions of the Bonds, the Indenture and any Parity Swaps.

C-7

Nature of Obligation

The Indenture provides that the principal or Redemption Price of, and interest on the Bonds and any Parity Swaps shall be payable solely as provided in the Indenture. The Bonds are not an obligation of the State of California or any public agency thereof (other than the Authority) or the Project Participant or any other member of the Authority and neither the faith and credit nor the taxing power of the State of California or any public agency thereof or the Project Participant or any other member of the Authority is pledged to the payment of the principal or Redemption Price of or interest on the Bonds or the obligations of the Authority (or the Trustee, if applicable) under any Parity Swaps. The Bonds and the Parity Swaps shall never constitute the debt or indebtedness of the Authority within the meaning of any provision or limitation of the Constitution of the State of California or statutes of the State of California, nor shall they constitute or give rise to a pecuniary liability of the Authority or a charge against its general credit.

Application of Revenues

Revenues are pledged under the Indenture to payment of the principal or Redemption Price of, and interest on, the Bonds, subject to the provisions of the Indenture permitting application for other purposes. The Indenture establishes the following Funds and Accounts for the application of Revenues:

Funds Held By Project Fund Trustee – Each project account, if any, and each costs of issuance subaccount therein, if any, established pursuant to a Supplemental Indenture Revenue Fund Trustee Operating Fund Trustee – Operating Account – Operating Reserve Account Debt Service Fund Trustee – Participating Bonds Debt Service Account – Each Series Debt Service Account established pursuant to a Supplemental Indenture – Each Letter of Credit Account (if any) established pursuant to a Supplemental Indenture Debt Service Reserve Fund Trustee – Participating Bonds Debt Service Reserve Account – Each Series Debt Service Reserve Account (if any) established pursuant to a Supplemental Indenture Reserve and Contingency Fund Trustee General Reserve Fund Trustee

Under the First Supplemental Indenture to the Indenture, there is established a separate account referred to as the 2016 Series A, Project Account, with a separate subaccount therein referred to as the 2016 Series A, Costs of Issuance Subaccount, to be held by the Trustee in the Project Fund.

All Revenues and, except as provided in a Supplemental Indenture, any interest and other investment income received on any moneys or securities held pursuant to the Indenture shall be promptly deposited in the Revenue Fund upon receipt thereof. Amounts in the Revenue Fund shall be paid monthly in the following order of priority for application therefrom as follows:

1. To (i) the Operating Account, a sum that is equal to the total moneys appropriated for Authority Operating Expenses for deposit in the Operating Account as provided

C-8

in the Annual Budget for the then current month and (ii) the Operating Reserve Account the amount required by the Annual Budget (if any). Such sum shall be paid to the Operating Fund as soon as practicable in each month after deposit of Revenues as provided in the Indenture, but not later than the last Business Day of such month, in accordance with written instructions from the Authority. At the requisition of the Authority, signed by two Authorized Authority Representatives, amounts in the Operating Fund shall be paid out by the Trustee (i) from time to time for reasonable and necessary Authority Operating Expenses and (ii) at one time or from time to time, a sum or sums of up to $250,000, such sum or sums to be used by the Authority to establish a revolving fund for the purpose of paying such items of the Authority Operating Expenses as cannot conveniently be paid as otherwise provided in the Indenture.

If on the last Business Day of any month the amount in the Operating Account is less than the amount required to be in the Operating Account to pay Authority Operating Expenses in such month, the Trustee will transfer amounts, if any, from the Operating Reserve Account to the Operating Account to the extent of the deficiency. The Indenture provides for the application of any excess amounts in the Operating Account or the Operating Reserve Account to make up any deficiencies in certain other funds and accounts established under the Indenture and any Supplemental Indenture and thereafter for any remaining excess to be transferred to the General Reserve Fund; provided, however, that any excess moneys in the Operating Account shall first be applied to any deficiency in the Operating Reserve Account in accordance with the Indenture.

2. To the Debt Service Fund (for the ratable security and payment pursuant to clause (i) and clause (ii) of this paragraph, except as otherwise provided in, and subject to the provisions of, the Indenture: (i) (A) for credit to the Participating Bonds Debt Service Account the amount, if any, required so that the balance in said Account shall equal the Accrued Debt Service with respect to the Participating Bonds as of the last day of the then current month, and (B) for credit to each Series Debt Service Account, the amount, if any, required so that the balance in each such Account shall equal the Accrued Debt Service with respect to the related Series of Bonds as of the last day of the then current month; provided that, for the purposes of computing the amount on deposit in any of such Accounts, there shall be excluded from the balance of such Account the amount, if any, set aside in such Account from the proceeds of Bonds (including amounts, if any, transferred thereto from the Project Fund) for the payment of interest on the related Bonds, less that amount of such proceeds to be applied in accordance with the Indenture to the payment of interest accrued and unpaid and to accrue on such related Bonds to the last day of the then current month; and provided further, however, that the amount of Accrued Debt Service with respect to Variable Interest Rate Bonds shall be determined in accordance with the Supplemental Indenture authorizing such Variable Interest Rate Bonds; and (ii) (A) for credit to the Participating Bonds Debt Service Account, the amounts due and payable by the Authority during such month under any Parity Swap which shall be designated to the Trustee by an Authorized Authority Representative as a Parity Swap for Participating Bonds as provided in the related Supplemental Indenture or Supplemental Indentures, and (B) for credit to each Series Debt Service Account, the amounts due and payable by the Authority during such month under any Parity Swap which shall be designated to the Trustee by an Authorized Authority Representative as a Parity Swap for the related Series of Bonds as provided in the related Supplemental Indenture or Supplemental Indentures; provided that, in any case, any termination payments under any Parity Swap shall be payable on a basis subordinate and junior to the payments to be made on the Bonds; and provided, however, that, in any event, if there shall be a deficiency of Revenues to make all of the deposits described in this paragraph, such Revenues shall be deposited into each Debt Service Account on a pro rata basis based on the amounts due.

C-9

Notwithstanding the foregoing or any other provisions of the Indenture to the contrary, so long as there shall be held in any Debt Service Account an amount sufficient to pay in full all Outstanding Bonds to which such Account relates in accordance with their terms (including principal or applicable Sinking Fund Installment and interest thereon), no deposits shall be required to be made into such Debt Service Account.

The Trustee shall pay out of the Participating Bonds Debt Service Account (a) to the Paying Agents, if any, for the Participating Bonds (i) on or before each Interest Payment Date for any of the Outstanding Participating Bonds the amount required for the interest payable on such Participating Bonds on such date, (ii) on or before each due date therefor, the amount required for the Principal Installments payable on such Outstanding Participating Bonds on such due date, and (iii) on or before any redemption date for Outstanding Participating Bonds, the amount required for the payment of the Redemption Price of, and any unpaid accrued interest on, such Participating Bonds then to be redeemed and (b) to each Parity Swap Provider, if any, of any Parity Swap which shall be designated to the Trustee by an Authorized Authority Representative as a Parity Swap for Participating Bonds any regularly-scheduled amounts due and payable by the Authority under any such Parity Swap on the due date therefor. Amounts so paid to the Paying Agents with respect to Outstanding Participating Bonds shall be applied by any such Paying Agents on the due dates therefor. The Trustee shall also pay out of the Participating Bonds Debt Service Account the accrued interest included in the purchase price of any Participating Bonds purchased for retirement and any other amounts payable by the Authority under any Parity Swap which shall be designated to the Trustee by an Authorized Authority Representative as a Parity Swap for any Participating Bonds. Notwithstanding anything to the contrary in the Indenture, any termination payments payable by the Authority under any Parity Swap shall be payable on a basis subordinate and junior to the payments due to Parity Swap Providers described in clause (b) of this paragraph. Except as provided in the immediately preceding sentence, all amounts held at any time in the Participating Bonds Debt Service Account shall be held until applied on a parity basis for the ratable security and payment of (i) Accrued Debt Service on the Outstanding Participating Bonds and (ii) amounts due and payable by the Authority under any Parity Swap which shall be designated to the Trustee by an Authorized Authority Representative as a Parity Swap for any Participating Bonds, if any, at any time, in proportion to the amounts accrued or due and payable, as applicable.

The Trustee shall pay out of each Series Debt Service Account (a) to the Paying Agent, if any, for the related Series of Bonds (i) on or before each Interest Payment Date for any of the Outstanding Bonds of such Series the amount required for the interest payable on the Bonds of such Series on such date, (ii) on or before each due date therefor, the amount required for the Principal Installments payable on the Outstanding Bonds of such Series on such due date, and (iii) on or before any redemption date for Outstanding Bonds of such Series then to be redeemed, the amount required for the payment of the Redemption Price thereof, and any unpaid accrued interest thereon and (b) to each Parity Swap Provider, if any, of any Parity Swap which shall be designated to the Trustee by an Authorized Authority Representative as a Parity Swap for any Bonds of the related Series any regularly-scheduled amounts due and payable by the Authority under any such Parity Swap on the due date therefor. Amounts so paid to the Paying Agents with respect to such Outstanding Bonds shall be applied by any such Paying Agents on the due dates therefor to the purposes set forth in the preceding sentence. The Trustee shall also pay out of each Series Debt Service Account the accrued interest included in the purchase price of any Bonds of the related Series purchased for retirement and any other amounts payable by the Authority under any Parity Swap which shall be designated to the Trustee by an Authorized Authority Representative as a Parity Swap for such Bonds. Notwithstanding anything to the contrary in the Indenture, any termination payments payable by the Authority under any Parity

C-10

Swap shall be payable on a basis subordinate and junior to the payments due to Parity Swap Providers described in clause (b) of this paragraph. Except as provided in the immediately preceding sentence, all amounts held at any time in any Series Debt Service Account shall be held until applied on a parity basis for the ratable security and payment of (i) Accrued Debt Service on the Outstanding Bonds of the related Series and (ii) amounts due and payable by the Authority under any Parity Swap which shall be designated to the Trustee by an Authorized Authority Representative as a Parity Swap for any Bonds of the related Series, if any, at any time, in proportion to the amounts accrued or due and payable, as applicable.

Amounts accumulated in a Debt Service Account with respect to any Sinking Fund Installment (together with amounts accumulated therein with respect to interest on the Bonds for which such Sinking Fund Installment was established) may, and if so directed by the Authority shall, be applied by the Trustee, on or prior to the sixtieth (60th) day preceding the due date of such Sinking Fund Installment, to (i) the purchase of Bonds of the Series and maturity for which such Sinking Fund Installment was established, or (ii) the redemption at the applicable Redemption Price of such Bonds, if then redeemable by their terms. After the sixtieth (60th) day but on or prior to the forty-fifth (45th) day preceding the due date of such Sinking Fund Installment, any amounts then on deposit in the applicable Debt Service Account (exclusive of amounts, if any, set aside therein that were deposited therein from the proceeds of Bonds) may, and if so directed by the Authority shall, be applied by the Trustee to the purchase of Bonds of the Series and maturity for which such Sinking Fund Installment was established, in an amount not exceeding that necessary to complete the retirement of the unsatisfied balance of such Sinking Fund Installment. Any purchase of Bonds as described in this paragraph shall be made at prices not exceeding the applicable Redemption Price of such Bonds plus accrued interest, and such purchases shall be made by the Trustee as directed by the Authority. The applicable Redemption Price of any Bonds (or principal amount of maturing Bonds) so purchased or redeemed shall be deemed to constitute part of the related Debt Service Account until such Sinking Fund Installment due date, for the purpose of calculating the amount on deposit in such Account. As soon as practicable after the forty-fifth (45th) day preceding the due date of any such Sinking Fund Installment, the Trustee shall proceed to call for redemption, by giving notice as provided in the Indenture, on such due date, Bonds of the Series and maturity for which such Sinking Fund Installment was established (except in the case of Bonds maturing on a Sinking Fund Installment due date) in such amount as shall be necessary to complete the retirement of the unsatisfied balance of such Sinking Fund Installment. The Trustee shall pay out of the related Debt Service Account to the appropriate Paying Agent, if any, on or before such redemption date (or maturity date), the amount required for the redemption of the Bonds so called for redemption (or for the payment of any such Bonds then maturing), and such amount shall be applied by the appropriate Paying Agent to such redemption (or payment). All expenses in connection with the purchase or redemption of Bonds as hereinabove described shall be paid from the Operating Fund.

In the event of the refunding (or other defeasance) of any Bonds (or portions thereof), the Trustee shall, upon the direction of an Authorized Authority Representative acting with the advice of Bond Counsel, withdraw from the related Debt Service Account or Accounts amounts accumulated therein with respect to Debt Service on the Bonds (or portions thereof) being refunded (or otherwise defeased) and, unless otherwise instructed in writing as to an alternative use of such amounts, deposit such amounts with itself as escrow agent to be held for the payment of the principal or Redemption Price, if applicable, of, and interest on the Bonds (or portions thereof) being refunded (or otherwise defeased); provided that such withdrawal shall not be made unless (a) immediately thereafter the Bonds (or portions thereof) being refunded (or otherwise defeased) shall be deemed to have been paid pursuant to the Indenture, and (b) the amount

C-11

remaining in such related Debt Service Account or Accounts after such withdrawal shall not be less than the amount required to be held therein pursuant to the Indenture.

If a Letter of Credit is in effect for any Series of Bonds, proceeds of any Drawings on a Letter of Credit are to be deposited in the applicable separate subaccount of the Letter of Credit Account in the Debt Service Fund and amounts in the applicable Letter of Credit Account of the Debt Service Fund are to be paid by the Trustee to the Paying Agent, if any, for the related Series of Bonds (i) on or before each Interest Payment Date for any of the Bonds of such Series, the amount required for the interest payable thereon on such date, (ii) on or before each due date therefor, the amount required for the Principal Installments payable on the Outstanding Bonds of such Series on such due date, and (iii) on or before any redemption date for Outstanding Bonds of such Series to be redeemed, the amount required for the payment of interest on such Bonds then to be redeemed; provided, however, that, notwithstanding the foregoing, interest coming due with respect to any such Series of Bonds for which a Letter of Credit has been provided may be payable in such other manner as the Supplemental Indenture authorizing such Series of Bonds shall specify. If a Letter of Credit is in effect for any Series of Bonds, the Trustee shall also pay out of the applicable Letter of Credit Account the accrued interest included in the purchase price of the Bonds of the related Series purchased for retirement. The obligations of the Authority to the Bank providing a Letter of Credit (including reimbursement obligations) shall be secured as provided in the Indenture and the related Supplemental Indenture. In addition, if a Letter of Credit is in effect with respect to a Series of Bonds covered by a Sinking Fund Installment, the Trustee shall call for the redemption of such Bonds, and shall pay out of the appropriate subaccount of the Letter of Credit Account the amount required for the redemption of such Bonds.

3. To the Debt Service Reserve Fund for credit to the Participating Bonds Debt Service Reserve Account and each Series Debt Service Reserve Account, the amount, if any, required to be deposited therein so that the balance in each such Account shall be equal to the requirement therefor as of the last day of the then current month in accordance with the provisions of the Indenture or the applicable provisions of the related Supplemental Indenture; provided, however, that, in any event, if there shall be a deficiency of Revenues to make all of the deposits described in this paragraph, such Revenues shall be deposited into each Debt Service Reserve Account on a pro rata basis based on the amounts due. Pursuant to First Supplemental Indenture, the 2016 Series A Bonds are not Participating Bonds, the Debt Service Reserve Requirement in connection with the 2016 Series A Bonds shall be $0, and no Debt Service Reserve Account will be funded for the 2016 Series A Bonds.

Except as otherwise provided in the Indenture, there shall be maintained in each Debt Service Reserve Account an amount equal to the Debt Service Reserve Requirement (if any) applicable to such Account.

If on the last Business Day of any month the amount in any Debt Service Account shall be less than the amount required to be in such Account as hereinabove described with respect to the related Bonds, the Trustee shall pay out of the related Debt Service Reserve Account for credit to such Debt Service Account the amount necessary to restore the balance therein to the required amount. The Trustee shall also pay out of the related Debt Service Reserve Account the amount necessary to reimburse any provider of a Debt Service Reserve Account Policy credited to such Account for any draw on such Debt Service Reserve Account Policy, together with interest or other amounts due to such provider as a result of such draw pursuant to the terms of such Debt Service Reserve Account Policy or any related agreement with the provider thereof.

C-12

In the event that the balance in any Debt Service Reserve Account shall at any time be less than the Debt Service Reserve Requirement applicable to such Account, the deficiency in such Account shall be replenished by the deposit monthly into such Account of at least one- twelfth (1/12) of the aggregate amount of each unreplenished prior withdrawal from such Account and the full amount of any portion of any such deficiency due to the required valuations of the investments in such Account pursuant to the Indenture until the balance in such Account is at least equal to the Debt Service Reserve Requirement applicable to such Account.

Except as otherwise provided in the Indenture, whenever the moneys on deposit in a Debt Service Reserve Account shall exceed the applicable Debt Service Reserve Requirement, such excess shall be applied to the reimbursement of any drawing on a Debt Service Reserve Account Policy credited to such Account and to the payment of interest or other amounts due to the provider of any such Debt Service Reserve Account Policy to the extent payable from such Account.

Notwithstanding anything in the Indenture to the contrary, at the option of the Authority any amounts required to be held or deposited in any Debt Service Reserve Account may be substituted, in whole or in part, by the deposit therein of a Debt Service Reserve Account Policy in a stated amount equal to the amounts so substituted, and any Debt Service Reserve Account Policy then held in any such Account may be replaced at the option of the Authority by cash or by another Debt Service Reserve Account Policy in whole or in part; provided that prior to the substitution or replacement of any such Debt Service Reserve Account Policy the Rating Agencies then rating the Bonds to which such Debt Service Reserve Account relates shall have been notified by the Authority of such proposed substitution or replacement and the substitution or replacement shall not result, as evidenced by letters from such Rating Agencies, in a downgrading or withdrawal of any rating of such Bonds then in effect by such Rating Agencies; and provided further that the Authority shall have first received an Opinion of Bond Counsel to the effect that such substitution or replacement will not adversely affect the exclusion of interest on such Bonds from the gross income of the owners thereof for federal income tax purposes, if applicable. Any moneys so withdrawn from a Debt Service Reserve Account shall, with the approval of Bond Counsel, be transferred to the General Reserve Fund and used in accordance with the provisions of the Indenture or otherwise used in a manner that is consistent with such Opinion of Bond Counsel, if applicable.

For the purposes of the Indenture, in computing the amount on deposit in any Debt Service Reserve Account, each Debt Service Reserve Account Policy credited to such Account shall be valued at the amount available to be drawn or payable thereunder on the date of computation. The Trustee shall draw upon or otherwise take such action as is necessary (including the giving of notice) in accordance with the terms of any Debt Service Reserve Account Policy credited to a Debt Service Reserve Account to receive payments thereunder: (i) on any date on which moneys will be required to be withdrawn from such Debt Service Reserve Account and applied to the payment of a Principal Installment or the Redemption Price of, or interest on, any Bonds secured by such Account and such withdrawal cannot be met by amounts held as cash or Investment Securities on deposit in such Debt Service Reserve Account; (ii) unless such Debt Service Reserve Account Policy expires on the final maturity date for the Outstanding Bonds secured by such Debt Service Reserve Account, on the first Business Day which is at least thirty (30) days prior to the expiration date of the Debt Service Reserve Account Policy, in an amount equal to the deficiency which would exist in such Debt Service Reserve Account to which such Debt Service Reserve Account Policy is credited if the Debt Service Reserve Account Policy expired, unless a substitute Debt Service Reserve Account Policy with an expiration date not earlier than one hundred eighty (180) days after the expiration date of the

C-13

expiring Debt Service Reserve Account Policy is credited to such Account prior to such date or the Authority deposits funds in such Account on or before such date, in an amount sufficient to cause the balance of such Account (without regard to the expiring Debt Service Reserve Account Policy) to be at least equal to the applicable Debt Service Reserve Requirement.

Whenever the amount in a Debt Service Reserve Account (excluding any Debt Service Reserve Account Policy credited thereto), together with the amount in the related Debt Service Account available for such purpose, is sufficient to pay in full all Outstanding Bonds to which such Accounts relate in accordance with their terms (including principal or applicable Sinking Fund Installment and interest thereon), the funds on deposit in such Debt Service Reserve Account shall be transferred to the related Debt Service Account and applied to the payment or redemption of the related Bonds.

In the event of the refunding (or other defeasance) of any Bonds (or portions thereof), the Trustee, upon the direction of an Authorized Authority Representative acting with the advice of Bond Counsel, shall withdraw from the related Debt Service Reserve Account any or all of the amounts accumulated therein (excluding any Debt Service Reserve Account Policy credited thereto) with respect to Debt Service on the Bonds (or portions thereof) being refunded (or otherwise defeased) and, unless otherwise instructed in writing as to an alternative use of such amounts, deposit such amounts with itself as escrow agent to be held for the payment of the principal or Redemption Price, if applicable, of, and interest on, the Bonds being refunded (or otherwise defeased); provided that such withdrawal shall not be made unless (a) immediately thereafter the Bonds (or portions thereof) being refunded (or otherwise defeased) shall be deemed to have been paid pursuant to the Indenture, and (b) the amount remaining in such Debt Service Reserve Account after such withdrawal shall not be less than the applicable Debt Service Reserve Requirement for such Account.

4. To the Reserve and Contingency Fund, the amount, if any, provided for deposit therein during the then current month in the Annual Budget in accordance with the written instructions from the Authority.

Amounts in the Reserve and Contingency Fund shall be applied to any portion of the allocable costs of any Capital Improvements, to the payment of extraordinary Authority Operating Expenses and contingencies, including payments with respect to the prevention or correction of any unusual loss or damage in connection with the Project or to prevent a loss of revenue therefrom, and to payment of replacements, repairs, additions, improvements and betterments (including planning and design costs) in connection with the Project or any facilities (including planning and design costs) relating to, or for the benefit of, the Project, all to the extent properly attributable to the Authority Interest (LADWP) and not provided for from other proceeds of Bonds, notes or other evidences of indebtedness issued by the Authority to finance or refinance the Cost of Acquisition and Operations or any portion of the allocable costs of any Capital Improvements. No payments shall be made from the Reserve and Contingency Fund if and to the extent that the applicable portion of any proceeds of insurance, including any proceeds of any self-insurance fund, or other moneys recoverable as the result of damage, if any, are available to pay the costs otherwise payable from the Reserve and Contingency Fund.

If at any time the amount in any Debt Service Account is less than the requirement of such account pursuant to the Indenture, or the amount in any Debt Service Reserve Account is less than the requirement of such Account pursuant to the Indenture, and there are not on deposit in the General Reserve Fund available moneys sufficient to cure such deficiencies; then upon the written direction of the Authority the Trustee shall transfer moneys from the Reserve and

C-14

Contingency Fund in the following order of priority: (a) to each Debt Service Account, pro rata based on the amount of such deficiency, the amount necessary (or all the moneys in the Reserve and Contingency Fund if less than the amount necessary) to make up such deficiency; and (b) to each Debt Service Reserve Account, pro rata based on the amount of such deficiency, the amount necessary (or all the moneys in the Reserve and Contingency Fund if less than the amount necessary) to make up such deficiency.

Amounts in the Reserve and Contingency Fund not required to meet any deficiencies in any Debt Service Account or any Debt Service Reserve Account or not needed for any of the purposes for which such Fund was established, shall be transferred to the Project Fund or the Operating Fund, if and to the extent deemed necessary or desirable by the Authority, to make up any deficiencies in such Fund. Any remaining excess shall be deposited into the General Reserve Fund.

5. To the General Reserve Fund, the balance, if any, in the Revenue Fund after making the above deposits. The Trustee shall transfer from the General Reserve Fund amounts in the following order of priority: (a) to each Debt Service Account, pro rata based on the amount of any deficiency therein, the amount necessary (or all the moneys in the General Reserve Fund if less than the amount necessary) to make up any deficiencies in required payments to said Accounts; (b) to each Debt Service Reserve Account, pro rata based on the amount of any deficiency therein, the amount necessary (or all the moneys in the General Reserve Fund if less than the amount necessary) to make up any deficiencies in payments to such Accounts or resulting from any transfer to the Debt Service Fund or Accounts required by the Indenture; and (c) to the Reserve and Contingency Fund the amount necessary (or all the moneys in the General Reserve Fund if less than the amount necessary) to make up any deficiencies in payments to the Reserve and Contingency Fund required by the Indenture.

Amounts in the General Reserve Fund not required to meet any of the deficiencies described above will, upon determination of the Authority and after consultation with Bond Counsel, be applied to or set aside for any one or more of the following: (i) payment into the Revenue Fund or any other Fund or Account established by the Indenture or any fund or account established by an indenture with respect to bonds, notes or other evidences of indebtedness issued by the Authority to finance or refinance the Cost of Acquisition and Operations or any portion of the allocable costs of Capital Improvements; (ii) the purchase or redemption of any Bonds, and expenses or any reserves in connection therewith; (iii) to reduce the monthly transmission service costs of the Project Participant under the Transmission Service Contract (LADWP); (iv) payments required to be made to any fund or account established pursuant to an indenture of trust with respect to bonds, notes or other evidences of indebtedness payable on a basis subordinate to the Bonds; and (v) any other lawful purpose of the Authority related to the Authority Interest (LADWP). Bonds purchased or redeemed with amounts in the General Reserve Fund shall be credited toward any Sinking Fund Installment thereafter to become due an amount determined as provided in the Indenture.

Deposits from the Revenue Fund into the Debt Service Fund, the Reserve and Contingency Fund and the General Reserve Fund shall be made as soon as practicable in each month after the deposit of Revenues into the Revenue Fund and the payment to the Operating Fund have been made for such month, but not later than the last Business Day of such month.

C-15

Project Fund

The Indenture establishes a Project Fund, to be held by the Trustee, into which will be paid amounts required by the provisions of the Indenture and any Supplemental Indenture and into which may be paid, at the written direction of the Authority, any moneys received, unless required to be otherwise applied as provided in the Indenture. In addition, subject to and except as otherwise provided in the Indenture, the proceeds of any condemnation award received by the Authority with respect to the Authority Interest (LADWP) and the proceeds received by the Authority to the extent attributable to the Authority Interest (LADWP) of insurance, including the proceeds of any self-insurance fund, for physical loss of or damage to the Project or casualty loss or of contractors’ performance or guarantee bonds or other assurances of completion or levels of performance with respect thereto (but excluding the proceeds of business interruption loss insurance, which shall be deposited into the Revenue Fund), will be paid into the Project Fund.

The Trustee will pay, upon the requisition of the Authority therefor, in connection with the acquisition of the Authority Interest (LADWP) or during construction of any Capital Improvements to the Project, from the Project Fund (i) the Cost of Acquisition and Operations relating to the Authority Interest (LADWP) (including the costs of issuance of the Bonds) or the allocable costs of any Capital Improvements (or a portion thereof) and (ii) in connection with the acquisition of the Authority Interest (LADWP) or during construction of any Capital Improvements to the Project, at one time or from time to time, a sum or sums of up to $250,000, such sum or sums to be used by the Authority to establish a revolving fund for the purpose of paying such items of the Cost of Acquisition and Operations or the allocable costs of any Capital Improvements as cannot conveniently be paid as in the Indenture otherwise provided.

Upon receipt of any requisition for payment or reimbursement from the Project Fund, the Trustee will, unless instructed by the Authority in such requisition that such payment is to be made from another project account established pursuant to a Supplemental Indenture, (i) to the extent that such requisition is for the payment of costs of issuance of the 2016 Series A Bonds, pay such requisitioned amounts out of the 2016 Series A Costs of Issuance Subaccount established pursuant to the First Supplemental Indenture, and (ii) to the extent such requisition is for the payment of other items of Cost of Acquisition and Operations, pay such requisitioned amounts out of the 2016 Series A Project Account established pursuant to the First Supplemental Indenture.

Upon the filing of a certificate of the Authority determining that moneys are no longer needed in the Project Fund to pay the Cost of Acquisition and Operations or any portion of the allocable costs of any Capital Improvements, as applicable, the balance in the Project Fund established therefor not required to complete payment for the Cost of Acquisition and Operations or any remaining part of the allocable costs of Capital Improvements, as applicable, will be applied to make up any deficiencies in the following Funds and Accounts in the order stated: each Debt Service Account, if and to the extent necessary to make up any deficiency in any such Account, pro rata based on the amount of each such deficiency (with such transferred amount to be used to pay interest on Bonds and, with the prior approval of Bond Counsel, principal on Bonds), and each Debt Service Reserve Account, if and to the extent necessary to make up any deficiency in any such Account, pro rata based on the amount of each such deficiency, and the excess, if any, will be transferred to the General Reserve Fund. To the extent that other moneys are not available therefor, amounts in the Project Fund (if any) will be applied to the payment of principal and interest on Bonds when due.

C-16

Certain Requirements of and Conditions to Issuance of Bonds

Bonds shall be authenticated by the Trustee pursuant to the Indenture upon compliance with certain requirements and conditions, including, among others, the following:

(a) The Trustee shall have received an Opinion of Bond Counsel to the effect that the Indenture has been duly authorized, executed and delivered by the Authority and constitutes a valid and binding agreement of the Authority and that the Bonds of the Series being issued have been duly and validly authorized and issued and are valid and binding obligations of the Authority as provided in the Indenture and as to certain other matters concerning the Indenture; and

(b) Except in the case of the initial Series of Bonds issued under the Indenture and any Series of Refunding Bonds, the Authority shall have certified that it is not in default in the performance of any of its covenants, conditions, agreements or provisions contained in the Indenture.

The Indenture authorizes the issuance of Bonds to be issued in one or more Series and at one time or from time to time to pay (or refinance) all or a portion of the Cost of Acquisition and Operations with respect to the Authority Interest (LADWP) (and associated participation share and related rights and interests) and other costs relating thereto or to pay all or a portion of the allocable costs of any Capital Improvements and other costs relating thereto. Proceeds, including accrued interest, of each Series of Bonds are to be applied as determined by the Supplemental Indenture authorizing such Series.

The Indenture also provides that each Supplemental Indenture authorizing a Series of Bonds shall establish the Principal Installment or Principal Installments for such Series or shall prescribe the methodology for determining the same.

Refunding Bonds

Refunding Bonds may be issued to refund all or a portion of any Outstanding Bonds. Refunding Bonds shall be authenticated and delivered by the Trustee pursuant to the Indenture upon compliance with certain requirements and conditions, including the receipt by the Trustee of either (i) moneys sufficient to pay the applicable Redemption Price of the refunded Bonds to be redeemed plus the amount required to pay principal of refunded Bonds not to be redeemed together with accrued interest on such Bonds to the redemption date or maturity date, as the case may be, or (ii) Defeasance Obligations in such principal amounts, of such maturities, bearing such interest, and having such terms as required by the Indenture to pay the principal or Redemption Price, if applicable, and interest due on or prior to the redemption date or maturity date, as the case may be.

Investment of Certain Funds and Accounts

The Indenture provides that moneys held in any Debt Service Account and in any Debt Service Reserve Account and in the Revenue Fund and the Project Fund shall be invested and reinvested in Investment Securities. The Indenture provides that such Investment Securities shall mature or become available no later than such times as are necessary to provide moneys when needed for payments from such Funds and Accounts. Moneys in the Operating Fund shall be invested by the Trustee in Investment Securities that mature within twelve months from the date of such investment and amounts in the Reserve and Contingency Fund and the General Reserve Fund shall be invested by the Trustee in Investment Securities that mature within five years from the date of such investment, and in any case the Investment

C-17

Securities in such Funds or in the Accounts therein shall mature not later than such times as shall be necessary to provide moneys when needed to provide payments from such Funds or Accounts.

Interest and other investment income (net of that which (i) represents a return of accrued interest paid in connection with the purchase of any investment and (ii) is required to offset the amortization of any premium paid in connection with the purchase of any investment) earned on any moneys or investments in such Funds and Accounts (other than the Project Fund), to the extent resulting in a balance that is in excess of any requirement for such Fund or Account, shall be paid into the Revenue Fund; provided, however, that such interest and other investment income shall be paid into the Project Fund to the extent provided in the Supplemental Indentures entered into from time to time. Interest and other investment income earned on moneys or investments in the Project Fund or a separate account therein shall be held in such Fund or Account for the purposes thereof unless otherwise provided in a Supplemental Indenture.

In computing the amount in any Fund or Account created under the Indenture, obligations purchased as an investment of moneys therein shall be valued at the greater of the cost of such obligations or the amortized value thereof, exclusive of accrued interest, except as otherwise provided in a Supplemental Indenture for funds or accounts created thereunder. Such computations shall be determined as of July 1 in each year.

The Trustee shall not be liable or responsible for any loss resulting from any investment made in the manner provided in the Indenture except to the extent of its own negligence, misconduct or default. The Trustee may make such investment at the direction of the Authority. In the absence of written direction from the Authority, the Trustee shall invest solely in a taxable money market fund comprised of obligations issued or guaranteed by the United States Government or repurchase agreements collateralized by such obligations.

Rate Covenant

The Authority covenants in the Indenture that as long as any Bonds are Outstanding it has and will have good right and lawful power to establish charges and cause to be collected amounts with respect to the use of the Authority Interest (LADWP), subject to the terms of the Transmission Service Contract (LADWP). The Authority covenants that it will at all times establish and collect (or cause to be collected) amounts for the use of the Authority Interest (LADWP) (including amounts payable under the Transmission Service Contract (LADWP) as shall be required to provide Revenues at least sufficient in each Fiscal Year, together with other available funds, for the payment of all of the following:

(a) Authority Operating Expenses during such Fiscal Year;

(b) An amount equal to the Aggregate Debt Service for such Fiscal Year;

(c) The amount, if any, to be paid during such Fiscal Year into the Participating Bonds Debt Service Reserve Account and any Series Debt Service Reserve Account;

(d) The amount, if any, to be paid during such Fiscal Year into the Reserve and Contingency Fund;

(e) The amount, if any, required to be paid into any fund or account during such Fiscal Year with respect to bonds, notes or other evidences of indebtedness payable on a basis subordinate to the Bonds;

C-18

(f) The amount, if any, required to be deposited in the General Reserve Fund during such Fiscal Year; and

(h) The amount, if any, required to pay all other charges or liens whatsoever payable out of Revenues during such Fiscal Year.

The Authority will not furnish or supply or cause to be furnished or supplied any use or service of the Project free of charge to any person, firm or corporation, public or private, and the Authority will, subject to the Indenture and consistent with the Project Agreements and subject to the Transmission Service Contract (LADWP), enforce the payment of any and all amounts owing to the Authority by reason of the Project by discontinuing such use or service, or by filing suit therefor, as soon as practicable 90 days after any such amounts are due, or by both such discontinuance and by filing suit.

Creation of Liens; Sale of Authority Interest (LADWP)

Except as otherwise expressly provided in the Indenture, the Authority shall not issue any bonds, notes, debentures or other evidences of indebtedness of similar nature, other than the Bonds or Parity Swaps, payable out of or secured by a security interest in or a pledge or assignment of the Revenues or other moneys, securities or funds held or set aside by the Authority or by the Fiduciaries under the Indenture for the benefit of the Owners of the Bonds and for any Parity Swap Providers and shall not create or cause to be created any lien or charge on the Revenues, or on such other moneys, securities or funds; provided, however, that nothing contained in the Indenture shall prevent the Authority from issuing, if and to the extent permitted by law (i) evidences of indebtedness (a) payable out of moneys in the Project Fund as part of the Cost of Acquisition and Operations or any portion of the allocable costs of Capital Improvements, or (b) payable out of or secured by a security interest in or pledge and assignment of Revenues to be derived on and after such date as the pledge of the Revenues provided in the Indenture has been discharged and satisfied as provided in the Indenture, or (ii) bonds, notes or other evidences of indebtedness (including, but not limited to, any interest rate exchange or swap agreement, cash flow exchange or swap agreement or other similar financial agreement) payable on a basis subordinate and junior to the Bonds and any Parity Swaps and secured by a lien or charge on Revenues that is subordinate and junior to the lien of the Bonds and the Parity Swaps on Revenues.

The Authority will not sell, assign, lease or otherwise dispose of the Authority Interest (LADWP) if such sale or disposition would materially adversely affect the rights or security of the Bondowners under the Indenture. For so long as the Transmission Service Contract (LADWP) is in effect, the Authority will not sell any transmission service utilizing the Authority Interest (LADWP) or the transmission capability thereof except as provided in or permitted by the Transmission Service Contract (LADWP) or consent to the sale, lease, mortgage or other disposal of the Authority Interest (LADWP) other than in accordance with the Transmission Service Contract (LADWP).

Covenants with Respect to the Transmission Service Contract (LADWP) and Project Agreements

Except as otherwise provided in the Indenture, the Trustee covenants that it shall receive and deposit in the Revenue Fund all amounts payable to the Trustee pursuant to the Transmission Service Contract (LADWP) or otherwise payable to it with respect to the use of the Authority Interest (LADWP) or any part thereof (to the extent amounts payable pursuant to any other such contract are properly allocable to the Indenture). Subject to the Indenture, the Authority shall enforce or cause to be enforced the provisions of the Transmission Service Contract (LADWP) and duly perform its covenants and agreements thereunder, and will not consent or agree to or permit any rescission of or amendment to, or otherwise take any action under or in connection with, the Transmission Service Contract (LADWP) that would materially adversely affect the rights or security of Owners of the Bonds under the Indenture.

C-19

Subject to the Indenture, the Authority shall enforce or cause to be enforced the provisions of the Project Agreements to which it is a party and duly perform its covenants and agreements thereunder. The Authority will not consent or agree to or permit any rescission of or amendment to or otherwise take any action under or in connection with the Project Agreements that will impair or diminish the obligation of the Project Participant under the Transmission Service Contract (LADWP).

Annual Budget

Not less than 20 nor more than 45 days prior to the beginning of each Fiscal Year, the Authority shall adopt and file with the Trustee for such Fiscal Year an Annual Budget prepared in accordance with the provisions of, and in the manner contemplated by, the Transmission Service Contract (LADWP). Each such Annual Budget shall set forth in reasonable detail the estimated Revenues required to be collected for such Fiscal Year and the estimated amount to be deposited in each month of the Fiscal Year in the Funds and Accounts under the Indenture, and shall include, particularly, provision for the amounts required (or in good faith estimated to be required) for the accrual or payment (as applicable) of Accrued Debt Service on the Bonds, the payment of Authority Operating Expenses, the funding or replenishment of any reserves (including all Accounts in the Debt Service Reserve Fund) required by the Indenture, provision for any general reserve for Authority Operating Expenses and the estimated amount to be deposited in the Reserve and Contingency Fund (if any), and provision for any such other expenditures and deposits as the Authority shall determine shall be necessary or appropriate so as to enable the Authority to comply with the Indenture and the Project Agreements, including, where applicable, provision for the payment of the allocable costs of Capital Improvements which are not being financed by proceeds of Bonds for such Fiscal Year. As provided in the Transmission Service Contract (LADWP), the Annual Budget shall provide the basis for the monthly billing of amounts to be paid by the Project Participant thereunder, and shall include all amounts necessary for the Authority to satisfy all of its obligations under the Project Agreements attributable to the Authority Interest (LADWP) and all of its obligations under the Indenture. If there are at any time during any Fiscal Year extraordinary receipts or payments of unusual costs with respect to the Authority Interest (LADWP), or the amount in the Debt Service Fund or the Debt Service Reserve Fund shall be less than the respective balances (if any) required by the Indenture, the Authority shall promptly adopt in accordance with the provisions of the Transmission Service Contract (LADWP) and file with the Trustee an amended Annual Budget for the remainder of such Fiscal Year. The Authority may also at any time adopt in accordance with the provisions of the Transmission Service Contract (LADWP) and file with the Trustee an amended Annual Budget for the remainder of the then current Fiscal Year.

Tax Covenants for the 2016 Series A Bonds

Capitalized terms used in this description of the tax covenants with respect to the 2016 Series A Bonds shall have the meanings ascribed thereto in the First Supplemental Indenture.

The Authority shall not take any action or omit to take any action which, if taken or omitted, respectively, would adversely affect the excludability of interest on any 2016 Series A Bond from the gross income, as defined in section 61 of the Code, of the owner thereof for federal income tax purposes.

Except as would not cause any 2016 Series A Bond to become a “private activity bond” within the meaning of section 141 of the Code and the Tax Regulations and rulings thereunder, the Authority shall at all times prior to the payment and cancellation of the last 2016 Series A Bond to be paid and cancelled: (i) exclusively own, operate and possess all property the acquisition, construction or improvement of which is to be financed or refinanced directly or indirectly with Gross Proceeds of the 2016 Series A Bonds, and not use or permit the use of such Gross Proceeds or property (including through contractual arrangements with terms different than those applicable to the general public) in any

C-20

activity carried on by a Nongovernmental Person that would create private business use described in section 141(b) of the Code; and (ii) not directly or indirectly impose or accept any charge or other payment by any person or entity in respect of the use by any Nongovernmental Person of Gross Proceeds of the 2016 Series A Bonds or of any property the acquisition, construction or improvement of which is to be financed or refinanced directly or indirectly with such Gross Proceeds that would constitute a payment described in section 141(b)(2)(B) of the Code. Except as would not cause any 2016 Series A Bond to become a “private activity bond” within the meaning of section 141 of the Code and the Tax Regulations and rulings thereunder, the Authority shall not use Gross Proceeds of any 2016 Series A Bond to make or finance a loan to any Nongovernmental Person.

Except as would not cause any 2016 Series A Bond to become an “arbitrage bond” within the meaning of section 148 of the Code and the Tax Regulations and rulings thereunder, the Authority shall not at any time prior to the final maturity of the 2016 Series A Bonds directly or indirectly invest Gross Proceeds in any Investment, if as a result of such investment the Yield of any Investment acquired with Gross Proceeds, whether then held or previously disposed of, would materially exceed the Yield of the 2016 Series A Bonds within the meaning of said section 148.

Except to the extent permitted by section 149(b) of the Code and the Tax Regulations and rulings thereunder, the Authority shall not take or omit to take any action that would cause any portion of the payment of the principal of or interest on the 2016 Series A Bonds to be “federally guaranteed” within the meaning of section 149(b) of the Code and the Tax Regulations and rulings thereunder.

Insurance

The Authority shall, at all time after it shall acquire the Authority Interest (LADWP), insure (or cause to be insured) the Authority Interest (LADWP) (which may include by the procurement of insurance for the Project as provided for pursuant to the Project Agreements) from such causes customarily insured against for similar interests held by similar parties and in such relative amounts as are usually obtained, to the extent available on commercially reasonable terms. The Authority shall also use its best efforts to maintain or cause to be maintained (i) insurance or reserves against loss or damage from such hazards and risks to the person and property of others as are usually insured or reserved against by those with rights and interests similar to the Authority Interest (LADWP), to the extent available on commercially reasonable terms and (ii) any additional or other insurance that the Authority deems necessary or advisable to protect its interests, to the extent available on commercially reasonable terms.

If any useful portion of the Project attributable to the Authority Interest (LADWP) is damaged, destroyed or taken by eminent domain proceedings, the Authority continuously and diligently enforce its rights under the Project Agreements (or otherwise not inconsistent therewith) to cause to be completed the repair, reconstruction or replacement thereof. The proceeds of any condemnation award or insurance payable to the Authority, including the proceeds of any self-insurance fund, paid on account of such damage, destruction or taking (other than any business interruption loss insurance) shall, to the extent attributable to the Authority Interest (LADWP), be deposited in the Project Fund and held by the Trustee and applied, to the extent necessary, to the Cost of Acquisition and Operations or any portion of the costs of the Capital Improvements, as applicable. The applicable portion of any proceeds of any business interruption loss insurance shall be paid into the Revenue Fund.

Fiduciaries

The Trustee may at any time resign by giving not less than 60 days’ written notice to the Authority and any Parity Swap Providers specifying the date when such resignation shall take effect, and such resignation shall take effect upon the day specified in such notice unless previously a successor shall

C-21

have been appointed by the Authority with the approval of the Owners as provided in the Indenture, in which event such resignation shall take effect immediately on the appointment of such successor. The Trustee may at any time be removed by (i) an instrument in writing, filed with the Trustee, signed by two Authorized Authority Representatives, unless an Event of Default has occurred and is continuing, or (ii) an instrument or concurrent instruments in writing, filed with the Trustee, and signed by the Owners of a majority in principal amount of the Bonds then Outstanding or their attorneys-in-fact duly authorized. Such removal shall take effect immediately upon the appointment of a successor Trustee as provided in the Indenture and acceptance of such appointment by such successor.

In case at any time the Trustee resigns or is removed or has become incapable of acting, or is adjudged as bankrupt or insolvent, or if a receiver, liquidator or conservator of the Trustee or of its property, is appointed, or if any public officer takes charge or control of the Trustee or of its property or affairs, a successor Trustee may be appointed by the Owners of a majority in principal amount of Bonds then Outstanding, and failing such an appointment the Authority shall appoint a successor to hold office until a successor Trustee shall be appointed by the Owners. The Trustee and each successor Trustee, if any, shall be a bank, a trust company, or a national banking association, doing business and having a corporate trust office in either New York, New York, Los Angeles, California or San Francisco, California and having capital stock and surplus aggregating at least $75,000,000, if there be such a bank, trust company or national banking association willing and able to accept the appointment on reasonable and customary terms and authorized by law to perform all the duties imposed on it by the Indenture.

The Indenture provides for the appointment by the Authority of a Paying Agent (which may include the Trustee). The Trustee, the Paying Agent or either or both of them, as may be appropriate, are a Fiduciary for purposes of the Indenture.

If no Event of Default is occurring, the Trustee shall perform only such duties as are specifically set forth in the Indenture. If an Event of Default has occurred and has not been cured or waived, the Trustee shall exercise such of the rights and powers vested in it by the Indenture, and use the same degree of care and skill in its exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. Subject to the above, no Fiduciary shall be liable in connection with the performance of its duties under the Indenture except for its own negligence, misconduct or default.

The Authority is required to pay to each Fiduciary reasonable compensation for all services rendered under the Indenture and all reasonable expenses, charges, counsel fees and other disbursements, incurred in the performance of its powers and duties under the Indenture. Each Fiduciary has a lien on any and all funds held by it under the Indenture securing its right to compensation. The Authority also agrees to indemnify and save each Fiduciary, its officers, directors, employees and agents harmless, to the extent permitted by law, against any claims, costs, expenses or liabilities that it may incur in the exercise and performance of its powers and duties under the Indenture that are not due to its negligence, misconduct or default.

Events of Default and Remedies

Events of Default specified in the Indenture are as follows: (i) failure to pay principal or Redemption Price of any Bond when due except as provided in the Indenture; (ii) failure to pay any interest installment on any Bond or the unsatisfied balance of any Sinking Fund Installment thereon when due; and (iii) failure by the Authority in the observance or performance of any other covenants, agreements or conditions contained in the Indenture or in the Bonds for 120 days after written notice thereof from the Trustee or the Owners of not less than 25% in principal amount of Bonds then Outstanding.

C-22

Upon the occurrence of any Event of Default which has not been remedied, the Authority shall, if demanded in writing by the Trustee, (1) account, as if it were the trustee of an express trust, for all Revenues and other moneys, securities and funds pledged or held under the Indenture, and (2) cause to be paid over to the Trustee (a) forthwith, all moneys, securities and funds then held by the Authority in any Fund or Account under the Indenture (except for such Funds and Accounts and any other amounts that the Indenture provides are not a source of payment for the Bonds) and (b) promptly after receipt, all Revenues. The Trustee shall apply all moneys, securities, funds and Revenues pledged to the benefit of the Owners of the Bonds and any Parity Swap Providers (i) received during the continuance of an Event of Default and (ii) held by the Trustee pursuant to the Indenture in the following order: (1) to payment of the reasonable and proper charges, expenses and liabilities of the Fiduciaries, including, without limitation, those of its attorneys and advisors; (2) to the payment of reasonable and necessary Authority Operating Expenses; and (3) first, to the payment of interest on the Bonds and second, to the payment of principal or Redemption Price on any Bonds that shall have become due, whether at maturity or by call for redemption, and all obligations under any Parity Swaps that shall have become due and payable (with any termination payments due under any Parity Swaps being payable on a basis subordinate and junior to the payment of the principal or Redemption Price of any Bonds), in order of their due dates, and if the amount available shall not be sufficient to pay in full all the Bonds and Parity Swaps (other than termination payments thereunder) due on any date, then to the payment thereof, ratably, according to the amounts of principal or Redemption Price or payments due under any Parity Swaps (other than termination payments thereunder), due on such date. In addition, the Trustee shall have the right to apply in an appropriate proceeding for appointment of a receiver or custodian of the Revenues and of all amounts in the Funds and Accounts established by the Indenture.

If an Event of Default has occurred and has not been remedied the Trustee may, and upon written request of the Owners of not less than a majority in aggregate principal amount of Bonds Outstanding, upon being indemnified as provided in the Indenture, shall, proceed to protect and enforce its rights and the rights of the Owners of the Bonds under the Indenture forthwith by a suit or suits in equity or at law, whether for the specific performance of any covenant in the Indenture or in aid of the execution of any power granted in the Indenture or any remedy granted under the Act, or for an accounting against the Authority as if it were the trustee of an express trust, or in the enforcement of any other legal or equitable right, as the Trustee deems most effective to enforce any of its rights or to perform any of its duties under the Indenture. The Trustee shall have the power to, but unless requested in writing by the Owners of a majority in principal amount of the Bonds then Outstanding and furnished with reasonable security and indemnity, shall be under no obligation to, institute and maintain any suits or proceedings as it may be advised shall be necessary or expedient to prevent any impairment of the security under the Indenture or to preserve or protect the interests of the Trustee and of the Owners of the Bonds.

No Owner of any Bond shall have any right to institute any suit, action or proceeding at law or in equity for the enforcement of any provision of the Indenture or the execution of any trust under the Indenture or for any remedy under the Indenture, unless (1) such Owner previously has given the Trustee written notice of an Event of Default; (2) the Owners of at least a majority in aggregate principal amount of the Bonds then Outstanding have filed a written request with the Trustee and have offered the Trustee a reasonable opportunity to exercise its powers or to institute such suit, action or proceeding; and (3) there have been offered to the Trustee adequate security and indemnity against its costs, expenses and liabilities to be incurred and the Trustee has refused to comply with such request for a period of 60 days after receipt by it of such notice, request and offer of indemnity. The Indenture provides that nothing therein or in the Bonds affects or impairs the Authority’s obligations to pay the principal or Redemption Price, if any, of the Bonds and interest thereon when due or the right of any Owner to enforce such payment of his or her Bonds.

C-23

The Owners of not less than a majority in principal amount of Bonds then Outstanding may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, provided however that the Trustee has a right to decline to follow any such direction upon advice of counsel as to the unlawfulness thereof, or upon its good faith determination that such action would involve the Trustee in personal liability or be unjustly prejudicial to the Owners not parties to such direction, or if the Trustee has not been indemnified to its satisfaction by the Owners.

Amendments and Supplemental Indentures

Except as otherwise provided in the Indenture, any of the provisions of the Indenture may be amended by the Authority by a Supplemental Indenture upon the written consent of the Owners of at least a majority in aggregate principal amount of Bonds then Outstanding and, if less than all of the Outstanding Bonds are affected by the amendment, the Owners of at least a majority in aggregate principal amount of Outstanding Bonds so affected. However, if such amendment or modification will, by its terms, not take effect so long as any Bonds of any specified like Series and maturity remain Outstanding, the consent of the Owners of such Bonds will not be required, and such Bonds shall not be deemed to be Outstanding for the purposes of such calculation. For purposes of obtaining the requisite consent of the Owners, the written consent of the Owner shall be deemed to have been received if the amendment is expressly referred to in the Supplemental Indenture relating to a Series of Bonds and in the text of such Bonds it recites that the Owner of the Bonds shall be deemed to have consented to such amendments by accepting such Bonds. No amendment or modification shall permit a change in the terms of any Sinking Fund Installment or the terms of redemption or maturity of the principal of any Outstanding Bond or of any installment of interest thereon or a reduction in the principal amount, Redemption Price, or rate of interest thereon without the consent of the Owner of such Bond, or shall reduce the percentages of the consents required for a further amendment or modification, or shall change or modify any of the rights or obligations of any Fiduciary without its written assent thereto. A Series shall be deemed to be affected by a modification or amendment of the Indenture if the same adversely affects or diminishes the rights of the Owners of Bonds of such Series. The Trustee may in its discretion determine whether or not in accordance with the foregoing, Bonds of any particular Series or maturity would be adversely affected by any modification or amendment of the Indenture and any such determination will be binding and conclusive on the Authority and all Owners of the Bonds.

The Authority may execute and deliver a Supplemental Indenture, which shall become effective upon the filing with the Trustee of a copy thereof, without the consent of the Owners, for any of the following purposes: (1) to close the Indenture against, or provide limitations and restrictions in addition to the limitations and restrictions contained in the Indenture on, the authentication and delivery of Bonds or the issuance of other evidences of indebtedness; (2) to add to the covenants and agreements of the Authority contained in the Indenture, other covenants and agreements to be observed by the Authority that are not contrary or inconsistent with the Indenture as theretofore in effect; (3) to add to the limitations and restrictions in the Indenture, other limitations and restrictions to be observed by the Authority that are not contrary to or inconsistent with the Indenture as theretofore in effect; (4) to authorize Bonds of a Series and, in connection therewith, specify and determine the matters and things or provide for the issuance of such Series of Bonds as tax credit bonds or other forms of bonds the interest on which is not excluded from gross income of the Owners thereof for federal income tax purposes and to comply with any applicable tax law requirements with respect thereto referred to in the Indenture, and also any other matters and things relative to such Bonds that are not contrary to or inconsistent with the Indenture as theretofore in effect, or to amend, modify or rescind any such authorization, specification or determination at any time prior to the first authentication and delivery of such Bonds; (5) to confirm, as further assurance, any security interest or pledge created under the Indenture; (6) to authorize the establishment of a fund or funds to enable the Authority to self-insure against the risks and hazards

C-24

relating to the Authority Interest (LADWP) and the interests of the Authority and of the Owners as described in the Indenture; (7) to modify any of the provisions of the Indenture in any other respect, provided that (i) no Bonds are Outstanding at the date of the execution and delivery of such Supplemental Indenture or (ii) (a) such modification shall be, and be expressed to be, effective only after all Bonds then Outstanding at the date of the execution and delivery of such Supplemental Indenture shall cease to be Outstanding and (b) such Supplemental Indenture shall be specifically referred to in the text of all Bonds of any Series authenticated and delivered after the date of execution of such Supplemental Indenture and of Bonds issued in exchange therefor or in place thereof; (8) to amend, modify, or supplement the Indenture in such manner as does not materially adversely affect the rights of the Owners of the Bonds (including, but not limited to, amending, modifying or supplementing the Indenture in such manner as the Authority deems appropriate to provide for an interest rate exchange or swap agreement, cash flow exchange or swap agreement or other similar financial agreement payable on a basis subordinate and junior to the Bonds and any Parity Swaps, as provided in the Indenture), provided that the Trustee is first furnished with an Opinion of Bond Counsel to the effect that such amendment, modification or supplement is permitted under the Indenture and shall not adversely affect the validity of the Bonds and, if applicable, the exclusion of interest on the Bonds from the gross income of the Owners thereof for federal income tax purposes; and (9) to comply with additional requirements that a Rating Agency may impose in order to issue or maintain a rating on the Bonds, provided that any Supplemental Indenture whose purpose is to effect such changes shall be effective only upon delivery to the Authority and the Trustee of an Opinion of Bond Counsel that such changes shall not adversely affect the validity of the Bonds and, if applicable, the exclusion of interest on the Bonds from the gross income of the Owners thereof for federal income tax purposes.

The Authority may execute and deliver Supplemental Indentures with the consent of the Trustee (without the consent of any Owners of the Bonds required) to cure any ambiguity, supply any omission, or cure or correct any defect or inconsistent provision in the Indenture or to insert such provisions clarifying matters or questions arising under the Indenture as are necessary or desirable and are not contrary to or inconsistent with the Indenture.

Defeasance

If the Authority shall pay or cause to be paid, or there shall otherwise be paid, to Owners of all Bonds the principal or Redemption Price, if applicable, of and interest, if any, due or to become due thereon, and to each of the Parity Swap Providers, if any, all of the amounts of the Authority under any Parity Swaps, at the times and in the manner stipulated therein and in the Indenture, then the lien of the Indenture and all covenants, agreements and other obligations of the Authority to the Owners and the Parity Swap Providers thereunder, shall thereupon cease, terminate and become void and be discharged and satisfied, except as otherwise provided in the Indenture. In such event, the Trustee shall cause an accounting for such period or periods as shall be requested by the Authority to be prepared and filed with the Authority and, upon the request of the Authority shall execute and deliver to the Authority all such instruments as may be desirable to evidence such discharge and satisfaction, and the Fiduciaries shall pay over or deliver, as directed by the Authority, all moneys or securities held by them pursuant to the Indenture that are not required for the payment of principal or Redemption Price, if applicable, or interest due or to become due on Bonds not theretofore surrendered for such payment or redemption. If the Authority shall pay or cause to be paid, or there shall otherwise be paid, to the Owners of any Outstanding Bonds the principal or Redemption Price, if applicable, and interest, if any, due or to become due thereon, at the times and in the manner stipulated therein and in the Indenture, such Bonds shall cease to be entitled to any lien, benefit or security under the Indenture, and all covenants, agreements and obligations of the Authority to the Owners of such Bonds shall thereupon cease, terminate and become void and be discharged and satisfied, except for the remaining rights of registration of transfer and exchange of Bonds.

C-25

Bonds (which may be less than all of the Bonds then Outstanding) or interest installments for the payment or redemption of which moneys shall have been set aside and shall be held in trust by the Trustee or the Paying Agent (through deposit pursuant to the Indenture of funds for such payment or redemption or otherwise) at the maturity, payment or redemption date thereof shall be deemed to have been paid within the meaning and with the effect expressed in the above paragraph. Any Outstanding Bonds shall prior to the maturity or earlier redemption thereof be deemed to have been paid within the meaning and with the effect expressed in the above paragraph if: (a) in case any of said Bonds are to be redeemed on any date prior to their maturity, the Authority shall have given to the Trustee irrevocable instructions accepted in writing by the Trustee to mail as provided in the Indenture notice of redemption of such Bonds on said date; (b) there shall have been deposited with the Trustee either moneys (including moneys withdrawn and deposited pursuant to any Supplemental Indenture) in an amount that shall be sufficient, or Defeasance Obligations (including any Defeasance Obligations issued or held in book-entry form on the books of the Department of the Treasury of the United States) the principal of and the interest on which when due will provide moneys that, together with the moneys, if any, on deposit with the Trustee, shall be sufficient, in the opinion of an independent certified public accountant or independent arbitrage consultant, to pay when due the principal or Redemption Price, if applicable, and interest due and to become due on said Bonds on or prior to the redemption date or maturity date thereof, as the case may be; and (c) the Authority shall have given the Trustee, in form satisfactory to it irrevocable instructions to mail, postage prepaid, to the Owners of such Bonds, at their last addresses, if any, appearing upon the registry books, a notice that the deposit required by (b) above has been made with the Trustee and that said Bonds are deemed to have been paid in accordance with the Indenture and stating such maturity or redemption date upon which moneys are to be available for the payment of the principal or Redemption Price, if any, on said Bonds. Neither Defeasance Obligations nor moneys deposited with the Trustee pursuant to the Indenture nor principal or interest payments on any such Defeasance Obligations shall be withdrawn or used for any purpose other than, and shall be held in trust for, the payment of the principal or Redemption Price, if applicable, and interest on said Bonds; provided that any cash received from such principal or interest payments on such Defeasance Obligations deposited with the Trustee, (A) to the extent such cash will not be required at any time for such purpose, as certified to the Trustee by an Accountant’s Certificate, shall be paid over upon the direction of the Authority as received by the Trustee, free and clear of any trust, lien, pledge or assignment securing said Bonds or otherwise existing under the Indenture, and (B) to the extent such cash will be required for such purpose at a later date, shall, to the extent practicable, be reinvested pursuant to the direction of the Authority in Defeasance Obligations (including any Defeasance Obligations issued or held in book-entry form on the books of the Department of the Treasury of the United States) maturing at times and in amounts sufficient to pay when due the principal or Redemption Price, if applicable, and interest to become due on said Bonds, on or prior to such redemption date or maturity date thereof, as the case may be, and interest earned from such reinvestments shall be paid over as received by the Trustee, free and clear of any lien, pledge or security interest securing said Bonds or otherwise existing under the Indenture. For the purposes described in this paragraph, Defeasance Obligations shall mean and include only such securities which shall not be subject to redemption prior to their maturity other than at the option of the owner thereof.

For purposes of determining whether Variable Interest Rate Bonds shall be deemed to have been paid prior to the maturity or redemption date thereof, as the case may be, by the deposit of moneys, or Defeasance Obligations and moneys, if any, in accordance with the Indenture, the interest to come due on such Variable Interest Rate Bonds on or prior to the maturity date or redemption date thereof, as the case may be, for any period for which such interest shall not yet be determinable, shall be calculated at the Maximum Interest Rate permitted by the terms thereof; provided, however, that if on any date, as a result of such Variable Interest Rate Bonds having borne interest at less than such Maximum Interest Rate for any period, the total amount of moneys and Defeasance Obligations on deposit with the Trustee for the payment of interest on such Variable Interest Rate Bonds is in excess of the total amount that would have been required to be deposited with the Trustee on such date in respect of such Variable Interest Rate

C-26

Bonds in order to satisfy the Indenture, the Trustee shall, if requested by the Authority, pay the amount of such excess to the Authority free and clear of any trust, lien, pledge or assignment securing the Bonds or otherwise existing under the Indenture. Notwithstanding the foregoing, if (i) Variable Interest Rate Bonds of a given maturity provide that the interest rate for such Variable Interest Rate Bonds may bear a fixed rate of interest for a period of six months or longer, (ii) the interest rate with respect to such Variable Interest Rate Bonds is currently accruing at a fixed rate of interest for a period of six months or longer and (iii) all or a portion of such Variable Interest Rate Bonds are to be purchased or redeemed on or prior to the last date upon which such Variable Interest Rate Bonds are to bear such fixed rate of interest, then in determining the amount of moneys or Defeasance Obligations required to be set aside as provided in the Indenture, such Variable Interest Rate Bonds shall be deemed to bear a fixed rate of interest and the provisions described in this paragraph shall not apply.

SUMMARY OF CERTAIN PROVISIONS OF THE MEAD-ADELANTO AGREEMENTS

Summaries of certain provisions of the Mead-Adelanto Transmission Service Contract (LADWP), the 1992 Mead-Adelanto Transmission Service Contracts (Members), the Mead-Adelanto Transmission Service Contract (Western), the Mead-Adelanto Joint Ownership Agreement, the Mead- Adelanto Operation Agreement and the Mead-Adelanto Fiscal Agency Agreement (collectively, the “Mead-Adelanto Agreements”) are provided below. For the purposes of the summaries of the Mead- Adelanto Joint Ownership Agreement, the Mead-Adelanto Operation Agreement, and the Mead-Adelanto Fiscal Agency Agreement, the term “Project Participant” does not refer exclusively to the Department as the sole “Project Participant” with respect to the Authority Interest (LADWP) in the Mead-Adelanto Project as so identified in the front part of this Official Statement. This summary is not to be considered a full statement of the terms of such Mead-Adelanto Agreements and accordingly is qualified by reference thereto and is subject to the full text thereof. Capitalized terms not defined in this summary or, as applicable, elsewhere in the Official Statement have the respective meanings set forth in the respective Mead-Adelanto Agreements summarized below, except that the term “Mead-Adelanto Project” shall have the meaning attributed in the respective Mead-Adelanto Agreements to the term “Project.”

SUMMARY OF CERTAIN PROVISIONS OF THE MEAD-ADELANTO TRANSMISSION SERVICE CONTRACT (LADWP)

The following is a summary of certain provisions of the Mead-Adelanto Transmission Service Contract (LADWP) entered into between the Authority and the Department relating to the Authority Interest (LADWP) in the Mead-Adelanto Project. This summary relates only to the Mead-Adelanto Transmission Service Contract (LADWP) entered into by the Department with the Authority with respect to the Authority Interest (LADWP) in the Mead-Adelanto Project to be acquired by the Authority from M-S-R PPA pursuant to the Purchase and Sale Agreement, which Transmission Service Contract (LADWP) is separate and distinct from the Department’s 1992 Mead-Adelanto Transmission Service Contract (Members) with the Authority relating to the Department’s entitlement share in the Authority Interest (Members) in the Mead-Adelanto Project.

Purchase of Entire Capability

Pursuant to the Mead-Adelanto Transmission Service Contract (LADWP), the Authority will provide to the Department and the Department will contract with the Authority for use of 100% of the capability associated with the Authority Interest (LADWP) in the Mead-Adelanto Project. The Authority will cause to be undertaken the acquiring, insuring, administering, operating and maintaining of the Authority Interest (LADWP) in the Mead-Adelanto Project pursuant to the applicable Mead-Adelanto

C-27

Project agreements (as defined in the Mead-Adelanto Transmission Service Contract (LADWP), the “Project Agreements”) and will effectuate the purchase of the Authority Interest (LADWP) (and associated participation share and related rights and interests) in the Mead-Adelanto Project from M-S-R PPA pursuant to the Purchase and Sale Agreement.

Billings and Payments

The Authority will provide to the Department by the fifth calendar day of each Month during each Transmission Service Year a Monthly Statement showing the amount of Transmission Service Costs to be paid by the Department, including costs and expenses paid or incurred by the Authority with respect to any judgment of the Department against any Mead-Adelanto Owner (an “Owner” as defined in the Mead-Adelanto Joint Ownership Agreement) or the Operation Manager in connection with electric service to the Department caused by the operation or failure of operation of the Mead-Adelanto Project or any portion thereof. Transmission Service Costs to be paid by the Department each Month are to be billed based on the then current Annual Budget and will include all costs of the Authority attributable to the Authority Interest (LADWP) in the Mead-Adelanto Project, to the extent not paid from the proceeds of bonds, notes or other evidences of indebtedness issued by the Authority to finance or refinance the Cost of Acquisition and Operations of the Authority Interest (LADWP) in the Mead-Adelanto Project (as defined in the Mead-Adelanto Transmission Service Contract (LADWP), “Bonds”), resulting from the ownership, operation and maintenance of, and renewals and replacements to, the Mead-Adelanto Project, and including all items as required by the Mead-Adelanto Indenture (or other indenture of trust, bond resolution or similar instrument with respect to the financing of any Cost of Acquisition and Operations of the Authority Interest (LADWP) in the Mead-Adelanto Project by the Authority (as defined in the Mead-Adelanto Transmission Service Contract (LADWP), an “Indenture of Trust”). The Department is required to pay its Monthly Statement within twenty calendar days of its receipt.

Disputed Monthly Statement

The Department shall pay the full amount of each Monthly Statement notwithstanding any dispute regarding such amount. Upon determination of the correct amount, the difference, if any, between such correct amount and the amount so paid, plus interest at the lesser of the highest fixed legal rate (if one exists) or two percent above the Bank of America National Trust and Savings Association (or its successor in interest) then effective reference rate prorated on a daily basis on the amount of such difference, will be credited to the Department. However, no such interest shall be due to the extent such overpayment is acknowledged and repaid to the Department by the Authority by the fifteenth day following receipt by the Authority of such disputed overpayment and written notification by the Department of such dispute.

Annual Budget and Adjustment of Billing

The Authority will prepare or cause to be prepared an Annual Budget for each Transmission Service Year, which will be the basis for billing Transmission Service Costs. Within 150 days after the end of each Transmission Service Year, the Authority will submit to the Department a detailed statement of the actual aggregate Transmission Service Costs and other amounts payable under the Mead-Adelanto Transmission Service Contract (LADWP) including any credits thereto and any adjustments for any prior Transmission Service Year, based on the annual audit required by the Mead-Adelanto Transmission Service Contract (LADWP). If for any Transmission Service Year the actual amount payable under the Mead-Adelanto Transmission Service Contract (LADWP) exceeds the amount which the Department has been billed, the Department will pay the amount of such excess to the Trustee under the Indenture of Trust. If such amounts are less than the amounts billed, the Authority will credit the excess against the Department’s next Monthly Statement.

C-28

Periodic Reports

The Authority will provide periodic reports regarding, among other things, the status of the Annual Budget and analysis of operations relating to the Authority Interest (LADWP).

Source of Payments

Payment of billings under the Mead-Adelanto Transmission Service Contract (LADWP) is limited to revenues available to the Department from its electric revenue funds and shall constitute a cost of transmission service and an operating expense of its electric utility system. The Department will annually include in its power system budget an appropriation from the revenues of its electric system sufficient to satisfy all payments required in such year under the Mead-Adelanto Transmission Service Contract (LADWP) until all payments required thereunder have been paid in full.

Rate Covenant

The Department will establish, maintain and collect rates and charges for electric service so as to provide sufficient revenues (together with available electric system reserves) to enable the Department to pay all amounts payable when due under the Mead-Adelanto Transmission Service Contract (LADWP) and other amounts payable from (and all lawful charges against or liens on) revenues of its electric system.

Coordinating Committee Participation

The Department is entitled to participate in the decisions of the Mead-Adelanto Coordinating Committee with respect to the Mead-Adelanto Project in accordance with the voting rights given to it under the Mead-Adelanto Joint Ownership Agreement.

Payment Obligation Unconditional

The Department is unconditionally obligated to pay its Monthly Statement whether or not the Mead-Adelanto Project or any part thereof is operating or operable or its service is suspended, curtailed or terminated in whole or in part. Payments are not subject to reduction whether by offset or otherwise and are not conditioned upon the performance or nonperformance by any party of any agreement for any cause whatsoever.

Capability Entitlements

All service with respect to the Authority Interest (LADWP) in the Mead-Adelanto Project will be scheduled by or on behalf of the Department in accordance with practices and procedures established pursuant to the applicable Project Agreements. Subject to the terms of the Mead-Adelanto Transmission Service Contract (LADWP), the Department is entitled to schedule energy up to an amount equal to the Available Transmission Capability and utilize Available Electrical Capability up to the Available Electrical Capability of the Authority Interest (LADWP).

Issuance of Bonds; Pledge of Payments

The Authority is required to finance (i) the Cost of Acquisition and Operations of the Mead- Adelanto Project following the execution and delivery of the Purchase and Sale Agreement and (ii) the Cost of any Mead-Adelanto Capital Improvement or capital improvement under any Participation/Interconnection Agreement to the extent that money is not available under the Indenture of

C-29

Trust. All or any portion of the payments required to be made by the Department in accordance with or pursuant to any provision of the Mead-Adelanto Transmission Service Contract (LADWP) may be pledged by the Authority to secure the payment of the Bonds, and interest thereon, subject to the application thereof to such purposes and on such terms as provided in the Indenture of Trust. The Authority may assign to the Trustee its rights to receive from the Department all or any portion of the payments to be made by the Department under the Mead-Adelanto Transmission Service Contract (LADWP) and may direct the Department to make all or any portion of such payments directly to the Trustee.

Adjustment of Transmission Service Costs

In the event the proceeds from the sale of any Bonds exceed the aggregate required for the purposes for which such Bonds were issued, the amount of any such excess will be used to make up any deficiency existing in any funds or accounts under the Indenture of Trust in the manner provided therein. Any balance may be used by the Authority to retire Bonds by purchase or redemption in advance of maturity, or as otherwise directed by the Authority (with approval from Bond Counsel in either case) and the Transmission Service Costs of the Department will be reduced accordingly.

Refunding Bonds

If the Authority’s Board of Directors determines that Transmission Service Costs would be reduced by the refunding of any of the Bonds or that it would be otherwise advantageous to refund any Bonds, the Authority will issue and sell refunding Bonds.

Federal Tax Exemption

The Authority and the Department each commit that it will take all actions necessary to establish and maintain the Federal Tax Exemption with respect to any Tax-Exempt Bonds, and shall refrain from taking any action that would adversely affect such Federal Tax Exemption. The Department shall provide to the Authority such representations and certifications as are reasonably requested by the Authority to establish compliance and promptly act in accordance with written instructions that the Authority may reasonably require from time to time in connection with such Federal Tax Exemption. Such covenants shall survive any termination of the Mead-Adelanto Transmission Service Contract (LADWP) for so long as necessary to maintain the Federal Tax Exemption of any Tax-Exempt Bonds.

Default and Remedies

In the event of any failure by the Department to make a payment when due under the Mead- Adelanto Transmission Service Contract (LADWP), which failure continues for 30 or more calendar days subsequent to notice thereof having been transmitted to the Department (a “Payment Default”), the Authority may (i) if such Payment Default is continuing and upon 30 days’ advance notice to the Department, discontinue the Department’s use of Mead-Adelanto Project facilities during the continuation of such Payment Default, without reduction of the obligation of the Department to make payments when due under the Mead-Adelanto Transmission Service Contract (LADWP) (except to the extent of the transfer or disposal of the Department’s rights as described in “Transfer of the Department’s Rights Following Default” below), (ii) bring any suit, action or proceeding at law or in equity as may be necessary or appropriate to enforce against the Department the obligations which gave rise to the Payment Default, and/or (iii) take any action permitted by law to enforce the Authority’s rights or recover damages with respect to such Payment Default under the Mead-Adelanto Transmission Service Contract (LADWP). In the event of a failure by the Department to comply with, carry out or discharge any covenant, duty or obligation under the Mead-Adelanto Transmission Service Contract (LADWP) other

C-30

than to make a payment when due (a “Performance Default”), the Authority may (i) bring any suit, action or proceeding at law or in equity to enforce against the Department any covenant, duty or obligation which gave rise to such Performance Default and/or (ii) take any action permitted by law to enforce the rights of the Authority under the Mead-Adelanto Transmission Service Contract (LADWP) or to recover damages with respect to such Performance Default.

Transfer of the Department’s Rights Following Default

In the event of a Payment Default and a discontinuation of the Department’s use of the Mead- Adelanto Project pursuant to the terms of the Mead-Adelanto Transmission Service Contract (LADWP), the Authority will offer for transfer or temporary use, to each requesting Mead-Adelanto Owner, the Department’s rights in the Mead-Adelanto Project under the Mead-Adelanto Transmission Service Contract (LADWP), on a pro rata basis if such requests exceed the amount of the Department’s remaining rights, and then to third parties; provided however, that the Authority may not offer for transfer or temporary use the Department’s rights in such a manner as shall in the opinion of Bond Counsel adversely affect the Federal Tax Exemption with respect to any Tax-Exempt Bonds. The payment obligation of the Department, including the costs to the Authority related to such default, transfer and sale, will be reduced to the extent the payments are received through transfer and/or temporary use.

Curtailment of Service

Curtailment of use of the Mead-Adelanto Project facilities (in proportion to the Department’s rights thereto attributable to the Authority Interest (LADWP)) is permitted for certain planned outages and Operating Emergencies with respect to the Mead-Adelanto Project. No such curtailment relieves the Department of its obligation to make payments under the Mead-Adelanto Transmission Service Contract (LADWP).

Performance by Department as Agent of Certain Obligations

The Department is authorized to perform, as agent of the Authority, such duties and obligations of the Authority contained in the Mead-Adelanto Transmission Service Contract (LADWP) as shall be requested by the Authority pursuant to the terms and conditions set forth in an existing Agency Agreement for the Mead-Adelanto Project, dated August 4, 1992, between the Authority and the Department, which Agency Agreement provides for such performance and for payment to the Department of its costs in connection therewith.

Liability

Subject to the Mead-Adelanto Transmission Service Contract (LADWP), the Department extends to the Authority and its directors, officers, employees, agents and any other person or entity whose act or failure to act would be imputed to such entities or individuals, the Department’s covenant not to execute on any judgment obtained by it against any of them for loss or damages suffered by the Department regarding the operation, maintenance or ownership of the Mead-Adelanto Project, except for any judgment (i) collectible from valid Mead-Adelanto Project or other insurance, or (ii) for liability of the Department for loss or damages suffered by anyone other than the Department to the extent such liability results from an act or failure to act regarding the operation, maintenance or ownership of the Mead- Adelanto Project. The exception set forth in clause (ii) above is subject to the Department’s assumption of all liability for any claim, action or judgment arising out of or in connection with electric service to any of its customers caused by the operation or failure of operation of the Mead-Adelanto Project or any portion thereof and the Department’s obligation to indemnify and hold harmless the Authority from any such claim, action or judgment. Notwithstanding the foregoing, the Department or the Authority may

C-31

determine, protect or enforce its rights under the Mead-Adelanto Transmission Service Contract (LADWP) or any Project Agreement by a suit or suits in equity for specific performance of, or declaratory action with respect to, any obligation or duty thereunder.

Restrictions on Disposition of Department’s Entire System or Department’s Rights

The Department must give prior written notice to the Authority and the Mead-Adelanto Coordinating Committee of its intention to sell, lease or otherwise dispose of all or substantially all of its electric utility system and must meet the following conditions: (i) the Department must assign and the new entity must assume and agree fully to perform and discharge all obligations of the Department under the Mead-Adelanto Transmission Service Contract (LADWP); (ii) such sale, lease or other disposition shall not, in and of itself, cause the rating of any Bond (without giving effect to any credit enhancement) to be downgraded, suspended or withdrawn (which fact shall be evidenced by letters of the rating agencies then rating the Bonds); (iii) an independent engineer or engineering firm selected by the Authority must deliver an opinion that the new entity is reasonably able to charge and collect rates and charges for the electric service of its electric system as required to meet its obligations under the Mead- Adelanto Transmission Service Contract (LADWP); (iv) the Board of Directors must determine that such sale, lease or other disposition will not adversely affect the value of the Mead-Adelanto Transmission Service Contract (LADWP) as security for the payment of the Bonds and the interest thereon; and (v) Bond Counsel must render an opinion that such sale, lease or other disposition will not adversely affect the Federal Tax Exemption (to the extent applicable).

Subject to the provisions of the Mead-Adelanto Transmission Service Contract (LADWP), the Department must also give written notice to the Authority and the Mead-Adelanto Coordinating Committee of its intention to sell, assign or otherwise dispose of all or any portion of the Department’s rights to the available transmission capability, available electrical capability, or any other service from or use of the Mead-Adelanto Project facilities under the Mead-Adelanto Transmission Service Contract (LADWP), and no such sale, assignment or disposition shall be effective until such notice has been given and Bond Counsel must render an opinion that such sale, assignment or other disposition will not adversely affect the Federal Tax Exemption (to the extent applicable). The Department may, however, without giving such notice or obtaining such opinion, contract to provide service from or use of the Mead- Adelanto Project to which it is entitled under the Mead-Adelanto Transmission Service Contract (LADWP) in a transaction which complies with guidelines established by the Board of Directors and approved by Bond Counsel from time to time. No such sale, assignment, other disposition or contract may, however, release the Department from its obligations under its Mead-Adelanto Transmission Service Contract (LADWP).

Expiration Date of Transmission Service Contract

The date of termination of the Mead-Adelanto Transmission Service Contract (LADWP) will be the later of the date the Authority’s Joint Powers Agreement (including any extensions thereof) expires or the date on which all the Bonds and the interest thereon shall have paid in full or adequate provision for such payment has been made and the Bonds are no longer outstanding, subject to the provisions of the Mead-Adelanto Transmission Service Contract (LADWP) for earlier termination if all Bonds and interest thereon have been paid in full or adequate provision for such payment has been made and the Mead- Adelanto Transmission Service Contract (LADWP) has been superseded because either the Department has become an owner of the Mead-Adelanto Project under the Mead-Adelanto Joint Ownership Agreement or has entered into replacement transmission service or other agreements with the Authority.

C-32

Transmission Service Contract Subject to Indenture of Trust, Project Agreements and Licenses

The Department agrees that the Authority must comply with the requirements of the Indenture of Trust, the Project Agreements, and all licenses, permits and regulatory approvals relating to the Mead- Adelanto Project and therefore agree that the Mead-Adelanto Transmission Service Contract (LADWP) is made subject to the provisions of the Indenture of Trust, the Project Agreements, and all such licenses, permits and regulatory approvals relating to the Mead-Adelanto Project.

Amendment of Transmission Service Contract

Until all Bonds and interest thereon have been paid or adequate provision for such payment has been made, the Mead-Adelanto Transmission Service Contract (LADWP) (except as specifically provided therein) shall not be terminated, amended, modified, supplemented or otherwise altered in any manner which will materially reduce the payments pledged as security for the Bonds or extend the time of such payments or which will in any manner impair or adversely affect the Federal Tax Exemption with respect to any Tax-Exempt Bonds or which will materially impair or materially adversely affect the rights of the holders of the Bonds.

SUMMARY OF CERTAIN PROVISIONS OF THE 1992 MEAD-ADELANTO TRANSMISSION SERVICE CONTRACTS (MEMBERS)

The following is a summary of certain provisions of the 1992 Mead-Adelanto Transmission Service Contracts (Members), entered into between the Authority and each of the Department and the cities of Anaheim, Azusa, Banning, Burbank, Colton, Glendale, Pasadena and Riverside (for purposes of this summary of the 1992 Mead-Adelanto Transmission Service Contracts (Members), the “Authority Member-Participants”) relating to the Authority Interest (Members) in the Mead-Adelanto Project.

Purchase of Entire Capability

Pursuant to each of the 1992 Mead-Adelanto Transmission Service Contracts (Members), the Authority provides to the respective Authority Member-Participant a party thereto a share of the available capability associated with the Authority Interest (Members) in the Mead-Adelanto Project (for purposes of this summary of the 1992 Mead-Adelanto Transmission Service Contracts (Members), the Authority Member-Participant’s “entitlement share.”). The Authority agrees to cause to be undertaken the planning, designing, acquiring, constructing, operating and maintaining of the Mead-Adelanto Project pursuant to the applicable Mead-Adelanto Project agreements (as defined in the 1992 Mead-Adelanto Transmission Service Contracts (Members), the “Project Agreements”) to effectuate the sale of the Authority Member- Participants’ entitlement share of the capability of the Authority Interest (Members) in the Mead- Adelanto Project.

Schedule of Authority Member-Participant Entitlement Shares

The Authority Interest (Members) represents a 67.9167% ownership interest of the Authority in the Mead-Adelanto Project. The following table sets forth the entitlement shares of each of the Authority Member-Participants in the 67.9156% Authority Interest (Members) in the Mead-Adelanto Project.

C-33

1992 Mead-Adelanto Transmission Service Contracts (Members)

Authority Member-Participant Share Department of Water and Power of Los Angeles(1) ...... 35.7055% City of Anaheim ...... 13.4969 City of Riverside ...... 13.4969 City of Burbank ...... 11.5337 City of Glendale ...... 11.0430 City of Pasadena ...... 8.5890 City of Colton ...... 2.5767 City of Azusa ...... 2.2086 City of Banning ...... 1.3497 Total ...... 100.0000% ______(1) The Department’s 35.7055% entitlement share in the Authority Interest (Members) is in addition to and distinct from the rights of the Department to use under the Mead-Adelanto Transmission Service Agreement (LADWP) of 100% of the project capability attributable to the Authority Interest (LADWP).

Billings and Payments

The Authority will provide to each of the Authority Member-Participants by the fifth calendar day of each Month during each Transmission Service Year a Monthly Statement showing the amount of Transmission Service Costs to be paid by the Authority Member-Participant. The Monthly Statement will include the Authority Member-Participant’s share of the aggregate Transmission Service Costs associated with the Authority Interest (Members), including costs and expenses paid or incurred by the Authority with respect to any judgment of the Authority Member-Participant against any Mead-Adelanto Owner (an “Owner” as defined in the Mead-Adelanto Joint Ownership Agreement), the Construction Manager or the Operation Manager in connection with electric service to the Authority Member-Participant caused by the operation or failure of operation of the Mead-Adelanto Project or any portion thereof. Transmission Service Costs consist of all costs of the Authority attributable to the Authority Interest (Members) and, to the extent not paid from the proceeds of bonds, notes or other evidences of indebtedness issued by the Authority to finance or refinance any costs of acquisition or construction of the Authority Interest (Members) in the Mead-Adelanto Project (as defined in the 1992 Mead-Adelanto Transmission Service Contracts (Members), “Bonds”), resulting from the ownership, operation and maintenance of, and renewals and replacements to, the Mead-Adelanto Project. Such costs with respect to any Month in the Transmission Service Year include, without limitation, (i) amounts required under any indenture of trust, bond resolution or similar instrument with respect to the financing of costs of acquisition and construction of the Authority Interest (Members) (as defined in the 1992 Mead-Adelanto Transmission Service Contracts (Members) and for purposes of this summary of the 1992 Mead-Adelanto Transmission Service Contracts (Members), an “Indenture of Trust”) to be paid or deposited during such Month into funds or accounts established for debt service and for any reserve requirements for such Bonds; (ii) one-twelfth of the amount required under any Indenture of Trust to be paid or deposited during the Transmission Service Year into any other fund or account established by an Indenture of Trust to provide for the payment of principal or interest of such Bonds or any other financial obligation of the Authority with respect to the Mead-Adelanto Project, including any amounts required to make up a deficiency in any such fund whether or not resulting from a default in payments by any of the Authority Member-Participants under any 1992 Mead-Adelanto Transmission Service Contract (Members); (iii) one-twelfth of the amount required under an Indenture of Trust to be paid or deposited during the Transmission Service Year into any other fund or account established by an Indenture of Trust relating to the Authority Interest (Members) to provide for the payment of any shortfall in revenues to pay Monthly Costs, including any amounts required to make up a deficiency in any such fund whether or not resulting from a default in

C-34

payment by any of the Authority Member-Participants under any 1992 Mead-Adelanto Transmission Service Contract (Members); (iv) one-twelfth of the amount required for the payment of (a) Monthly Costs during such Transmission Service Year and (b) Authority Expenses (Members) during such Transmission Service Year; and (v) one-twelfth of the amount necessary during such Transmission Service Year to pay or provide reserves for all taxes required to be paid by the Authority to the extent not included in costs of acquisition and construction or Monthly Costs of the Authority Interest (Members). Each Authority Member-Participants is required to pay its Monthly Statement within twenty calendar days of its receipt.

The 1992 Mead-Adelanto Transmission Service Contracts (Members) relating to the Authority Interest (Members) and the Bonds issued by the Authority to finance the costs thereof are separate and distinct from the Mead-Adelanto Transmission Service Contract (LADWP) relating to the Authority Interest (LADWP) and the 2016 Mead-Adelanto Bonds or other Mead- Adelanto Bonds issued under the Mead-Adelanto Indenture referred to elsewhere in this Official Statement. Payments made to the Authority by the Authority Member-Participants under the 1992 Mead-Adelanto Transmission Service Contracts (Members) relating to the Authority Interest (Members) do not constitute Revenues under the Mead-Adelanto Indenture relating to the Authority Interest (LADWP) and do not in any manner secure the 2016 Mead-Adelanto Bonds or any other Mead-Adelanto Bonds issued under the Mead-Adelanto Indenture relating to the Authority Interest (LADWP).

Disputed Monthly Statement

The Authority Member-Participants shall pay the full amount of their Monthly Statement notwithstanding any dispute regarding such amount. Upon determination of the correct amount, the difference, if any, between such correct amount and the amount so paid, plus interest at the lesser of the highest fixed legal rate (if one exists) or two percent above the Bank of America National Trust and Savings Association (or its successor in interest) then effective reference rate prorated on a daily basis on the amount of such difference, will be credited to the appropriate Authority Member-Participant. However, no such interest shall be due to the extent such overpayment is acknowledged and repaid to the applicable Authority Member-Participant by the Authority by the fifteenth day following receipt by the Authority of such disputed overpayment and written notification by the Authority Member-Participant of such dispute.

Annual Budget and Adjustment of Billing

The Authority will prepare or cause to be prepared an annual budget for each Transmission Service Year, which will be the basis for billing Transmission Service Costs. Within 150 days after the end of each Transmission Service Year, the Authority will submit to each Authority Member-Participant a detailed statement of the actual aggregate Transmission Service Costs and other amounts payable under its 1992 Mead-Adelanto Transmission Service Contract (Members) including any credits thereto and any adjustments for any prior Transmission Service Year, based on the annual audit required by the 1992 Mead-Adelanto Transmission Service Contracts (Members). If for any Transmission Service Year the actual amount payable under a 1992 Mead-Adelanto Transmission Service Contract (Members) exceeds the amount which the Authority Member-Participant has been billed, the Authority Member-Participant will pay the amount of such excess to the trustee under the Indenture of Trust. If such amounts are less than the amounts billed, the Authority will credit the excess against the Authority Member-Participant’s next Monthly Statement.

C-35

Periodic Reports

The Authority will provide periodic reports regarding, among other things, the status of the annual budget and analysis of operations relating to the Mead-Adelanto Project.

Source of Payments

Payment of billings under each 1992 Mead-Adelanto Transmission Service Contract (Members) is limited to revenues available to the respective Authority Member-Participant from its electric revenue funds and shall constitute a cost of transmission service and an operating expense of its electric utility system. Each Authority Member-Participants will annually include in its power system budget an appropriation from the revenues of its electric system sufficient to satisfy all payments required in such year under its 1992 Mead-Adelanto Transmission Service Contract (Members) until all payments required under the 1992 Mead-Adelanto Transmission Service Contract (Members) have been paid in full.

Rate Covenant

Each Authority Member-Participant covenants to establish, maintain and collect rates and charges for electric service so as to provide sufficient revenues (together with available electric system reserves) to enable the Authority Member-Participant to pay all amounts payable when due under its 1992 Mead- Adelanto Transmission Service Contract (Members) and other amounts payable from (and all lawful charges against or liens on) revenues of its electric system.

Coordinating Committee Participation

Each Authority Member-Participants is entitled to participate in the decisions of the Mead- Adelanto Coordinating Committee with respect to the Mead-Adelanto Project in accordance with the voting rights given to it under the Mead-Adelanto Joint Ownership Agreement.

Payment Obligation Unconditional

Each Authority Member-Participant is unconditionally obligated to pay its Monthly Statement whether or not the Mead-Adelanto Project or any part thereof is operating or operable or its service is suspended, curtailed or terminated in whole or in part. Payments are not subject to reduction whether by offset or otherwise and are not conditioned upon the performance or nonperformance by any party of any agreement for any cause whatsoever.

Capability Entitlements

All service with respect to the Authority Interest (Members) in the Mead-Adelanto Project will be scheduled in accordance with practices and procedures established pursuant to the applicable Project Agreements. Subject to the terms of the 1992 Mead-Adelanto Transmission Service Contracts (Members), each Authority Member-Participant is entitled to (i) schedule energy using Available Transmission Capability up to a rate of delivery equal to its entitlement share in the Mead-Adelanto Project multiplied by Available Transmission Capability and (ii) utilize Available Electrical Capability up to its entitlement share in the Mead-Adelanto Project multiplied by Available Transmission Capability.

Issuance of Bonds; Pledge of Payments

The Authority was required to finance (i) the costs of acquisition and construction of the Authority Interest (Members) in the Mead-Adelanto Project following the execution and delivery of

C-36

certain agreements relating to the Mead-Adelanto Project identified in the 1992 Mead-Adelanto Transmission Service Contracts (Members) and (ii) the costs of acquisition and construction of any Mead- Adelanto Capital Improvement or capital improvements under any Participation/Interconnection Agreement attributable to the Authority Interest (Members) to the extent that money is not available under an Indenture of Trust relating thereto. All or any portion of the payments by the Authority Member-Participants may be pledged by the Authority to secure the payment of Bonds relating to the Authority Interest (Members), and interest thereon, subject to the application thereof to such purposes and on such terms as provided in the related Indenture of Trust. The Authority may assign to the trustee for such Bonds its rights to receive from the Authority Member-Participants all or any portion of the payments to be made by the Authority Member-Participants under the 1992 Mead-Adelanto Transmission Service Contracts (Members) and may direct the Authority Member-Participants to make all or any portion of such payments directly to such trustee.

Bonds issued by the Authority to finance costs attributable to the acquisition and construction of the Authority Interest (Members) are separate and distinct from the 2016 Mead- Adelanto Bonds or other Mead-Adelanto Bonds referred to elsewhere in this Official Statement and issued by the Authority to finance costs of acquisition and operations of the Authority Interest (LADWP). Payments made to the Authority by the Authority Member-Participants under the 1992 Mead-Adelanto Transmission Service Contracts (Members) relating to the Authority Interest (Members) do not constitute Revenues under the Mead-Adelanto Indenture relating to the Authority Interest (LADWP) and do not in any manner secure the 2016 Mead-Adelanto Bonds or any other Mead-Adelanto Bonds issued under the Mead-Adelanto Indenture relating to the Authority Interest (LADWP).

Adjustment of Transmission Service Costs

In the event the proceeds from the sale of any Bonds relating to the Authority Interest (Members) exceed the aggregate required for the purposes for which such Bonds were issued, the amount of any such excess will be used to make up any deficiency existing in any funds or accounts under the related Indenture of Trust for such Bonds in the manner provided therein. Any balance may be used by the Authority to retire the related Bonds by purchase or redemption in advance of maturity, and the Transmission Service Costs of each of the Authority Member-Participants under the 1992 Mead-Adelanto Transmission Service Contracts (Members) will be reduced accordingly.

Refunding Bonds

If the Authority’s Board of Directors determines that Transmission Service Costs under the 1992 Mead-Adelanto Transmission Service Contracts (Members) would be reduced by the refunding of any of the Bonds issued to finance costs of acquisition and construction of the Authority Interest (Members) or that it would be otherwise advantageous to refund any such Bonds, the Authority will issue and sell refunding Bonds.

Federal Tax Exemption

Each Authority Member-Participant commits under its 1992 Mead-Adelanto Transmission Service Contract (Members) that it will not adversely affect the exclusion from federal gross income (to the extent applicable) of interest paid or to be paid on any bonds, notes or other evidences of indebtedness issued by any Mead-Adelanto Owner with respect to the Mead-Adelanto Project.

C-37

Default and Remedies

In the event of a failure by an Authority Member-Participant to make a payment when due under its 1992 Mead-Adelanto Transmission Service Contract (Members), which failure continues for 30 or more calendar days subsequent to notice thereof (a “Payment Default”), the Authority may (i) if such Payment Default is continuing and upon 30 days’ advance notice, discontinue such Authority Member- Participant’s use of Mead-Adelanto Project facilities during the continuation of such Payment Default, without reduction of the obligation of the defaulting Authority Member-Participant to make payments when due under its 1992 Mead-Adelanto Transmission Service Contract (Members) (except to the extent of the transfer or disposal of the defaulting Authority Member-Participant’s rights as described in “Transfer of Defaulting Authority Member-Participant’s Rights Following Default” below), (ii) bring suit to enforce the obligations which gave rise to the Payment Default, and/or (iii) take any action permitted by law to enforce the Authority’s rights or recover damages with respect to such Payment Default under such 1992 Mead-Adelanto Transmission Service Contract (Members). In the event of a failure of an Authority Member-Participant to fulfill any obligation under its 1992 Mead-Adelanto Transmission Service Contract (Members) other than to make a payment when due (a “Performance Default”), the Authority may (i) bring suit to enforce against the defaulting Authority Member-Participant any obligation which gave rise to such Performance Default and/or (ii) take any action permitted by law to enforce the rights of the Authority under the 1992 Mead-Adelanto Transmission Service Contract (Members) or to recover damages with respect to such Performance Default.

Transfer of Defaulting Authority Member-Participant’s Rights Following Default

In the event of a Payment Default and a discontinuation of an Authority Member-Participant’s use of the Mead-Adelanto Project, the Authority will offer for transfer or temporary use on a pro rata basis to each requesting non-defaulting Authority Member-Participant the defaulting Authority Member- Participant’s rights in the Authority Interest (Members) under its 1992 Mead-Adelanto Transmission Service Contract (Members) and each requesting Authority Member-Participant will assume the defaulting Authority Member-Participant’s obligations with respect to such rights so transferred or temporarily used. Any such rights not so transferred or temporarily used will, to the extent possible, be offered on the best terms readily available first to other Mead-Adelanto Owners and then to third parties, provided such transfer or temporary use would not in the opinion of Bond Counsel adversely affect the Federal Tax Exemption (to the extent applicable). The payment obligation of the defaulting Authority Member-Participant, including the costs to the Authority related to such default, transfer and sale, will be reduced to the extent the payments are received through transfer and/or temporary use.

Effect on Other Authority Member-Participants of Payment Default

To the extent that the amount to be paid by a defaulting Authority Member-Participant is not offset by revenues from the transfer or temporary use of such defaulting Authority Member-Participant’s rights in the Authority Interest (Members), a Payment Default may result in deficits in funds or accounts under the an Indenture of Trust related to Bonds issued to finance costs of acquisition and construction of the Authority Interest (Members). In such event, the Authority would be required to amend the annual budget to provide increases in Transmission Service Costs in subsequent Monthly Statements to all Authority Member-Participants, including the defaulting Authority Member-Participant, equal to the amount of such deficiency. Such increases are not conditioned upon any transfer of the defaulting Authority Member-Participant’s rights and interests in the Authority Interest (Members) to the other Authority Member-Participants. Amounts thereafter collected from such defaulting Authority Member- Participant shall be credited against the next billing for the Authority Interest (Members) of such other Authority Member-Participants as appropriate. In the event, however, of a termination of the Authority Interest (Members) in the Mead-Adelanto Project and a resultant default by the Authority under a related

C-38

Indenture of Trust, each Authority Member-Participant would be severally obligated to pay only its respective entitlement share of the debt service on the related Bonds issued to finance costs of acquisition and construction of the Authority Interest (Members) (including fees and expenses of the applicable trustee and any paying agent) and other fixed costs.

Curtailment of Service

Curtailment of service is permitted for certain planned outages and Operating Emergencies in proportion to the respective entitlement shares of the Authority Member-Participants in the Authority Interest (Members). No such curtailment relieves the Authority Member-Participant of its obligation to make payments under its 1992 Mead-Adelanto Transmission Service Contract (Members).

Obligations Several

Each Authority Member-Participant is solely responsible and liable for its performance under its 1992 Mead-Adelanto Transmission Service Contract (Members) and the obligation to make payments thereunder is a several obligation and not a joint obligation with any other Authority Member- Participants.

Liability

Subject to the 1992 Mead-Adelanto Transmission Service Contracts (Members), each Authority Member-Participant extends to the Authority and each other Authority Member-Participant its covenant not to execute on any judgment obtained by it against any of them for loss or damages suffered by such Authority Member-Participant regarding the design, construction, operation, maintenance or ownership of the Mead-Adelanto Project, except for any judgment (i) collectible from valid Mead-Adelanto Project or other insurance, (ii) based on a failure by any Authority Member-Participant to make payments when due under any 1992 Mead-Adelanto Transmission Service Contract (Members), or (iii) for liability of any Authority Member-Participant for loss or damages suffered by anyone other than a Authority Member- Participant to the extent such liability results from an act or failure to act regarding the design, construction, operation, maintenance or ownership of the Mead-Adelanto Project. The exception set forth in clause (iii) above is subject to each Authority Member-Participant’s assumption of all liability for any claim, action or judgment arising out of or in connection with electric service to any of its customers caused by the operation or failure of operation of the Mead-Adelanto Project or any portion thereof and the Authority Member-Participant’s obligation to indemnify and hold harmless each other Authority Member-Participant and the Authority from any such claim, action or judgment.

Restrictions on Disposition of Authority Member-Participant’s Entire System or Authority Member-Participant’s Rights

An Authority Member-Participant must give notice to the Authority and the Mead-Adelanto Coordinating Committee of its intention to sell, lease or otherwise dispose of all or substantially all of its electric utility system and must meet the following conditions: (i) the Authority Member-Participant must assign and the new entity must assume and agree fully to perform and discharge all obligations of the Authority Member-Participant under its 1992 Mead-Adelanto Transmission Service Contract (Members); (ii) the senior debt of the new entity must be rated “A” or higher by at least one nationally- recognized credit rating agency; (iii) an independent engineer or engineering firm selected by the Authority must deliver an opinion that the new entity is reasonably able to charge and collect rates and charges for the electric service of its electric system as required to meet its obligations under the 1992 Mead-Adelanto Transmission Service Contract (Members); (iv) the Board of Directors must determine that such sale, lease or other disposition will not adversely affect the value of the 1992 Mead-Adelanto

C-39

Transmission Service Contract (Members) as security for the payment of the Bonds issued to finance costs of acquisition and construction of the Authority Interest (Members) and the interest thereon; and (v) Bond Counsel must render an opinion that such sale, lease or other disposition will not adversely affect the Federal Tax Exemption (to the extent applicable).

Subject to the provisions of the 1992 Mead-Adelanto Transmission Service Contracts (Members), an Authority Member-Participants must also give written notice to the Authority and the Mead-Adelanto Coordinating Committee of its intention to sell, assign or otherwise dispose of all or any portion of the Authority Member-Participant’s entitlement share in the Authority Interest (Members) or the Authority Member-Participant’s rights to service from or use of the Mead-Adelanto Project facilities under the 1992 Mead-Adelanto Transmission Service Contracts (Members) and Bond Counsel must render an opinion that such sale, assignment or other disposition will not adversely affect the Federal Tax Exemption (to the extent applicable). The Authority Member-Participants may, however, without giving such notice or obtaining such opinion, contract to provide service from or use of the Mead-Adelanto Project to which it is entitled under its 1992 Mead-Adelanto Transmission Service Contract (Members) (a) to any entity which is a governmental unit within the meaning of Section 141(b)(7) of the Internal Revenue Code of 1986, as amended, or (b) in a transaction which complies with guidelines established by the Board of Directors and approved by Bond Counsel from time to time. No such sale, assignment, other disposition or contract may, however, release the Authority Member-Participant from its obligations under its 1992 Mead-Adelanto Transmission Service Contract (Members).

Expiration Date of Transmission Service Contracts

The date of termination of the 1992 Mead-Adelanto Transmission Service Contracts (Members) will be October 31, 2030 or such later date as all the Bonds issued to finance costs of acquisition and construction of the Authority Interest (Members) and the interest thereon shall have paid in full or adequate provision for such payment has been made, subject to the provisions of the 1992 Mead-Adelanto Transmission Service Contracts (Members) for earlier termination if all such Bonds and interest thereon have been paid in full or adequate provision for such payment has been made and the Authority has notified the Authority Member-Participants that the 1992 Mead-Adelanto Transmission Service Contracts (Members) have been superseded because either all Authority Member-Participants have become owners of the Mead-Adelanto Project under the Mead-Adelanto Joint Ownership Agreement or have entered into replacement transmission service or other agreements with the Authority.

Transmission Service Contracts Subject to related Indenture of Trusts, Project Agreements and Licenses

The parties to the 1992 Mead-Adelanto Transmission Service Contracts (Members) agree that the Authority must comply with the requirements of any Indenture of Trust relating to Bonds issued to finance the costs of acquisition and construction of the Authority Interest (Members), the Project Agreements, and all licenses, permits and regulatory approvals relating to the Mead-Adelanto Project and therefore agree that the 1992 Mead-Adelanto Transmission Service Contracts (Members) are made subject to the provisions of any such Indenture of Trust, the Project Agreements, and all such licenses, permits and regulatory approvals relating to the Mead-Adelanto Project.

Amendment of Transmission Service Contracts

Until all Bonds issued to finance the costs of acquisition and construction of the Authority Interest (Members) and interest thereon have been paid or adequate provision for such payment has been made, the 1992 Mead-Adelanto Transmission Service Contracts (Members) (except as specifically provided therein) shall not be amended, modified, supplemented or otherwise altered in any manner

C-40

which will reduce the payments pledged as security for such Bonds or extend the time of such payments or will adversely affect the Federal Tax Exemption (to the extent applicable) or the rights of the holders of such Bonds.

SUMMARY OF CERTAIN PROVISIONS OF THE MEAD-ADELANTO TRANSMISSION SERVICE CONTRACT (WESTERN)

The following is a summary of certain provisions of the Mead-Adelanto Transmission Service Contract (Western), entered into between the Authority and Western, relating to the Authority Interest (Western) in the Mead-Adelanto Project.

The Agreement

The Authority and Western have entered into a Transmission Service Contract (Western) pursuant to which the Authority will provide or cause to be provided to Western and Western will purchase from the Authority the entire capability of the Mead-Adelanto Project attributable to the Authority Interest (Western). The Authority agreed to cause to be undertaken the planning, designing, acquiring, constructing, operating and maintaining of the Mead-Adelanto Project attributable to the Authority Interest (Western) to effectuate the sale of capability of the Mead-Adelanto Project attributable to the Authority Interest (Western) to Western. The obligation of Western to make payments under the Mead-Adelanto Transmission Service Contract (Western) is subject to the United States Congress making the necessary appropriation for such payments. Western commits to taking all steps available to it to include in the budget presented to Congress each fiscal year an appropriation for moneys due under the Mead-Adelanto Transmission Service Contract (Western).

Payments made to the Authority by Western under the Mead-Adelanto Transmission Service Contract (Western) relating to the Authority Interest (Western) do not constitute Revenues under the Mead-Adelanto Indenture and do not in any manner secure the 2016 Mead-Adelanto Bonds or any other Mead-Adelanto Bonds issued under the Mead-Adelanto Indenture relating to the Authority Interest (LADWP).

SUMMARY OF CERTAIN PROVISIONS OF THE MEAD-ADELANTO JOINT OWNERSHIP AGREEMENT

The following is a summary of certain provisions of the Mead-Adelanto Joint Ownership Agreement, dated as of August 4, 1992 (as amended and supplemented from time to time, the “Mead- Adelanto Joint Ownership Agreement”), originally entered into among the Authority, the City of Vernon (whose interest was subsequently transferred to StarTrans as described in the front part of this Official Statement) and M-S-R PPA (whose interest is being acquired by the Authority for the benefit of the Department as described in the front part of this Official Statement).

Ownership

Subject to the provisions of the Mead-Adelanto Joint Ownership Agreement, each of the entities identified therein as owning an undivided interest as a tenant-in-common in the Mead-Adelanto Project (as more specifically defined in the Mead-Adelanto Joint Ownership Agreement, the “Owners”) accepts, acquires and owns its Interest in the Mead-Adelanto Project (the percentage undivided ownership interest of each such Owner, its “Interest” as defined in the Mead-Adelanto Joint Ownership Agreement). Upon the acquisition of the Interest theretofore owned by M-S-R PPA in the Mead-Adelanto Project pursuant to the Purchase and Sale Agreement, the Authority will own the following separate ownership interests: the

C-41

Authority Interest (LADWP), the Authority Interest (Members) and the Authority Interest (Western), and shall be a separate Owner with respect to each such Interest.

Use of Line

Each Owner is entitled to use, schedule energy over and sell to others, Available Transmission Capability arising from its Interest.

Project Coordinating Committee

The Project Coordinating Committee is the oversight committee for the Mead-Adelanto Project. The Coordinating Committee is comprised of a representative from each of the Authority Interest (Members), one non-voting representative from the Authority, and one representative of each of the other Owners in the Mead-Adelanto Project (for purposes of this summary of the Mead-Adelanto Joint Ownership Agreement, each of such represented voting parties is referred to herein as a “Mead-Adelanto Project Participant”). Each matter is approved or disapproved upon an affirmative vote of not less than 82.5% of the votes entitled to be cast on the matter. An affirmative vote of 100% of the votes entitled to be cast is required for certain matters (i.e., billing of non-defaulting Owners for certain amounts owed by a defaulting Owner and approval of sale and leaseback transactions). The affirmative vote of the representative of the Mead-Adelanto Project Participant that is the Operation Manager is required unless such representative is expressly precluded from voting by the provisions of any Transmission Line Agreement. Project Coordinating Committee voting percentages are equal to the percentage of Available Transmission Capability each Mead-Adelanto Project Participant is entitled to schedule as set forth in the Mead-Adelanto Joint Ownership Agreement (for purposes of this summary of the Mead-Adelanto Joint Ownership Agreement, a “Project Participant Share” as defined in the Mead-Adelanto Joint Ownership Agreement). The powers and duties of the Project Coordinating Committee are set forth in the Mead- Adelanto Joint Ownership Agreement.

Engineering and Operations Committee

The Engineering and Operations Committee has responsibility for reviewing the practices and procedures of the Operation Manager and maintenance outages schedules, as well as other powers and duties as set forth in the Mead-Adelanto Joint Ownership Agreement. Representation and voting on the Engineering and Operations Committee is similar to representation and voting on the Project Coordinating Committee.

Operation of Project

Operation and maintenance of the Transmission Line is the responsibility of the Operation Manager in accordance with the Transmission Line Agreements. The Mead-Adelanto Project Participants are entitled (in the aggregate) to 100% of the Available Transmission Capability. Operating Costs are allocated to each Owner in accordance with its ownership Interest.

Capital Improvements

Capital Improvement Construction Costs will be included with the annual budget for Operating Work. However, the Project Coordinating Committee or the Engineering and Operations Committee may authorize additional Capital Improvements at any time, notwithstanding that the related Capital Improvement Construction Costs were not previously included with the annual budget for Operating Work. The Capital Improvement Construction Costs incurred for such Capital Improvements will be allocated to each Owner in accordance with its ownership Interest. The Operation Manager will be

C-42

responsible for planning, designing, acquiring, constructing, installing and equipping all Capital Improvements, and for accounting for and allocating Capital Improvement Construction Costs.

Upgrade or Enhancement of the Transmission Line

The Transmission Line may be upgraded or enhanced in accordance with the applicable provisions of the Operation Agreement. See “Summary of Certain Provisions of the Mead-Adelanto Operation Agreement – Increasing the Available Transmission Capability of the Transmission Line” below.

Damage or Destruction

If any useful portion of the Transmission Line is damaged or destroyed, the Operation Manager will notify the Mead-Adelanto Project Participants and the Authority and repair, reconstruct or replace such damaged or destroyed facilities, unless determined otherwise by the Project Coordinating Committee. The proceeds of any insurance paid on account of such damage or destruction (other than any business interruption loss insurance) will be made available by the Owners for the cost of such repair, reconstruction or replacement. If insurance proceeds are insufficient, the deficiency will be allocated to each Owner in accordance with its ownership Interest.

Defaults

In the event of any failure by an Owner to make a payment when due under any Project Agreement (for purposes of this summary, as defined in the Mead-Adelanto Joint Ownership Agreement, a “Project Agreement”), which failure has continued for 30 days or more subsequent to notice thereof having been transmitted to such Owner (a “Payment Default”), the defaulting Owner’s use of the Mead- Adelanto Project may be discontinued upon notice. However, the obligation of the defaulting Owner to make payments when due under the Project Agreements continues. During such discontinuance, each non-defaulting Owner is entitled to use a pro rata share of the defaulting Owner’s right to schedule energy. If the Payment Default continues for 14 months or more, the defaulting Owner’s rights may be sold, transferred or disposed of, on commercially reasonable terms, first to non-defaulting Owners and then to third parties.

In the event an Owner fails to make payment of a Funds Request, the non-defaulting Owners are obligated to pay the amount of the default in proportion to their ownership Interests. This obligation is limited to no more than 15 Funds Requests of the defaulting Owner for Operating Costs. The defaulting Owner’s cure of all previous failures to pay Funds Requests or the unanimous consent of the Project Coordinating Committee is necessary to require the non-defaulting Owners to pay additional Funds Requests.

A Payment Default by Western under its Mead-Adelanto Transmission Service Contract (Western) is considered a Payment Default under the Mead-Adelanto Joint Ownership Agreement by the Authority attributable solely to its Authority Interest (Western). The Authority is released by the Owners from any financial liability regarding Western’s failure to make its payments except for the obligation of non-defaulting Owners to pay their pro rata portion of the amount of a default in the payment of a Funds Request.

In the event of a Payment Default or a Performance Default (i.e., any failure by an Owner to comply with, carry out or discharge any covenant, duty or obligation under any Project Agreement other than a failure by an Owner to make a payment when due), the Operation Manager may bring any suit, action or proceeding at law or in equity necessary or appropriate to enforce against such defaulting Owner

C-43

any covenant, duty or obligation or take any action permitted by law to enforce the rights of the non- defaulting Owners under any Project Agreement or to recover damages with respect to such Payment Default or Performance Default.

Liability

Each Owner extends to each other Owner its covenant not to execute on any judgment obtained by it against any other Owner for loss or damages regarding the design, construction, operation, maintenance or ownership of the Mead-Adelanto Project. The covenant not to execute does not extend to judgments collectible from insurance; judgments up to $500,000 for Willful Action by an Owner or its agents while acting in the capacity of the Operation Manager or an Owner or its agents; judgments for the failure by an Owner to make payments under any Project Agreement; or judgments for liability of any Owner for loss or damages suffered by anyone other than an Owner as a result of the Mead-Adelanto Project. Each Owner assumes all liability for any claim or judgment arising out of or in connection with electric service to any of its customers, and the customers of its customers, caused by the Mead-Adelanto Project and indemnifies and holds harmless each other Owner and the Operation Manager from any such claim or judgment. Western covenants in its Mead-Adelanto Transmission Service Contract (Western) not to execute on any judgment against any Owner with respect to liability arising out of or in connection with electric service to Western caused by the Mead-Adelanto Project. The Authority will pay, to the extent of moneys made available therefor under such Mead-Adelanto Transmission Service Contract (Western), any judgment of a customer of Western against any Owner arising out of or in connection with electric service to such customer caused by the Mead-Adelanto Project. “Customer of Western” is defined as any customer receiving energy from Western for other than resale purposes.

Mortgage, Transfer, Sale and Leaseback of Ownership Interests

An Owner may mortgage, create or provide for a security interest in or convey in trust all or a part of its ownership Interest to a trustee under a deed of trust, mortgage, or indenture, or to a secured party under a security agreement as security for its present or future bonds, and to any successors and assigns thereof.

Subject to the provisions of the Mead-Adelanto Joint Ownership Agreement, an Owner may sell and leaseback its Interest, under a net lease having a primary term of not less than seven years, to a trustee under a grantor trust, and to any successors and assigns thereof. The Project Coordinating Committee must approve such sale and leaseback transaction by a unanimous vote. Moreover, the lessee Owner’s entire Interest must be sold and leased back, and for the purpose of the Mead-Adelanto Joint Ownership Agreement, the lessee Owner remains the sole “Owner,” and upon expiration of the lease, the lessee Owner’s Interest must revert to the lessee Owner.

Relationship of Owners

The covenants, obligations and liabilities of the Owners are intended to be several and not joint or collective and, except as expressly provided in the Mead-Adelanto Joint Ownership Agreement, nothing contained therein will ever be construed to create an association, joint venture, trust or partnership. Each Owner is responsible for its own covenants, obligations and liabilities as provided in the Mead-Adelanto Joint Ownership Agreement.

C-44

Limited Sources of Payments

Sources of payment of obligations under the Project Agreements are limited to certain sources of revenue with respect to ownership Interests. Nevertheless, the unavailability of funds does not excuse any Payment Default or release any Owner from the provisions regarding defaults.

Project Participants’ Shares and Owners’ Interests

Upon the acquisition of the Interest theretofore owned by M-S-R PPA in the Mead-Adelanto Project pursuant to the Purchase and Sale Agreement, the Mead-Adelanto Project Participants’ Shares and the Owners’ Interests shall be as follows: Participant Owner Entity Share Interest

City of Anaheim 9.1666% 0.0000% City of Azusa 1.5000 0.0000 City of Banning 0.9167 0.0000 City of Burbank 7.8334 0.0000 City of Colton 1.7500 0.0000 City of Glendale 7.5000 0.0000 Department of Water and Power of Los Angeles(1) 41.7500 0.0000 City of Pasadena 5.8334 0.0000 City of Riverside 9.1666 0.0000 StarTrans IO, LLC(2) 6.2500 6.2500 Western 8.3333 0.0000 Authority (LADWP) 0.0000 17.5000 Authority (Members) 0.0000 67.9167 Authority (Western) 0.0000 8.3333 Total 100.0000% 100.0000% ______(1) Includes the Department’s entitlement share in the Authority Interest (Members) under its 1992 Mead-Adelanto Transmission Service Contract (Members) and its entitlement to the Authority Interest (LADWP) to be acquired by the Authority from M-S-R PPA as described herein. (2) Share transferred from Vernon as described herein.

SUMMARY OF CERTAIN PROVISIONS OF THE MEAD-ADELANTO OPERATION AGREEMENT

The following is a summary of certain provisions of the Operation Agreement relating to the Mead-Adelanto Project, dated as of August 4, 1992 (as amended and supplemented from time to time, the “Mead-Adelanto Operation Agreement”), originally entered into among the Authority, the City of Vernon (whose interest was subsequently transferred to StarTrans as described in the front part of this Official Statement), M-S-R PPA (whose interest is being acquired by the Authority for the benefit of the Department as described in the front part of this Official Statement) and the Department.

Appointment of Operation Manager

The Department was appointed by the Owners (as defined in the “Summary of Certain Provisions of the Mead-Adelanto Joint Ownership Agreement” above) as Operation Manager (the “Operation Manager”) and directed to carry out all the duties of the Operation Manager, including Operating Work. The Operation Manager will undertake such Operating Work according to Prudent Utility Practice.

C-45

Unused Available Transmission Capability

Unused Available Transmission Capability shall not be used by another Mead-Adelanto Project Participant (as defined in the “Summary of Certain Provisions of the Mead-Adelanto Joint Ownership Agreement” above), the Operation Manager or a third party unless there is prior agreement between the Mead-Adelanto Project Participant(s) with unused Available Transmission Capability and the entity which desires to use such unused Available Transmission Capability. The Operation Manager must produce records reflecting the hourly total Available Transmission Capability and the Project Participant Share (as defined in the “Summary of Certain Provisions of the Mead-Adelanto Joint Ownership Agreement” above) of each Mead-Adelanto Project Participant and the total use thereof during any Month of the twelve Months preceding the request date upon the request of a Mead-Adelanto Project Participant.

Transmission Losses

Transmission losses are deemed to be 1.6% of the net energy scheduled by the Mead-Adelanto Project Participants. The Operation Manager will be compensated for transmission losses by accepting at the point of delivery the amount of energy scheduled at the point of receipt minus the amount of transmission losses occurring between the point of receipt and the point of delivery.

Operating Contracts

All Operating Contracts will be negotiated by the Operation Manager. Operating Contracts exclusively related to the Transmission Line will be negotiated and arranged for pursuant to applicable contracting procedures of the Authority. Operating Contracts will be executed by the Authority in the name of the Owners except when the contract is not exclusively related to the Transmission Line. Major Contracts will be subject to review and approval or disapproval of the Project Coordinating Committee.

Mitigation Monitoring Program

Unless otherwise determined by the Project Coordinating Committee, a mitigation monitoring program will be developed and implemented by the Operation Manager if required by the California Environmental Quality Act.

Operating Costs

Operating Costs will be allocated among the Owners on the basis of ownership Interest (as defined in the “Summary of Certain Provisions of the Mead-Adelanto Joint Ownership Agreement” above). The Operation Manager will prepare and transmit to each Owner on or before the 20th calendar day of each Month a Funds Request specifying the amount of Operating Costs estimated to be due and payable on or before the last calendar day of the next succeeding Month. A copy of the Funds Request with respect to Authority Interest (Western) will be transmitted to Western at the same time and in the same manner as the original Funds Request to the Authority. Each Owner will pay the amount of its Funds Request to the bank or trust company at the time serving as fiscal agent under the Mead-Adelanto Fiscal Agency Agreement (the “Fiscal Agent”) by the tenth calendar day of the Month immediately succeeding the Month the Funds Request was transmitted to the Owner. The Operation Manager will provide to the Fiscal Agent a copy of the Funds Request accompanied by the relevant Payment Request at least five business days prior to the first day payment is due under such Payment Request. Similar provisions are applicable to the billing and payment of the Operation Manager’s Cost for Operating Work, except that the Operation Manager is not obligated to provide the Fiscal Agent with a copy of the Funds Request and the related Payment Request until five days prior to the first day payment is due and the Fiscal Agent will not pay the Payment Request therefor prior to the fifteenth day of such Month.

C-46

Capital Improvements

Mead-Adelanto Capital Improvements required by law will be reviewed by, but not be subject to the approval of, the Project Coordinating Committee or the Engineering and Operations Committee. Facilities which do not increase Available Transmission Capability require approval of the Engineering and Operations Committee if estimated to cost less than $1 million, and the Project Coordinating Committee if estimated to cost more than $1 million. Facilities which increase Available Transmission Capability may be undertaken if (i) determined to be feasible, (ii) agreed to by all Mead-Adelanto Project Participants and the Authority, (iii) determined not to adversely affect the interests of the holders of bonds, notes or other evidences of indebtedness issued by the Authority or another Owner to finance or refinance its capital costs with respect to its Interest (for purposes of this summary of the Mead-Adelanto Operation Agreement, “Bonds”) and (iv) determined not to adversely affect the Federal Tax Exemption (to the extent applicable). Capital Improvement Construction Costs will be allocated among the Owners on the basis of ownership Interest. If the Project Coordinating Committee determines not to undertake an increase as a Mead-Adelanto Capital Improvement, one or more Mead-Adelanto Project Participants may undertake such increase at their own cost. Billing and payment of Capital Improvement Construction Costs are similar to the billing and payment of Operating Costs.

Increasing the Available Transmission Capability of the Transmission Line

Facilities which increase the Available Transmission Capability of the Mead-Adelanto Project shall be considered and approved or disapproved in accordance with the following provisions:

(i) Upon the request of any Mead-Adelanto Project Participant, the Project Coordinating Committee shall consider increasing the Available Transmission Capability of the Transmission Line. As a part of such consideration, the Project Coordinating Committee shall, unless otherwise determined by the Project Coordinating Committee, institute a feasibility study undertaken in accordance with criteria established by the Project Coordinating Committee to make recommendations as to the feasibility for various levels of increase. Such study shall be conducted by an independent engineer or firm of engineers (unless otherwise determined by the Project Coordinating Committee), shall be at the expense of the requesting Mead-Adelanto Project Participant and shall be submitted to the Project Coordinating Committee upon completion. If such study recommendations show that such increase is feasible, the Project Coordinating Committee shall establish the arrangements for such increase and offer to each Mead-Adelanto Project Participant the right to participate in such increase in proportion to its Project Participant Share. Each Mead-Adelanto Project Participant electing to so participate shall reimburse the Mead-Adelanto Project Participants requesting the study for its proportionate share of the cost of such study.

(ii) If the arrangements established by the Project Coordinating Committee for such increase are agreed to by all Mead-Adelanto Project Participants and the Authority, do not adversely affect the interests of the holders of Bonds and do not adversely affect the Federal Tax Exemption, such increase shall be determined by the Project Coordinating Committee to be, and shall be undertaken as, a Mead- Adelanto Capital Improvement.

(iii) In the event that a request is made as described in paragraph (i) above and such increase in capability is not determined by the Project Coordinating Committee to be, or is not undertaken as, a Mead-Adelanto Capital Improvement in accordance with paragraph (ii) above, each requesting Mead- Adelanto Project Participant may, alone or in combination with other requesting Mead-Adelanto Project Participants, undertake at its or their own cost the construction and acquisition of facilities to so increase the capability of the Transmission Line and shall be entitled to such increased capability, provided that the Project Coordinating Committee determines, which determination shall not be unreasonably withheld,

C-47

that the arrangements therefor (1) do not adversely affect the interests of the holders of Bonds, (2) do not adversely affect the Federal Tax Exemption, (3) do not have an adverse impact on the operation or maintenance of the Transmission Line or the systems of the non-requesting Mead-Adelanto Project Participants and (4) do not create any financial liability on the Authority or any Mead-Adelanto Project Participant which does not agree to participate in the increased capability. Such facilities to so increase the capability of the Transmission Line shall be constructed by the Operation Manager upon terms and conditions to be agreed upon by such undertaking Mead-Adelanto Project Participants and the Operation Manager.

Operating Emergencies

Operating Emergencies will be terminated by the Operation Manager in accordance with Prudent Utility Practice and procedures approved by the Engineering and Operations Committee. The Operation Manager will advise (i) the Mead-Adelanto Project Participants of an Operating Emergency, (ii) protect the health and safety of employees and the public and (iii) submit to the Project Coordinating Committee the following information when costs required to terminate an Operating Emergency are estimated to exceed $1 million (or such other amount as determined by the Project Coordinating Committee): (a) the estimated date the Operating Emergency will be terminated; (b) recommendations regarding Operating Work required to terminate the Operating Emergency; and (c) a determination of the various costs of the Operating Emergency. Costs of terminating an Operating Emergency will be apportioned on the basis of the Mead-Adelanto Joint Ownership Agreement and ownership Interests.

Liability

Each Owner extends to the Operation Manager and the Operation Manager extends to each Owner its covenant not to execute on any judgment obtained against the other for loss or damages suffered by it with respect to the design, construction, operation, maintenance or ownership of the Mead- Adelanto Project. The covenant not to execute does not extend to judgments collectible from insurance, judgments up to $500,000 for Willful Action of the Operation Manager or its agents or an Owner or its agents (such $500,000 constituting an aggregate amount in combination with any judgment rendered against the Owner acting as Operation Manager), judgments for failure by any Owner to make payments when due under any Project Agreement (as defined in the Mead-Adelanto Operation Agreement, a “Project Agreement”), or judgments for liability of any Owner or the Operation Manager for loss suffered by anyone other than an Owner or the Operation Manager with respect to the design, construction, operation, maintenance or ownership of the Mead-Adelanto Project. Each Owner and the Operation Manager assumes all liability for any claim or judgment arising out of or in connection with electric service to any of its customers (and the customers of its customers) caused by the Mead-Adelanto Project and indemnifies and holds harmless each other Owner and the Construction Manager from any such claim or judgment. For purposes of the Mead-Adelanto Operation Agreement, Authority Member-Participants (as defined in the “Summary of Certain Provisions of the 1992 Mead-Adelanto Transmission Service Contracts (Members)” above) are customers of the Authority. Western covenants in its Mead-Adelanto Transmission Service Contract (Western) not to execute on any judgment against any Owner or the Operation Manager with respect to liability arising out of or in connection with electric service to Western caused by the Mead-Adelanto Project or any portion thereof. The Authority will pay, to the extent of moneys made available therefor under such Mead-Adelanto Transmission Service Contract (Western), any judgment of a customer of Western against any Owner or the Operation Manager arising out of or in connection with electric service to such customer caused by the Mead-Adelanto Project or any portion thereof. For purposes of the Mead-Adelanto Operation Agreement, customer of Western means any customer receiving energy from Western for other than resale purposes.

C-48

Insurance

During Operating Work, the Operation Manager will obtain and maintain (i) insurance from such causes as are customarily insured against and in such relative amounts as are usually obtained for facilities similar to the Transmission Line and (ii) insurance or reserves against loss or damage from such hazards and risks to the person and property of others as are usually insured or reserved against by those with rights and interests similar to the Owners and the Mead-Adelanto Project Participants.

Removal/Resignation of Operation Manager

The Operation Manager cannot resign and cannot be removed by the Owners under the Mead- Adelanto Operation Agreement.

Limited Sources of Payments

Sources of payment of obligations under the Project Agreements are limited to certain sources of revenue of the ownership Interests. Nevertheless, the unavailability of funds from such limited sources will not excuse any Payment Default or release any Owner from the provisions regarding default under the Project Agreements.

Termination of the Mead-Adelanto Operation Agreement

The termination of the Mead-Adelanto Operation Agreement occurs on the date of termination of the Mead-Adelanto Joint Ownership Agreement, except for those duties and obligations under the Mead- Adelanto Joint Ownership Agreement or the Mead-Adelanto Operation Agreement not fully discharged or completed as of such date.

SUMMARY OF CERTAIN PROVISIONS OF THE MEAD-ADELANTO FISCAL AGENCY AGREEMENT

The following is a summary of certain provisions of the Fiscal Agency Agreement relating to the Mead-Adelanto Project, dated as of August 4, 1992 (as amended and supplemented from time to time, the “Mead-Adelanto Fiscal Agency Agreement”), originally entered into among the Authority, the City of Vernon (whose interest was subsequently transferred to StarTrans as described in the front part of this Official Statement), M-S-R PPA (whose interest is being acquired by the Authority for the benefit of the Department as described in the front part of this Official Statement) and the Fiscal Agent (as defined in the “Summary of Certain Provisions of the Mead-Adelanto Operation Agreement” above).

The Fiscal Agent is required to be a commercial bank or trust company or national banking association doing business and having its principal office in New York, New York, Chicago, Illinois, Los Angeles, California, San Francisco, California or Phoenix, Arizona, and having capital stock and surplus aggregating at least $50 million. The Mead-Adelanto Fiscal Agency Agreement establishes a Construction Account, an Operation Account and a Capital Improvement Account for each ownership Interest (as defined in the “Summary of Certain Provisions of the Mead-Adelanto Joint Ownership Agreement” above) and each of the Accounts are maintained by the Fiscal Agent. Disbursements from any Owner’s (as defined in the “Summary of Certain Provisions of the Mead-Adelanto Joint Ownership Agreement” above) Construction Account, Operation Account, or Capital Improvement Account requires the filing of a copy of the Funds Request accompanied by the corresponding Payment Request. Moneys held by the Fiscal Agent in any account under the Mead-Adelanto Fiscal Agency Agreement shall be invested (i) in taxable government money market portfolios restricted to obligations maturing one year or less issued by, or guaranteed as to payment by, the United States or (ii) as parties to the Mead-Adelanto

C-49

Fiscal Agency Agreement may agree. The Fiscal Agent may resign at any time by giving notice to the other Parties and may be removed by the Owners with the approval of the Project Coordinating Committee with respect to the Mead-Adelanto Project. No removal or resignation of the Fiscal Agent will be effective until the appointment of, and acceptance by, a successor Fiscal Agent.

SUMMARY OF CERTAIN PROVISIONS OF THE MEAD-PHOENIX AGREEMENTS

Summaries of certain provisions of the Mead-Phoenix Transmission Service Contract (LADWP), the 1992 Mead-Phoenix Transmission Service Contracts (Members), the Mead-Phoenix Transmission Service Contract (Western), the Mead-Phoenix Joint Ownership Agreement, the Mead-Phoenix Operation Agreement, the Mead-Phoenix Fiscal Agency Agreement and the Land Rights Agreement (collectively, the “Mead-Phoenix Agreements”) are provided below. Except as described in this summary, all of the Mead-Phoenix Agreements are identical in all material respects to the Mead-Adelanto Agreements, except that all references to Mead-Adelanto in the summaries of the Mead-Adelanto Agreements should be read to refer to Mead-Phoenix in this context. Similarly, all references to the Project Coordinating Committee in the summaries of the Mead-Adelanto Agreements should be read to refer to the Project Management Committee for the purposes of the Mead-Phoenix Agreements. For the purposes of the summaries of the Mead-Phoenix Joint Ownership Agreement, the Mead-Phoenix Operation Agreement and the Mead-Phoenix Fiscal Agency Agreement, the term “Project Participant” does not refer exclusively to the Department as the sole “Project Participant” with respect to the Authority Interest (LADWP) in the Mead-Phoenix Project as so identified in the front part of this Official Statement. This summary is not to be considered a full statement of the terms of such Mead-Phoenix Agreements and accordingly is qualified by reference thereto and is subject to the full text thereof. Capitalized terms not defined in this summary, in the summary of the respective Mead-Adelanto Agreements, or, as applicable, in the Official Statement have the respective meanings set forth in the respective Mead-Phoenix Agreements summarized below, except that the term “Mead-Phoenix Project” shall have the meaning attributed in the respective Mead-Phoenix Agreements to the term “Project.”

SUMMARY OF CERTAIN PROVISIONS OF THE MEAD-PHOENIX TRANSMISSION SERVICE CONTRACT (LADWP)

This summary relates only to the Mead-Phoenix Transmission Service Contract (LADWP) entered into by the Department with the Authority with respect to the Authority Interest (LADWP) in the Mead-Phoenix Project to be acquired by the Authority from M-S-R PPA pursuant to the Purchase and Sale Agreement, which Transmission Service Contract (LADWP) is separate and distinct from the Department’s 1992 Mead-Phoenix Transmission Service Contract (Members) with the Authority relating to the Department’s entitlement share in the Authority Interest (Members) in the Mead-Phoenix Project. The Mead-Phoenix Transmission Service Contract (LADWP) is identical in all material respects to the Mead-Adelanto Transmission Service Contract (LADWP) (see “Summary of Certain Provisions of the Mead-Adelanto Transmission Service Contract (LADWP)” above) except as to the following:

Billings and Payments

Transmission Service Costs to be paid by the Department each Month (and billed based upon the Annual Budget) include the (a) Aggregate Costs with respect to each of the three Mead-Phoenix Project Components (the Westwing-Mead Project Component, the Mead Substation Project Component and the Mead-Marketplace Project Component) (collectively the “Mead-Phoenix Project Components”) to the extent attributable to the Authority Interest (LADWP) in the Mead-Phoenix Project, which Aggregate Costs are to be allocated among the three Mead-Phoenix Project Components based upon the respective costs of operating and maintaining each Project Component, in each case, based upon the periodic billing

C-50

information, including Funds Requests, provided to the Authority by the Mead-Phoenix Operation Manager or Marketplace Operating Agent; and (b) costs and expenses paid or incurred by the Authority with respect to any judgment of the Department against any Mead-Phoenix Owner (an “Owner” as defined in the Mead-Phoenix Joint Ownership Agreement) or the Operation Manager in connection with electric service to the Department caused by the operation or failure of operation of the Mead-Phoenix Project or any portion thereof. Aggregate Costs with respect to any Month in any Transmission Service Year shall include, but not be limited to, the following to the extent attributable to the Authority Interest (LADWP): (i) amounts required under the Mead-Phoenix Indenture (or other indenture of trust, bond resolution or similar instrument with respect to the financing of any Cost of Acquisition and Operations of the Authority Interest (LADWP) in the Mead-Phoenix Project by the Authority (as defined in the Mead-Phoenix Transmission Service Contract (LADWP), an “Indenture of Trust”) to be paid or deposited during such Month into funds or accounts established by the Indenture of Trust for Debt Service and for any reserve requirements for bonds, notes or other evidences of indebtedness issued by the Authority to finance or refinance the Cost of Acquisition and Operations of the Authority Interest (LADWP) in the Mead-Phoenix Project (as defined in the Mead-Phoenix Transmission Service Contract (LADWP), “Bonds”); (ii) one-twelfth of the amount required under the Indenture of Trust to be paid or deposited during the Transmission Service Year into any other fund or account established by the Indenture of Trust to provide for the payment of principal or interest of the Bonds or any other financial obligation of the Authority with respect to the Authority Interest (LADWP) in the Mead-Phoenix Project, and includes, without limitation, any amounts required to make up a deficiency in any such fund established under the Indenture of Trust whether or not resulting from a default in payments by the Department; (iii) one- twelfth of the amount required under the Indenture of Trust to be paid or deposited during the Transmission Service Year into any other fund or account established by the Indenture of Trust to provide for the payment of any shortfall in revenues to pay Monthly Costs, and shall include, without limitation, any amounts required to make up a deficiency in any such fund established under the Indenture of Trust whether or not resulting from a default in payment by the Department; (iv) one-twelfth of the amount required for the payment of Monthly Costs during such Transmission Service Year; and (v) one-twelfth of the amount necessary during such Transmission Service Year to pay or provide reserves for all taxes required to be paid by the Authority to the extent not included in Cost of Acquisition and Construction or Monthly Costs.

Management Committee Participation

The Department is entitled to participate in the decisions of the Mead-Phoenix Management Committee with respect to the Mead-Phoenix Project in accordance with the voting rights given to it under the Mead-Phoenix Joint Ownership Agreement.

SUMMARY OF CERTAIN PROVISIONS OF THE 1992 MEAD-PHOENIX TRANSMISSION SERVICE CONTRACTS (MEMBERS)

The 1992 Mead-Phoenix Transmission Service Contracts (Members) are identical in all material respects to the 1992 Mead-Adelanto Transmission Service Contract (Members) (see “Summary of Certain Provisions of the 1992 Mead-Adelanto Transmission Service Contracts (Members)” above) except as to the following:

Schedule of Authority Member-Participant Entitlement Shares

The Authority Interest (Members) in the Mead-Phoenix Project represents an 18.3077% ownership interest in the Westwing-Mead Component, a 17.7563% ownership interest in the Mead Substation Component, and a 22.4082% ownership interest in the Mead-Marketplace Component of the Mead-Phoenix Project. The following table sets forth the entitlement shares of each of the Authority

C-51

Member-Participants with respect to the Authority Interest (Members) in each Project Component of the Mead-Phoenix Project.

1992 Mead-Phoenix Transmission Service Contracts (Members)

Westwing Mead Mead Mead Substation Marketplace Component Component Component Authority Member-Participant Share Share Share City of Anaheim ...... 19.7479% 50.0000% 26.5060% City of Glendale ...... 11.7647 22.7273 19.2771 Department of Water and Power of Los Angeles(1) ...... 31.0924 0 17.8313 City of Burbank ...... 14.7059 15.9091 16.8675 City of Pasadena ...... 13.8656 11.3636 14.4578 City of Riverside ...... 5.0420 0 2.8916 City of Azusa ...... 1.2605 0 0.7229 City of Banning ...... 1.2605 0 0.7229 City of Colton ...... 1.2605 0 0.7229 Total ...... 100.0000% 100.0000% 100.0000% ______(1) The Department’s percentage entitlement share in each component of the Authority Interest (Members) is in addition to and distinct from the rights of the Department to use under the Mead-Phoenix Transmission Service Agreement (LADWP) of 100% of the project capability attributable to the Authority Interest (LADWP) in the Mead-Phoenix Project.

Billings and Payments

Transmission Service Costs to be paid by each Authority Member-Participant each Month (and billed based upon the Annual Budget) shall equal the sum of: (a) Aggregate Costs with respect to each of the three Mead-Phoenix Project Components (the Westwing-Mead Project Component, the Mead Substation Project Component and the Mead-Marketplace Project Component) (collectively the “Mead- Phoenix Project Components”) to the extent attributable to the Authority Interest (Members) in the Mead- Phoenix Project multiplied by the entitlement share of the Authority Member-Participant with respect to each such Component; (b) Authority Expenses (administrative expenses of the Authority with respect to the Authority Interest (Members) and Authority Interest (Western)) for such Month multiplied by the Authority Expenses Percentage of the Authority Member-Participant; and (c) costs and expenses paid or incurred by the Authority with respect to any judgment of the Authority Member-Participant against any Mead-Phoenix Owner (an “Owner” as defined in the Mead-Phoenix Joint Ownership Agreement), the Construction Manager, the Operation Manager or the Lands Manager in connection with electric service to the Authority Member-Participant caused by the operation or failure of operation of the Mead-Phoenix Project or any portion thereof. Aggregate Costs (which exclude Authority Expenses) with respect to any Month in any Transmission Service Year include: (i) amounts required under any indenture of trust, bond resolution or similar instrument with respect to the financing of costs of acquisition and construction of the Authority Interest (Members) (as defined in the 1992 Mead-Phoenix Transmission Service Contracts (Members) and for purposes of this summary of the 1992 Mead-Phoenix Transmission Service Contracts (Members), an “Indenture of Trust”) to be paid or deposited during such Month into funds or accounts established for debt service and for any reserve requirements for bonds, notes or other evidences of indebtedness issued by the Authority to finance or refinance any costs of acquisition or construction of the Authority Interest (Members) in the Mead-Phoenix Project (as defined in the 1992 Mead-Phoenix Transmission Service Contracts (Members), “Bonds”); (ii) one-twelfth of the amount required under any Indenture of Trust to be paid or deposited during the Transmission Service Year into any other fund or

C-52

account established by the Indenture of Trust to provide for the payment of principal or interest of such Bonds or any other financial obligation of the Authority with respect to the Mead-Phoenix Project, and includes, without limitation, any amounts required to make up a deficiency in any such fund established under an Indenture of Trust whether or not resulting from a default in payments by any of the Authority Member-Participants under any 1992 Mead-Phoenix Transmission Service Contract (Members); (iii) one- twelfth of the amount required under an Indenture of Trust to be paid or deposited during the Transmission Service Year into any other fund or account established by an Indenture of Trust relating to the Authority (Members) to provide for the payment of any shortfall in revenues to pay Monthly Costs, and shall include, without limitation, any amounts required to make up a deficiency in any such fund established under an Indenture of Trust relating to the Authority (Members) whether or not resulting from a default in payment by any of the Authority Member-Participants under any 1992 Mead-Phoenix Transmission Service Contract (Members); (iv) one-twelfth of the amount required for the payment of Monthly Costs during such Transmission Service Year; and (v) one-twelfth of the amount necessary during such Transmission Service Year to pay or provide reserves for all taxes required to be paid by the Authority to the extent not included in Cost of Acquisition and Construction or Monthly Costs.

The Authority will allocate Aggregate Costs among the Mead-Phoenix Project Components based upon (i) in the case of capital and capital related costs, the respective costs of acquiring, constructing and placing each Project Component into operation and (ii) in the case of operation and operation-based costs, the respective costs of operating and maintaining each Project Component, and in each such case based upon periodic billing information, including Funds Requests, provided to it by the Mead-Phoenix Operation Manager or the Marketplace Operating Agent.

The 1992 Mead-Phoenix Transmission Service Contracts (Members) relating to the Authority Interest (Members) and the Bonds issued by the Authority to finance the costs thereof are separate and distinct from the Mead-Phoenix Transmission Service Contract (LADWP) relating to the Authority Interest (LADWP) and the 2016 Mead-Phoenix Bonds or other Mead- Phoenix Bonds issued under the Mead-Phoenix Indenture referred to elsewhere in this Official Statement. Payments made to the Authority by the Authority Member-Participants under the 1992 Mead-Phoenix Transmission Service Contracts (Members) relating to the Authority Interest (Members) do not constitute Revenues under the Mead-Phoenix Indenture relating to the Authority Interest (LADWP) and do not in any manner secure the 2016 Mead-Phoenix Bonds or any other Mead-Phoenix Bonds issued under the Mead-Phoenix Indenture relating to the Authority Interest (LADWP).

SUMMARY OF CERTAIN PROVISIONS OF THE MEAD-PHOENIX TRANSMISSION SERVICE CONTRACT (WESTERN)

The Mead-Phoenix Transmission Service Contract (Western), entered into between the Authority and Western, relating to the Authority Interest (Members) in the Mead Phoenix Project is identical in all material respects to the Mead-Adelanto Transmission Service Contract (Western).

Payments made to the Authority by Western under the Mead-Phoenix Transmission Service Contract (Western) relating to the Authority Interest (Western) do not constitute Revenues under the Mead-Phoenix Indenture and do not in any manner secure the 2016 Mead-Phoenix Bonds or any other Mead-Phoenix Bonds issued under the Mead-Phoenix Indenture relating to the Authority Interest (LADWP).

C-53

SUMMARY OF CERTAIN PROVISIONS OF THE MEAD-PHOENIX JOINT OWNERSHIP AGREEMENT

The following is a summary of certain provisions of the Mead-Phoenix Joint Ownership Agreement, dated as of August 4, 1992 (as amended and supplemented from time to time, the “Mead- Phoenix Joint Ownership Agreement”), originally entered into among the Authority, the City of Vernon (whose interest was subsequently transferred to StarTrans as described in the front part of this Official Statement), M-S-R PPA (whose interest is being acquired by the Authority for the benefit of the Department as described in the front part of this Official Statement), Salt River Project and APS.

Ownership

The Owners (as defined in the Mead-Phoenix Joint Ownership Agreement, the “Owners”) acquire undivided interests as tenants-in-common in each of three Project Components.

Use of Line

Available Transmission Capability of the Mead-Phoenix Project is determined on a Component basis.

Project Management Committee

Each matter is approved or disapproved by the Project Management Committee upon an affirmative vote of not less than 85% of the votes entitled to be cast on the matter. Project Management Committee voting percentages are set forth in the Mead-Phoenix Joint Ownership Agreement.

Liability

Each Owner extends to each other Owner its covenant not to execute on any judgment obtained by it against any other Owner for loss or damages regarding the design, construction, operation, maintenance or ownership of the Mead-Phoenix Project. The covenant not to execute certain judgments does not extend to judgments collectible from insurance; judgments up to $500,000 for Willful Action by an Owner or its agents while acting on its own behalf, or in the capacity of the Operation Manager or the Lands Manager; judgments for the failure by an Owner to make payments under any Project Agreement (for purposes of this summary, as defined in the Mead-Phoenix Joint Ownership Agreement, a “Project Agreement”); and judgments for liability of any Owner for loss or damages suffered by anyone other than an Owner as a result of the Mead-Phoenix Project. Each Owner assumes all liability for any claim or judgment arising out of or in connection with electric service to any of its customers and the customers of its customers caused by the Mead-Phoenix Project and indemnifies and holds harmless each other Owner, the Operation Manager and the Lands Manager from any such claim or judgment.

Project Participants’ Shares and Owners’ Interests

Upon the acquisition of the Interest theretofore owned by M-S-R PPA in the Mead-Phoenix Project pursuant to the Purchase and Sale Agreement, the Mead-Phoenix Project Participants’ Shares and the Owners’ Interests shall be as follows:

C-54

Westwing-Mead Mead Substation Mead-Marketplace Component Component Component Entity Participant Owner Participant Owner Participant Owner Share Share Share Share Share Share City of Anaheim 3.61540% 0.00000% 8.8781% 0.0000% 5.9395% 0.0000% APS 18.15385 18.15385 19.0476 19.0476 12.7430 12.7430 City of Azusa 0.23080 0.00000 0.0000 0.0000 0.1620 0.0000 City of Banning 0.23080 0.00000 0.0000 0.0000 0.1620 0.0000 City of Burbank 2.69230 0.00000 2.8249 0.0000 3.7797 0.0000 City of Colton 0.23080 0.00000 0.0000 0.0000 0.1620 0.0000 City of Glendale 2.15380 0.00000 4.0355 0.0000 4.3197 0.0000 Department of Water and Power of Los Angeles(1) 17.23080 11.53850 0.0000 0.0000 12.0950 8.0993 City of Pasadena 2.53850 0.00000 2.0178 0.0000 3.2397 0.0000 City of Riverside 0.92300 0.00000 0.0000 0.0000 0.6479 0.0000 Salt River Project 18.15385 18.15385 19.0476 19.0476 21.3823 21.3823 StarTrans IO, LLC(2) 2.15380 2.15380 3.7934 3.7934 4.0497 4.0497 Western 31.69230 0.00000 40.3551 0.0000 31.3175 0.0000 Authority (Members) 0.00000 18.30770 0.0000 17.7563 0.0000 22.4082 Authority (Western) 0.00000 31.69230 0.0000 40.3551 0.0000 31.3175 Total 100.00000% 100.00000% 100.0000% 100.0000% 100.0000% 100.0000% ______(1) Includes the Department’s entitlement share in the Authority Interest (Members) under its 1992 Mead-Adelanto Transmission Service Contract (Members) and its entitlement to the Authority Interest (LADWP) to be acquired by the Authority from M-S-R PPA as described herein. (2) Share transferred from Vernon as described herein.

SUMMARY OF CERTAIN PROVISIONS OF THE MEAD-PHOENIX OPERATION AGREEMENT

The following is a summary of certain provisions of the Operation Agreement relating to the Mead-Phoenix Project, dated as of August 4, 1992 (as amended and supplemented from time to time, the “Mead-Phoenix Operation Agreement”), originally entered into among the Authority, the City of Vernon (whose interest was subsequently transferred to StarTrans as described in the front part of this Official Statement), M-S-R PPA (whose interest is being acquired by the Authority for the benefit of the Department as described in the front part of this Official Statement), Salt River Project, APS and Western.

Appointment of Operation Manager

Salt River Project and Western were each appointed by the Owners (as defined in the Mead- Phoenix Joint Ownership Agreement, the “Owners”) as an Operation Manager (the “Operation Manager”) and directed to carry out all the duties of the Operation Manager, including the Operating Work.

Unused Available Transmission Capability

The Operation Manager is not required to produce records reflecting the hourly total Available Transmission Capability and the Project Participant Share of each Mead-Phoenix Project Participant and the total use thereof during any Month of the 12 Months preceding the request date upon the request of a Mead-Phoenix Project Participant.

C-55

Transmission Losses

Losses on the Transmission Line will be determined by the Operation Manager using a methodology approved by the Engineering and Operations Committee. Losses will be repaid kilowatt- hour for kilowatt-hour in like-time periods, unless other repayment provisions are agreed upon by the Operation Manager and the Mead-Phoenix Project Participant.

Operating Contracts

Operating Contracts will be executed by an Operation Manager in the name of the Owners except when the contract is not exclusively related to the Transmission Line. Operating Contracts exclusively related to the Transmission Line are not required to be negotiated and arranged for pursuant to the applicable contracting procedures of the Authority.

Mitigation Monitoring Program

The Mead-Phoenix Operation Agreement does not provide for a mitigation monitoring program.

Allocation of Responsibilities Between Each Operation Manager

Generally, Western will undertake Operating Work for all Transmission Line facilities and property except the Transmission Line facilities and property at Westwing Substation, and Salt River Project will undertake Operating Work for Transmission Line facilities and property at Westwing Substation which are not operated and maintained by the Westwing Substation operating agent. However, the allocation of Operating Work between Western and Salt River Project may be changed upon mutual agreement of Western and Salt River Project and the approval of the Project Management Committee. Western and Salt River Project are to cooperate and consult with each other in performance of their obligations under the Mead-Phoenix Operation Agreement.

Operating Costs

Provisions similar to those applicable to Operating Costs are applicable to the billing and payment of the Operation Manager’s Cost for Operating Work, with certain exceptions, including timing of the transmittal and payment of the Funds Request for Western’s Operation Manager’s Cost for Operating Work and the timing of the provision of the copy of the Funds Request and relevant Payment Request to the Fiscal Agent, and the timing of the Fiscal Agent’s payments.

Liability

The Operation Managers do not assume liability for any claim or judgment arising out of or in connection with electric service to any of its respective customers and the customers of its customers caused by the Mead-Phoenix Project and only each Owner and Salt River Project in its capacity as Operation Manager indemnify and hold harmless each other Owner and Operation Manager from any such claim or judgment.

Insurance

Salt River Project will be responsible for obtaining and maintaining the relevant insurance.

C-56

Operating Emergencies

In addition to advising the Mead-Phoenix Project Participants of Operating Emergencies, each Operation Manager will also so advise the other Operation Manager.

SUMMARY OF CERTAIN PROVISIONS OF THE MEAD-PHOENIX FISCAL AGENCY AGREEMENT

The following is a summary of certain provisions of the Fiscal Agency Agreement relating to the Mead-Phoenix Project, dated as of August 4, 1992 (as amended and supplemented from time to time, the “Mead-Phoenix Fiscal Agency Agreement”), originally entered into among the Authority, the City of Vernon (whose interest was subsequently transferred to StarTrans as described in the front part of this Official Statement), M-S-R PPA (whose interest is being acquired by the Authority for the benefit of the Department as described in the front part of this Official Statement), Salt River Project and APS.

As of the date of the Mead-Phoenix Fiscal Agency Agreement, Salt River Project was designated, and continues to serve as, the Fiscal Agent (the “Fiscal Agent”). The qualifications of the Fiscal Agent mentioned in the Mead-Phoenix Fiscal Agency Agreement are not mirrored in the Mead-Phoenix Fiscal Agency Agreement. The Fiscal Agent established a Project Operation Account which is maintained by a commercial bank, trust company or national banking association doing business and having its principal office in New York, New York, Chicago, Illinois, Los Angeles, California, San Francisco, California or Phoenix, Arizona, and having capital stock and surplus aggregating at least $50 million. The Fiscal Agent maintains on its books an Operation Subaccount and a Capital Improvement Subaccount for each ownership Interest (as defined in the Mead-Phoenix Joint Ownership Agreement). Disbursements from the Project Operation Account (with respect to Operating Costs, as defined in the Mead-Phoenix Fiscal Agency Agreement) require filing a copy of the Funds Request accompanied by the corresponding Payment Request. Moneys held in the Project Operation Account shall be invested (i) in taxable government money market portfolios restricted to obligations maturing one year or less issued by, or guaranteed as to payment by, the United States or (ii) as parties to the Mead-Phoenix Fiscal Agency Agreement may agree. The Fiscal Agent may resign at any time by giving notice to the other Parties and it may be removed by the Owners (as defined under the Mead-Phoenix Joint Ownership Agreement) with the approval of the Project Management Committee with respect to the Mead-Phoenix Project or by the Project Management Committee with respect to the Mead-Phoenix Project. The Fiscal Agent is required to tender its resignation as the Fiscal Agent if it fails to maintain investment grade ratings on its long-term debt obligations.

SUMMARY OF CERTAIN PROVISIONS OF THE LAND RIGHTS AGREEMENT

The following is a summary of certain provisions of the Land Rights Agreement relating to the Mead-Phoenix Project, dated as of August 4, 1992 (as amended and supplemented from time to time, the “Land Rights Agreement”), originally entered into among the Authority, the City of Vernon (whose interest was subsequently transferred to StarTrans as described in the front part of this Official Statement), M-S-R PPA (whose interest is being acquired by the Authority for the benefit of the Department as described in the front part of this Official Statement), Salt River Project, APS and Western.

Western is the Lands Manager (the “Lands Manager”), appointed by the Owners (as defined in the Mead-Phoenix Joint Ownership Agreement, the “Owners”) to acquire all land for the Transmission Line. Title to land acquired by the Lands Manager shall remain in the name of the United States and shall be acquired with federally appropriated funds pursuant to laws and regulations applicable to federal land acquisitions. The Lands Manager issued a license to the Owners to locate, construct, reconstruct, operate,

C-57

maintain, repair and replace the Transmission Line. Title to the Transmission Line remains in the Owners under the Mead-Phoenix Joint Ownership Agreement. Assignment of rights under any license (other than assignments permitted by the Transmission Line Agreements) will be subject to the approval of the Lands Manager. Compensation for each license is the Fair Market Value of the land rights acquired, based upon an appraisal made by the Lands Manager in accordance with the Uniform Appraisal Standards; however, the Fair Market Value may not exceed the cost incurred by the Lands Manager for procurement of such land rights, including administrative and general expenses. The termination date of the term of each initial license is 50 years from date of its issuance or the date of retirement of the Transmission Line, whichever occurs earlier. If the Transmission Line continues operating beyond the term of any initial license, the Lands Manager will issue a new license with similar provisions at no additional cost or issue an appropriate out-grant in lieu thereof. The performance of the Lands Manager under the Land Rights Agreement beyond the Lands Manager’s current fiscal year is contingent upon the Lands Manager obtaining appropriations from Congress; nevertheless, any license issued and the Lands Manager’s obligation to issue any license under the Land Rights Agreement remains valid and in force. Sources of payment of obligations under the Mead-Phoenix Project Agreements are limited to certain sources of revenue; however, the unavailability of funds from such limited sources will not excuse a Payment Default or release an Owner regarding default provisions under the Mead-Phoenix Joint Ownership Agreement. Western granted to the Owners the right to occupy all necessary space at Mead Substation for the construction, interconnection and operation and maintenance of the Transmission Line and such grant remains in effect until the Transmission Line is retired.

C-58

APPENDIX D

FORMS OF CONTINUING DISCLOSURE RESOLUTIONS FOR THE 2016 BONDS

RESOLUTION NO. 2016-018

RESOLUTION AS TO THE PROVISION OF CERTAIN CONTINUING DISCLOSURE INFORMATION WITH RESPECT TO MEAD-ADELANTO PROJECT, AUTHORITY INTEREST (LADWP), REVENUE BONDS, 2016 SERIES A

WHEREAS, the Board of Directors of Southern California Public Power Authority, a political subdivision of the State of California (“SCPPA”), has authorized the issuance of SCPPA’s Mead- Adelanto Project, Authority Interest (LADWP), Revenue Bonds, 2016 Series A (the “2016 Mead- Adelanto Bonds”) and has authorized the execution by SCPPA of an Indenture of Trust relating to the 2016 Mead-Adelanto Bonds, dated as of May 1, 2016, from SCPPA to U.S. Bank National Association, as trustee (as supplemented, the “Indenture”); and

WHEREAS, the Board of Directors of SCPPA hereby finds and determines that it is necessary, in connection with the authorization and sale of the 2016 Mead-Adelanto Bonds, that SCPPA adopt this resolution in order to assist the Participating Underwriter (such term, and all other capitalized terms used herein without definition, having the respective meanings assigned thereto in Section 1 hereof) in complying with the Rule;

NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of SCPPA as follows:

1. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Resolution unless otherwise defined in this Disclosure Resolution, the following capitalized terms shall have the following meanings:

“Annual Report” shall mean any Annual Report provided by SCPPA pursuant to, and as described in, Sections 3 and 4 of this Disclosure Resolution.

“Audited Financial Statements” shall mean:

(a) with respect to SCPPA, SCPPA’s audited financial statements for its most recent fiscal year, prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time (or such other accounting principles as may be applicable to SCPPA in the future pursuant to applicable law); and

(b) with respect to LADWP (as defined in Section 2(b) hereof), the audited financial statements of LADWP’s Power System for its most recent fiscal year, prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities and public utilities, as appropriate, from time to time (or such other accounting principles as may be applicable to LADWP in the future pursuant to applicable law).

“Beneficial Owner” shall mean any person holding a beneficial ownership interest in 2016 Mead- Adelanto Bonds through nominees or depositories (including any person holding such interest through the

D-1

book-entry only system of The Depository Trust Company), together with any other person who is intended to be a beneficiary of this Disclosure Resolution under the Rule.

“Disclosure Resolution” shall mean this resolution, as the same may be amended or supplemented from time to time in accordance with the provisions hereof.

“Dissemination Agent” shall mean any person or entity appointed by SCPPA and which has entered into a written agreement with SCPPA pursuant to which such person or entity agrees to perform the duties and obligations of Dissemination Agent under this Disclosure Resolution.

“Final Official Statement” shall mean the Official Statement of SCPPA relating to the 2016 Mead-Adelanto Bonds, as amended, supplemented or updated.

“Listed Events” shall mean any of the events listed in Section 5(a) of this Disclosure Resolution.

“MSRB” shall mean the Municipal Securities Rulemaking Board established pursuant to Section 15B(b)(1) of the Securities Exchange Act of 1934 or any other entity designated or authorized by the SEC to receive reports 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.

“Participating Underwriter” shall mean any of the original underwriters of the 2016 Mead- Adelanto Bonds (or the underwriter, if there is only one original underwriter) required to comply with the Rule in connection with the offering of the 2016 Mead-Adelanto Bonds.

“Rule” shall mean Rule 15c2-12 adopted by the SEC under the Securities Exchange Act of 1934, as amended from time to time, together with all interpretive guidances or other official interpretations or explanations thereof that are promulgated by the SEC.

“SEC” shall mean the United States Securities and Exchange Commission.

2. Purpose of this Disclosure Resolution; Obligated Persons; Disclosure Resolution to Constitute a Contract.

(a) This Disclosure Resolution is adopted by SCPPA for the benefit of the Owners and Beneficial Owners of the 2016 Mead-Adelanto Bonds and in order to assist the Participating Underwriter in complying with the Rule.

(b) SCPPA and the Department of Water and Power of The City of Los Angeles (“LADWP”) each are hereby determined by SCPPA to be an “obligated person” within the meaning of the Rule (and are the only “obligated persons” within the meaning of the Rule for whom financial information or operating data are presented in the Final Official Statement). Each such person shall only be an “obligated person” if and for so long as such person is an “obligated person” within the meaning of the Rule.

(c) In consideration of the purchase and acceptance of any and all of the 2016 Mead- Adelanto Bonds by those who shall hold the same or shall own beneficial ownership interests therein from time to time, this Disclosure Resolution shall be deemed to be and shall constitute a contract between SCPPA and the Owners and Beneficial Owners from time to time of the 2016 Mead-Adelanto Bonds, and the covenants and agreements herein set forth to be performed on behalf of SCPPA shall be for the benefit of the Owners and Beneficial Owners of any and all of the 2016 Mead-Adelanto Bonds.

D-2

3. Provision of Annual Reports.

(a) SCPPA hereby covenants and agrees that it shall, or shall cause the Dissemination Agent to, not later than six months after the end of each fiscal year of SCPPA (presently, by each December 31, each such date being referred to herein as a “Final Submission Date”), commencing with the report for fiscal year 2015-16, provide to the MSRB an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Resolution. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Resolution; provided that any Audited Financial Statements may be submitted separately from the balance of the Annual Report and later than the Final Submission Date if they are not available by that date. If the fiscal year for SCPPA or LADWP changes, SCPPA shall give notice of such change in the same manner as for a Listed Event under Section 5(c).

(b) Not later than 10 business days prior to each Final Submission Date (each such date being referred to herein as a “Preliminary Submission Date”), SCPPA shall provide the Annual Report to the Dissemination Agent, if any. If by a Preliminary Submission Date, the Dissemination Agent, if any, has not received a copy of the Annual Report, the Dissemination Agent shall contact SCPPA to determine if SCPPA is in compliance with subsection (a).

(c) If SCPPA or the Dissemination Agent (if any), as the case may be, has not provided any Annual Report to the MSRB by a Final Submission Date, SCPPA or the Dissemination Agent, as applicable, shall provide a notice to the MSRB in substantially the form attached hereto as Exhibit A.

(d) SCPPA (or, in the event that SCPPA shall appoint a Dissemination Agent hereunder, the Dissemination Agent) shall provide the Annual Report to the MSRB on or before the Final Submission Date. In addition, if SCPPA shall have appointed a Dissemination Agent hereunder, the Dissemination Agent shall file a report with SCPPA certifying that the Annual Report has been provided to the MSRB pursuant to this Disclosure Resolution and stating the date it was provided.

(e) Any Annual Report must be submitted in electronic format, accompanied by such identifying information as is prescribed by the MSRB.

4. Content of Annual Reports. SCPPA’s Annual Report shall contain or include by reference the following:

(a) If available at the time of filing of the Annual Report as provided herein, the Audited Financial Statements of SCPPA and LADWP for the most recently ended fiscal year. If any Audited Financial Statements are not available by the Final Submission Date, the Annual Report shall contain unaudited financial statements for SCPPA or LADWP, as applicable, in a format similar to the audited financial statements most recently prepared for such obligated person, and such Audited Financial Statements shall be filed in the same manner as the Annual Report when and if they become available.

(b) Updated versions of the type of information contained in the Final Official Statement relating to the following:

1. any financial information and operating data relating to the Mead- Adelanto Project and the Authority Interest (LADWP) therein as set forth under the section entitled “THE MEAD-ADELANTO PROJECT;” and

D-3

2. the debt service requirements contained in Appendix F to the Final Official Statement.

(c) Updated versions of the type of information for LADWP contained in Appendix A to the Final Official Statement relating to the following:

1. the description of operations and the summary of operating results of LADWP’s Power System; and

2. the summary of financial results of LADWP’s Power System.

(d) If known to SCPPA, the name, address and telephone number of a place where current information regarding any bond insurer with respect to the 2016 Mead-Adelanto Bonds (the “Bond Insurer”) may be obtained.

Any or all of the items listed above may be included by specific reference to other documents, including Annual Reports of SCPPA or LADWP or official statements relating to debt or other securities issues of SCPPA or LADWP or other entities, which have been submitted to the MSRB. If the document included by reference is a final official statement (as defined in the Rule), it must be available from the MSRB. SCPPA shall clearly identify each such other document so included by reference.

5. Reporting of Significant Events.

(a) Pursuant to the provisions of this Section 5, SCPPA hereby covenants and agrees that it shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the 2016 Mead-Adelanto Bonds:

1. principal or interest payment delinquencies;

2. non-payment related defaults, if material;

3. modifications to the rights of the Bondholders, if material;

4. optional, contingent or unscheduled calls, if any of the preceding are material, and tender offers;

5. defeasances;

6. rating changes;

7. adverse tax opinions or the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701- TEB) or other material notices or determinations with respect to the tax status of a 2016 Mead-Adelanto Bond or other material events affecting the tax status of a 2016 Mead-Adelanto Bond;

8. unscheduled draws on debt service reserves reflecting financial difficulties;

9. unscheduled draws on credit enhancements reflecting financial difficulties;

10. substitution of credit or liquidity providers or their failure to perform;

D-4

11. release, substitution or sale of property securing repayment of the 2016 Mead- Adelanto Bonds, if material;

12. bankruptcy, insolvency, receivership or similar proceedings described below of SCPPA or LADWP;

13. appointment of a successor or additional trustee or the change of name of a trustee, if material; or

14. the consummation of a merger, consolidation, or acquisition involving SCPPA or LADWP or the sale of all or substantially all of the assets comprising the Authority Interest (LADWP) in the Mead-Adelanto Project other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material.

(b) An event described in item 12 above of Section 5(a) is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for SCPPA or LADWP in a proceeding under the United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of said party, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of said party.

(c) SCPPA shall provide notice of an occurrence of a Listed Event to the MSRB in a timely manner but not more than 10 business days after the occurrence of the event. Any notice of Listed Event(s) must be submitted to the MSRB in electronic format, accompanied by such identifying information as is prescribed by the MSRB.

6. Management’s Discussion of Items Disclosed in Annual Reports or as Significant Events. If an item required to be disclosed in SCPPA’s Annual Report under Section 4, or as a Listed Event under Section 5, would be misleading without discussion, SCPPA additionally covenants and agrees that it shall provide a statement clarifying the disclosure in order that the statement made will not be misleading in the light of the circumstances under which it is made.

7. Termination of Reporting Obligations. SCPPA’s obligations under this Disclosure Resolution shall terminate with respect to all the 2016 Mead-Adelanto Bonds upon the legal defeasance, prior redemption or payment in full of all of the 2016 Mead-Adelanto Bonds and with respect to any 2016 Mead-Adelanto Bonds upon the legal defeasance, prior redemption or payment in full of such 2016 Mead-Adelanto Bonds. In addition, in the event that the Rule shall be amended, modified or repealed such that compliance by SCPPA with its obligations under this Disclosure Resolution no longer shall be required in any or all respects, then SCPPA’s obligations under this Disclosure Resolution shall terminate to a like extent. If either such termination occurs prior to the final maturity of the 2016 Mead-Adelanto Bonds, SCPPA shall give notice of such termination in the same manner as for a Listed Event under Section 5(c).

8. Dissemination Agent. SCPPA may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Resolution, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent.

D-5

9. Amendment; Waiver.

(a) Notwithstanding any other provision of this Disclosure Resolution, SCPPA may, by resolution hereafter adopted, amend this Disclosure Resolution, and any provision of this Disclosure Resolution may be waived, provided that, in the opinion of nationally-recognized bond counsel, such amendment or waiver is permitted by the Rule.

(b) The Annual Report containing any modified operating data or financial information as a result of an amendment shall explain, to the extent required by the Rule, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. If a change in accounting principles is included in any such modification, such Annual Report shall present, to the extent required by the Rule, a comparison between the financial statements or information prepared on the basis of the modified accounting principles and those prepared on the basis of the former accounting principles.

10. Additional Information. Nothing in this Disclosure Resolution shall be deemed to prevent SCPPA from disseminating, or require SCPPA to disseminate, any other information using the means of dissemination set forth in this Disclosure Resolution 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 Resolution. If SCPPA 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 Resolution, SCPPA shall have no obligation under this Disclosure Resolution to update such information or include it in any future Annual Report, notice of occurrence of a Listed Event or other materials disseminated hereunder.

11. Default.

(a) In the event of a failure of SCPPA to comply with any provision of this Disclosure Resolution, any Owner or Beneficial Owner of any Outstanding 2016 Mead-Adelanto Bonds may take such actions as may be necessary and appropriate, including seeking mandamus or specific performance by court order, for the equal benefit and protection of all Owners or Beneficial Owners similarly situated, to cause SCPPA to comply with its obligations under this Disclosure Resolution.

(b) Notwithstanding the foregoing, no Owner or Beneficial Owner of the 2016 Mead-Adelanto Bonds shall have the right to challenge the content or adequacy of the information provided pursuant to Sections 3, 4 or 5 of this Disclosure Resolution by mandamus, specific performance or other equitable proceedings unless Owners or Beneficial Owners of 2016 Mead-Adelanto Bonds representing at least 25% in aggregate principal amount of the Outstanding affected 2016 Mead-Adelanto Bonds shall join in such proceedings.

(c) A default under this Disclosure Resolution shall not be deemed an Event of Default under the Indenture, and the sole remedies under this Disclosure Resolution in the event of any failure of SCPPA to comply with this Disclosure Resolution shall be those described in subsection (a) above.

(d) Under no circumstances shall any person or entity be entitled to recover monetary damages hereunder in the event of any failure of SCPPA to comply with this Disclosure Resolution.

12. Duties, Immunities and Liabilities of Dissemination Agent. Any Dissemination Agent appointed hereunder shall have only such duties as are specifically set forth in this Disclosure Resolution

D-6

and shall have such rights, immunities and liabilities as shall be set forth in the written agreement between SCPPA and such Dissemination Agent pursuant to which such Dissemination Agent agrees to perform the duties and obligations of Dissemination Agent under this Disclosure Resolution.

13. Beneficiaries. This Disclosure Resolution shall inure solely to the benefit of SCPPA, the Dissemination Agent, if any, and the Owners and Beneficial Owners from time to time of the 2016 Mead- Adelanto Bonds, and, subject to Section 2(a) hereof, shall create no rights in any other person or entity.

14. Governing Law. This Disclosure Resolution shall be deemed to be a contract made under the Rule and the laws of the State of California, and for all purposes shall be construed and interpreted in accordance with, and its validity governed by, the Rule and the laws of the State of California, without regard to principles of conflicts of law.

15. Effective Date. This Disclosure Resolution shall become effective upon the date of authentication and delivery of the 2016 Mead-Adelanto Bonds.

THE FOREGOING RESOLUTION is approved and adopted by SCPPA this 21st day of April, 2016.

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY

______PRESIDENT Southern California Public Power Authority

ATTEST:

______ASSISTANT SECRETARY Southern California Public Power Authority

D-7

EXHIBIT A

NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT

Name of Issuer: Southern California Public Power Authority

Name of Bond Issue: $______Mead-Adelanto Project, Authority Interest (LADWP), Revenue Bonds, 2016 Series A

Date of Issuance: ______, 2016

NOTICE IS HEREBY GIVEN that Southern California Public Power Authority (“SCPPA”) has not provided an Annual Report with respect to the above-named Bonds as required by Section 3(a) of Resolution No. 2016-018, adopted by the Board of Directors of SCPPA on April 21, 2016 relating to the above-named Bonds. SCPPA has advised the undersigned that SCPPA anticipates that the Annual Report will be filed by ______.

Dated: ______

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY

______, as Dissemination Agent on behalf of Southern California Public Power Authority

cc: Southern California Public Power Authority

D-8

RESOLUTION NO. 2016-020

RESOLUTION AS TO THE PROVISION OF CERTAIN CONTINUING DISCLOSURE INFORMATION WITH RESPECT TO MEAD-PHOENIX PROJECT, AUTHORITY INTEREST (LADWP), REVENUE BONDS, 2016 SERIES A

WHEREAS, the Board of Directors of Southern California Public Power Authority, a political subdivision of the State of California (“SCPPA”), has authorized the issuance of SCPPA’s Mead-Phoenix Project, Authority Interest (LADWP), Revenue Bonds, 2016 Series A (the “2016 Mead-Phoenix Bonds”) and has authorized the execution by SCPPA of an Indenture of Trust relating to the 2016 Mead-Phoenix Bonds, dated as of May 1, 2016, from SCPPA to U.S. Bank National Association, as trustee (as supplemented, the “Indenture”); and

WHEREAS, the Board of Directors of SCPPA hereby finds and determines that it is necessary, in connection with the authorization and sale of the 2016 Mead-Phoenix Bonds, that SCPPA adopt this resolution in order to assist the Participating Underwriter (such term, and all other capitalized terms used herein without definition, having the respective meanings assigned thereto in Section 1 hereof) in complying with the Rule;

NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of SCPPA as follows:

“Annual Report” shall mean any Annual Report provided by SCPPA pursuant to, and as described in, Sections 3 and 4 of this Disclosure Resolution.

“Audited Financial Statements” shall mean:

“Beneficial Owner” shall mean any person holding a beneficial ownership interest in 2016 Mead- Phoenix Bonds through nominees or depositories (including any person holding such interest through the book-entry only system of The Depository Trust Company), together with any other person who is intended to be a beneficiary of this Disclosure Resolution under the Rule.

“Disclosure Resolution” shall mean this resolution, as the same may be amended or supplemented from time to time in accordance with the provisions hereof.

D-9

“Final Official Statement” shall mean the Official Statement of SCPPA relating to the 2016 Mead-Phoenix Bonds, as amended, supplemented or updated.

“Listed Events” shall mean any of the events listed in Section 5(a) of this Disclosure Resolution.

“Participating Underwriter” shall mean any of the original underwriters of the 2016 Mead- Phoenix Bonds (or the underwriter, if there is only one original underwriter) required to comply with the Rule in connection with the offering of the 2016 Mead-Phoenix Bonds.

“SEC” shall mean the United States Securities and Exchange Commission.

2. Purpose of this Disclosure Resolution; Obligated Persons; Disclosure Resolution to Constitute a Contract.

(a) This Disclosure Resolution is adopted by SCPPA for the benefit of the Owners and Beneficial Owners of the 2016 Mead-Phoenix Bonds and in order to assist the Participating Underwriter in complying with the Rule.

(c) In consideration of the purchase and acceptance of any and all of the 2016 Mead- Phoenix Bonds by those who shall hold the same or shall own beneficial ownership interests therein from time to time, this Disclosure Resolution shall be deemed to be and shall constitute a contract between SCPPA and the Owners and Beneficial Owners from time to time of the 2016 Mead-Phoenix Bonds, and the covenants and agreements herein set forth to be performed on behalf of SCPPA shall be for the benefit of the Owners and Beneficial Owners of any and all of the 2016 Mead-Phoenix Bonds.

3. Provision of Annual Reports.

D-10

commencing with the report for fiscal year 2015-16, provide to the MSRB an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Resolution. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Resolution; provided that any Audited Financial Statements may be submitted separately from the balance of the Annual Report and later than the Final Submission Date if they are not available by that date. If the fiscal year for SCPPA or LADWP changes, SCPPA shall give notice of such change in the same manner as for a Listed Event under Section 5(c).

(e) Any Annual Report must be submitted in electronic format, accompanied by such identifying information as is prescribed by the MSRB.

4. Content of Annual Reports. SCPPA’s Annual Report shall contain or include by reference the following:

(b) Updated versions of the type of information contained in the Final Official Statement relating to the following:

1. any financial information and operating data relating to the Mead- Phoenix Project and the Authority Interest (LADWP) therein as set forth under the section entitled “THE MEAD-PHOENIX PROJECT;” and

2. the debt service requirements contained in Appendix F to the Final Official Statement.

(c) Updated versions of the type of information for LADWP contained in Appendix A to the Final Official Statement relating to the following:

D-11

1. the description of operations and the summary of operating results of LADWP’s Power System; and

2. the summary of financial results of LADWP’s Power System.

(d) If known to SCPPA, the name, address and telephone number of a place where current information regarding any bond insurer with respect to the 2016 Mead-Phoenix Bonds (the “Bond Insurer”) may be obtained.

5. Reporting of Significant Events.

1. principal or interest payment delinquencies;

2. non-payment related defaults, if material;

3. modifications to the rights of the Bondholders, if material;

4. optional, contingent or unscheduled calls, if any of the preceding are material, and tender offers;

5. defeasances;

6. rating changes;

7. adverse tax opinions or the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701- TEB) or other material notices or determinations with respect to the tax status of a 2016 Mead-Phoenix Bond or other material events affecting the tax status of a 2016 Mead-Phoenix Bond;

8. unscheduled draws on debt service reserves reflecting financial difficulties;

9. unscheduled draws on credit enhancements reflecting financial difficulties;

10. substitution of credit or liquidity providers or their failure to perform;

11. release, substitution or sale of property securing repayment of the 2016 Mead- Phoenix Bonds, if material;

12. bankruptcy, insolvency, receivership or similar proceedings described below of SCPPA or LADWP;

D-12

13. appointment of a successor or additional trustee or the change of name of a trustee, if material; or

14. the consummation of a merger, consolidation, or acquisition involving SCPPA or LADWP or the sale of all or substantially all of the assets of comprising the Authority Interest (LADWP) in the Mead-Phoenix Project other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material.

7. Termination of Reporting Obligations. SCPPA’s obligations under this Disclosure Resolution shall terminate with respect to all the 2016 Mead-Phoenix Bonds upon the legal defeasance, prior redemption or payment in full of all of the 2016 Mead-Phoenix Bonds and with respect to any 2016 Mead-Phoenix Bonds upon the legal defeasance, prior redemption or payment in full of such 2016 Mead- Phoenix Bonds. In addition, in the event that the Rule shall be amended, modified or repealed such that compliance by SCPPA with its obligations under this Disclosure Resolution no longer shall be required in any or all respects, then SCPPA’s obligations under this Disclosure Resolution shall terminate to a like extent. If either such termination occurs prior to the final maturity of the 2016 Mead-Phoenix Bonds, SCPPA shall give notice of such termination in the same manner as for a Listed Event under Section 5(c).

9. Amendment; Waiver.

D-13

10. Additional Information. Nothing in this Disclosure Resolution shall be deemed to prevent SCPPA from disseminating, or require SCPPA to disseminate, any other information, using the means of dissemination set forth in this Disclosure Resolution 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 Resolution. If SCPPA 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 Resolution, SCPPA shall have no obligation under this Disclosure Resolution to update such information or include it in any future Annual Report, notice of occurrence of a Listed Event or other materials disseminated hereunder.

11. Default.

(a) In the event of a failure of SCPPA to comply with any provision of this Disclosure Resolution, any Owner or Beneficial Owner of any Outstanding 2016 Mead-Phoenix Bonds may take such actions as may be necessary and appropriate, including seeking mandamus or specific performance by court order, for the equal benefit and protection of all Owners or Beneficial Owners similarly situated, to cause SCPPA to comply with its obligations under this Disclosure Resolution.

(b) Notwithstanding the foregoing, no Owner or Beneficial Owner of the 2016 Mead-Phoenix Bonds shall have the right to challenge the content or adequacy of the information provided pursuant to Sections 3, 4 or 5 of this Disclosure Resolution by mandamus, specific performance or other equitable proceedings unless Owners or Beneficial Owners of 2016 Mead-Phoenix Bonds representing at least 25% in aggregate principal amount of the Outstanding affected 2016 Mead-Phoenix Bonds shall join in such proceedings.

(d) Under no circumstances shall any person or entity be entitled to recover monetary damages hereunder in the event of any failure of SCPPA to comply with this Disclosure Resolution.

12. Duties, Immunities and Liabilities of Dissemination Agent. Any Dissemination Agent appointed hereunder shall have only such duties as are specifically set forth in this Disclosure Resolution and shall have such rights, immunities and liabilities as shall be set forth in the written agreement between SCPPA and such Dissemination Agent pursuant to which such Dissemination Agent agrees to perform the duties and obligations of Dissemination Agent under this Disclosure Resolution.

13. Beneficiaries. This Disclosure Resolution shall inure solely to the benefit of SCPPA, the Dissemination Agent, if any, and the Owners and Beneficial Owners from time to time of the 2016 Mead- Phoenix Bonds, and, subject to Section 2(a) hereof, shall create no rights in any other person or entity.

D-14

15. Effective Date. This Disclosure Resolution shall become effective upon the date of authentication and delivery of the 2016 Mead-Phoenix Bonds.

THE FOREGOING RESOLUTION is approved and adopted by SCPPA this 21st day of April, 2016.

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY

______PRESIDENT Southern California Public Power Authority

ATTEST:

______ASSISTANT SECRETARY Southern California Public Power Authority

D-15

EXHIBIT A

NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT

Name of Issuer: Southern California Public Power Authority

Name of Bond Issue: $______Mead-Phoenix Project, Authority Interest (LADWP), Revenue Bonds, 2016 Series A

Date of Issuance: ______, 2016

NOTICE IS HEREBY GIVEN that Southern California Public Power Authority (“SCPPA”) has not provided an Annual Report with respect to the above-named Bonds as required by Section 3(a) of Resolution No. 2016-020, adopted by the Board of Directors of SCPPA on April 21, 2016 relating to the above-named Bonds. SCPPA has advised the undersigned that SCPPA anticipates that the Annual Report will be filed by ______.

Dated: ______

[SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY]

[______, as Dissemination Agent on behalf of Southern California Public Power Authority]

[cc: Southern California Public Power Authority]

D-16

APPENDIX E

PROPOSED FORM OF CO-BOND COUNSEL OPINION

On the delivery date of the 2016 Bonds, Norton Rose Fulbright US LLP, Los Angeles, California, and Curls Bartling P.C., Oakland, California, Co-Bond Counsel, propose to render their final approving opinion in substantially the following form:

[Delivery Date]

Board of Directors Southern California Public Power Authority 1160 Nicole Court Glendora, California 91740

Southern California Public Power Authority Southern California Public Power Authority Mead-Adelanto Project, Authority Interest (LADWP), Mead-Phoenix Project, Authority Interest (LADWP), Revenue Bonds, 2016 Series A Revenue Bonds, 2016 Series A

Ladies and Gentlemen:

We have examined a record of proceedings relating to the issuance of $______aggregate principal amount of Mead-Adelanto Project, Authority Interest (LADWP), Revenue Bonds, 2016 Series A (the “2016 Mead-Adelanto Bonds”) and $______aggregate principal amount of Mead- Phoenix Project, Authority Interest (LADWP), Revenue Bonds, 2016 Series A (the “2016 Mead-Phoenix Bonds” and together with the 2016 Mead-Adelanto Bonds, the “2016 Bonds”) by Southern California Public Power Authority (the “Authority”), a public entity of the State of California, and such other matters of law as we have deemed necessary to enable us to render the opinions expressed herein.

The 2016 Bonds are issued under and pursuant to the provisions relating to the joint exercise of powers found in Chapter 5 of Division 7 of Title 1 of the Government Code of California, as amended (the “Act”). The 2016 Mead-Adelanto Bonds are issued under and pursuant to an Indenture of Trust, dated as of May 1, 2016, from the Authority to U.S. Bank National Association, as trustee (the “Trustee”), as supplemented by the First Supplemental Indenture of Trust, dated as of May 1, 2016, from the Authority to Trustee relating to the 2016 Mead-Adelanto Bonds (as so supplemented, the “Mead- Adelanto Indenture”). The 2016 Mead-Phoenix Bonds are issued under and pursuant to an Indenture of Trust, dated as of May 1, 2016, from the Authority to the Trustee, as supplemented by the First Supplemental Indenture of Trust, dated as of May 1, 2016 , from the Authority to Trustee relating to the 2016 Mead-Phoenix Bonds (as so supplemented, the “Mead-Phoenix Indenture”). The Mead-Adelanto Indenture and the Mead-Phoenix Indenture are collectively referred to herein as the “Indentures.”

The 2016 Bonds are dated, and shall bear interest from, their date of delivery. Interest on the 2016 Bonds is payable semiannually on January 1 and July 1 of each year, commencing on January 1, 2017. The 2016 Mead-Adelanto Bonds mature as provided in the Mead-Adelanto Indenture, and the 2016 Mead-Phoenix Bonds mature as provided in the Mead-Phoenix Indenture.

The 2016 Mead-Adelanto Bonds are subject to redemption prior to maturity as provided in the Mead-Adelanto Indenture, and the 2016 Mead-Phoenix Bonds are subject to redemption prior to maturity as provided in the Mead-Phoenix Indenture. The 2016 Bonds will be issued in denominations of $5,000

E-1

or any integral multiple thereof. The 2016 Bonds will be issued in fully registered form, are exchangeable and transferable as provided in the respective Indenture, and are lettered and numbered as provided therein.

The 2016 Mead-Adelanto Bonds are being issued by the Authority to provide funds to (i) pay the costs of acquisition of an additional ownership interest (and associated participation share and related rights and interests) in the Mead-Adelanto Project, a 202-mile, 500-kV, alternating current transmission line extending between southern Nevada and southern California, and related facilities, and (ii) pay the costs of issuance of the 2016 Mead-Adelanto Bonds. The Mead-Phoenix Bonds are being issued by the Authority to provide funds to (i) pay the costs of acquisition of an additional ownership interest (and associated participation share and related rights and interests) in the Mead-Phoenix Project, a 256-mile, 500-kV, alternating current transmission line extending between central Arizona and southern Nevada, and related facilities, and (ii) pay the costs of issuance of the 2016 Mead-Phoenix Bonds. The additional ownership interests in the Mead-Adelanto Project and Mead-Phoenix Project being acquired by the Authority (each referred to herein as the “Authority Interest (LADWP)” in the respective project) are being acquired by the Authority in order to, among other things, assist the Department of Water and Power of The City of Los Angeles (the “Project Participant”) in meeting its future power needs and provide it with additional transmission capability for transactions with others, including particularly to assist it in bringing additional renewable power into its electric system and meet its future renewable portfolio standard goals. The 2016 Mead-Adelanto Bonds and the 2016 Mead-Phoenix Bonds are payable from Revenues (as defined in the Mead Adelanto Indenture and Mead-Phoenix Indenture, respectively) and from certain funds and accounts established in the related Indenture, subject only to the provisions of such Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein.

The Authority has entered into two separate transmission service contracts, the “Mead-Adelanto Transmission Service Contract (LADWP)” and the “Mead-Phoenix Transmission Service Contract (LADWP),” respectively, and together, the “Transmission Service Contracts (LADWP),” each dated as of March 17, 2016, with the Project Participant, under which the Authority has agreed to provide to the Project Participant, and the Project Participant has purchased from the Authority, an entitlement to use of 100% of the capability of the Authority Interest (LADWP) in the Mead-Adelanto Project and 100% of the capability of the Authority Interest (LADWP) in the Mead-Phoenix Project, respectively.

Capitalized terms not defined herein shall have the respective meanings set forth in the related Indenture, unless otherwise provided herein.

From such examination, we are of the opinion that:

1. The Authority has been duly created and is validly existing under the provisions of the Act.

2. The Authority has the right and authority to enter into and carry out its obligations under the Transmission Service Contracts (LADWP) and has duly authorized, executed and delivered the Transmission Service Contracts (LADWP) which, assuming due authorization, execution and delivery by, and enforceability against, the Project Participant, each constitute a valid and binding agreement of the Authority, enforceable in accordance with its respective terms.

3. The Authority has the right and power under the Act to enter into the Indentures, the Indentures have been duly and lawfully authorized, executed and delivered by the Authority, and assuming due authorization, execution and delivery by, and enforceability against, the other party thereto, each of the Indentures constitutes a valid and binding agreement of the Authority enforceable in

E-2

accordance with its respective terms. Each of the Indentures creates the valid pledge that it purports to create of the Revenues (as defined in therein) and the funds and accounts established by the respective Indenture (other than such funds and accounts that such Indenture provides are not a source of payment for bonds (including the related 2016 Bonds) issued thereunder and any funds held by the Trustee or the Authority to pay any rebate amount pursuant to such Indenture), subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth in the Indenture.

4. The Authority is duly authorized to issue the 2016 Bonds, and the 2016 Bonds have been duly and validly authorized and issued by the Authority in accordance with the related Indenture and the Constitution and applicable statutes of the State of California, including the Act. The 2016 Bonds constitute valid and binding obligations of the Authority as provided in the related Indenture, are enforceable in accordance with their terms and the terms of the related Indenture, and are entitled to the benefits of the Act and the related Indenture. The 2016 Bonds are not an obligation of the State of California, any public agency thereof (other than the Authority), any member of the Authority or the Project Participant and neither the faith and credit nor the taxing power of any of the foregoing (including the Authority) is pledged for the payment of the 2016 Bonds. The Authority has no taxing power.

5. Under existing law, interest on the 2016 Bonds is exempt from personal income taxes of the State of California and, assuming compliance with the covenants described below, interest on the 2016 Bonds is excluded pursuant to section 103(a) of the Internal Revenue Code of 1986 (the “Code”) from the gross income of the owners thereof for federal income tax purposes. The 2016 Bonds are not “specified private activity bonds” within the meaning of section 57(a)(5) of the Code and, therefore, the interest on the 2016 Bonds will not be treated as an item of tax preference for purposes of computing the alternative minimum tax imposed by section 55 of the Code. However, the receipt or accrual of interest on 2016 Bonds owned by a corporation may affect the computation of its alternative minimum taxable income, upon which the alternative minimum tax is imposed.

The Code imposes certain requirements that must be met subsequent to the issuance and delivery of the 2016 Bonds for interest thereon to be and remain excluded from the gross income of the owners thereof for federal income tax purposes. Non-compliance with such requirements could cause the interest on the 2016 Bonds to fail to be excluded from the gross income of the owners thereof retroactive to the date of issue of the 2016 Bonds. The Authority has covenanted in the Mead-Adelanto Indenture and the Mead-Phoenix Indenture, and the Project Participant has covenanted in the respective Transmission Service Contract (LADWP), not to take any action or omit to take any action which, if taken or omitted, respectively, would adversely affect the exclusion of the interest on the related 2016 Bonds from the gross income of the owners thereof for federal income tax purposes. Except as stated in the preceding paragraph, we express no opinion as to any federal, state or local tax consequences of the ownership or disposition of the 2016 Bonds. Furthermore, we express no opinion as to any federal, state or local tax law consequences with respect to the 2016 Bonds, or the interest thereon, if any action is taken with respect to the 2016 Bonds or the proceeds thereof upon the advice or approval of other counsel.

Our opinions are based on existing law, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof and are rendered in reliance upon certificates of officers of the Authority and the Project Participant relating to the expected use of the facilities financed with the proceeds of the 2016 Bonds and other matters relevant to the status of the 2016 Bonds under section 103 of the Code. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may hereafter come to our attention or to reflect any changes in any law that may hereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service; rather, such opinions represent our legal judgment based upon

E-3

our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above.

No opinion is expressed herein on the accuracy, completeness or sufficiency of the Official Statement or other offering material relating to the 2016 Bonds.

The opinions expressed in paragraphs 2, 3 and 4 hereof are qualified to the extent that the enforceability of the Indentures, the 2016 Bonds and the Transmission Service Contracts (LADWP) may be limited by any applicable bankruptcy, insolvency, debt adjustment, moratorium, reorganization or other similar laws affecting creditors’ rights generally or as to the availability of any particular remedy. The enforceability of the Indentures, the 2016 Bonds and the Transmission Service Contracts (LADWP) is subject to the effect of general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing, to the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law, and to the limitations on legal remedies against governmental entities in California (including, but not limited to, rights of indemnification).

Very truly yours,

E-4

APPENDIX F

DEBT SERVICE REQUIREMENTS FOR THE 2016 MEAD-ADELANTO BONDS (Accrual Basis)

Fiscal Year Ending June 30 Principal Interest Total

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Totals:

F-1 [THIS PAGE INTENTIONALLY LEFT BLANK]

APPENDIX G

DEBT SERVICE REQUIREMENTS FOR THE 2016 MEAD-PHOENIX BONDS (Accrual Basis)

Fiscal Year Ending June 30 Principal Interest Total

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Totals:

G-1 [THIS PAGE INTENTIONALLY LEFT BLANK]

Southern California Public Power Authority • Mead-Adelanto Project, Authority Interest (LADWP), Revenue Bonds, 2016 Series A and Mead-Phoenix Project, Authority Interest (LADWP), Revenue Bonds, 2016 Series A