Staff Reports - East Bay Municipal Utility District

£ BOARD OF DIRECTORSEASTEBMUDBAY M 1011^ UTILITY DISTRICT375 -1 lth Street, Oakland, CA 94607 Office of the Secretary: (510) 287-0440ROLL CALL:AGENDATuesday, January 8, 2013REGULAR CLOSED SESSION11:00 a.m., Board RoomPUBLIC COMMENT: The Board of Directors is limited by State law to providing a brief response, askingquestions for clarification, or referring a matter to staff when responding to items that are rot listed on the agenda.BROWN ACT BRIEFING:• Presentation of the Brown Act and the Ethics Policy of the EBMUD Bo.ard of Directors.ANNOUNCEMENT OF CLOSED SESSION AGENDA:1. Existing litigation pursuant to Government Code section 54956.9(a)a. United States of America, et al. v. East Bay Municipal Utility DistrictUSDC, N.D. Cal, Case No. CV 09-0186 RS2. Initiation of litigation pursuant to Government Code section 54956.9(c): one matter.3. Conference with Real Property Negotiator pursuant to Government Code section 54956.8regarding conditions and terms of payment for the purchase of a mirimum of 10,000 acrefeet of water from Placer County Water Agency for supplemental dry year supplies.Negotiating parties: Richard Sykes, Director of Water and Natural Resources, and MichaelTognolini, Manager of Water Supply Improvements.4. Personnel exception pursuant to Government Code section 54957 to consider publicemployee evaluations: General Manager and General Counsel.(The Board will hold Closed Session in Conference Room 8A/B)

Regular Meeting ofJanuary 8, 2013Page 2 of 3REGULAR BUSINESS MEETING1:15 p.m., Board RoomROLL CALL:BOARD OF DIRECTORS:• Pledge of Allegiance• Election of Officers• 2013 Board Committee Assignment PreferencesANNOUNCEMENTS FROM CLOSED SESSION:PUBLIC COMMENT: The Board of Directors is limited by State law to providing a brief response,asking questions for clarification, or referring a matter to staff when responding to items that are not listed onthe Agenda.CONSENT CALENDAR: (Single motion and vote approving 6 recommendations.)1. Approve the Regular Meeting Minutes of December 11, 2012.2. File correspondence with the Board.3. Award a contract to the lowest responsible/responsive bidder, Duperon Corporation, in theestimated total amount of $1,526,850 for supplying five sets of influent bar screens andwasher compactors for the Main Wastewater Treatment Plant under Proposal No. 1306.4. Authorize an agreement with DesignMind Business Solutions in an amount not to exceed$404,875 for software development services to construct the Private Sewer LateralApplication Enhancements.5. Authorize an amendment to Board Motion 170-10 to include Verizon Wireless as an additionalprovider of cellular telephone and push-to-talk services.6. Authorize the Office of General Counsel to continue the employment of the law firm ofBarg, Coffin, Lewis & Trapp, LLP, for services of special counsel related to environmentalregulation and litigation matters.DETERMINATION AND DISCUSSION:7. Legislative Update:• Federal Legislative Initiatives for 2013• Update on Legislative Issues of Interest to EBMUD8. Approve the execution of remarketing agreements and related supporting documents for the$41,035,000 Water System Revenue Refunding Bonds, Series 2009A-2, and approve theappointment of E.J. De La Rosa & Co. Inc. and RBC Capital Markets Corporation asremarketing agents.(Resolution)

Regular Meeting ofJanuary 8, 2013Page 3 of3DETERMINATION AND DISCUSSION: (Cont'd)9. General Manager's Report:• Water Supply Report• Monthly Report - December 2012• Summary of Board 2012 Committee Agendas and Upcoming Topics for 2013REPORTS AND DIRECTOR COMMENTS:10. Committee Reports:• Finance/Administration• Planning• Legislative/Human Resources11. Director Comments.ADJOURNMENT:The next Regular Meeting of the Board of Directors will be held at 1:15 p.m. on Tuesday,January 22, 2013 in the Administration Center Board Room, 375 Eleventh Street, Oakland,California.Disability NoticeIf you require a disability-related modification or accommodation to participate in an EBMUD public meetingplease call the Office of the Secretary (510) 287-0404. We will make reasonable arrangements to ensureaccessibility. Some special equipment arrangements may require 48 hours advance noticz.Document AvailabilityMaterials related to an item on this Agenda that have been submitted to the EBMUD Board of Directors -within 72hours prior to this meeting are available for public inspection in EBMUD's Office of the Secretary at 375 11thStreet, Oakland, California, during normal business hours.W:\Agendas\Agendas 2013\010813_regular_agenda.doc

BOARD CALENDARDateMeetingTime/LocationTopicsTuesday, January 8Planning CommitteeLinney (Chair), Foulkes,Mclntosh9:45 a.m.Training Resource Center• Diablo Vista PumpingPlant ReplacementProject Update• Orinda Water TreatmentPlant NPDES PermitLegislative/Human ResourcesCommitteeMclntosh (Chair), Katz, Mellon10:15 a.m.Training Resource Center• Project LaborAgreements• Federal LegislativeInitiatives for 2013• Legislative UpdateBoard of Directors11:00 a.m.1:15 p.m.• Closed Session• Regular MeetingMonday, January 21Martin Luther King DayHoliday• Offices ClosedTuesday, January 22Finance/AdministrationCommitteeKatz (Chair), Foulkes,Linney9:00 a.m.Training Resource CenterWater Supply Workshop9:30 a.m.Training Resource CenterBoard of Directors11:00 a.m.1:15 p.m.• Closed Session• Regular MeetingTuesday, February 12Lincoln's BirthdayHoliday• Offices ClosedWednesday, February 13FY14-15 Budget & StrategicPlan UpdateTBDTraining Resource CenterBoard of Directors11:00 a.m.1:15 p.m.• Closed Session• Regular MeetingMonday, February 18President's Day Holiday• Offices ClosedTuesday, February 26Energy/SustainabilityCommitteeTBDFinance/AdministrationCommittee10:00 a.m.Training Resource CenterBoard of Directors11:00 a.m.1:15 p.m.• Closed Session• Regular Meeting

eparedMINUTESTuesday, December 11, 2012East Bay Municipal Utility DistrictBoard of Directors375 Eleventh StreetOakland, CaliforniaRegular Closed Session MeetingPresident John A. Coleman called to order the Regular Closed Session Meeting of the Board ofDirectors at 11:00 a.m. in the Administration Center Board Room.ROLL CALLDirectors Katy Foulkes, Andy Katz, Doug Linney, Lesa R. Mclntosh, Frank Mellon, William B.Patterson, and President John A. Coleman were present at roll call.Staff present included General Manager Alexander R. Coate, General Coansel Jylana Collins,Attorney Xanthe M. Berry (Item la), Risk Manager Karen A. Curry (Item la), Attorney Derek T.McDonald (Item lb), Director of Wastewater David R. Williams (Item lb), Attorney Karen L.Donovan (Item 2), Director of Water and Natural Resources Richard G. Sykes (Item 2), AttorneyLourdes Matthew (Item 3), Director of Administration Carol Y. Nishita (Item 3), Manager ofHuman Resources Delores A. Turner (Item 3), and Manager of Employee Relations Michael K.Rich (Item 3).PUBLIC COMMENTAddressing the Board were the following persons: 1) Antonio Martinez, President, IFPTE Local21, said that employees provide high quality service to EBMUD customers and as a result theunions expect the District to offer appropriate compensation; 2) Ruben Rodriguez, President,AFSCME Local 444 expressed concern regarding the Community Choice Aggregation (CCA)analysis particularly relating to costs, benefit to EBMUD, and staffing impacts; and 3) JohnBriceno, Vice-President, AFSCME Local 444, expressed concern about the cost of an East BayCCA t and said that EBMUD should focus on its core goal of delivering high quality water ratherthan venturing into the electric market.ANNOUNCEMENT OF CLOSED SESSION AGENDAPresident John A. Coleman announced the Closed Session agenda. The Board convened toConference Room 8A/B for discussion.Regular Business MeetingPresident John A. Coleman called to order the Regular Business Meeting of the Board of Directors at1:15 p.m. in the Administration Center Board Room.

Regular Meeting Minutes ofDecember 11,2012Page 2 of 9ROLL CALLDirectors Katy Foulkes, Andy Katz, Doug Linney, Lesa R. Mclntosh, Frank Mellon, William B.Patterson, and President John A. Coleman were present at roll call.Staff present included General Manager Alexander R. Coate, General Counsel Jylana Collins, andSecretary of the District Lynelle M. Lewis.BOARD OF DIRECTORSPresident John A. Coleman led the Pledge of Allegiance.ANNOUNCEMENTS FROM CLOSED SESSIONPresident Coleman announced that the Board, in closed session this morning, by a unanimous vote ofthe Directors attending, authorized the General Counsel to initiate litigation in one matter. The action,defendant and other particulars will be disclosed, upon inquiry, once the actions are formallycommenced. There were no other announcements from closed session.PUBLIC COMMENTThere were no comments.CONSENT CALENDAR• Motion by Director Mclntosh, seconded by Director Patterson, to approve Items 1-13 on theConsent Calendar, carried (7-0) by voice vote.1. Motion No. 149-12 ~ Approved the Regular Meeting Minutes of November 27, 2012.2. The following correspondence was filed with the Board: 1) Report entitled "East BayCommunity Choice Aggregation Preliminary Analysis," dated December 6, 2012; 2)Presentation entitled "Proposed Financings for FY 13, December 11, 2012; 3) Presentationentitled "Water Supply Board Briefing," dated December 11, 2012; 4) Letter dated December11, 2012 from Joseph J. Haraburda, President & CEO, Oakland Metropolitan Chamber ofCommerce, to John Coleman, President, urging the Board to steer clear of a new venture ofCommunity Choice Aggregation and focus on providing water and water treatment; 5) Letter(undated) from Rebecca D. Kaplan, Councilmember At-Large, City of Oakland, to Board ofDirectors, urging the Board to conduct additional study of an East Bay Community ChoiceEnergy Program; 6) Letter from Bob Canter, ACE, President & CEO, Emeryville Chamber ofCommerce, urging the Board to focus on EBMUD's core mission of providing water andwastewater rather than pursuing Community Choice Aggregation; 7) Letter dated December11, 2012 from Nancy Skinner, Assemblymember, 15 th District, California Legislature,regarding support for continued exploration of Community Choice Aggregation; and 8) Letterdated December 6, 2012 from Community Choice Working Group. Berkeley Climate ActionCoalition, to EBMUD Board and Staff, urging the Board to prioritize the development of localrenewable energy resources in an East Bay Community Choice Aggregation.

Regular Meeting Minutes ofDecember 11,2012Page 3 of93. Motion No. 150-12 — Awarded a contract to the lowest responsible/responsive bidder,Mosiac Crop Nutrition in the annual estimated amount of $478,000 for supplying liquidhydrofluosilicic acid (fluoride) for District Water Treatment Plar.ts for the period beginningJanuary 1, 2013 and ending December 31, 2013 with one option to renew for an additionalone-year period under Proposal No. 1305.4. Motion No. 151-12 ~ Authorized an agreement with Konecranes, Inc. in an estimatedannual amount of $85,718 for crane inspection and minor repair at multiple Districtlocations during the period December 15, 2012 to December 14, 2016, with four optionsto renew for an additional one-year period under RFP No. PUR 074.5. Motion No. 152-12 - Authorized a sole source contract with General Electric EnergyManagement in the amount of $1,771,950 to inspect, remove, design, furnish, test,deliver, replace, and commission the stator windings for Pardee Powerhouse Unit Nos. 1and 2 hydropower generators, including all accessories to complete the rewind.6. Motion No. 153-12 — Authorized an amendment to the agreement with AspenTechnology, Inc. in an amount not to exceed an additional $193 030, to extend theagreement for software maintenance support services for the District'soperations/network data historian system to June 30, 2017.7. Motion No. 154-12 ~ Authorized an amendment to the agreement with Pacific Gas &Electric Company for High-Efficiency Clothes Washer Rebate Program services in anamount not to exceed $125,000 from January 1, 2013 through June 30, 2014, with anoption to renew for two additional one-year periods through June 30, 2016 for a totalamount of $375,000.8. Motion No. 155-12 — Authorized an amendment to extend the agreement with the Cityof San Leandro for the provision of sewer agency billing and collection services fromDecember 27, 2012 to June 30, 2013.9. Motion No. 156-12 ~ Authorized the Office of General Counsel to continue theemployment of the law office of Ginn & Crosby, LLP, in an additional amount not toexceed $150,000 for specialized legal services related to construction, contract, claimsand litigation matters.10. Motion No. 157-12 - Authorized the Office of General Counsel to continue theemployment of the law office of Hanson Bridgett, LLP, in an additional amount not toexceed $350,000 for specialized legal services related to construction, contract, claimsand litigation matters.11. Resolution No. 33906-12 ~ Declaring Results Of Election Held On November 6, 2012For The Election Of Directors Of The East Bay Municipal Utility District (Wards 1, 5and 6).12. Resolution No. 33907-12-- Approving Amendments To Memorandum OfUnderstanding Between The East Bay Municipal Utility District And The AmericanFederation Of State, County And Municipal Employees, Local 444.

Regular Meeting Minutes ofDecember 11,2012Page 4 of913. Resolution No. 33908-12 - Amending The East Bay Municipal Utility District 401 (a)Tax Deferred Savings Plan To Make Changes Effective January :, 2013.DETERMINATION AND DISCUSSION14. Accept the East Bay Community Choice Aggregation Preliminary Analysis andProvide Direction to Staff on Next Steps.Director of Operations and Maintenance Michael J. Wallis presented highlights from the EastBay Community Choice Aggregation (CCA) Preliminary Analysis report. He said that thereport summarizes studies and reports completed by the District and other cities and agenciesthat have evaluated CCAs, and describes the potential barriers, benefits, risks, costs, interestlevels and institutional issues for the District associated with participation in an East BayCCA.Mr. Wallis said the report describes two institutional models for an East Bay CCA:1) forming a separate electric utility and 2) forming a Joint Powers Authority (JPA). Thepreliminary review of CCAs indicates that forming an East Bay CCA may be within theDistrict's authority under the California Municipal Utility District (MUD) Act. However,start-up costs are estimated at $1.6-$3.2 million with $12-20 million as required workingcapital.The benefits include furthering the District's greenhouse gas emission reduction goals andsupporting the District's policies related to water conservation and use of renewable energy.Since the District has developed expertise in renewable power generation over severaldecades, another potential benefit is building on this foundation. The District can alsoleverage its expertise in other aspects of utility management, such as customer service, riskmanagement, and public outreach.It was noted that a key risk is that the District does not have experience in providing utilityservices in a competitive marketplace and a market environment presents new risks thatrequire further study. The report presumes that an East Bay CCA would rely heavily oncontracted expertise for startup and operations. Another important risk element is thepotential fiscal impact of a CCA on the District. This aspect also would require carefulstudy. At the present time the District is facing increasing demands on resources forinfrastructure maintenance and water sales are projected to remain lower than historicalaverages for the next several years.Mr. Wallis went to say that if the District pursues further study o:f an East Bay CCA, it wouldbe essential for staff to have clear direction on the goals and objectives of the District'sinvolvement. Prior to initiating discussions with interested cities the District would need todevelop a set of principles to guide staff in further research and potential negotiations. TheDistrict would also expect its resource investments of staff time and research funding to bemet with similar levels of investment by all parties interested in evaluating the governancemodels, customer benefits, costs and level of interest, and financing alternatives. A joint

Regular Meeting Minutes ofDecember 11, 2012Page 5 of9effort among the interested parties could be accomplished under a Memorandum ofUnderstanding with each party contributing to the costs and resources. The study cost couldinclude hiring a consultant to folly analyze the governance models and the cost of forming aCCA, to quantify the potential liability of operating a CCA, and to assist in communityoutreach and market assessment. Similar efforts by other agenc.es have cost $250 000 to$500,000.President Coleman opened the meeting to public comment on the CCA analysis.- Addressing the Board were the following persons: 1) Dan Kalb ; Councilmember-Elect,City of Oakland, urged the Board to move forward on the feasib ility study of an East BayCCA; 2) Linda Maio, Vice-Mayor, City of Berkeley, commented that the city would like tobe in partnership on an East Bay CCA; 3) Gordon Wozniak, Berkeley City Council, urgedthe Board to move forward on forming an East Bay CCA and noted that his preference forthe JPA model; 4) Paul Junge (Young), Oakland Metropolitan Chamber of Commerce,urged the Board to avoid the risk of a CCA and focus on providing quality water andwastewater services; 5) Gregory McConnell, Jobs and Housing Coalition, commented thatEBMUD should focus on its core mission of providing water and wastewater services andsaid that any CCA model would involve substantial risks; 6) Jose Duenas, CEO, AlamedaCounty Hispanic Chamber of Commerce, urged the Board to focus on providing qualitywater and wastewater services and not to spend any more money on studying an East BayCCA; 7) Greg Lamberg, commented that a CCA would be costl> and add another layer ofgeneration; 8) Wil Hardee, Oakland African American Chamber of Commerce, commentedthat a CCA is too risky and said that EBMUD should use its resources to increase itssupplier diversity and water conservation efforts; 9) Dat Nguyen. Vietnamese Chamber ofCommerce, said his organization did not support the increased cost for a CCA butencouraged EBMUD to help the business community; 10) Mr. Kim Huggett, HaywardChamber of Commerce, urged the Board to focus on providing quality water andwastewater services and not to spend any more money on studying an East Bay CCA; 11)Bob Canter, Emeryville Chamber of Commerce, commented thai the benefits of any CCAmodel were modest and he did not support further study; 12) Ma:thew Rinn, President,Pleasant Hill Chamber of Commerce, commented that EBMUD should use its resources inthe community, expressed concern about higher rates, and urged the Board halt furtherstudy of an East Bay CCA; 13) Antonio Martinez, President, IFPTE Local 21, commentedthat the costs for a CCA were too high and the benefits too low; 14) Carl Chan, ChinatownChamber of Commerce, commented that an East Bay CCA was too costly and risky andurged the Board not to spend any more money on studies; 15) Ruben Rodriguez, President,AFSCME Local 444, expressed concern about the costs to customers for an East Bay CCA;16) Thomas Kelly, Community Choice Energy Work Group, Berkeley Climate ActionCoalition, urged the Board to move forward on an East Bay CCA; 17) Cynthia Wooten,LEAN Energy U.S., urged the Board to proceed with studying the formation of an East BayCCA and commented that an electric utility model would benefit the District; 18) ObrayVan Buren, Local 342-Plumbers & Steamfitters, commented that the high cost of an EastBay CCA would impact low income customers and the District should invest in its staff;

Regular Meeting Minutes ofDecember 11, 2012Page 6 of919) Brenda Wood, Business Agent, AFSCME Local 2019, commented there were stillmany unanswered questions, particularly about employees, job creation, and capitalinvestments, 20) Jennifer Lin, Research Director, East Bay Alliance for a SustainableEconomy, urged the Board to move forward on an East Bay CCA; 21) Dave Room, LocalClean Energy Alliance, urged the Board to continue study of an East Bay CCA; 22) JessicaDervin-Ackerman, Sierra Club- San Francisco Bay-Chapter, urged the Board to continuestudy of an East Bay CCA; 23) Corrine Van Hook, Bay Localize, commented that an EastBay CCA would provide many community benefits, help businesses, improve theenvironment and create jobs; 24) Al Weinrub, Oakland Climate Action Coalition, urgedfurther study of a an East Bay CCA; 25) Joanne Drabek, urged farther study of an East BayCCA; 26) Wendy Sommer, StopWaste.org, commented that a JPA would provide energyefficiency to the community; 27) Tim McGallian, Concord Chamber of Commerce, urgedthe Board to discontinue further study of an East Bay CCA and to continue its partnershipwith PG&E; 28) Hector Stery, IBEW Local 1245, urged the Board to pursue a JPA modeland staff with union trade jobs; 29) Kimberly King, self-employed Renewable EnergyEngineer, urged the Board to continue exploring the feasibility of an East Bay CCA.The Board discussed at length their views on community choice aggregation. There wasgeneral consensus that the District has been a good environmental steward over the yearsand provides high quality water and wastewater treatment services. President Colemanpointed out that the District has spent over $1 million over the past ten years studying thisissue. He expressed concern about the District's fiscal health, credit rating and reserves ifit ventured into community choice aggregation. President Coleman said he was not infavor of moving forward with additional study of an East Bay CCA.Director Katz said the he could support a JPA model but suggested that cities come up withstart up costs and develop a proposal on administration of the CCA. Director Mellon saidhe was not supportive of a JPA model because it offered no benefit to the District. He saidhe did not recommend any further study of an East Bay CCA. Director Mclntoshsuggested that staff continue participating in meetings with local agencies on CCA but notbe the driving force. Director Linney recommended continuing discussions on the JPAmodel. Director Patterson expressed concern about the costs for a CCA and the relativelylow return for the District. Director Foulkes also expressed concern about the costs of aCCA and said she was not in favor of spending any more on studies. She recommendedthat the communities who are interested in an East Bay CCA pay for the study.After considerable discussion, the following recommendations were proposed: 1) Revisitand strengthen Policy 7.07, Renewable Energy, which focuses on developing renewableenergy projects as part of the District's ongoing infrastructure mmagement effort, andupdate its goals and objectives as appropriate; 2) Discontinue further exploration of aDistrict led electric utility as a CCA model; and 3) Further studios on exploring a JointPowers Authority (JPA) as a CCA model must be funded by the cities and will not befunded by the District. However, staff is authorized to attend meetings and participate indiscussions regarding a city funded regional CCA JPA, and provide updates to the Board aswarranted.

Regular Meeting Minutes ofDecember 11, 2012Page 7 of9© Motion by Director Mellon, seconded by Director Foulkes, to approve the recommenddirection to staff on Community Choice Aggregation, carried (6-1) by the following roll callvote:Ayes:Noes:Abstained:Absent:Foulkes, Katz, Mclntosh, Mellon, Patterson, ColemanLinneyNoneNoneMotion No. 158-12 — Provided direction to staff on Community Choice Aggregation(CCA) as follows: 1) Revisit and strengthen Policy 7.07, Renewable Energy, which focuseson developing renewable energy projects as part of the District's ongoing infrastructuremanagement effort, and update its goals and objectives as appropriate; 2) Discontinuefurther exploration of a District led electric utility as a CCA model; and 3) Further studieson exploring a Joint Powers Authority (JPA) as a CCA model must be funded by the citiesand will not be funded by the District. However, staff is authorized to attend meetings andparticipate in discussions regarding a city funded regional CCA JPA, and provide updatesto the Board as warranted.15. Legislative Update.Special Assistant Marlaigne K. Dumaine provided updates on state and federal legislativeactivity. She reported that the 2013-2014 California legislative session began December 3,2012 with the swearing in of newly elected members. She said that staff would be followingbills and initiatives of interest to the District. The Board asked no questions.16. Approve The Execution Of A Remarketing Agreement And Related SupportingDocuments For The $62.6 Million Wastewater System Revenue Refunding Bonds,Series 2011A, And Approve The Appointment Of JP Morgan As The RemarketingAgent. Also Approve, In Connection With All District Wastewater BondsAuthorization For The District To Provide, And Bond Trustee To Rely Upon,Instructions And Directions Provided By The District By Electronic Means.o Motion by Director Foulkes, seconded by Director Mellon, to approve the recommended actionfor Item 16, carried (5-0) by voice vote. Directors Mclntosh and Patterson were absent.Resolution No. 33909-12 - Authorize The Execution Of A Remarketing Agreement InConnection With The District's Wastewater System Revenue Refolding Bonds, Series2011 A; Authorize The Delivery Of A Preliminary Reoffering Circular And TheExecution And Delivery Of A Final Reoffering Circular; Authorize The Execution AndDelivery Of A Trustee Electronic Instructions Authorization In Connection ThingsDeemed Necessary Or Advisable Relating Thereto.

Regular Meeting Minutes ofDecember 11,2012Page 8 of 9REPORTS AND DIRECTOR COMMENTS17. General Manager's Report.General Manager Coate noted that the Monthly Report for November 2012 was provided tothe Board. Next, Operations and Maintenance Department Manager Eileen M. Whiteprovided a brief water supply update. She reported that Water Year 2012 ended with totalsystem storage full despite low precipitation. She noted that staiewide reservoirs were alsoin good condition. Additionally, she reported that precipitation .md snow for December ismuch higher than last year at this time.18. Committee Reports.- Filed with the Board were the Finance/Administration Committe e Minutes of November 272012.13. Director Comments.- Director Foulkes reported meeting with proposers of a rowing CIUD at San Pablo Reservoir onNovember 27.- Director Katz had no comment.- Director Linney had no comment.Director Mclntosh had no comment.- Director Mellon had no comment.- Director Patterson had no comment.- President Coleman reported attending/participating in the following events: ACWAteleconference call on November 24; ACWA teleconference call on November 27; ACWAJPIA meeting in San Diego from December 2-3; ACWA Fall Conference from December 2-7in San Diego; agenda review meeting with General Manager Coate on December 5 in Oakland.He reported on plans to attend/participate in the following upcoming events: UMRWAExecutive Committee teleconference call on December 12; ACWA Executive Committeeteleconference call on December 14; Contra Costa Council Board neeting on December 15 inPleasant Hill; Moose Feed Luncheon on December 15 in San Francisco; and agenda reviewwith General Manager Coat on January 2, 2013.

Regular Meeting Minutes ofDecember 11,2012Page 9 of9ADJOURNMENTThe meeting was adjourned at 5:00 p.m.SUBMITTED BY:Lynelle M. Lewis, Secretary of the DistrictAPPROVED: January 8, 2013John A. Coleman, President of the BoardW:\Minutes\Minutes 2012U21112_regular_minutes.doc

AGENDA NO.MEETING DATE January 8, 2013TITLEPURCHASE OF INFLUENT SCREENS EQUIPMENTEMOTION • RESOLUTION • ORDINANCERECOMMENDED ACTIONAward a contract to the lowest responsible/responsive bidder, Duperon Corporation, in the estimated totalamount of $1,526,850 for supplying five sets of influent bar screens and washer compactors for the MainWastewater Treatment Plant (MWWTP) under Proposal No. 1306.SUMMARYThe new influent bar screens and washer compactors will replace the existing %-inch climber screens atthe MWWTP Influent Pump Station. The new influent bar screens will have VJ-inch spacing which willsignificantly improve the removal of debris from the wastewater. Debris removal at the headworks iscritical to protect downstream process equipment and increase the reliability and usable capacity of thedigesters.DISCUSSIONThe existing %-inch climber screens allow excess debris such as rags, hair and other fibrous materials toescape downstream to the primary sedimentation tanks, and eventually collect in the digesters. Thisfibrous debris often forms a stringy solid mass, which causes plugging of pumps, heat exchangers, andgrinders. Within the last decade, new developments in screening technology have influenced otherwastewater agencies to replace their screens with finer-spaced screens with ^-inch spacing. Furthermore,as part of the ongoing digester upgrade project, the sludge withdrawal system i s being modified to apassive overflow system that will allow each digester to use its maximum capacity. Finer-spaced barscreens will reduce the potential for plugging issues in the new passive digester overflow system.The scope of work for this project involves replacing the existing %-inch climber screens with new %-inchbar screens and washer compactors. The %-inch spacing allows more debris to be captured and removed atthe headworks, protecting downstream equipment and processes. The new bar screens will also reduceequipment maintenance and the frequency of digester cleaning. The payback for this capital project isapproximately 7 to 8 years.Funds Available: FY13Budget Code:WWC/927/7999/2008216/5301DEPARTMENT SUBMITTING DEPARTMENT MANAGER or DIRECTOR APPROVEDWASTEWATERDavid R. WilliamsA#/a«j£f&General ManagerOJU^Contact the Office of the District Secretary with questions about completing or submitting this form.BDl MS 1004

Purchase of Influent Screens EquipmentJanuary 8, 2013Page 2Two bar screens will be replaced in 2013 and three will be replaced in 2014, for a total of five screens.The contract contains a price escalation clause for the purchase of the three bar screens in 2014 that isbased on the U.S. Department of Labor, Bureau of Labor Statistics, Producer Price Index for Metal andMetal Products for December 2012.A separate construction contract for the installation of the new bar screens is being developed, and staffwill recommend award of the installation contract by the Board in April 2013. Due to the long-lead timefor manufacturing and delivery of this equipment (-22 weeks), pre-purchase of this equipment is requiredin order to complete the first two screen installations in 2013 before the onset of the next wet weatherseason, ha addition, equipment pre-purchase will reduce the screen cost to the District.SERVICE PROVIDER/CONSULTANT/VENDOR SELECTIONRequests for proposals were sent to three (3) potential proposers and advertised on the District's website.One (1) bid was received. Although only one bid was received, Duperon Corporation provided a very fanbidprice for their equipment based on a comparison of previous sales for their product of similar size andcapacity, hi addition, the bid price by Duperon Corporation was below their initial quotation to the Districtand other competitive manufacturers for the influent bar screens and washer compactors. The engineer'sestimate for the equipment was $1.74 million.CONTRACT EQUITY PROGRAM EFFORTSThe completed P-035 and P-061 forms are attached.FISCAL IMPACTFunds are available for this purchase in the FY13/14 capital budget in the Main Wastewater TreatmentPlant Influent Screen Replacement Project.ALTERNATIVESDo not purchase the influent screens equipment. This alternative is not recommended because pluggingof the digester passive overflow system causes digesters to be out of service. Providing more effectivescreening capture increases digester reliability, reduces equipment maintenance costs, reduces thefrequency for digester cleaning, and increases usable digester capacity.Reject all bids and re-bid. This alternative is not recommended because although one bid was received,the bid is reasonable based on a comparison of previous sales and the engineer's estimate, and is withinthe project budget.AttachmentsW:\NAB\Board Documents\2013\BDlsVTanuary 8\WW - Prepurchase Influent Screens.doc

EBMUDCONTRACT EQUITY PROGRAM SUMMARY (P-035)This summary contains information on the contractor's workforce and contract equity participation, (completed by District)PROPOSAL NO.: 1306Purchase of Influent Screens Equipment December 20, 2012CONTRACTOR:Duperon CorporationSaginaw, MlSole BidderSmall BusinessIIllllI§iillAvailability Group Contracting Objectives ParticipationBID/PROPOSER'SPRICE:FIRM'S OWNERSHIPWhite Men 25% 100.0%Ethnicity Gender White Women 2% 0.0%$1,526,850 White Men Ethnic Minorities 25% 0.0%:.m^M-^g&||£Mi^^!£^^Ii^^^^BS'RIME:COMPANY NAMEESTIMATEDAMOUNTETHNICITYGENDERnJL;i2Mj£S2Ii!££SCONTRACTING PARTICIPATIONWhite- White-WEthnicPubliclyMen WomenUnclassifiedGov't/NonMinoritiesHeld Corp.ForeignProfitDuperon Corporation$1,526,850 White 100.0%•UBS:^loneTOTAL $1,526,850 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%No. of Employees: 30 20White Men White Women Ethnic Minorities Total EmployeesPercent of Total Employees: 54.5% 36.4% 9.1%55MSA Labor Market %: 45.4% 40.2% 14."%WiSA Labor Market Location:Contract Equity Participation - 100% White Men participationSaginaw-Bay City-Midland,SEESWorkforce Profile & Statement of NondiscriminationSubmittedNAGood Faith Outreach EffortsRequirement SatisfiedNAAward Approvalf\ Reco\nmended"••. )(P-035-7/11) : 1 of 1 File: Proposal-3117.xls

EBMUDAFFIRMATIVE ACTION SUMMARY (P-0i31)(Completed by District)This summarizes information provided by the contractor(s)' P-025 Form regarding their workforce.Title:Purchase of Influent Screens EquipmentProposal*: 1306R=RecmmdP=PrimeS=SubComposition of OwnershipCompany Name, Owner/Contact Person,Address, and Phone NumberDATE:12/20/2012Ethnic Minority Percentages From U.S. Census DataNational9 Bay Area CountiesAlameda/CC CountiesB10.55.510.7H10.'16.:>15.15A/PI3.714.215.4AI/AN0.70.40.5Number of Ethnic Minority EmployeesBH A/PI AI/AM TOTAL PERCENT| TOTAL27.339.946.2MSA %RPDuperan CorporationTerry Duperon1200 Leon Scott CourtSaginaw, Ml 48601Company WideManager/ProfTechnical/SalesClerical/SkilledSemi/Unskilled1--1-411-2----------511129.1%3.3%8.3%14.3%33.3%47.8%989-754-8800Bay AreaAA Plan on File:Co. Wide MSA:--NASaginaw-Bay City-Midland---Date of last contract with District:# Employees-Co. W de: 55NANABay Area:39.9%0Company WideManager/ProfTechnical/SalesClerical/SkilledSemi/UnskilledBay Area39.9%Co. Wide MSA:# Employees-Co. Wide:Bay Area:Company WideManager/ProfTechnical/SalesClerical/SkilledSemi/UnskilledBay Area39.9%Co. Wide MSA:# Employees-Co. Wile:Bay Area:Company WideManager/ProfTechnical/SalesClerical/SkilledSemi/UnskilledBay Area39.9%Co. Wide MSA:# Empioyees-Co. Wiiie:Bay Area:Company WideManager/ProfTechnical/SalesClerical/SkilledSemi/UnskilledBay Area|39.9%Co. Wide MSA:# Employees-Co. Wiile:Bay Area:Company WideManager/ProfTechnical/SalesClerical/SkilledSemi/Unskilled3ay AreaCo. Wide MSA:1# Employees-Co. Wide:WM=White Male WW=White Women. EM=Ethnic Minority (Ethnicities: B=Black. H=HisDanic. A/Pl=Asian/Pacific Islander and Ai;AN=Am=riMn Inrlian/AlaskIBay Area:39.9%(P-061 -7/11)Page: 1 of 1File: Proposal-3117.xls

4AGENDA NO.MEETING DATE January 8. 2013TITLEPRIVATE SEWER LATERAL APPLICATION ENHANCEMENTSM MOTION • RESOLUTION • ORDINANCERECOMMENDED ACTIONAuthorize an agreement with DesignMind Business Solutions in an amount not to exceed $404,875.00 forsoftware development services to construct the Private Sewer Lateral (PSL) Application Enhancements.In awarding this contract, the Board of Directors finds that this work cannot be satisfactorily performedunder civil service.SUMMARYA Federal Stipulated Order (SO), signed on July 22, 2009, required the District ;o adopt a Private SewerLateral Regional Ordinance (PSL Ordinance) for the wastewater service area, which the Board approvedon February 9, 2010. The PSL Ordinance was implemented January 1, 2011 and requires that propertyowners perform inspections, and if necessary, repairs or replacements, of their sewer laterals, prior toselling their property, obtaining construction permits for the property greater that $100,000, or applyingfor changes to EBMUD water service. The District is responsible for witnessing and documenting sewerlateral inspections and issuing certificates of compliance. In order to meet this responsibility, the Districtcontracted with DesignMind Business Solutions to construct the PSL Application software.The PSL Application Enhancements are a collection of critical extensions to the PSL Application thatcould not be included in the initial application due to scheduling constraints imposed on the District by theEnvironmental Protection Agency (EPA).DISCUSSIONThe goals of the PSL Application Enhancements are to improve the efficiency, productivity andcompliance of the EPA- mandated PSL Program. Improvements include provisions for:• Repeat inspections to facilitate tracking and fee charging for multiple trips to a site• Scheduling, including the ability to upload standardized inspection periods and other efficiencies• Mapping to facilitate geographic optimization of inspections and more efficiently utilize field staffFunds Available FY13Budget Code: WWC/944/7999/2002085/5231DEPARTMENT SUBMITTINGDEPARTMENT MANAGER or DIRECTORAPPROVEDINFORMATION SYSTEMSNicholas J. Iriasfe^neral ManagerContact the Office of the District Secretary regarding questions about completing or submitting this form.

Private Sewer Lateral Application Enhancements Software DevelopmentJanuary 8, 2013Page 2• Data management, creating a comprehensive database of inspection results that can be used forEPA reporting• Property management, including systems for tracking exemption requests and waivers, which arecurrently processed manually• Automation of the enforcement process, significantly streamlining manual processing and crosscheckingOnce developed, the system will be maintained in the future by District forces.CONSULTANT SELECTIONThe PSL Application is custom software and requires specialized knowledge to enhance. DesignMindBusiness Solutions acquired the requisite business and application knowledge when it completed thedesign and development of the initial version of the PSL Application. DesijjnMind Business Solutionsbuilt the existing application, has in-depth knowledge of the application and our PSL-related businessprocess, and is therefore uniquely qualified to perform this work.CONTRACT EQUITY PROGRAMThe completed P-35 and P-61 forms are attached.FISCAL IMPACT.Sufficient funds are available in the Wastewater FY13 capital budget to complete the planned work.UNION NOTIFICATIONLocals 2019 and 21 were notified of this contract on January 12, 2012. Locals 2019 and 21 did not raiseany specific issues related to this contract.ALTERNATIVESDelay or Do Not Proceed with the Project. This alternative is not recomm ended, because the PSLApplication Enhancements represent a collection of extensions to the existing application whose absenceis making it difficult for the District to cost-effectively comply with EPA requirements. Appointmentscheduling and enforcement are currently supported by manual processing which is not sustainable givengrowth in the PSL Program and associated workload. In addition, staff is currently negotiating a longterm consent decree that will have more robust reporting requirements that can not be met without theseupgrades.Perform the Work with District Forces. This alternative is not recommended due to the fact thatsoftware development resources are committed to other priority projects, such as the new HR and MMISsystems.

EBMUDCONTRACT EQUITY PROGRAM SUMMARY (P-035)This summary contains information on the contractor's workforce and contract equity partic pation. (Completed by District)Professional Services AgreementPrivate Sewer Lateral Application EnhancementsDecember 13, 2012CONTRACTOR:DesignMind Business Solutions, Inc.San Francisco, CADirect AwardSmall BusinessB&^NIB&HBra»B&i&iHHg£3Availability Group Contracting Objectives ParticipationFIRM'S OWNERSHIP 25%BID/PROPOSER'SWhite Men100.0%PRICE: EthnicityGenderWhite Women6%0.0%$404,875 White Men Ethnic Minorities[Tiff"25% 0.0%COMPANY NAMEESTIMATEDAMOUNTETHNICITYGENDERWhite-MenWhite-WomenCONTRACTING PARTICIPATIONEthnicMinoritiesUnclassifiedPubliclyHeld Corp.Gov'UNonProfitForeignPRIME:DesignMind Business Solutions, Inc.SUBS:None$404,875 White100.0%TOTAL $404,875 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%ONTRACTOR'S WORKFORCES PROFILE (From P-025 Form)White Men White Women Ethnic MinoritiesTotal EmployeesNo. of Employees: 15Percent of Total Employees: 68.2%4.5% 27.3%22MSA Labor Market %:MSA Labor Market Location:30.8% 25.1%44.0%San FranciscoContract Equity Participation -100% White Men participation and no subcontract opportunities exist.Workforce Profile & Statement of Nondiscrimination Good Faith Outreach EffortsVv Awa^ApprovalSubmitted Requirement Satisfiedf\ \\r \ \ Recomrhjsqded^ " •NANACV^->(P-035-7/11)Page: 1 of 14terPS-3116.xls

EBMUDAFFIRMATIVE ACTION SUMMARY (P-061)(Completed by District)This summarizes information provided by the contractor(s)' P-025 Form regardin(| their workforce.Title:Private Sewer Lateral ApplicationEnhancementsProfe. ssional Services AgreementR=RecmmdP=PrimeS=SubComposition of OwnershipCompany Name, OwnerfContact Person, Address,and Phone NumberDATE:12/13/2012Ethnic Minority Percentage:; From U.S. Census DataNational9 Bay Area CountiesAlameda/CC CountiesB10.55.510.7H10.716.215.6A/PI3.714.215.4AI/AN0.70.40.5Number of Ethnic Minority EmployeesBH A/PI AI/AN TOTAL PERCENTTOTAL27.339.946.2MSA %RPWM - SBEDesignMind Business Solutions, inc.Mark Ginnebaugh465 California Street, Suite 425San Francisco, CA94104415-538-8484Company WideManager/ProfTechnical/SalesClerical/SkilledSemi/UnskilledBay AreaAA Plan on File:Co. Wide MSA:Company WideManager/ProfTechnical/SalesClerical/SkilledSemi/UnskilledBay AreaCo. Wide MSA:Company WideManager/ProfTechnical/SalesClerical/SkilledSemi/UnskilledBay AreaCo. Wide MSA:Company WideManager/ProfTechnical/SalesClerical/SkilledSemi/UnskilledBay AreaCo. Wide MSA:Company WideManager/ProfTechnical/SalesClerical/SkilledSemi/UnskilledBay AreaCo. Wide MSA:Company WideManager/ProfTechnical/SalesClerical/SkilledSemi/UnskilledBay AreaCo. Wide MSA:11---1NASan Francisco44---411---166--Date of last contra* rtwith District:# Employees-Co. Wide:# Employees-Co. Wide:# Employees-Co. Wide:# Employees-Co. '/Vide:# Employees-Co. 'Wide:# Employees-Co. /Vide:22-627.3%27.3%NANANA30.0%10/3/2011WM=White Male, WW=White Women, EM=Ethnio Minority (Ethnicities: B=Black, H=Hispanic, A/PI=Asian/Pacific Islander, and AI/AN=,\merican Indian/Alaskan Native)Bay Area:Bay Area:Bay Area:Bay Area:Bay Area:Bay Area:44.0%39.9%2039.9%39.9%39.9%39.9%39.9%(P-061-7/11)Page: 1 of 1File: PS-3116.xls

EBMUDTITLE*S.AGENDA NO.MEETING DATE January 8, 2013CELLULAR TELEPHONE AND PUSH-TO-TALK SERVICES - ADDITIONALPROVIDEREl MOTION.• RESOLUTIOND ORDINANCERECOMMENDED ACTIONAuthorize an amendment to Board Motion 170-10 to include Verizon Wireless as an additional providerof cellular telephone and push-to-talk services.SUMMARYOn December 14, 2010 the Board of Directors authorized an agreement with Sprint Solutions for a threeyearperiod from 2011 through 2013 with two options to renew for additional one-year periods, under theWestern States Contracting Alliance (WSCA) to provide cellular telephone and push-to-talk services foremployees to communicate with each other, within workgroups and to communicate with contractors,vendors and customers. Sprint Solutions and Verizon Wireless responded to the original RFP and weredeemed responsive and qualified. Due to changes in Sprint's cellular network, ihe service performance isno longer meeting the District's communication needs and flexibility is needed :o transition to VerizonWireless. This service provider change will not affect the estimated amount of $320,000 per yearidentified in the original motion.EVALUATIONPublic Contract Code, Section 10298, specifically allows agencies to purchase directly from the statecompetitively awarded contracts without pursuing separate competitive bidding This provides a typicalsavings of 10-15% over pricing the District would get if bidding alone. The Verizon Wireless terms ofservice are consistent with the Western States Contracting Alliance (WSCA) contract which wasauthorized by the District in 2010.CONTRACT EQUITY PROGRAM EFFORTSThe completed P-35 and P-61 forms are attached.FISCAL IMPACTFunds for this contract are available in the Information Systems Department FY13 operating budget.Based on a rate comparison performed by Verizon, there will be no impact to existing service rates.Funds Available FY: 13-14Budget Code: WSO/252/8500/5372DEPARTMENT SUBMITTINGDEPARTMENT MANAGER or DIRECTORAPPROVEDINFORMATION SYSTEMSNicholas J. Idas

Alternative Cellular Telephone and Push-to-Talk ServicesJanuary 8, 2013Page 2ALTERNATIVESDo not add Verizon Wireless as a service provider. This alternative is not recommended because theability of the District work groups to communicate is currently impacted by Sprint's service performance.Conduct a competitive process to obtain pricing and vendors. This alternative is not recommendedbecause the WSCA contract provides the best terms and pricing available to the District due to theleveraged buying power of multiple states.

EBMUDCONTRACT EQUITY PROGRAM SUMMARY (P-035)This summary contains information on the contractor's workforce and contract equity participatio l. (Completed by District)Amendment to General Services AgreementCellular Telephone and Push-to-Talk Services - Two-Year Contract with 2One-Year Renewal OptionsDecember 20, 2012CONTRACTOR:Verizon WirelessWalnut Creek, CALocal Business Availability Group Contracting Objectives ParticipationFIRM'S OWNERSHIP White Men25%BID/PROPOSER'S0.0%PRICE: EthnicityGender White Women6%0.0%$320,000 /year Publicly Held Corp. Ethnic Minorities25%0.0%COMPANY NAMEESTIMATEDAMOUNTETHNICITYGENDERWWhite-MenWhite-WomenCONTRACTING PARTICIPATIONEthnicMinoritiesUr classifiedPubliclyHeld Corp.Gov't/NonProfitForeignPRIME:Verizon Wireless$320,000Publicly HeldCorp.100.0%SUBS:NoneTOTAL $320,0000.0% 0.0% 0.0% 0.0% 100.0% 0.0%ONTRACTOR'S VftoRKFORCESPROFILE (From P-025 Horm) yWhite MenWhite WomenEthnic MinoritiesTotal Employees0.0%No. of Employees: 27,07518,611 32,592Percent of Total Employees: 34.6% 23.8%41.6%78,278MSA Labor Market %:39.0%33.7%27.2%MSA Labor Market Location:USAmmwfimm 'MmmmMMM^LMMMZMdContract Equity Participation - Zero Contract Equity participation since firm is a publicly held corporation and no subcontractopportunities exist.Workforce Profile & Statement of NondiscriminationSubmittedNAGood Faith Outreach EffortsRequirement SatisfiedNA^^•s.AWAward ApprovalRecommended(P-035-7/11)Page: 1 of 1File: GS-3119.xls

EBMUDAFFIRMATIVE ACTION SUMMARY (P-061)(Completed by District)This summarizes information provided by the contractor(s)' P-025 Form regarding their workforce.Title:Cellular Telephone and Push-to-TalkServices - Two-Year Contract with 2 One-Year Renewal OptionsGeneral Services AgreementR=RecmmdP=PrimeS=SubComposition of OwnershipCompany Name, Owner/Contact Person, Address,and Phone NumberDATE:12/20/2012National9 Bay Area CountiesAlameda/CC CountiesBEthnic Minority Percentages From U.S. Census DataB I10.55.510.7II |1C.716.21E.6Number of Ethnic Minority EmployeesHA/PIAI/ANA/PI J3.714.215.4TOTALAI/AN |0.70.40.5PERCENTTOTAL27.339.946.2MSA %RPVerizon WirelessRobert E. Graves2795 Mitchell DriveWalnut Creek, CA 94598510-421-1111Publicly Held Corp. - LBECompany WideManager/ProfTechnical/SalesClerical/SkilledSemi/UnskilledBay AreaAA Plan on File:Co. Wide MSA:Company WideManager/ProfTechnical/SalesClerical/SkilledSemi/UnskilledBay AreaCo. Wide MSA:Company WideManager/ProfTechnical/SalesClerical/SkilledSemi/UnskilledBay AreaCo. Wide MSA:Company WideManager/ProfTechnical/SalesClerical/SkilledSemi/UnskilledBay AreaCo. Wide MSA:Company WideManager/ProfTechnical/SalesClerical/SkilledSemi/UnskilledBay AreaCo. Wide MSA:Company WideManager/ProfTechnical/SalesClerical/SkilledSemi/UnskilledBay AreaCo. Wide MSA:NAUSA17,1483,6444,1719,329WM=\ White Male WW=White Women. EM=Ethnic Minority (Ethnicities: B=Black. H=Hisoanic. A/PI=Asian/Pacific slander, and AI/AN= American Indian/Alaskan Native)48I10,4732,2684,2363,9672144,5482,1891,580779-174:»31D21i)81i>2132,5928,20310,14514,237739Date of last contra ct with District:# Employees-Co. Wide: 78,278I# Employees-Co. Wide:# Employees-Co. Wide:# Employees-Co. Wide:# Employees-Co. Wide:# Employees-Co. Wide:41.6%34.7%37.4%51.9%11.9%31.7%10/1/2012[Bay Area:Bay Area:Bay Area:Bay Area:Bay Area:Bay Area27.2%39.9%123| 39.9%39.9%39.9%39.9%| 39.9%(P-061-7/11)Page: 1 of 1File: GS-3119.xls

EBMUDTITLEAAGENDA NO.MEETING DATE January 8. 2013AUTHORIZE CONTINUED EMPLOYMENT OF BARG, COFFIN, LEWIS & TRAPP, LLP,AS SPECIAL COUNSELm MOTION. • RESOLUTION • ORDINANCERECOMMENDED ACTIONAuthorize the Office of General Counsel to continue employment of the lew firm of Barg, Coffin, Lewis& Trapp, LLP, for services of special counsel related to environmental regulation and litigation matters inan additional amount not to exceed $200,000.DISCUSSIONThe firm of Barg, Coffin, Lewis & Trapp has been retained to assist the Office of General Counsel inenvironmental regulation and related litigation matters. The Office of General Counsel is now requestingauthorization for additional funds for services described in a separate confidential memorandum to theBoard of Directors.CONTRACT EQUITY PROGRAM EFFORTSThe completed P-035 and P-061 forms are attached.FISCAL IMPACTSufficient monies have been budgeted in the Office of General Counsel's budget for fiscal year 2013 forthis request for specialized legal assistance.Funds Available: FY 2013Budget Code: WSO 130 8511 5:»31DEPARTMENT SUBMITTINGDEPARTMENTOffice of General CounselContact the Office of the District Secretary regarding questions about completing or submitting this form.BDl PS 1008

EBMUDCONTRACT EQUITY PROGRAM SUMMARY (P-035)This summary contains information on the contractor's workforce and contract equity partio pation. (completed by District)Amendment to Professional Services AgreementAuthorize Continued Employment of Barg, Coffin, Lewis, & Trapp, LLP, asSpecial CounselDecember 13, 2012CONTRACTOR:Barg, Coffin, Lewis, & Trapp, LLPSan Francisco, CACOMPANY NAMEESTIMATEDAMOUNTETHNICITYGENDERWhite-MenWhite-WomenCONTRACTING PARTICIPATIONEthnicMinoritiesUnclassifiedPubliclyHeld Corp.Gov't/NonProfitForeignPRIME:Barg, Coffin, Lewis, & Trapp, LLP$200,000 100.0%WhiteSUBS:NoneTOTAL $200,000 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%ONTRACTOR'S WORKFORCES PROFILE {From P-025 Form)White MenWhite WomenEthnic MinoritiesNo. of Employees: 12 1411Total EmployeesPercent of Total Employees: 32.4%37.8% 29.7%37MSA Labor Market %:MSA Labor Market Location:30.8% 25.1%ISQMMENTS!44.0%San Franci;3coContract Equity Participation -100% White Men participation and no subcontract opport jnities exist.Workforce Profile & Statement of NondiscriminationSubmittedNAGood Faith Outreach EffortsRequirement SatisfiedNAA

AFFIRMATIVE ACTION SUMMARY (P-OB1)EBMUD(Completed by District)Title:This summarizes information provided by the contractors)' P-025 Form regarding their workforce.Authorize Continued Employment of Bara.Coffin, Lewis, & Trapp, LLF , as SpecialCounselProfessional Services AgreementRPR=RecmmdP=PrimeS=SubComposition of OwnershipCompany Name, Owner/Contact Person, Address,and Phone NumberWM - SBEBarg, Coffin, Lewis, & Trapp, LLPJohn F. Barg350 California Street, 22nd FloorSan Francisco, CA 94104415-228-5410DATE:12/13/2012Company WideManager/ProfTechnical/SalesClerical/SkilledSemi/UnskilledBay AreaAA Plan on File:Co. Wide MSA:Company WideManager/ProfTechnical/SalesClerical/SkilledSemi/UnskilledBay AreaCo. Wide MSA:Company WideManager/ProfTechnical/SalesClerical/SkilledSemi/UnskilledBay AreaCo. Wide MSA:Company WideManager/ProfTechnical/SalesClerical/SkilledSemi/UnskilledBay AreaCo. Wide MSA:Company WideManager/ProfTechnical/SalesClerical/SkilledSemi/UnskilledBay AreaCo. Wide MSA:Company WideManager/ProfTechnical/SalesClerical/SkilledSemi/UnskilledNational9 Bay Area CountiesAlameda/CC CountiesB21-1-2NASan FranciscoEthnic Minority Percentages From U.S. Census DataBay AreaCo. Wide MSA:# Employees-Co. Wide:Bay Area:WM=White Maie. WW=White Women, EM=Ethnic Minority (Ethnicities: B=Black, H=Hispanic, AJPI=Asian/Paci(ic Islander, and AI/AN= \merican Indian/Alaskan Native)|B10.55.510.7" I107162156Number of Ethnic Minority EmployeesH2--2-2A/PI72-5-7AI/AN------A/PI3.714.215.4TOTAL113-8-11Date of last contract with District:# Employees-Co. Wide:# Employees-Co. Wide:# Employees-Co. 'Wde:# Employees-Co. 'Wide:# Employees-Co. /Vide:37IAI/AN |0.70.40.5PERCENT29.7%15.8%NA44.4%NA29.7%3/1/2002Bay Area:Bay Area:Bay Area:Bay Area:Bay Area:TOTAL27.339.946.2MSA %44.0%39.9%3739.9%39.9%39.9%39.9%39.9%(P-061-7/11)Page: 1 of 1File: PS-3115.xls

EAST BAY MUNICIPAL UTILITY DISTRICT7.DATE: January 3, 2013MEMO TO:Board of DirectorsTHROUGH: Alexander R. Coate, General Managerrft^'FROM:Marlaigne Dumaine, Manager of Legislative AffairsSUBJECT: Federal Legislative Initiatives for 2013OVERVIEWThe 113 th Congress convenes this month amidst a challenging political environment stemming fromthe continued need to address federal spending. In addition to the fiscal issues, congress' domesticpolicy agenda is likely to be comprised of issues of interest to EBMUD, including infrastructure andthe Sacramento-San Joaquin Delta.Infrastructure assistance will continue to be a key policy issue and congress is expected to continue toexplore ways to allocate limited resources for infrastructure funding. The house and senateinfrastructure committees have expressed interest in proposals to promote low interest loans,infrastructure banks, public-private partnerships, and other more traditional financing mechanisms.Congress may also review the issue of local and state tax-exempt financing as part of any tax reformefforts.Congressional efforts to reauthorize the Water Resources Development Act (V/RDA) are likely to gainmomentum during 2013. Congressional leaders have been canvassing members to ascertain the valueof earmarks with a particular emphasis on WRDA. The Senate Committee on Environment and PublicWorks held a hearing on a draft WRDA bill in late 2012, however, the legislation did not advance priorto the end of the session. Senator Barbara Boxer has identified WRDA as a top priority for 2013. TheHouse Committee on Transportation and Infrastructure, with its new Chairman Bill Shuster (R-PA),has also signaled that WRDA is a priority. Accordingly, WRDA legislation is expected to be broughtforth in this congressional session. A new WRDA is anticipated to be policy-oriented as opposed to thetraditional focus on project authorizations. However, it will be important to advance EBMUD's projectauthorization needs to the extent feasible.With regard to securing appropriations for projects with existing WRDA authorizations, including"new starts," the climate in 2013 will continue to be austere. House and senate rules continue to denyproject earmarks. However, there are some indications these rules may be revisited in 2013. It isimportant that EBMUD continue to advance its project appropriation requests to ensure EBMUD'sneeds are communicated to its congressional delegation in the event the earmark rules are revised in amanner that allows for project funding.On the policy front, issues of interest to EBMUD continue to be primarily focused on matters relatingto the Sacramento-San Joaquin Delta, including funding, mitigation, and water supply.

Board of DirectorsFederal Legislative Initiatives for 2013January 3, 2013Page 2EBMUD's 2013 federal legislative initiatives have been developed consistent with the past year'sgoals and objectives with the understanding that congress and the administration are operating in aconstrained fiscal environment. EBMUD's 2013 federal legislative initiatives are focused on items ofhighest priority for EBMUD: infrastructure funding; fiscal year 2014 (FY14) project appropriations,WRDA project authorization requests, and advancing EBMUD's interests within the key policy area ofthe Sacramento-San Joaquin Delta. These four EBMUD 2013 federal initiatives are summarized in thetable below and described in detail in the attachment.FEDERAL INITIATIVE1. Seek federal funding opportunities forinfrastructure projects via any new federalprograms which may be developed and anyexisting programs.2. Continue to seek federal funding forEBMUD's three WRDA authorized projects- the San Ramon Valley Recycled WaterProject, the Integrated Regional RecycledWater Program, and the Bay Area RegionalDesalination Project.3. Continue to pursue new WRDA fundingauthorizations for EBMUD's seismicprogram and the San Ramon ValleyRecycled Water Project.4. Advance EBMUD's Bay Delta needswith its federal delegation.ACTION• Seek any available federal funding opportunities forEBMUD's infrastructure projects consistent with the District'scurrent Capital Improvement Program.• Pursue FY14 federal funding appropriations of $450,000, $5million, and $4 million for the; San Ramon Valley RecycledWater Project, the Integrated Recycled Water Program, andthe Bay Area Regional Desalination Project, respectively.• Pursue new WRDA funding authorizations in the amounts of$35 million for EBMUD's seismic program and $20 millionfor the San Ramon Valley Water Recycling Project.Staff will focus on EBMUD's priority issues:• EBMUD's ratepayers should not be held responsible for theflow obligations, project mitigations, or the expected habitatrestoration success of others, including the state and federalprojects.• EBMUD's ratepayers should not be asked to pay for costs thatare the responsibility of others, or for any user fee orsurcharge that subsidizes other parties.• Any solution that would impact the Mokelumne salmonidfishery should include mitigat.on by the responsible parties forthe impacts.Attachment

AttachmentFEDERAL INITIATIVES - 2013INTIATIVE #1 -SEEK FEDERAL FUNDING OPPORTUNITIES FORINFRASTRUCTURE PROJECTSBackgroundThe 113 th Congress is expected to focus in large part on infrastructure assistance policy as membersconsider how to support and spur economic growth. Congress is expected to convene hearings on thepriority of water infrastructure with particular attention given to the role of private sector fundingassistance and the use of tax-exempt funding tools. In addition, the conventional funding of the StateRevolving Loan Fund Program, as well as how it would be impacted by private sector assistance,Water Infrastructure Financing Innovation Act assistance, infrastructure bankf), or other innovativefinancing approaches, is anticipated to be part of the larger congressional debate on how waterinfrastructure needs should be addressed.Staff will work with EBMUD's delegation, appropriate committee staff, and tie administration toadvance EBMUD's infrastructure funding needs.Recommended ActionSeek any available federal funding opportunities for EBMUD's infrastructure projects consistent withEBMUD's Capital Improvement Program priorities.INTIATIVE #2 -PURSUE FISCAL YEAR 2014 (FY14) FEDERAL FUNDINGAPPROPRIATIONS FOR EBMUD'S SAN RAMON VALLEYRECYCLED WATER PROJECT, EBMUD'S INTEGRATED REGIONALRECYCLED WATER PROGRAM, AND THE BAY AREA REGIONALDESALINATION PROJECTBackgroundIn 2012, EBMUD sought FY13 federal funding appropriations for the San Ramon Valley RecycledWater Project, the Integrated Recycled Water Program, and the Bay Area Regional DesalinationProject. However, a combination of federal budget constraints and a congressional ban on projectearmarks rendered each of these requests unsuccessful. Though the likelihood of receiving projectspecificFY14 appropriations remains low, staff will continue to pursue appro] )riations for each ofthese projects as described below. The projects are presented in order of priority, from the highest tothe lowest.San Ramon Valley Recycled Water ProjectThe San Ramon Valley Recycled Water Project is estimated to provide approximately 6,400 acre-feetof recycled water per year for irrigation uses within the San Ramon Valley. Total joint project costs forthe participating agencies (EBMUD and Dublin San Ramon Services District) are estimated to be morethan $150 million.

In 1999, the Water Resources Development Act (WRDA) provided congressional authorization for$15 million in federal funding toward planning, design, and construction assistance by the U.S. Corpsof Engineers for the San Ramon Valley Recycled Water Project. The total appropriations for thisproject to date have nearly exhausted the authorized funding level with approximately $450,000remaining in this initial $15 million authorization. Project appropriations totaling approximately $14.5million were granted from FY02 through FY10 for planning, design, and construction activities.Despite the austere federal funding climate, staff will continue to pursue the remaining $450,000 in theexisting WRDA authorization for this project. This funding will be used toward the construction ofpipelines that are part of Phases 2, 3, and 4 of the project. Staff will simultaneously pursue a newWRDA funding authorization for this project in the amount of $20 million, as discussed underInitiative #2.Integrated Recycled Water ProgramThe 2008 enactment of WRDA provided a $25 million funding authorization for the IntegratedRegional Recycled Water Program project. An appropriation for this project has not yet been secured.Because this project is considered by congress to be a "new start," it means that funding opportunitieswill hinge on how congress and the administration address new water infrastructure priorities.EBMUD staff will continue to pursue initial funding for the Integrated Regional Recycled WaterProgram in the amount of $5 million as an FY14 appropriations request. Funding for this project willbe used for the design and construction of Phase IB of the East Bayshore Recycled Water Project. Thisproject could ultimately supply up to approximately 2.5 million gallons per day of recycled water,which includes replacing the use of potable water in portions of Alameda, Oakland, Emeryville,Berkeley, and Albany.Bay Area Regional Desalination ProjectThe Bay Area's largest water agencies, the Contra Costa Water District, the East Bay Municipal UtilityDistrict, the San Francisco Public Utilities Commission, the Santa Clara Valley Water District and theAlameda County Flood Control and Water Conservation District - Zone 7, arc jointly exploring thedevelopment of regional desalination facilities that would benefit over 5.6 million Bay Area residentsand businesses served by these agencies. The Bay Area Regional Desalination Project would consist ofone or more facilities, with an estimated capacity range of 10 to 50 million gallons per day, enoughwater to serve 100,000 to 500,000 people. This project would provide a local water source and increasewater supply reliability during emergencies, such as droughts and earthquakes, without increasing theregion's reliance on Delta tributaries and would present an opportunity to develop a highlycollaborative approach to leverage funding at the federal level.The existing authorization for regional desalination is $4 million. Due to its presence in Washington,D.C., EBMUD has agreed to represent the partner agencies in pursuing this authorization.Accordingly, EBMUD staff will continue to pursue $4 million on behalf of the project partners inFY14 funding for this project.

Recommended ActionPursue FY14 federal funding appropriations in order of priority: $450,000 for the San Ramon ValleyRecycled Water Project, $5 million for the Integrated Recycled Water Program, and $4 million for,theBay Area Regional Desalination Project.INTIATIVE #3 -CONTINUE TO SEEK FUNDING AUTHORIZATIONS FOR TWOEBMUD WATER RESOURCES PROJECTS UNDER THE WRDAIn 2012, EBMUD staff provided WRDA funding authorization requests for three projects: (1) theRegional EBMUD Seismic Component Upgrade (RESCU) program to increase the seismic stability ofEBMUD's water distribution and raw water storage reservoirs; (2) interties between EBMUD'sMokelumne aqueducts; and (3) the San Ramon Valley Recycled Water Project. However, congress didnot finalize a WRDA package in 2012. The aqueduct intertie project is expected to be substantiallycompleted in 2013, therefore an FY14 authorization request for this project will not be appropriate.Staff will maintain the authorization requests for the RESCU program and the San Ramon ValleyRecycled Water Project for FY14, as described below.RESCUEBMUD's RESCU program recognizes the presence of several active earthquake faults that runthrough its service area in the East Bay and on-going seismic risks in the Delta. This program isintended to increase the seismic stability of the water system, including water storage reservoirs,pipelines, and facilities to treat and pump water. This would help protect the proximate denselypopulated urban communities from flooding during a major earthquake and enhance EBMUD's watersupply reliability. Components of the RESCU program include:• Briones, Chabot, Upper San Leandro, and Lafayette Tower Seismic Upgrades;• Dam Seismic, Operational, Surveillance, and Instrumentation Upgrades;• West of Hills Pressure Zone Improvements; and• Mokelumne Aqueduct upgradesThe cost of the RESCU program is estimated to be $150 million or more. EBMUD's request for aninitial authorization is $35 million. This amount is consistent with prior federal authorizations forsimilar projects.San Ramon Valley Recycled Water ProjectWith the near exhaustion of the existing $15 million funding authorization for the San Ramon ValleyRecycled Water Project, staff will request an additional authorization in the amount of $20 million.Based on past authorization levels for similar projects, a request of $20 million is feasible. Thisfunding will be used for the design and construction of phases 3, 4, 5 and 6 distribution lines and twopump stations (Phases 3 and 4). The areas that will be served by these phases of the project are: SanRamon and Danville (Phase 3); Blackhawk (Phase 4); Blackhawk West (Phase 5); and Danvilleexpansion (Phase 6).

Recommended ActionContinue to work with EBMUD's congressional delegation to ensure continued support of EBMUD'sWRDA authorization requests for the RESCU program and the San Ramon Valley Recycled WaterProject.INITIATIVE #4 -ADVANCE EBMUD'S DELTA NEEDS WITH FEDERAL DELEGATIONThe appropriate federal response to the Bay Delta Conservation Plan (BDCP) and the efforts to addressCalifornia water resources issues is likely to continue to be debated in congress. Over the past twoyears, EBMUD has worked with its congressional delegation and relevant stakeholders to ensure thatany Delta-related federal policy or legislation does not negatively impact EBMUD ratepayers.Congress will likely continue to focus on Delta-related issues in 2013 and may continue to work on afederal response to address water supply, water quality, and ecosystem protection needs. Staff willmonitor the development of Delta-related legislation and administration policies and work to ensurethat EBMUD's needs are effectively communicated.Recommended ActionsCommunicate and work with EBMUD's congressional delegation, the administration, and relevantcongressional committees on EBMUD's Delta needs and respond to any questions on how proposalsmay impact EBMUD. Staff will focus on EBMUD's priority issues:1. EBMUD's ratepayers should not be held responsible for the flow obligations, projectmitigations, or expected habitat restoration success of others, including the state and federalprojects.2. EBMUD's ratepayers should not be asked pay for costs that are the responsibility of others, orfor any user fee or surcharge that subsidizes other parties.3. Any solution that would impact the Mokelumne salmonid fishery should include mitigation bythe responsible parties for the impacts.ARC:MD:JF

TITLEAGENDA NO.MEETING D^ TE January 8, 2013REMARKETING OF SERIES 2009A-2 WATER SYSTEM BONDSMOTION __RECOMMENDED ACTIONm RESOLUTIONORDINANCEKosa & co. Inc. and RBC Capital Markets Corporation as remarketing agents.SUMMARYThe Series 2009A-2 Bonds were remarketed on March 1 2012 at a vari«Mp \ n *~ • • i ,weekiy Secuntias Industry and Financia! Mates Assouan (SMA) MIZ fCld* x°T °financial advisor. At the end of the interest rate period the District will have to ^ Z ^ S fIt wZ rbltTut.^ ^ Peri ° d ' rema±et^ b° ndS Wi * ^^ "W-t. o-SeThe bond resolution approves the form of the remarketing agreement, continuing disclosure agreementand preliminary reoffering circular and delegates authority to the General M.mafer FiZ e Srector Orthe Treasury Manager to execute the remarketing agreements and any other agreern^nSTnd ac onsDISCUSSIONThe currently outstanding Series 2009A-2 bonds were most recently remarkeved in March 2012 for atwelve-month interest period and at a variable interest rate equal to the weeklv^SFMA Index pis 1 basispoint. The bonds now need to be remarketed for an additional interest period begi^ng r^rch 1 2013The new interest rate period will be determined closer to the time of pricingDEPARTMENT SUBMITTING DEPARTMENTJ^?A^^sr DIRECTOR APPROVEDFinanceyEric L. Sandiers4tt-rtf.e*Contact the Office of the District Secretary with questions about completing or submitting this form.

Remarketing of Series 2009A-2 Water System BondsJanuary 8, 2013Page 2The interest rate on the bonds will change weekly based on the SIFMA Index, and is expected to closelymatch the rate on the pre-existing interest rate swap agreements that are connected to this transaction Atleast three months ahead of the end of this next interest period, the District will begin the processnecessary to remarket and reset the interest rate on the bonds for a new interest rate period remarket thebonds with liquidity support, or refund the Series 2009A-2 with a new bone, issue. The bond resolutionauthorizes the Director of Finance and appropriate staff to make the applicable determinations as to theactions the District will take at the end of the new interest rate period and to provide notices requiredunder the Bond Indenture in connection therewith.A summary of the key bond documents is as follows:" Am^ded and Restated Remarketing Agreement replaces the existing remarketing agreement andappoints E J. De La Rosa & Co. Inc. and RBC Capital Markets Corporation as remarketing agents.* Preliminary Reoffering Circular provides information about the District and the terms of the bondsto be reoffered to potential investors.eContinuing Disclosure Agreement outlines District's responsibility to provide ongoing disclosureinformation to investors in the bonds as provided by the securities lawsFISCAL IMPACTIt is expected that the remarketing of the Series 2009A-2 bonds will allow the District to avoid increasedcosts for liquidity support. The remarketing fees and associated costs are not expected to exceedALTERNATIVEDo not remarket the Series 2009A-2 bonds. Alternatives to remarketing the SIFMA Index BondsnlSS^f nOt recommended > incIude either remarketing the bonds as a variable rate demand obligations(VRDO) with liquidity support or refunding them with fixed-rate debt. Either option would result inhigher debt service costs for the District.AttachmentsI:SEC\01-08-13 Board Agenda Items\FIN - BD1 Remarketing of Series 2009A2 Water System Bonds 010813.doc

OHS DRAFT12/21/12East Bay Municipal Utility DistrictWater System Revenue Refunding BondsSeries 2009A-2__________________________________________________AMENDED AND RESTATEDREMARKETING AGREEMENT(Delayed Delivery)___________________________________________________February __, 2013Board of DirectorsEast Bay Municipal Utility District375 –11th StreetOakland, California 94607Ladies and Gentlemen:The undersigned E.J. De La Rosa & Co., Inc., as representative (the “Representative”) ofitself and RBC Capital Markets, LLC, as remarketing agents (the “Remarketing Agents”), herebyoffers to enter into this Amended and Restated Remarketing Agreement (Delayed Delivery) (the“Remarketing Agreement”) with you, the East Bay Municipal Utility District (the “District”), which,upon the District’s acceptance of this offer, will be binding upon the District and the RemarketingAgents. This offer is made subject to acceptance by the District prior to 11:59 p.m., California time,on the date hereof. If this offer is not so accepted, this offer will be subject to withdrawal by theRemarketing Agents upon notice delivered to you by the Representative at any time prior toacceptance. Upon acceptance, this Remarketing Agreement shall be in full force and effect inaccordance with its terms and shall be binding upon the District and the Remarketing Agents. Allcapitalized terms used herein not otherwise defined herein shall have the respective meaningsascribed thereto in the Reoffering Circular (as hereinafter defined) or, if not defined therein, in theIndenture (as hereinafter defined). The Representative represents and warrants that it has been dulyauthorized to execute this Remarketing Agreement and to take all actions hereunder by and on behalfof the Remarketing Agents. This Remarketing Agreement amends and restates the Amended andRestated Remarketing Agreement, dated February 1, 2012, by and between the District and theRemarketing Agents, relating to the Bonds (as hereinafter defined).The District acknowledges and agrees that (i) the reoffering and purchase of the Bonds(defined below) pursuant to this Remarketing Agreement is an arm’s-length commercial transactionbetween the District and the Remarketing Agents, (ii) in connection therewith and with thediscussions, undertakings and procedures leading up to the consummation of such transaction, theRemarketing Agents are and have been acting solely as a principal and are not acting as the agent orfiduciary of the District, (iii) the Remarketing Agents have not assumed an advisory or fiduciaryresponsibility in favor of the District with respect to the offering contemplated hereby or thediscussions, undertakings and procedures leading thereto (irrespective of whether the RemarketingOHSUSA:752681087.1

Agents have provided other services or are currently providing other services to the District on othermatters), and (iv) the District has consulted its own legal, financial and other advisors to the extent ithas deemed appropriate.1. Remarketing of the Bonds. The District has elected, pursuant to the Water SystemSubordinated Revenue Bond Indenture, dated as of April 1, 1990, as amended and supplemented tothe date hereof, including as amended and supplemented by the Fifteenth Supplemental Indenture,dated as of March 1, 2009 (the “Supplemental Indenture” and collectively the “Indenture”), by andbetween the District and The Bank of New York Mellon Trust Company, N.A., as successor trustee(the “Trustee”) relating to the Bonds (as hereinafter defined), to establish a new SIFMA-Based TermInterest Rate Period for its East Bay Municipal Utility District Water System Revenue RefundingBonds, Series 2009A-2 (the “Bonds”), commencing on March 1, 2013 (the “Conversion Date”), theday immediately following the last day of the current SIFMA-Based Term Interest Rate Period, andending on _____________, ____. The Bonds are subject to mandatory tender on March 1, 2013, theday following the end of the current SIFMA-Based Term Interest Rate Period and the first day of thenew SIFMA-Based Term Interest Rate Period.The District and the Remarketing Agents are entering into this Remarketing Agreement forthe purpose of providing for the purchase and remarketing of the Bonds and the redelivery thereofand settlement therefor on the Conversion Date, and the application of the proceeds of suchremarketing to the payment of the purchase price of the tendered bonds on such Conversion Date.The District acknowledges that the Remarketing Agents will reoffer the Bonds in reliance on therepresentations, covenants and agreements set forth herein. From and after the Conversion Date andfor the duration of the new SIFMA-Based Term Interest Rate Period for the Bonds, which shall endon _____________, ____, the Bonds shall bear interest at a SIFMA-Based Interest Rate, reflectingthe SIFMA Index plus a spread of 0.___%. The Bonds will mature, and are redeemable and subjectto tender as provided in the Indenture and shall be as otherwise described in the Indenture and theReoffering Circular described below. The Bonds are secured under the provisions of the Indentureand are special obligations of the District payable from, and secured by a pledge of, the SubordinatedWater Revenues of the District and the amounts in the Series 2009A Bond Reserve Fund establishedpursuant to the Indenture.Upon the terms and conditions and in reliance upon the representations, warranties andagreements set forth herein, the Remarketing Agents, jointly and severally, hereby agree to purchasefrom the District upon redelivery thereof through the facilities of The Depository Trust Company tothe Remarketing Agents, all (but not less than all) of the $41,035,000 aggregate principal amount ofthe Bonds for reoffering to the public as described herein. The purchase price for the Bonds shall be$41,035,000, representing the par amount thereof, and shall be payable on the Conversion Date inimmediately available funds to the order of the Trustee for application to the payment of the tenderprice of the Bonds on the Conversion Date pursuant to the Indenture against redelivery of the Bonds.The Remarketing Agents agree to remarket the Bonds at the initial reoffering price of par. Ifnotwithstanding their diligent efforts to remarket the Bonds, they are unable to do so, and theRemarketing Agents are required to purchase the Bonds for their own account, they shall be entitledto reoffer such Bonds after the Conversion Date at such reoffering price as is necessary to sell theBonds. The District shall pay to the Representative, on behalf of the Remarketing Agents, by federalfunds wire on the Conversion Date, an amount equal to 0.___% of the par amount of the Bonds as theRemarketing Agents’ compensation in connection with the remarketing and redelivery of the Bonds.OHSUSA:752681087.12

The proceeds of the sale of the tendered Bonds will not be deposited with or under control ofthe District and will be paid by the Remarketing Agents to the Trustee and applied to the payment ofthe purchase price of the tendered Bonds pursuant to the Indenture.In connection with the reoffering of the Bonds, the District has previously undertaken,pursuant to a Continuing Disclosure Agreement, dated as of March 1, 2011 (the “ContinuingDisclosure Agreement”), by and between the District and the Trustee, as dissemination agent, toprovide certain annual financial information and operating data relating to the Water System andnotices of the occurrence of certain events. A description of this undertaking is set forth in thePreliminary Reoffering Circular (as defined herein) and will also be set forth in the ReofferingCircular.2. Use and Preparation of Reoffering Circular. The District hereby ratifies, confirmsand approves of the distribution and use by the Remarketing Agents prior to the date hereof of areoffering circular in preliminary form dated ____________, 2013 relating to the conversion andreoffering of the Bonds (which, together with all appendices and any amendments or supplementsthereto, is referred to herein as the “Preliminary Reoffering Circular”) and the making available ofthe Preliminary Reoffering Circular to investors prior to the date hereof on the internet. The Districthas deemed final the Preliminary Reoffering Circular as of the date thereof for purposes ofRule 15c2-12 promulgated under the Securities Exchange Act of 1934 (“Rule 15c2-12”), except forinformation permitted to be omitted therefrom in accordance with paragraph (b)(1) of Rule 15c2-12.The District hereby agrees to deliver or cause to be delivered to the Remarketing Agents, withinseven (7) business days of the date hereof, copies of the final Reoffering Circular relating to theBonds, dated February __, 2013, in the form of the Preliminary Reoffering Circular (including theappendices and such changes thereto and any amendments or supplements as have been approved bythe District and the Representative (which approval shall not be unreasonably withheld), the“Reoffering Circular”), in such quantity and/or in electronic format as the Remarketing Agents shallreasonably request. The District hereby approves of the distribution and use by the RemarketingAgents of the Reoffering Circular in connection with the remarketing of the Bonds. TheRemarketing Agents hereby agree to deliver a copy of the Reoffering Circular to the MunicipalSecurities Rulemaking Board (the “MSRB”) through the Electronic Municipal Marketplace Access(EMMA) website of the MSRB, currently located at http://emma.msrb.org on or before theConversion Date.3. Representations, Warranties and Agreements of the District. The District herebyrepresents, warrants and agrees with the Remarketing Agents as follows:(a) The District is a municipal utility district of the State of California dulyorganized and validly existing and operating pursuant to the laws of the State of California with fulllegal right, power and authority to execute and deliver the Reoffering Circular and to enter into thisRemarketing Agreement and had, at the respective dates of execution thereof, full legal right, powerand authority to enter into and deliver the Indenture (this Remarketing Agreement, the Indenture andthe Continuing Disclosure Agreement being hereinafter referred to as the “District Documents”);(b) By all necessary official action of the District prior to or concurrently with theacceptance hereof, the District has duly approved, ratified and confirmed distribution of thePreliminary Reoffering Circular and the execution, delivery and distribution of the ReofferingCircular, and has duly authorized and approved the execution and delivery of, and the performanceby the District of the obligations on its part contained in the District Documents and the District isOHSUSA:752681087.13

and will be on the Conversion Date in compliance in all material respects with the provisions thereof;the District Documents are, or as of the Conversion Date will be, in full force and effect insubstantially the form heretofore submitted to the Remarketing Agents with only such changes asshall have been approved by the Representative (which approval shall not be unreasonably withheld);and the District Documents constitute, or will constitute as of the Conversion Date, valid and legallybinding agreements of the District enforceable against the District in accordance with their respectiveterms, provided, however, that the enforceability thereof may be limited by applicable bankruptcy,insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights, and to thelimitations on legal remedies against public agencies in the State of California;(c) Except as otherwise disclosed in the Preliminary Reoffering Circular and theReoffering Circular, the District is not in Material Breach or Default under any applicableconstitutional provision, law or administrative regulation to which it is subject or any applicablejudgment, decree, court order or consent decree or any loan agreement, indenture, bond, note,resolution, agreement or other instrument to which the District is a party or to which the District orany of its property or assets is otherwise subject, and no event has occurred and is continuing whichwith the passage of time or the giving of notice, or both, would constitute such a Material Breach orDefault under any of the foregoing; and the remarketing of the Bonds in a new SIFMA-Based TermInterest Rate Period for the Bonds ending on ______________, ____, pursuant to the Indenture andas described in the Preliminary Reoffering Circular, the execution and delivery of the DistrictDocuments and the Reoffering Circular, and compliance with the provisions on the District’s partcontained herein and therein, did not and do not constitute a Material Breach or Default under anylaw, administrative regulation, judgment, decree, court order, consent decree, loan agreement,indenture, bond, note, resolution, agreement or other instrument to which the District is a party or towhich the District or any of its property or assets is otherwise subject, nor will any such execution,delivery or compliance result in the creation or imposition of any lien, charge or other securityinterest or encumbrance of any nature whatsoever upon any of the properties or assets of the Districtunder the terms of any such law, administrative regulation, judgment, decree, court order, consentdecree, loan agreement, indenture, bond, note, resolution, agreement or other instrument, except asprovided in the Indenture (for purposes of this Remarketing Agreement, the term “Material Breach orDefault” means any breach or default which could have a material adverse effect on the businessoperations or financial condition of the District or its Water System);(d) Except as otherwise disclosed in the Preliminary Reoffering Circular and theReoffering Circular or otherwise disclosed in writing by the District to the Representative on or priorto the execution hereof, there is no action, suit, proceeding, inquiry or investigation, at law or inequity, before or by any court, governmental agency, public board or body, pending or, to the bestknowledge of the District after reasonable investigation, threatened against or affecting the District:(i) in any material respect affecting or contesting the existence of the District or the titles of itsofficers to their respective offices; or (ii) affecting or seeking to prohibit, restrain or enjoin theremarketing or redelivery of the Bonds pursuant to the Indenture; or (iii) contesting or affecting, as tothe District, the validity or enforceability of the Bonds or the District Documents; or (iv) contestingthe powers of the District or its authority to enter into, deliver or perform its obligations under any ofthe foregoing, or contesting or affecting the power or authority of the District to impose rates andcharges, or the collection thereof, or the pledge of revenues under the Indenture; or (v) which mayresult in any material adverse change in the ability of the District to pay the Bonds; or (vi) contestingthe status of the interest on the Bonds as excludable from federal gross income; or (vii) contesting inany way the completeness or accuracy of the Preliminary Reoffering Circular or the ReofferingOHSUSA:752681087.14

Circular; or (viii) wherein an unfavorable ruling or finding would result in any material adversechange in the business operations or financial condition of the District or the Water System;(e) All authorizations, approvals, licenses, permits, consents and orders of anygovernmental authority, legislative body, board, agency or commission having jurisdiction over thematter which are required for the due authorization by, or which would constitute a conditionprecedent to or the absence of which would materially adversely affect the due performance by, theDistrict of its obligations in connection with the District Documents or the remarketing of the Bondsunder the Indenture have been duly obtained and remain in full force and effect, except for suchapprovals, consents and orders as may be required under the Blue Sky or securities laws of any statein connection with the remarketing of the Bonds;(f) Under the laws of the State of California, the authority of the District todetermine, fix, prescribe and collect rates, fees and charges in connection with the services andfacilities furnished by the Water System is not presently subject to the regulatory jurisdiction of theCalifornia Public Utilities Commission, or other local, regional or state regulatory authority, and,except as otherwise disclosed in writing by the District to the Representative on or prior to theexecution hereof, the District is not aware of any legislation proposed or pending to limit or restrictsuch rates, fees and charges;(g) The Bonds constitute valid and legally enforceable obligations of the Districtin accordance with their terms and the terms of the Indenture and the Indenture provides, for thebenefit of the holders from time to time of the Bonds and any parity bonds issued under the Indenture(“Parity Bonds”), a legally valid and binding pledge of Subordinated Water Revenues (as defined inthe Indenture) and the funds and accounts pledged under the Indenture, subject only to the provisionsof the Indenture permitting the application thereof for the purposes and on the terms and conditionsset forth therein;(h) The Bonds and the Indenture conform in all material respects to thedescriptions thereof contained in the Preliminary Reoffering Circular (except to the extent suchinformation is permitted to be omitted therefrom in accordance with Rule 15c2-12) and theReoffering Circular;(i) The audited financial statements of the District contained in the ReofferingCircular do and will fairly present the financial position and results of operations of the District as ofthe dates and for the periods therein set forth in accordance with generally accepted accountingprinciples applicable to governmental entities applied consistently, and, except as otherwise disclosedin the Preliminary Reoffering Circular and the Reoffering Circular, since the date thereof there hasbeen no material adverse change in the financial position or results of operations of the District or theWater System;(j) The District will furnish such information, execute such instruments and takesuch other action in cooperation with the Remarketing Agents as the Remarketing Agents mayreasonably request in order (i) to qualify the Bonds for offer and sale under the Blue Sky or othersecurities laws and regulations of such states and other jurisdictions of the United States as theRemarketing Agents may designate and (ii) to determine the eligibility of the Bonds for investmentunder the laws of such states and other jurisdictions, and will use its best efforts to continue suchqualification in effect so long as required for distribution of the Bonds; provided, however, that in noOHSUSA:752681087.15

event shall the District be required to take any action which would subject it to the general service ofprocess in any jurisdiction in which it is not now so subject;(k) The Preliminary Reoffering Circular (except for information relating tooffering prices, interest rate, selling compensation, aggregate principal amount, principal amount permaturity, delivery dates, ratings, other terms of the securities depending on such matters, and theidentity of the remarketing agents) did not as of the date thereof and, as supplemented or amendedthrough the date hereof, does not as of the date hereof contain any untrue statement of a material factor omit to state a material fact necessary to make the statements therein, in the light of thecircumstances under which they were made, not misleading in any material respect (except forinformation relating to DTC and its book-entry only system, as to which no opinion or view isexpressed, and except for such information as permitted to be omitted therefrom in accordance withRule 15c2-12);(l) As of the date thereof and at all times subsequent thereto to and including thedate which is 25 days following the End of the Underwriting Period (as defined below) for theBonds, the Reoffering Circular (excluding therefrom the information concerning DTC and the bookentrysystem and the information provided by the Remarketing Agents under the caption“REMARKETING” in the Reoffering Circular, as to which no representation is made) did not andwill not contain any untrue statement of a material fact or omit to state a material fact required to bestated therein or necessary to make the statements therein, in the light of the circumstances underwhich they were made, not misleading;(m) If between the date hereof and the date which is 25 days after the End of theUnderwriting Period for the Bonds, an event occurs which might or would cause the informationcontained in the Reoffering Circular (excluding therefrom the information concerning DTC and thebook-entry system and the information provided by the Remarketing Agents under the caption“REMARKETING” in the Reoffering Circular, as to which no representation is made), as thensupplemented or amended, to contain an untrue statement of a material fact or to omit to state amaterial fact required to be stated therein or necessary to make such information therein, in the lightof the circumstances under which it was presented, not misleading, the District will notify theRemarketing Agents, and, if in the opinion of the District, the Remarketing Agents or their respectivecounsel, such event requires the preparation and publication of a supplement or amendment to theReoffering Circular, the District will forthwith prepare and furnish to the Remarketing Agents (at theexpense of the District) a reasonable number of copies of an amendment of or supplement to theReoffering Circular (in form and substance reasonably satisfactory to the Remarketing Agents andtheir counsel) which will amend or supplement the Reoffering Circular so that it will not contain anuntrue statement of a material fact or omit to state a material fact necessary in order to make thestatements therein, in the light of the circumstances existing at the time the Reoffering Circular isdelivered to prospective purchasers, not misleading. For the purposes of this subsection, between thedate hereof and the date which is 25 days after the End of the Underwriting Period for the Bonds, theDistrict will furnish such information with respect to itself as the Remarketing Agents may from timeto time reasonably request;(n) If the information contained in the Reoffering Circular is amended orsupplemented pursuant to paragraph (m) hereof, at the time of each supplement or amendmentthereto and (unless subsequently again supplemented or amended pursuant to such subparagraph) atall times subsequent thereto up to and including the date which is 25 days after the End of theUnderwriting Period for the Bonds, the portions of the Reoffering Circular so supplemented orOHSUSA:752681087.16

amended (excluding therefrom the information concerning DTC and the book-entry system and theinformation provided by the Remarketing Agents under the caption “REMARKETING” in theReoffering Circular, as to which no representation is made)will not contain any untrue statement of amaterial fact or omit to state a material fact required to be stated therein or make such informationtherein, in the light of the circumstances under which it was presented, not misleading;(o) As used herein and for the purposes of this Remarketing Agreement, the term“End of the Underwriting Period” for the Bonds shall mean the earlier of (i) the Conversion Dateunless the District shall have been notified in writing to the contrary by the Representative on or priorto the Conversion Date or (ii) the date on which the End of the Underwriting Period for the Bondshas occurred under Rule 15c2-12; provided, however, that, unless the Representative gives notice inwriting to the District to the contrary on or prior to the Conversion Date, the End of the UnderwritingPeriod for the Bonds shall be deemed to be the Conversion Date;(p) After the Conversion Date, the District will not participate in the issuance ofany amendment of or supplement to the Reoffering Circular to which, after being furnished with acopy, the Representative shall reasonably object in writing;(q) Any certificate signed by any authorized official of the District, and deliveredto the Remarketing Agents in connection with the conversion and redelivery of the Bonds, shall bedeemed a representation and warranty by the District to the Remarketing Agents as to the statementsmade therein; and(r) Except as disclosed in the Reoffering Circular, the District has not, in the lastfive years, failed to comply in all material respects with any previous undertakings with regard toRule 15c2-12 to provide annual reports of financial and operating data or notices of enumeratedevents.4. Representations by the Remarketing Agents. Each of the Remarketing Agentsrepresents to the District that it has been duly incorporated and is validly existing and in goodstanding under the laws of the state in which it is incorporated; that it has full power and authority toenter into and perform its obligations under this Remarketing Agreement; and that this RemarketingAgreement constitutes the legal, valid and binding obligation of the Remarketing Agents enforceableagainst the Remarketing Agents in accordance with its terms, except as the enforcement thereof maybe limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar lawsaffecting creditors’ rights.5. Remarketing Agents’ Duties and Obligations. The Remarketing Agents agree that, inconnection with the remarketing of the Bonds on the Conversion Date, they will:(a) Hold all remarketed Bonds delivered to it in trust for the benefit of therespective owners which shall have delivered such remarketed Bonds until moneys representing thepurchase price of such remarketed Bonds shall have been delivered to, for the account of, or to theorder of such Bondholders;(b) Hold all moneys delivered to it for the purchase of remarketed Bonds for thebenefit of the person or entity which shall have so delivered such moneys until the remarketed Bondspurchased with such moneys shall have been delivered to or for the account of such person or entity;andOHSUSA:752681087.17

(c) Perform all duties and obligations of the Remarketing Agents under theSupplemental Indenture.6. Conditions to the Obligations of the Remarketing Agents. The Remarketing Agentshereby enter into this Remarketing Agreement in reliance upon the representations and warranties ofthe District contained herein and the representations and warranties to be contained in the documentsand instruments to be delivered at the Conversion Date and upon the performance by the District ofits obligations both on and as of the date hereof and as of the Conversion Date. Accordingly, theRemarketing Agents’ obligations under this Remarketing Agreement to purchase, to acceptredelivery of and to pay for the Bonds shall be subject, at the option of the Remarketing Agents, tothe accuracy in all material respects of the representations and warranties of the District containedherein as of the date hereof and as of the Conversion Date, to the accuracy in all material respects ofthe statements of the officers and other officials of the District made in any certificate or otherdocument furnished pursuant to the provisions hereof, to the performance by the District of itsobligations to be performed hereunder and under such documents and instruments at or prior to theConversion Date, and also shall be subject to the following additional conditions:(a) The Remarketing Agents shall receive, within seven (7) business days of thedate hereof or no later than the Conversion Date, copies of the Reoffering Circular (including allinformation previously permitted to have been omitted by Rule 15c2-12 and any amendments orsupplements as have been approved by the Representative), in such reasonable quantity as theRemarketing Agents shall have requested;(b) The representations and warranties of the District contained herein shall betrue and correct in all material respects on the date hereof and on the Conversion Date, as if made onand at the Conversion Date;(c) At the Conversion Date, the District Documents shall have been dulyauthorized, executed and delivered by the respective parties thereto, and the Reoffering Circular shallhave been duly authorized, executed and delivered by the District, all in substantially the formsheretofore submitted to the Remarketing Agents, with only such changes as shall have been approvedby the Representative (which approval shall not be unreasonably withheld), and such DistrictDocuments shall be in full force and effect; and there shall be in full force and effect such resolutionor resolutions of the Board of Directors of the District as, in the opinion of Fulbright & JaworskiL.L.P., Los Angeles, California, and Curls Bartling P.C., Oakland, California (“Co-Bond Counsel”),and Orrick, Herrington & Sutcliffe LLP, San Francisco, California, counsel to the RemarketingAgents (“Remarketing Agents’ Counsel”), shall be necessary or appropriate in connection with thetransactions contemplated hereby;(d) Between the date hereof and the Conversion Date, the market price ormarketability, at the initial offering price set forth in the Reoffering Circular, of the Bonds shall nothave been materially adversely affected, in the reasonable judgment of the Remarketing Agents(evidenced by a written notice to the District terminating the obligation of the Remarketing Agents toaccept redelivery of and make any payment for the Bonds), by reason of any of the following:(1) an amendment to the Constitution of the United States or the State ofCalifornia shall have been passed or legislation shall have been introduced in or enacted by theCongress of the United States or the legislature of the State of California or legislation pending in theCongress of the United States shall have been amended or legislation shall have been recommendedOHSUSA:752681087.18

to the Congress of the United States or otherwise endorsed for passage (by press release, other formof notice or otherwise) by the President of the United States, the Treasury Department of the UnitedStates, the Internal Revenue Service or the Chairman or ranking minority member of the Committeeon Finance of the United States Senate or the Committee on Ways and Means of the United StatesHouse of Representatives, or legislation shall have been proposed for consideration by either suchCommittee by any member thereof or presented as an option for consideration by either suchCommittee by the staff of such Committee or by the staff of the Joint Committee on Taxation of theCongress of the United States, or legislation shall have been favorably reported for passage to eitherHouse of the Congress of the United States by a Committee of such House to which such legislationhas been referred for consideration, or a decision shall have been rendered by a court of the UnitedStates or of the State of California or the Tax Court of the United States, or a ruling shall have beenmade or a regulation or temporary regulation shall have been proposed or made or any other releaseor announcement shall have been made by the Treasury Department of the United States, the InternalRevenue Service or other federal or State of California authority, with respect to federal or State ofCalifornia taxation upon revenues or other income of the general character to be derived by theDistrict or upon interest received with respect to obligations of the general character of the Bondswhich, in the reasonable judgment of the Remarketing Agents, may have the purpose or effect,directly or indirectly, of affecting the tax status of the District, its property or income, its securities(including the Bonds) or the interest thereon, or any tax exemption granted or authorized by federalor State of California legislation;(2) legislation shall have been enacted, introduced in the Congress orrecommended for passage by the President of the United States, or a decision rendered by a courtestablished under Article III of the Constitution of the United States or by the Tax Court of theUnited States, or an order, ruling, regulation (final, temporary or proposed) or Reoffering Circular byor on behalf of the Securities and Exchange Commission, or any other governmental agency havingjurisdiction of the subject matter, shall have been made or issued to the effect that obligations of thegeneral character of the Bonds, or the Bonds, are not exempt from registration under the SecuritiesAct of 1933, as amended, or that the Indenture is not exempt from qualification under the TrustIndenture Act of 1939, as amended;(3) the declaration of war or the escalation of, or engagement in, militaryhostilities by the United States or the occurrence of any other national or international emergency orcalamity relating to the effective operation of the government of, or the financial community in, theUnited States the effect of which is such as to make it impracticable or inadvisable to proceed withthe remarketing and redelivery of the Bonds as contemplated hereby or by the Reoffering Circular;(4) the declaration of a general banking moratorium by federal, State ofNew York or State of California authorities, or the general suspension of trading on any nationalsecurities exchange;(5) the imposition by the New York Stock Exchange or other nationalsecurities exchange, or any governmental authority, of any material restrictions not now in force withrespect to the Bonds or obligations of the general character of the Bonds or securities generally, orthe material increase of any such restrictions now in force, including those relating to the extensionof credit by, or the charge to the net capital requirements of, the Remarketing Agents;(6) an order, decree or injunction of any court of competent jurisdiction,or order, ruling, regulation or official statement by the Securities and Exchange Commission, or anyOHSUSA:752681087.19

other governmental agency having jurisdiction of the subject matter, issued or made to the effect thatthe issuance, offering or sale of obligations of the general character of the Bonds, or the remarketing,reoffering or redelivery of the Bonds, as contemplated hereby or by the Reoffering Circular, is orwould be in violation of the federal securities laws as amended and then in effect;(7) the Bonds and, if applicable, the underlying rating of the District’sWater System Revenue Bonds shall be rated not lower than the respective ratings thereof as set forthin the Preliminary Reoffering Circular; or(8) any event occurring, or information becoming known which, in thereasonable judgment of the Remarketing Agents, makes untrue in any material respect any statementor information then contained in the Preliminary Reoffering Circular or the Reoffering Circular, orhas the effect that the Preliminary Reoffering Circular or the Reoffering Circular then contains anyuntrue statement of a material fact or omits to state a material fact required to be stated therein ornecessary to make the statements therein, in the light of the circumstances under which they weremade, not misleading.(e) At or prior to the Conversion Date, the Remarketing Agents shall havereceived the following documents, in each case satisfactory in form and substance to theRemarketing Agents and Remarketing Agents’ Counsel:(1) Counterparts of the District Documents, duly executed and deliveredby the respective parties thereto;(2) The opinion of Orrick, Herrington & Sutcliffe LLP, Special TaxCounsel to the Remarketing Agents (“Special Tax Counsel”), dated the Conversion Date andaddressed to the District, in substantially the form attached to the Reoffering Circular as Appendix Dthereto, and a letter of such counsel, dated the Conversion Date and addressed to the RemarketingAgents, to the effect that such opinion may be relied upon by the Remarketing Agents to the sameextent as if such opinion were addressed to them;(3) The opinion of Co-Bond Counsel, dated the Conversion Date andaddressed to the Remarketing Agents, in substantially the form attached hereto as Exhibit A;(4) The opinion of the Office of General Counsel of the District, datedthe Conversion Date and addressed to the Remarketing Agents, in substantially the form attachedhereto as Exhibit B;(5) The opinion of Remarketing Agents’ Counsel, dated the ConversionDate and addressed to the Remarketing Agents, to the effect that (a) the Bonds are exempt fromregistration under the Securities Act of 1933, as amended, and the Indenture is exempt fromqualification under the Trust Indenture Act of 1939, as amended, and the Continuing DisclosureAgreement satisfies paragraph (b)(5) of Rule 15c2-12; and (b) without having undertaken todetermine independently the accuracy, completeness or fairness of the statements contained in thePreliminary Reoffering Circular or the Reoffering Circular and based upon the information madeavailable to them in the course of their participation in the preparation of the Preliminary ReofferingCircular and the Reoffering Circular as counsel for the Remarketing Agents, nothing has come totheir attention which would cause them to believe that the Preliminary Reoffering Circular, as of thedate of this Remarketing Agreement, and the Reoffering Circular, as of the respective date thereofOHSUSA:752681087.110

and the Conversion Date, contained any untrue statement of a material fact or omitted to state amaterial fact required to be stated therein or necessary to make the statements therein, in the light ofthe circumstances under which they were made, not misleading; provided that no opinion need beexpressed with respect to the financial statements and the statistical data included in the OfferingCircular, and Appendices B through F thereto, and information regarding DTC and its book-entryonly system;(6) A certificate or certificates, dated the Conversion Date, signed by aduly authorized official of the District, in form and substance satisfactory to the Remarketing Agents,to the effect that (a) the representations and warranties of the District contained in this RemarketingAgreement are true and correct in all material respects on and as of the Conversion Date with thesame effect as if made on the Conversion Date; (b) to the best of such officer’s knowledge, no eventaffecting the District has occurred since the date of the Reoffering Circular which either makesuntrue or incorrect in any material respect as of the Conversion Date any statement or informationcontained in the Reoffering Circular relating to the District or is not reflected in the ReofferingCircular but should be reflected therein in order to make the statements and information thereinrelating to the District not misleading in any material respect; (c) since June 30, 2012, except asreferred to in or as contemplated by the Preliminary Reoffering Circular and the Reoffering Circular,the District has not incurred any financial liabilities, direct or contingent, or entered into anytransactions and there has not been any adverse change in the condition, financial or physical, of theWater System, in any case that would materially and adversely affect the ability of the District tomeet its obligations under the Indenture or the Bonds; and (d) the projected operating results and debtservice coverage contained in Table 19 of Appendix A to the Preliminary Reoffering Circular and theReoffering Circular are the District’s projections and are based on the stated assumptions, which theDistrict believes to be reasonable;(7) A copy of the Preliminary Reoffering Circular;(8) A copy of the Reoffering Circular, executed on behalf of the Districtby an authorized officer of the District;(9) A copy of the resolution or the resolutions of the District authorizingthe execution and delivery of this Remarketing Agreement and the Reoffering Circular, certified bythe Secretary or an Assistant Secretary of the District to be in full force and effect as of theConversion Date;(10) Evidence that any ratings described in the Reoffering Circular are infull force and effect as of the Conversion Date;(11) A copy of the Blue Sky Memorandum with respect to the Bonds,prepared by Remarketing Agents’ Counsel (if any);(12) A Supplemental Tax Certificate signed by the District relating to theBonds, in form and substance satisfactory to Special Tax Counsel;(13) A copy of the Blanket Letter of Representations to DTC relating tothe Bonds signed by the District; andOHSUSA:752681087.111

(14) Such additional legal opinions, certificates, proceedings, instrumentsand other documents as the Remarketing Agents, Remarketing Agents’ Counsel or Co-Bond Counselmay reasonably request to evidence the truth and accuracy, as of the date hereof and as of theConversion Date, of the representations of the District herein and of the statements and informationcontained in the Reoffering Circular, and the due performance or satisfaction by the District at orprior to the Conversion Date of all agreements then to be performed and all conditions then to besatisfied by the District in connection with the transactions contemplated hereby and by the DistrictDocuments and the Reoffering Circular.If the District shall be unable to satisfy the conditions to the Remarketing Agents’ obligationscontained in this Remarketing Agreement, all obligations of the Remarketing Agents hereunder maybe terminated by the Remarketing Agents at, or at any time prior to, the Conversion Date by writtennotice to the District and neither the Remarketing Agents nor the District shall have any furtherobligations hereunder.In the event the Remarketing Agents fail (other than for a reason permitted by thisRemarketing Agreement) to accept and pay for the Bonds at the Conversion Date, the amount of onepercent (1%) of the principal amount of the Bonds shall be paid by the Remarketing Agents to theDistrict as liquidated damages for such failure and for any and all defaults hereunder by theRemarketing Agents and the acceptance of such amount shall constitute a full release and dischargeof all claims and rights of the District against the Remarketing Agents.7. Expenses. The Remarketing Agents shall be under no obligation to pay, and theDistrict shall pay, any expenses and costs incident to the performance of the District’s obligationshereunder including, but not limited to: (i) the costs of printing of the Preliminary ReofferingCircular, the Reoffering Circular and any supplements or amendments thereof; (ii) the costs ofpreparation and printing of the Bonds to be redelivered on the Conversion Date; (iii) the fees of itsfinancial advisors, accountants, consultants and rating agencies, the Trustee and its counsel inconnection with the remarketing and redelivery of the Bonds and the fees and expenses of Co-BondCounsel and Remarketing Agents’ Counsel; and (iv) the reasonable out-of-pocket expenses of theRemarketing Agents. The District shall pay for expenses incurred on behalf of the District’semployees which are incidental to implementing this Remarketing Agreement, including, but notlimited to, meals, transportation and lodging of those employees.8. Notices. Any notice or other communication to be given under this RemarketingAgreement may be given by delivering the same by electronic means (followed by writtenconfirmation) to the respective parties at the following addresses:OHSUSA:752681087.1District:Representative:East Bay Municipal Utility District375 Eleventh StreetOakland, California 94607Attention: Director of FinanceE-mail: esandler@ebmud.comE.J. De La Rosa & Co., Inc.10866 Wilshire Boulevard, Suite #1650Los Angeles, California 90024Attention: John Kim, PrincipalE-mail: jkim@ejdelarosa.com12

9. Survival of Representations and Warranties. All of the District’s representations,warranties and agreements contained in this Remarketing Agreement shall remain operative and infull force and effect, regardless of: (i) any investigations made by or on behalf of the RemarketingAgents; and (ii) redelivery of and payment for the Bonds upon the remarketing thereof pursuant tothis Remarketing Agreement.10. Effectiveness and Counterpart Signatures. This Remarketing Agreement shallbecome effective and binding upon the respective parties hereto upon the execution of the acceptancehereof by duly authorized officials of the District and shall be valid and enforceable as of the time ofsuch acceptance. This Remarketing Agreement may be executed by the parties hereto in separatecounterparts, each of which when so executed and delivered shall be an original, but all suchcounterparts shall together constitute but one and the same instrument.11. Parties in Interest. This Remarketing Agreement is made solely for the benefit of theDistrict and the Remarketing Agents (including the successors or assigns of the Remarketing Agents)and no other person shall acquire or have any right hereunder or by virtue hereof.12. Entire Agreement. This Remarketing Agreement when accepted by the District inwriting as heretofore specified shall constitute the entire agreement between the District and theRemarketing Agents with respect to the remarketing and purchase of the Bonds.13. Headings. The headings of the sections of this Remarketing Agreement are insertedfor convenience only and shall not be deemed to be a part hereof.OHSUSA:752681087.113

14. Governing Law. This Remarketing Agreement shall be construed in accordance withthe laws of the State of California.Very truly yours,E.J. DE LA ROSA & CO., INC.,as Representative of the Remarketing AgentsBy:PrincipalACCEPTED:EAST BAY MUNICIPAL UTILITY DISTRICTBy:Director of FinanceOHSUSA:752681087.1S-1

EXHIBIT AFORM OF SUPPLEMENTAL OPINION OFCO-BOND COUNSEL[CONVERSION DATE]E.J. De La Rosa & Co., Inc.RBC Capital Markets, LLCas Remarketing Agents of the Series 2009A-2 BondsLadies and Gentlemen:EAST BAY MUNICIPAL UTILITY DISTRICT(Alameda and Contra Costa Counties, California)WATER SYSTEM REVENUE REFUNDING BONDS, SERIES 2009A-2This opinion is addressed to you, E.J. De La Rosa & Co., Inc. and RBC Capital Markets,LLC, as Remarketing Agents, pursuant to Section 6(e)(3) of the Amended and Restated RemarketingAgreement (Delayed Delivery), dated February __, 2013 (the “Remarketing Agreement”), betweenyou and the East Bay Municipal Utility District (the “District”), providing for the remarketing of$41,035,000 principal amount of the District’s Water System Revenue Refunding Bonds, Series2009A-2 (the “Bonds”). Capitalized terms not otherwise defined shall have the meanings ascribedthereto in the Remarketing Agreement or if not defined therein, in the Reoffering Circular datedFebruary __, 2013, relating to the Bonds (the “Reoffering Circular”).On the initial date of delivery of the Bonds, we rendered our opinion approving the validityof the Bonds and on the date hereof, we rendered our opinion concerning the establishment of a newSIFMA-Based Term Interest Rate Period commencing on the date hereof with respect to the Bonds.You may rely on such opinions as if they were addressed to you.Based upon and subject to the matters referred to in such opinions (which are herebyincorporated by reference) and in reliance thereon, as of the date hereof, we are also of the followingopinions or conclusions:1. The statements contained in the Preliminary Reoffering Circular, dated ___________,2013, relating to the Bonds (the “Preliminary Reoffering Circular”) and the Reoffering Circular onthe cover and under the captions “INTRODUCTION,” “THE SERIES 2009A-1 BONDS,” and“SECURITY FOR THE SERIES 2009A-2 BONDS” and in “APPENDIX C—SUMMARY OFCERTAIN PROVISIONS OF THE INDENTURE,” and “APPENDIX F—FORM OFCONTINUING DISCLOSURE AGREEMENT” (excluding the statements under each such captionrelating to The Depository Trust Company (“DTC”), Cede & Co. and the book-entry system, as to allof which we express no view), insofar as the statements contained under such captions purport tosummarize certain provisions of the Bonds, the Indenture, the Continuing Disclosure Agreement, theWater Interest Rate Swap Agreements, the Extendable Municipal Commercial Paper Notes (WaterSeries) and our opinion concerning certain tax matters relating to the Bonds, present an accuratesummary of such provisions for the purpose of use in the Preliminary Reoffering Circular and theReoffering Circular.OHSUSA:752681087.1A-1

2. The Reoffering Circular and the execution and delivery thereof have been dulyapproved by the District and the Remarketing Agreement has been duly authorized, executed anddelivered by the District and (assuming due authorization, execution and delivery by and validityagainst the other parties thereto) is the valid and binding agreement of the District, enforceableagainst the District in accordance with its terms. We call attention to the fact that the rights andobligations under the Remarketing Agreement and the enforceability thereof are subject to and maybe limited by bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance,moratorium and other similar laws affecting creditors’ rights, to the application of equitableprinciples, to the possible unavailability of specific performance or injunctive relief, to the exerciseof judicial discretion in appropriate cases and to the limitations on legal remedies against publicagencies in the State of California. We express no opinion with respect to any indemnification,contribution, penalty, choice of law, choice of forum or waiver (including, without limitation, waiverof jury trial or consent to nonjury trial) provisions contained in the foregoing documents.3. The Bonds are not subject to the registration requirements of the Securities Act of1933, as amended, and the Indenture is exempt from qualification pursuant to the Trust Indenture Actof 1939, as amended.4. The execution and delivery of the Remarketing Agreement by the District, andcompliance by the District with provisions of the foregoing, as appropriate, does not in any materialrespect conflict with or constitute on the part of the District a Material Breach or Default under theIndenture or the Bonds issued thereunder, as amended, or Resolution No. 33705-09 of the Districtadopted on March 10, 2009, authorizing the District’s extendable municipal commercial paperprogram or, to the best of our knowledge, any loan agreement with any State governmental agency towhich the District is a party or to which the District or any of its property or assets are otherwisesubject.Based upon our participation in the preparation of the Preliminary Reoffering Circular andthe Reoffering Circular as co-bond counsel and on the basis of the information made available to usin the course of the foregoing, but without having undertaken to determine or verify independently,or assuming any responsibility for, the accuracy, completeness or fairness of any of the statementscontained in the Preliminary Reoffering Circular and the Reoffering Circular (except to the extentexpressly set forth in paragraph 1 above), as of the date hereof no facts have come to the attention ofthe personnel in our firm directly involved in rendering legal advice and assistance in connectionwith the preparation of the Preliminary Reoffering Circular and the Reoffering Circular that causesus to believe that (a) the Preliminary Reoffering Circular as of the date of the RemarketingAgreement contained any untrue statement of a material fact or omitted to state a material factnecessary to make the statements therein, in the light of the circumstances under which they weremade, not misleading (excluding therefrom the discussions contained in the Preliminary ReofferingCircular of permits, licenses and approvals required for the construction and operation of any projectsof the District, and the status thereof, the description of any litigation, statements relating to thetreatment of the Bonds or the interest, discount or premium, if any, thereon or therefrom for taxpurposes under the law of any jurisdiction, any information relating to DTC, Cede & Co., the bookentrysystem, forecasts, projections, estimates, assumptions and expressions of opinions and thefinancial and statistical data included therein, as to all of which we express no view), and except forsuch information as is permitted to be excluded from the Preliminary Reoffering Circular pursuant toRule 15c2-12 of the Securities Exchange Act of 1934, as amended, including but not limited toinformation as to pricing, yields, interest rates, maturities, amortization, redemption provisions, debtservice requirements, remarketing agents’ compensation and CUSIP numbers, or (b) the ReofferingOHSUSA:752681087.1A-2

Circular as of its date or as of the date hereof contained or contains any untrue statement of a materialfact or omitted or omits to state a material fact necessary to make the statements therein, in the lightof the circumstances under which they were made, not misleading (excluding therefrom thediscussions contained in the Reoffering Circular of permits, licenses and approvals required for theconstruction and operation of any projects of the District, and the status thereof, the description ofany litigation, statements relating to the treatment of the Bonds or the interest, discount or premium,if any, thereon or therefrom for tax purposes under the law of any jurisdiction, any informationrelating to DTC, Cede & Co., the book-entry system, forecasts, projections, estimates, assumptionsand expressions of opinions and the financial and statistical data included therein, as to all of whichwe express no view).During the period from the date of the Preliminary Reoffering Circular to the date of thisopinion, except for our review of the certificates and opinions regarding the Preliminary ReofferingCircular and the Reoffering Circular delivered on the date hereof, we have not undertaken anyprocedures or taken any actions which were intended or were likely to elicit information concerningthe accuracy, completeness or fairness of any of the statements contained in the PreliminaryReoffering Circular or the Reoffering Circular.The opinions expressed herein are based on an analysis of existing laws, regulations, rulingsand court decisions. Such opinions may be adversely affected by actions taken or events occurring,including a change in law, regulation or ruling (or in the application or official interpretation of anylaw, regulation or ruling) after the date hereof. We have not undertaken to determine, or to informany person, whether such actions are taken or such events occur, and we have no obligation to updatethis opinion in light of any such actions or events.We are furnishing you this letter at the request of the District and solely for the informationof, and assistance to, you in conducting and documenting your investigation of the affairs of theDistrict in connection with the reoffering of the Bonds and it is not to be used, circulated, quoted orotherwise referred to for any other purpose, including but not limited to the purchase or sale of theBonds, nor is it to be referred to in whole or in part in the Preliminary Reoffering Circular or theReoffering Circular or any other document, except that it may be included in, and reference may bemade to it in any list of, the closing documents pertaining to the reoffering and redelivery of theBonds. The provision of this opinion to you shall not create any attorney-client relationship betweeneither of our firms and you. This opinion may not be relied upon by any other person, firm,corporation or other entity without our prior written consent.Respectfully submitted,Respectfully submitted,OHSUSA:752681087.1A-3

EXHIBIT BFORM OF OPINION OF OFFICE OF DISTRICT GENERAL COUNSEL[CONVERSION DATE]E.J. De La Rosa & Co., Inc.,RBC Capital Markets, LLCas Representative of the Remarketing Agentsof the Series 2009A-2 BondsLadies and Gentlemen:EAST BAY MUNICIPAL UTILITY DISTRICT(Alameda and Contra Costa Counties, California)WATER SYSTEM REVENUE REFUNDING BONDS, SERIES 2009A-2I am General Counsel to the East Bay Municipal Utility District (the “District”), a municipalutility district organized and existing pursuant to the Municipal Utility District Act, constitutingDivision 6 of the Public Utilities Code of the State of California, as amended. This opinion isrendered to you, E.J. De La Rosa & Co., Inc. and RBC Capital Markets, LLC, as RemarketingAgents, pursuant to Section 6(e)(4) of the Amended and Restated Remarketing Agreement (DelayedDelivery), dated February __, 2013 (the “Remarketing Agreement”), between you and the East BayMunicipal Utility District (the “District”), providing for the remarketing of $41,035,000 principalamount of the District’s Water System Revenue Refunding Bonds, Series 2009A-2 (the “Bonds”).Capitalized terms not otherwise defined shall have the meanings ascribed thereto in the RemarketingAgreement or if not defined therein, in the Reoffering Circular, dated February __, 2013, relating tothe Bonds (the “Reoffering Circular”).In rendering this opinion, I have examined the following documents: (i) the Water SystemSubordinated Revenue Bond Indenture, dated as of April 1, 1990, between the District and The Bankof New York Mellon Trust Company, N.A., as successor trustee (the “Trustee”), as amended andsupplemented to the date hereof, including by the Fifteenth Supplemental Indenture dated as ofMarch 1, 2009, by and between the District and the Trustee (collectively, the “Indenture”); (ii) theContinuing Disclosure Agreement, dated as of March 1, 2011 (the “Continuing DisclosureAgreement”), by and between the District and the Trustee, as dissemination agent; (iii) theRemarketing Agreement; (iv) the Preliminary Reoffering Circular, dated _____________, 2013,relating to the Bonds (the “Preliminary Reoffering Circular”) and the Reoffering Circular; and(v) such other documents and instruments, including certificates of public officials, and have madesuch investigations of law and of fact as I have deemed necessary or appropriate for the purpose ofrendering the opinions set forth herein. The Indenture, the Continuing Disclosure Agreement and theRemarketing Agreement are collectively referred to herein as the “District Documents.” In addition,I call attention to the fact that the rights and obligations under the District Documents, the Bonds andthe other legal documents and the enforceability thereof are subject to bankruptcy, insolvency,reorganization, moratorium and other similar laws affecting creditors’ rights, to the application ofequitable principles, to the exercise of judicial discretion in appropriate cases and to the limitationson legal remedies against public agencies in the State of California.OHSUSA:752681087.1B-1

Based on the foregoing, I am of the opinion that:(1) The District is, and was at all relevant times, a municipal utility district dulyorganized and validly existing under the laws of the State of California.(2) The resolution or resolutions of the District (the “Resolutions”) approving andauthorizing the execution and delivery of the Bonds, the District Documents and the ReofferingCircular were duly adopted and/or approved by the District at meetings of the Board of Directors ofthe District, which were called and held pursuant to law and with all public notice required by lawand at which a quorum was present and acting throughout, and each of the District Documents hasbeen duly authorized, executed and delivered by the District and (assuming due authorization,execution and delivery by the other parties thereto) constitutes the legal, valid and binding obligationof the District.(3) Except as disclosed in the Preliminary Reoffering Circular and the ReofferingCircular or otherwise disclosed in writing by the District to the Remarketing Agents on or prior to thedate hereof, there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before orby any court, governmental agency, public board or body, pending or, to the best of my knowledgeafter reasonable investigation, threatened against or affecting the District: (i) in any material respectaffecting or contesting the existence of the District or the titles of its officers to their respectiveoffices; or (ii) affecting or seeking to prohibit, restrain or enjoin the remarketing or redelivery of theBonds pursuant to the Indenture; or (iii) contesting or affecting, as to the District, the validity orenforceability of the Bonds or the District Documents; or (iv) contesting the powers of the District orits authority to enter into, deliver or perform its obligations under any of the foregoing, or contestingor affecting the power or authority of the District to impose taxes, rates and charges, or the collectionthereof, or the pledge of revenues under the Indenture; or (v) which may result in any materialadverse change in the ability of the District to pay the Bonds; or (vi) contesting the status of theinterest on the Bonds as excludable from federal gross income; or (vii) contesting in any way thecompleteness or accuracy of the Preliminary Reoffering Circular or the Reoffering Circular; or(viii) wherein an unfavorable ruling or finding would result in any material adverse change in thebusiness operations or financial condition of the District or the Water System.(4) The remarketing of the Bonds in the new SIFMA-Based Term Interest Rate Periodpursuant to the Indenture and as described in the Preliminary Reoffering Circular and the ReofferingCircular, the execution and delivery of the District Documents and the Reoffering Circular, andcompliance by the District with the provisions of the foregoing, as appropriate, to the best of myactual knowledge after reasonable investigation, did not and do not in any material respect conflictwith or constitute on the part of the District a Material Breach or Default under any loan agreement,indenture, bond, note, resolution, agreement or other instrument to which the District is a party or towhich the District or any of its property or assets is otherwise subject or any existing law,administrative regulation, judgment, decree, court order or consent decree to which the District orany of its property or assets is subject. In rendering the foregoing opinion, I have relied, in part, uponthe opinion of Fulbright & Jaworski L.L.P. and Curls-Bartling P.C. expressed in paragraph (4) oftheir opinion delivered on this date.(5) Except as described in the Preliminary Reoffering Circular and the ReofferingCircular, no authorization, approval, consent, or other order of the State of California or any othergovernmental authority or agency within the State of California having jurisdiction over the Districtor its property is required for the valid authorization, execution, delivery and performance by theOHSUSA:752681087.1B-2

District of the District Documents or the Reoffering Circular or for the adoption of the Resolutionswhich has not been obtained, provided that no opinion is expressed with respect to qualificationunder Blue Sky or other state securities laws.(6) Without having undertaken to determine independently the accuracy, completeness orfairness of the statements contained in the Preliminary Reoffering Circular or the Reoffering Circularand based upon the information made available to me during the preparation of the PreliminaryReoffering Circular and the Reoffering Circular as General Counsel to the District, nothing has cometo my attention which causes me to believe that (i) the information contained in the PreliminaryReoffering Circular under the captions “THE DISTRICT,” “CONSTITUTIONAL ANDSTATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS” and “LITIGATION” and inAppendix A—“THE EAST BAY MUNICIPAL UTILITY DISTRICT (THE WATER SYSTEM)”(excluding therefrom the financial statements and the statistical data included in the PreliminaryReoffering Circular, as to which no opinion is expressed), as of the date of the RemarketingAgreement, contained an untrue statement of a material fact or omitted to state a material factrequired to be stated therein or necessary to make the statements therein, in the light of thecircumstances under which they were made, not misleading, or (ii) the information contained in theReoffering Circular under the captions “THE DISTRICT,” “CONSTITUTIONAL ANDSTATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS” and “LITIGATION” and inAppendix A—“THE EAST BAY MUNICIPAL UTILITY DISTRICT (THE WATER SYSTEM)”(excluding therefrom the financial statements and the statistical data included in the ReofferingCircular, as to which no opinion is expressed), as of the date thereof and as of the date hereof,contained or contains an untrue statement of a material fact or omitted or omits to state a materialfact required to be stated therein or necessary to make the statements therein, in the light of thecircumstances under which they were made, not misleading.(7) The Subordinated Water Revenues are free and clear of and from any and all liensand encumbrances other than as set forth in the Preliminary Reoffering Circular and the ReofferingCircular.(8) Under the laws of the State of California, the District has the authority to fix andcollect rates, fees and charges in connection with the services and facilities furnished by the WaterSystem and is not presently subject to the regulatory jurisdiction of any state, regional or localgovernment regulatory authority in connection with fixing and collecting such rates, fees andcharges. No assurance can be given that any such legislation may not be proposed or introducedafter the date of this opinion.I express no opinion as to any matters other than as expressly set forth above and assume noobligation to revise or supplement this opinion should any law on which any opinions are based orany facts or matters upon which I have relied subsequently change. Without limiting the generalityof the foregoing, I specifically express no opinion as to the status of the Bonds or the interest thereonunder any federal securities laws or any state securities or “Blue Sky” law or any federal, state orlocal tax law. Further, I express no opinion on the laws of any jurisdiction other than the State ofCalifornia and the United States of America.OHSUSA:752681087.1B-3

This opinion is delivered to you as the Remarketing Agents and is solely for the benefit of theRemarketing Agents and is not to be used by any other person or for any other purpose.Very truly yours,Jylana CollinsGeneral CounselOHSUSA:752681087.1B-4

Fulbright & Jaworski L.L.P. – Draft of 12/27/12PRELIMINARY REOFFERING CIRCULAR DATED FEBRUARY __, 2013Ratings: See “RATINGS” herein.REOFFERING ISSUE – BOOK ENTRY ONLYIn the opinion of Orrick, Herrington & Sutcliffe LLP, Special Tax Counsel to the Remarketing Agents, based upon an analysisof existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representationsand compliance with certain covenants, interest on the Series 2009A-2 Bonds is excluded from gross income for federal income taxpurposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. Inthe further opinion of Special Tax Counsel, interest on the Series 2009A-2 Bonds is not a specific preference item for purposes of thefederal individual or corporate alternative minimum taxes nor is it included in adjusted current earnings when calculating corporatealternative minimum taxable income. Special Tax Counsel expresses no opinion regarding any other tax consequences related to theownership or disposition of, or the accrual or receipt of interest on, the Series 2009A-2 Bonds. See “TAX MATTERS.”[DISTRICT LOGO]$41,035,000EAST BAY MUNICIPAL UTILITY DISTRICT(Alameda and Contra Costa Counties, California)WATER SYSTEM REVENUE REFUNDING BONDS, SERIES 2009A-2(SIFMA–Based Term Interest Rate Period)Date of Initial Issuance: March 12, 2009Reoffering/Redelivery Date: March 1, 2013Price: 100% Maturity Date: June 1, 2026Mandatory Purchase Date Spread CUSIP[February 28, 2014] * ____% 271014___ †This cover page contains certain information for general reference only. It is not intended to be a summary of the security orterms of this issue. Investors are advised to read the entire Reoffering Circular to obtain information essential to the making of aninformed investment decision. Capitalized terms used on this cover page and not otherwise defined shall have the meanings set forthherein.The East Bay Municipal Utility District (the “District”) issued its Water System Revenue Refunding Bonds, Series 2009A-2(originally designated Water System Subordinated Revenue Refunding Bonds, Series 2009A-2) (the “Series 2009A-2 Bonds”) inbook-entry form, without coupons, initially registered in the name of Cede & Co., as nominee of The Depository Trust Company,New York, New York (“DTC”). DTC acts as securities depository for the Series 2009A-2 Bonds. Purchases of beneficial ownershipinterests in the Series 2009A-2 Bonds upon redelivery thereof will be made in book-entry form only in denominations of $100,000 orany integral multiple of $5,000 in excess of $100,000. Purchasers will not receive physical certificates representing their interests inthe Series 2009A-2 Bonds purchased. The principal of and interest on the Series 2009A-2 Bonds are payable directly to DTC by TheBank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). Upon receipt of payments of such principal and interest,DTC is obligated to remit such principal and interest to its DTC participants for subsequent disbursement to the beneficial owners ofthe Series 2009A-2 Bonds.On March 1, 2012, the Series 2009A-2 Bonds were reoffered in a SIFMA–Based Term Interest Rate Period ending on February28, 2013. On March 1, 2013 (the “Conversion Date”), the District will establish a new SIFMA–Based Term Interest Rate Period forthe Series 2009A-2 Bonds, such new SIFMA–Based Term Interest Rate Period to end on [February 27, 2014] * (the “New SIFMA–Based Term Interest Rate Period”), and will cause the Series 2009A-2 Bonds to be remarketed in accordance with the terms of theIndenture. The District will use proceeds of the remarketed Series 2009A-2 Bonds to pay the purchase price of the Series 2009A-2Bonds tendered. In the New SIFMA–Based Term Interest Rate Period, the Series 2009A-2 Bonds will bear interest at a SIFMA–Based Interest Rate (which is equal to the SIFMA Index Rate plus the Spread), all as more fully described herein. While in the NewSIFMA–Based Term Interest Rate Period, interest on the Series 2009A-2 Bonds will be payable on the first Business Day of eachmonth, commencing on April 1, 2013.This Reoffering Circular describes the Series 2009A-2 Bonds only while bearing interest in the New SIFMA–Based TermInterest Rate Period. There are significant differences in the terms of the Series 2009A-2 Bonds while they bear interest at anInterest Rate Period other than a SIFMA–Based Term Interest Rate Period. This Reoffering Circular is not intended toprovide information with respect to the Series 2009A-2 Bonds bearing interest in an Interest Rate Period other than the NewSIFMA–Based Term Interest Rate Period. Owners and prospective owners of the Series 2009A-2 Bonds should not rely on* Preliminary, subject to change.† CUSIP is a registered trademark of The American Bankers Association. The CUSIP data herein are provided by CUSIP Global Services, managedby Standard & Poor’s Financial Services LLC on behalf of The American Bankers Association. These data are not intended to create a databaseand do not serve in any way as a substitute for the CUSIP Services. Neither the District nor the Remarketing Agents are responsible for theselection or correctness of the CUSIP numbers set forth herein.81267597.3

this Reoffering Circular for information in connection with any conversion of the Series 2009A-2 Bonds to a different InterestRate Period, including a subsequent SIFMA-Based Term Interest Rate Period, but should look solely to the offering documentto be used in connection with any such conversion.The Series 2009A-2 Bonds will be subject to mandatory tender for purchase on [February 28, 2014] * , the day following the lastday of the New SIFMA–Based Term Interest Rate Period. The failure of the District to pay the Purchase Price of the Series 2009A-2Bonds upon such mandatory tender would constitute an Event of Default under the Indenture. The Series 2009A-2 Bonds are alsosubject to optional and mandatory sinking fund redemption prior to maturity and mandatory tender for purchase under certain othercircumstances as described herein. See “THE SERIES 2009A-2 BONDS – Redemption” and “– Mandatory Tender for Purchase ofSeries 2009A-2 Bonds.” See also “PLAN OF FINANCE – Refinancing of Series 2009A-2 Bonds on or Prior to the MandatoryPurchase Date.”The Series 2009A-2 Bonds are special obligations of the District, payable solely from and secured by a pledge ofSubordinated Water Revenues as more fully described herein. Subordinated Water Revenues generally consist of theDistrict’s Water Revenues (adjusted for deposits to and withdrawals from the Rate Stabilization Fund) remaining after thepayment of all Water Operation and Maintenance Costs. The Series 2009A-2 Bonds have been issued on a parity with theDistrict’s Water System Revenue Bonds and Parity Debt heretofore or hereafter issued, as more fully described herein,including certain payment obligations of the District under interest rate swap agreements entered into by the District inconnection therewith. Neither the full faith and credit nor the taxing power of the District is pledged to the payment of theSeries 2009A-2 Bonds or the interest thereon.The validity of the Series 2009A Bonds upon their original issuance was approved by Fulbright & Jaworski L.L.P., Los Angeles,California, and Curls Bartling P.C., Oakland, California, Co-Bond Counsel to the District. Certain legal matters in connection withthe remarketing of the Series 2009A-2 Bonds will be passed upon for the District by its General Counsel and for the RemarketingAgents by Orrick, Herrington & Sutcliffe LLP, San Francisco, California. It is anticipated that the Series 2009A-2 Bonds will beavailable for redelivery through the facilities of DTC by Fast Automated Securities Transfer (FAST) on or about March 1, 2013.Dated: February _, 2013De La Rosa & Co.RBC Capital MarketsRemarketing Agents81267597.3

No dealer, broker, salesperson or other person has been authorized by the District or the RemarketingAgents to give any information or to make any representation other than as set forth herein and, if given ormade, such other information or representation must not be relied upon as having been authorized by theDistrict or the Remarketing Agents. This Reoffering Circular does not constitute an offer to sell or thesolicitation of an offer to buy nor shall there be any sale of the Series 2009A-2 Bonds by a person in anyjurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This ReofferingCircular is not to be construed as a contract with the purchasers of the Series 2009A-2 Bonds. Statementscontained in this Reoffering Circular which involve estimates, forecasts or matters of opinion, whether or notexpressly so described herein, are intended solely as such and are not to be construed as representations offacts.The Remarketing Agents have provided the following sentence for inclusion in this ReofferingCircular:The Remarketing Agents have reviewed the information in this Reoffering Circularin accordance with, and as part of, their responsibilities to investors under the federalsecurities laws as applied to the facts and circumstances of this transaction, but theRemarketing Agents do not guarantee the accuracy or completeness of such information.The information set forth in this Reoffering Circular has been obtained from official sources and othersources which are believed by the District to be reliable. The information and expressions of opinion hereinare subject to change without notice, and neither the delivery of this Reoffering Circular nor any sale madehereunder shall under any circumstances create any implication that there has been no change in the affairs ofthe District since the date hereof.This Reoffering Circular, including any supplement or amendment hereto, is intended to be depositedwith the Municipal Securities Rulemaking Board through the Electronic Municipal Marketplace Access(EMMA) website. The District also maintains a website. However, the information presented therein is notpart of this Reoffering Circular and should not be relied upon in making an investment decision with respect tothe Series 2009A-2 Bonds.IN CONNECTION WITH THIS REOFFERING, THE REMARKETING AGENTS MAYOVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKETPRICE OF THE SERIES 2009A-2 BONDS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISEPREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BEDISCONTINUED AT ANY TIME.CERTAIN STATEMENTS CONTAINED IN THIS REOFFERING CIRCULAR REFLECTNOT HISTORICAL FACTS BUT FORECASTS AND “FORWARD-LOOKING STATEMENTS.” NOASSURANCE CAN BE GIVEN THAT THE FUTURE RESULTS DISCUSSED HEREIN WILL BEACHIEVED, AND ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE FORECASTSDESCRIBED HEREIN. IN THIS RESPECT, THE WORDS “ESTIMATE,” “PROJECT,”“ANTICIPATE,” “EXPECT,” “INTEND,” “BELIEVE” AND SIMILAR EXPRESSIONS AREINTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. ALL PROJECTIONS,FORECASTS, ASSUMPTIONS, EXPRESSIONS OF OPINIONS, ESTIMATES AND OTHERFORWARD-LOOKING STATEMENTS ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BYTHE CAUTIONARY STATEMENTS SET FORTH IN THIS REOFFERING CIRCULAR.81267597.3

EAST BAY MUNICIPAL UTILITY DISTRICTAlameda and Contra Costa Counties, California375 - 11th StreetOakland, California 94607(866) 403-2683__________________________Board of DirectorsJohn A. Coleman, PresidentAndy Katz, Vice PresidentKaty H. FoulkesDoug A. LinneyLesa R. McIntoshFrank G. MellonWilliam B. PattersonManagementAlexander R. Coate, General ManagerJylana D. Collins, General CounselEric L. Sandler, Director of FinanceXavier J. Irias, Director of Engineering and ConstructionCarol K. Nishita, Director of AdministrationRichard G. Sykes, Director of Water and Natural ResourcesMichael J. Wallis, Director of Operations and MaintenanceDavid R. Williams, Director of WastewaterLynelle M. Lewis, Secretary of the DistrictWanda B. Hendrix, Treasury ManagerCo-Bond CounselFulbright & Jaworski L.L.P.Los Angeles, CaliforniaCurls Bartling P.C.Oakland, CaliforniaFinancial AdvisorMontague DeRose and Associates, LLCWalnut Creek, CaliforniaTrustee, Tender Agent and Calculation AgentThe Bank of New York Mellon Trust Company, N.A.San Francisco, California81267597.3

TABLE OF CONTENTSPageINTRODUCTION .......................................................................................................................................1Purpose............................................................................................................................................1The District .....................................................................................................................................2The Series 2009A-2 Bonds .............................................................................................................2Security for the Series 2009A-2 Bonds...........................................................................................3Series 2009A Bond Reserve Fund ..................................................................................................4Rate Covenant.................................................................................................................................4Continuing Disclosure ....................................................................................................................4Professionals Involved in the Issue.................................................................................................5Summaries Not Definitive ..............................................................................................................5Additional Information ...................................................................................................................5PLAN OF FINANCE...................................................................................................................................6Purchase of Tendered Series 2009A-2 Bonds.................................................................................6Refinancing of Series 2009A-2 Bonds on or Prior to the Mandatory Purchase Date.....................6Refinancing and Related Risks .......................................................................................................6ESTIMATED SOURCES AND USES OF FUNDS ...................................................................................8THE SERIES 2009A-2 BONDS..................................................................................................................8General............................................................................................................................................8SIFMA–Based Interest Rate ...........................................................................................................9Conversion from a SIFMA–Based Interest Rate or Establishment of a SubsequentSIFMA–Based Term Interest Rate Period ............................................................................10Mandatory Tender for Purchase of Series 2009A-2 Bonds ..........................................................12Redemption...................................................................................................................................14SECURITY FOR THE SERIES 2009A-2 BONDS ..................................................................................15General..........................................................................................................................................15Pledge of Subordinated Water Revenues......................................................................................15Allocation of Subordinated Water Revenues Under the Indenture...............................................17Series 2009A Bond Reserve Fund ................................................................................................18Investment of Monies in Funds and Accounts Under the Indenture.............................................19Rate Covenant...............................................................................................................................20Outstanding Water System Revenue Obligations.........................................................................20Issuance of Additional Water System Revenue Bonds and Parity Debt; Junior andSubordinate Obligations .......................................................................................................22AMENDMENTS TO THE INDENTURE ................................................................................................24CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES ANDAPPROPRIATIONS.....................................................................................................................27Tax Limitations – Proposition 13 .................................................................................................27Spending Limitations....................................................................................................................28Proposition 62 ...............................................................................................................................2881267597.3 i

TABLE OF CONTENTS(continued)PageProposition 218 .............................................................................................................................28Proposition 26 ...............................................................................................................................31Other Initiatives ............................................................................................................................31CONTINUING DISCLOSURE.................................................................................................................31LITIGATION.............................................................................................................................................32RATINGS ..................................................................................................................................................32TAX MATTERS........................................................................................................................................32REMARKETING ......................................................................................................................................34CERTAIN LEGAL MATTERS.................................................................................................................34FINANCIAL ADVISOR ...........................................................................................................................34INDEPENDENT ACCOUNTANTS .........................................................................................................34CERTAIN RELATIONSHIPS ..................................................................................................................35MISCELLANEOUS ..................................................................................................................................35APPENDIX A – THE EAST BAY MUNICIPAL UTILITY DISTRICT(THE WATER SYSTEM).....................................................................................A-1APPENDIX B – EAST BAY MUNICIPAL UTILITY DISTRICT AUDITEDFINANCIAL STATEMENTS FOR THE YEARS ENDEDJUNE 30, 2012 AND 2011......................................................................................B-1APPENDIX C – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE .....................C-1APPENDIX D – PROPOSED FORM OF OPINION OF SPECIAL TAX COUNSEL .....................D-1APPENDIX E – DTC AND THE BOOK-ENTRY ONLY SYSTEM ............................................... E-1APPENDIX F – FORM OF CONTINUING DISCLOSURE AGREEMENT................................... F-181267597.3 ii

REOFFERING CIRCULAR$41,035,000EAST BAY MUNICIPAL UTILITY DISTRICT(Alameda and Contra Costa Counties, California)WATER SYSTEM REVENUE REFUNDING BONDS, SERIES 2009A-2(SIFMA–Based Term Interest Rate Period)INTRODUCTIONThis Introduction is not a summary of this Reoffering Circular, and is qualified by more completeand detailed information contained in the entire Reoffering Circular. A full review should be made of theentire Reoffering Circular, including the cover page and attached appendices. The reoffering of Series2009A-2 Bonds to potential investors is made only by means of the entire Reoffering Circular.Capitalized terms used but not defined in this Introduction shall have the meanings given such termselsewhere in this Reoffering Circular. Certain definitions of capitalized terms used and not otherwisedefined in this Reoffering Circular are set forth in APPENDIX C – “SUMMARY OF CERTAINPROVISIONS OF THE INDENTURE.”PurposeThe purpose of this Reoffering Circular, which includes the cover page and appendices hereto, isto set forth certain information concerning the East Bay Municipal Utility District (the “District”), thewater supply, treatment and distribution system owned by the District (the “Water System” or the“System”), and System finances in connection with the reoffering and sale of the District’s $41,035,000Water System Revenue Refunding Bonds, Series 2009A-2 (originally designated Water SystemSubordinated Revenue Refunding Bonds, Series 2009A-2) (the “Series 2009A-2 Bonds”). The Series2009A-2 Bonds constitute a subseries of the District’s Water System Revenue Refunding Bonds, Series2009A (the “Series 2009A Bonds”), the other subseries being the District’s Water System RevenueRefunding Bonds, Series 2009A-1 (the “Series 2009A-1 Bonds”). The Series 2009A Bonds wereoriginally issued on March 12, 2009 pursuant to the Water System Subordinated Revenue BondIndenture, dated as of April 1, 1990, by and between the District and First Interstate Bank of California,which has been succeeded by The Bank of New York Mellon Trust Company, N.A., as trustee (the“Trustee”), as amended and supplemented to the date of this Reoffering Circular, including assupplemented by the Fifteenth Supplemental Indenture, dated as of March 1, 2009, by and between theDistrict and the Trustee, relating to the Series 2009A Bonds (as so amended and supplemented, the“Indenture”).The proceeds of the Series 2009A Bonds were used to refund $330,425,000 aggregate principalamount of the District’s then outstanding Water System Subordinated Revenue Refunding Bonds,Series 2008C and to pay costs of issuance of the Series 2009A Bonds.On March 1, 2012, the Series 2009A-2 Bonds were reoffered in a SIFMA–Based Term InterestRate Period ending on February 28, 2013 * . On March 1, 2013 (the “Conversion Date”), the District willestablish a new SIFMA–Based Term Interest Rate Period for the Series 2009A-2 Bonds, such newSIFMA–Based Term Interest Rate Period to end on [February 27, 2014] * (the “New SIFMA–Based TermInterest Rate Period”), and will cause the Series 2009A-2 Bonds to be remarketed in accordance with the* Preliminary, subject to change.81267597.3 1

terms of the Indenture. The District will use proceeds of the remarketed Series 2009A-2 Bonds to pay thePurchase Price of the Series 2009A-2 Bonds tendered. See “PLAN OF FINANCE” and “ESTIMATEDSOURCES AND USES OF FUNDS.”This Reoffering Circular describes the Series 2009A-2 Bonds only while bearing interest inthe New SIFMA–Based Term Interest Rate Period. There are significant differences in the terms ofthe Series 2009A-2 Bonds while they bear interest at an Interest Rate Period other than a SIFMA–Based Term Interest Rate Period. This Reoffering Circular is not intended to provide informationwith respect to the Series 2009A-2 Bonds bearing interest in an Interest Rate Period other than theNew SIFMA–Based Term Interest Rate Period. Owners and prospective owners of the Series2009A-2 Bonds should not rely on the Reoffering Circular for information in connection with anyconversion of the Series 2009A-2 Bonds to a different Interest Rate Period, including a subsequentSIFMA-Based Term Interest Rate Period, but should look solely to the offering document used inconnection with any such conversion.The DistrictThe District is a municipal utility district, created in 1923 by vote of the electorate in portions ofAlameda and Contra Costa Counties in the State of California (the “State”). The District is formed underthe authority of the Municipal Utility District Act, constituting Division 6 of the Public Utilities Code ofthe State, commencing with Section 11501 (the “Municipal Utility District Act”). Pursuant to theMunicipal Utility District Act, the District is empowered to own and operate the Water System. SeeAPPENDIX A – “THE EAST BAY MUNICIPAL UTILITY DISTRICT (THE WATER SYSTEM).”The District also operates a wastewater system. The District’s wastewater system treats and disposes ofsewage from a portion of the area within the District, which is designated as Special District No. 1.The Series 2009A-2 Bonds are not payable from or secured by the revenues of the wastewatersystem of the District.The Series 2009A-2 BondsOn March 1, 2012, the Series 2009A-2 Bonds were reoffered in a SIFMA–Based Term InterestRate Period ending on February 28, 2013. On March 1, 2013, the Conversion Date, the District willestablish the New SIFMA–Based Term Interest Rate Period for the Series 2009A-2 Bonds. Such NewSIFMA–Based Term Interest Rate Period will end on [February 27, 2014] * . While in the New SIFMA–Based Term Interest Rate Period, the Series 2009A-2 Bonds will bear interest at a SIFMA–Based InterestRate (which is equal to the SIFMA Index Rate plus the Spread), all as more fully described herein. In theNew SIFMA–Based Term Interest Rate Period, the Series 2009A-2 Bonds will be redelivered indenominations of $100,000 or any integral multiple of $5,000 in excess of $100,000. While in the NewSIFMA–Based Term Interest Rate Period, interest on the Series 2009A-2 Bonds will be payable on thefirst Business Day of each month, commencing on April 1, 2013. The Series 2009A-2 Bonds are subjectto mandatory tender for purchase on [February 28, 2014] * , the day following the last day of the NewSIFMA–Based Term Interest Rate Period. The failure by the District to pay the Purchase Price of theSeries 2009A-2 Bonds on such mandatory tender date would constitute an Event of Default under theIndenture. See “THE SERIES 2009A-2 BONDS – Mandatory Tender for Purchase of Series 2009A-2Bonds” and “PLAN OF FINANCE – Refinancing of Series 2009A-2 Bonds on or Prior to the MandatoryPurchase Date.” The Series 2009A-2 Bonds are also subject to redemption prior to maturity andmandatory tender for purchase under certain other circumstances as described herein. See “THE SERIES2009A-2 BONDS.”* Preliminary, subject to change.81267597.3 2

Security for the Series 2009A-2 BondsThe Series 2009A-2 Bonds are special obligations of the District, payable solely from andsecured by a pledge of the Subordinated Water Revenues of the District, as defined in the Indenture.Subordinated Water Revenues generally consist of the District’s Water Revenues (adjusted for deposits toand withdrawals from the Rate Stabilization Fund) remaining after the payment of (a) all Water Operationand Maintenance Costs and (b) all amounts required to be paid under the District’s Senior Water BondResolution for principal, interest, reserve fund and any other debt service requirements on the SeniorWater Bonds. There are no Senior Water Bonds currently outstanding and the District hascovenanted pursuant to the Eighteenth Supplemental Indenture, dated as of September 15, 2010(the “Eighteenth Supplemental Indenture”), that it will not issue any Senior Water Bonds in thefuture. Prior to the date of execution and delivery of the Eighteenth Supplemental Indenture, all WaterSystem revenue bonds of the District issued under the Indenture were designated “Water SystemSubordinated Revenue Bonds.” Pursuant to the Eighteenth Supplemental Indenture, any Water Systemrevenue bonds of the District issued (or remarketed or otherwise reoffered) under the Indenture followingthe execution and delivery of the Eighteenth Supplemental Indenture are designated “Water SystemRevenue Bonds” in order to reflect that the lien of the Senior Water Bonds has been closed. AllOutstanding Water System revenue bonds issued under the Indenture (howsoever designated), togetherwith any additional Water System revenue bonds hereafter issued under the Indenture are secured on aparity from Subordinated Water Revenues and are collectively referred to herein as the “Water SystemRevenue Bonds.” See “SECURITY FOR THE SERIES 2009A-2 BONDS – Pledge of SubordinatedWater Revenues.”The Series 2009A-2 Bonds are subject to mandatory tender for purchase on [February 28, 2014] * .The failure of the District to pay the Purchase Price of any Series 2009A-2 Bonds upon such mandatorytender would constitute an Event of Default under the Indenture. The District does not intend to pay thePurchase Price of the Series 2009A-2 Bonds upon mandatory tender for purchase on [February 28, 2014] *from Subordinated Water Revenues. See “PLAN OF FINANCE – Refinancing of Series 2009A-2 Bondson or Prior to the Mandatory Purchase Date.”The Series 2009A-2 Bonds are secured on a parity with the District’s other Outstanding WaterSystem Revenue Bonds, together with any additional Water System Revenue Bonds hereafter issued, withcertain scheduled payments which are payable by the District with respect to certain interest rate swapagreements as described under “SECURITY FOR THE SERIES 2009A-2 BONDS – Outstanding WaterSystem Revenue Obligations – Interest Rate Swap Agreements” and with certain outstanding State Loansas described in APPENDIX A – “THE EAST BAY MUNICIPAL UTILITY DISTRICT (THE WATERSYSTEM) – WATER SYSTEM FINANCES – Outstanding Debt,” and with any other Parity Debtheretofore or hereafter incurred in accordance with the Indenture. See “SECURITY FOR THE SERIES2009A-2 BONDS – Outstanding Water System Revenue Obligations,” and “– Issuance of AdditionalWater System Revenue Bonds and Parity Debt; Junior and Subordinate Obligations.” As of January 15,2013, the District has Outstanding $2,244,535,000 aggregate principal amount of Water System RevenueBonds, including the Series 2009A-2 Bonds.The Sixteenth Supplemental Indenture dated as of February 1, 2010 (the “Sixteenth SupplementalIndenture”) includes a number of amendments to the Indenture in the manner and effective as of the datedescribed under “AMENDMENTS TO THE INDENTURE.”* Preliminary, subject to change.81267597.3 3

NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THEDISTRICT IS PLEDGED TO THE PAYMENT OF THE SERIES 2009A-2 BONDS OR THEINTEREST THEREON.Series 2009A Bond Reserve FundOn the date of original issuance of the Series 2009A Bonds, the Series 2009A Bond ReserveFund was funded in an amount equal to the Series 2009A Bond Reserve Requirement. “Series 2009ABond Reserve Requirement” is defined under the Indenture to mean an amount equal to the interestaccruing on the Series 2009A Bonds (based upon the Outstanding Series 2009A Bonds as of the date ofcalculation and a 3.4069% assumed annual interest rate) for the twelve-month period ending June 1, 2010,which amount, upon the remarketing and redelivery of the Series 2009A-2 Bonds will be $2,796,213.18and is on deposit in the Series 2009A Bond Reserve Fund. The Series 2009A Bond Reserve Fund securesboth the Series 2009A-1 Bonds and the Series 2009A-2 Bonds. See “SECURITY FOR THE SERIES2009A-2 BONDS – Series 2009A Bond Reserve Fund.”Rate CovenantThe District covenants under the Indenture, that it will at all times, while any of the Water SystemRevenue Bonds (including the Series 2009A-2 Bonds) remain Outstanding, fix, prescribe and collectrates, fees and charges in connection with the services and facilities furnished by the Water System so asto yield Water Revenues in each Fiscal Year sufficient so that the Subordinated Water Revenues for suchyear shall be at least equal to 1.1 times the amount of Debt Service on all Water System Revenue Bondsand Parity Debt for such Fiscal Year. See APPENDIX C – “SUMMARY OF CERTAIN PROVISIONSOF THE INDENTURE – Covenants.” See also “CONSTITUTIONAL AND STATUTORYLIMITATIONS ON TAXES AND APPROPRIATIONS.”Continuing DisclosurePursuant to a Continuing Disclosure Agreement, dated as of March 1, 2011, by and between theDistrict and the Trustee, as dissemination agent, the District covenanted and agreed for the benefit of theholders and beneficial owners of the Series 2009A-2 Bonds to provide certain financial information andoperating data relating to the District and the Water System by not later than 180 days following the endof the District’s Fiscal Year (which currently begins on July 1 and ends on June 30 of each year) (the“Annual Report”), commencing with the Annual Report for Fiscal Year 2010-11, and to provide noticesof the occurrence of certain specified events. See “CONTINUING DISCLOSURE.” These covenantshave been made in order to assist the Remarketing Agents in complying with Securities and ExchangeCommission Rule 15c2-12(b)(5). See APPENDIX F – “FORM OF CONTINUING DISCLOSUREAGREEMENT.”As of the date hereof, the District is in compliance in all material respects with its continuingdisclosure undertakings for the last five years; however, due to administrative oversight, the District’scomplete Annual Report for 2008 was filed 27 days after the specified filing deadline and the District’scomplete Annual Report for 2011 was filed three days after the specified filing deadline. In addition, inconnection with the preparation of its Annual Report filing for Fiscal Year 2012, the District determinedthat a separate table summarizing the sources of revenues and contributions for each of the Water Systemand the Wastewater System was unintentionally omitted from the District’s filings prior to its AnnualReport for Fiscal Year 2012. The information contained in such table of sources of revenues andcontributions can be derived from the District’s audited financial statements and such information wasalso routinely made available in the District’s official statements during such period. In filing its AnnualReport for Fiscal Year 2012, the District has included such a table with five years of data and thereby has81267597.3 4

effectively provided all information necessary to make its prior filings for such years complete. TheDistrict’s Annual Report for Fiscal Year 2012 was timely filed on December 21, 2012. The District hasimplemented additional procedures to timely file complete annual reports in the future.Professionals Involved in the IssueThe Bank of New York Mellon Trust Company, N.A. serves as Trustee and Tender Agent underthe Indenture. The Bank of New York Mellon Trust Company, N.A. is also serving as Calculation Agentin connection with the Series 2009A-2 Bonds while in the New SIFMA–Based Term Interest Rate Period.Fulbright & Jaworski L.L.P., Los Angeles, California, and Curls Bartling P.C., Oakland, California, areserving as Co-Bond Counsel to the District in connection with the remarketing of the Series 2009A-2Bonds. Certain legal matters in connection with the remarketing of the Series 2009A-2 Bonds will alsobe passed upon for the District by its General Counsel, and for the Remarketing Agents by Orrick,Herrington & Sutcliffe LLP, San Francisco, California. Montague DeRose and Associates, LLC, WalnutCreek, California, is serving as Financial Advisor to the District in connection with the remarketing of theSeries 2009A-2 Bonds.Summaries Not DefinitiveThe summaries and references to all documents, statutes, reports and other instruments referred toherein do not purport to be complete, comprehensive or definitive, and each such summary or reference isqualified in its entirety by reference to each such document, statute, report or instrument. Thecapitalization of any word not conventionally capitalized or otherwise defined herein, indicates that suchword is defined in the Indenture and, as used herein, has the meaning given to it in the Indenture. Unlessotherwise indicated, all financial and statistical information herein has been provided by the District.All references to and summaries of the Indenture and all documents, statutes, reports and otherinstruments referred to herein are qualified in their entirety by reference to the full Indenture and eachsuch document, statute, report or instrument, respectively, copies of which are available for inspection atthe offices of the District in Oakland, California, and will be available from the Trustee upon request andpayment of duplication costs. Forward-looking statements in this Reoffering Circular are subject to risksand uncertainties. Actual results may vary from forecasts or projections contained herein if events andcircumstances do not occur as expected, and such variances may be material.Additional InformationThe District regularly prepares a variety of publicly available reports, including audits, budgetsand related documents. Any Series 2009A-2 Bondholder may obtain a copy of any such report, asavailable, from the Trustee or the District. Additional information regarding this Reoffering Circular maybe obtained by contacting the Trustee or Eric L. Sandler, Director of Finance, East Bay Municipal UtilityDistrict, 375 Eleventh Street, Oakland, California 94607, (510) 287-0310.THE DISTRICTThe District is a municipal utility district, created in 1923 by vote of the electorate in portions ofAlameda and Contra Costa Counties in the State of California. The District is formed under the authorityof the Municipal Utility District Act. Under the Municipal Utility District Act, municipal utility districtsare empowered to acquire, construct, own, operate or control works for supplying the district and publicagencies in the district with light, water, power, heat, transportation, telephone service or other means ofcommunications, means for the collection, treatment or disposition of garbage, sewage or refuse matter,and public recreation facilities appurtenant to its reservoirs and may do all things necessary and81267597.3 5

convenient to the full exercise of powers granted in the Municipal Utility District Act. The Districtpresently exercises only those functions relating to water supply, power generation and recreationalfacilities through its Water System, and sewerage and wastewater interception, treatment and disposal,and power generation through its wastewater system, within an area known as Special District No. 1.Special District No. 1 covers only a portion of the service area of the District. The District presently doesnot intend to exercise other functions. Such other functions and the related facilities, if exercised, wouldnot constitute part of the Water System or the wastewater system.For information on the District, the Water System and its finances and operations, seeAPPENDIX A – “THE EAST BAY MUNICIPAL UTILITY DISTRICT (THE WATER SYSTEM);” andAPPENDIX B – “EAST BAY MUNICIPAL UTILITY DISTRICT AUDITED FINANCIALSTATEMENTS FOR THE YEARS ENDED JUNE 30, 2012 AND 2011.”Purchase of Tendered Series 2009A-2 BondsPLAN OF FINANCEThe District will use the proceeds of the remarketing of the Series 2009A-2 Bonds onMarch 1, 2013 in the amount of $41,035,000 to pay the Purchase Price of the Series 2009A-2 Bondsmandatorily tendered on such date. See “ESTIMATED SOURCES AND USES OF FUNDS.”Refinancing of Series 2009A-2 Bonds on or Prior to the Mandatory Purchase DateThe obligation of the District to pay the Purchase Price of the Series 2009A-2 Bonds on themandatory Purchase Date to occur on [February 28, 2014] * , the day following the last day of the NewSIFMA–Based Term Interest Rate Period, is on a parity with the District’s Outstanding Water SystemRevenue Bonds, with certain scheduled payments which are payable by the District with respect to certaininterest rate swap agreements and with certain other Parity Debt. The failure of the District to pay suchPurchase Price would constitute an Event of Default under the Indenture. Prior to such mandatoryPurchase Date, the District will review its financing alternatives with respect to the Series 2009A-2Bonds. The District may elect to refund all or a portion of the Series 2009A-2 Bonds on or prior to such[February 28, 2014] * mandatory Purchase Date. The District may also elect to Convert the Series 2009A-2 Bonds from the New SIFMA–Based Term Interest Rate Period to another SIFMA–Based Term InterestRate Period or to another Interest Rate Period on or before the Purchase Date to take effect on the dayfollowing the last day of the New SIFMA-Based Term Interest Rate Period in accordance with theprovisions of the Indenture. See “THE SERIES 2009A-2 BONDS – Conversion from a SIFMA–BasedInterest Rate or Establishment of a Subsequent SIFMA–Based Term Interest Rate Period.” Pursuant tothe Indenture, the District has covenanted to use commercially reasonable efforts to either (i) issueobligations to refund the Series 2009A-2 Bonds prior to the mandatory tender date, or (ii) provide aLiquidity Facility or Self Liquidity Arrangement under which funds may be drawn in connection with themandatory tender of the Series 2009A-2 Bonds, or (iii) provide for the Conversion of such Series 2009A-2 Bonds to another Interest Rate Period or a subsequent SIFMA–Based Term Interest Rate Period in sucha manner so as to provide sufficient remarketing proceeds to provide for payment of the Purchase Price ofthe Series 2009A-2 Bonds upon such mandatory tender.Refinancing and Related RisksNo assurance can be given that the District will have sufficient funds on hand on[February 28, 2014] * to pay the Purchase Price of the Series 2009A-2 Bonds upon the mandatory tender* Preliminary, subject to change.81267597.3 6

thereof on such date. In the event that the District does not have sufficient funds on hand to pay thePurchase Price of the Series 2009A-2 Bonds on the mandatory tender date, the District’s ability to paysuch Purchase Price is dependent on the District’s ability to issue and sell refunding obligations to refundthe Series 2009A-2 Bonds prior to such date or to provide for the Conversion of such Series 2009A-2Bonds to another Interest Rate Period or to a subsequent SIFMA–Based Term Interest Rate Period on orprior to such date and to receive sufficient remarketing proceeds upon such Conversion to provide forpayment of the Purchase Price of the Series 2009A-2 Bonds upon the mandatory tender thereof. Whilethe District has covenanted to use commercially reasonable efforts to either (i) issue obligations to refundthe Series 2009A-2 Bonds prior to the mandatory tender date, or (ii) provide a Liquidity Facility or SelfLiquidity Arrangement under which funds may be drawn in connection with the mandatory tender of theSeries 2009A-2 Bonds, or (iii) provide for the Conversion of such Series 2009A-2 Bonds to anotherInterest Rate Period or a subsequent SIFMA–Based Term Interest Rate Period in such a manner so as toprovide sufficient remarketing proceeds to provide for payment of the Purchase Price of the Series2009A-2 Bonds upon the mandatory tender thereof, a variety of events could prevent access to themunicipal securities market, prohibit the District from issuing such refunding obligations or remarketingthe Series 2009A-2 Bonds, or make the issuance of refunding obligations or the remarketing of the Series2009A-2 Bonds prohibitively expensive. No assurance can be given that the District will be able to effectsuch a refinancing or remarketing on sufficiently favorable terms. Failure of the District to providesufficient funds to pay the Purchase Price upon mandatory tender will constitute an Event of Defaultunder the Indenture. See “THE SERIES 2009A-2 BONDS – Mandatory Tender for Purchase of Series2009A-2 Bonds – Inadequate Funds for Tenders.”The purchase of the Series 2009A-2 Bonds involves a variety of investment risks described in thisReoffering Circular. If a risk factor materializes to a sufficient degree, it could delay or prevent paymentof principal of and/or interest on the Series 2009A-2 Bonds. Such risk factors include, but are not limitedto, the matters described above and should be considered, along with other information in this ReofferingCircular, by potential investors.Additional Financings Being Undertaken by the DistrictOn November 1, 2012, the District entered into a forward delivery purchase contract for the saleof $48,670,000 aggregate principal amount of its fixed rate Water System Revenue Refunding Bonds,Series 2013A (the “Series 2013A Bonds”) to be delivered, subject to the terms and conditions set forth insuch forward delivery purchase contract, on or about March 5, 2013. The Series 2013A Bonds are beingissued for the purpose of refunding the District’s $56,080,000 principal amount of Outstanding WaterSystem Subordinated Revenue Refunding Bonds, Series 2003.See “SECURITY FOR THE SERIES 2009A-2 BONDS – Outstanding Water System RevenueObligations.”81267597.3 7

ESTIMATED SOURCES AND USES OF FUNDSThe estimated sources and uses of funds in connection with the remarketing of the Series2009A-2 Bonds are as follows:SourcesPrincipal Amount of Series 2009A-2 Bonds $41,035,000District ContributionTotal $UsesPurchase Price of Series 2009A-2 Bonds (1) $41,035,000Costs of Remarketing (2)Total $41,035,000___________________(1)Accrued interest to be paid on the scheduled March 1, 2013 interest payment date will be paid from funds provided bythe District for such purpose.(2)Includes legal, financing and consulting fees, rating agency fees, Remarketing Agents’ fees and Remarketing Agents’counsel fees, printing costs and other miscellaneous expenses in connection with the remarketing of the Series2009A-2 Bonds.THE SERIES 2009A-2 BONDSThe following is a summary of certain provisions of the Series 2009A-2 Bonds. Reference ismade to the Series 2009A-2 Bonds for the complete text thereof and to the Indenture for a more detaileddescription of such provisions. The discussion herein is qualified by such reference.GeneralThe Series 2009A-2 Bonds were originally issued in the aggregate principal amount of$165,575,000. As of the date of this Reoffering Circular, $41,035,000 principal amount of the Series2009A-2 Bonds remains Outstanding. The Series 2009A-2 Bonds are dated the date of original deliverythereof and will mature on June 1, 2026 (the “Maturity Date”), subject to prior redemption. OnMarch 1, 2013, the Conversion Date, the Series 2009A-2 Bonds will be reoffered in a New SIFMA–Based Term Interest Rate Period ending on [February 27, 2014] * , and will bear interest at a SIFMA–Based Interest Rate (which is equal to the SIFMA Index Rate plus the Spread), all as more fully describedherein. “SIFMA–Based Interest Rate” means a variable interest rate borne by the Series 2009A-2 Bondsand established in accordance with the Indenture, as described below. See “THE SERIES 2009A-2BONDS – SIFMA–Based Interest Rate.” The Series 2009A-2 Bonds are subject to mandatory tender on[February 28, 2014] * , the day following the last day of the New SIFMA–Based Term Interest Rate Period.See “THE SERIES 2009A-2 BONDS – Mandatory Tender for Purchase of Series 2009A-2 Bonds.”The Series 2009A-2 Bonds were issued in book-entry form, without coupons, prepared as onefully registered bond and registered in the name of Cede & Co., as nominee for The Depository TrustCompany, New York, New York (“DTC”). DTC acts as securities depository for the Series 2009A-2Bonds. Purchases of beneficial ownership interests in the Series 2009A-2 Bonds upon redelivery thereofwill be made in book-entry form only in denominations of $100,000 or any integral multiple of $5,000 inexcess of $100,000. Purchasers will not receive physical certificates representing their interests in theSeries 2009A-2 Bonds purchased. Principal of and interest on the Series 2009A-2 Bonds are payable by* Preliminary, subject to change.81267597.3 8

the Trustee to DTC, which is obligated in turn to remit such principal and interest to its DTC participantsfor subsequent disbursement to the beneficial owners of the Series 2009A-2 Bonds. See APPENDIX E –“DTC AND THE BOOK-ENTRY ONLY SYSTEM.”Under the Indenture, the Series 2009A-2 Bonds may be Converted to a Daily Interest Rate Period,Weekly Interest Rate Period, Short-Term Interest Rate Period, Long–Term Interest Rate Period, LIBOR–Based Interest Rate Period, CPI–Based Interest Rate Period, ARS Interest Rate Period or a subsequentSIFMA–Based Term Interest Rate Period (each, an “Interest Rate Period”). See “THE SERIES 2009A-2BONDS – Conversion from SIFMA–Based Interest Rate or Establishment of a Subsequent SIFMA–Based Term Interest Rate Period.” This Reoffering Circular describes the Series 2009A-2 Bonds onlywhile bearing interest in the New SIFMA–Based Term Interest Rate Period. There are significantdifferences in the terms of the Series 2009A-2 Bonds while they bear interest at an Interest RatePeriod other than a SIFMA–Based Term Interest Rate Period. This Reoffering Circular is notintended to provide information with respect to the Series 2009A-2 Bonds bearing interest in anInterest Rate Period other than the New SIFMA–Based Term Interest Rate Period. Owners andprospective owners of the Series 2009A-2 Bonds should not rely on the Reoffering Circular forinformation in connection with any Conversion of the Series 2009A-2 Bonds to a different InterestRate Period, including a subsequent SIFMA–Based Term Interest Rate Period, but should looksolely to the offering document to be used in connection with any such Conversion.SIFMA–Based Interest RateWhile in a SIFMA–Based Term Interest Rate Period, the Series 2009A-2 Bonds will bear interestat the SIFMA–Based Interest Rate; provided that no Series 2009A-2 Bond may bear interest at more thanthe Maximum Bond Interest Rate (i.e., 12% per annum).Interest on the Series 2009A-2 Bonds while in the New SIFMA–Based Term Interest Rate Periodwill be payable on the first Business Day of each month, commencing on April 1, 2013, and will bepayable on the day next succeeding the last day of such New SIFMA–Based Term Interest Rate Period(each an “Interest Payment Date”). The Series 2009A-2 Bonds shall bear interest from and including theInterest Accrual Date immediately preceding the date of authentication thereof or, if such date ofauthentication is an Interest Accrual Date to which interest on the Series 2009A-2 Bonds has been paid infull or duly provided for, from such date of authentication or, if it is the first payment of interest on theSeries 2009A-2 Bonds, the dated date thereof. “Interest Accrual Date” means with respect to the Series2009A-2 Bonds bearing interest at the SIFMA–Based Interest Rate, the first day of the applicableSIFMA–Based Term Interest Rate Period, and thereafter, the first Business Day of each calendar month.Interest on the Series 2009A-2 Bonds in a SIFMA–Based Term Interest Rate Period shall accrue on thebasis of the actual number of days elapsed and a year of 365 days (366 days in a leap year).The SIFMA–Based Interest Rate for the Series 2009A-2 Bonds shall be a per annum rate equal tothe SIFMA Index Rate plus the Spread, applied on the basis of the actual number of days in the applicableInterest Period divided by 365 or 366, as applicable.An “Interest Period” for the Series 2009A-2 Bonds while in a SIFMA–Based Term Interest RatePeriod, means the period from and including each Interest Payment Date for such Series 2009A-2 Bondsto and including the day next preceding the next Interest Payment Date for such Series 2009A-2 Bonds;provided that the first Interest Period shall begin on the date of delivery of the Series 2009A-2 Bonds andthe final Interest Period shall end the day next preceding the Maturity Date of the Series 2009A-2 Bonds.“SIFMA Index Rate” means, in respect of each Interest Period during a SIFMA–Based TermInterest Rate Period for the Series 2009A-2 Bonds, a per annum rate equal to the weighted average of the81267597.3 9

SIFMA Index in effect for each day in the Interest Period, calculated by multiplying each such SIFMAIndex by the numbers of days such SIFMA Index is in effect, determining the sum of such products anddividing such sum by the number of days in such Interest Period.“Spread” means for the Series 2009A-2 Bonds while in the New SIFMA-Based Term InterestRate Period, plus ___ basis points (plus 0.__%).The “SIFMA Index” means the SIFMA Municipal Swap Index (formerly The Bond MarketAssociation Municipal Swap Index), a seven–day high–grade market index composed of selected tax–exempt variable–rate demand obligations meeting specific criteria. The SIFMA Index is calculatedweekly and released each Wednesday afternoon. Each Thursday (whether or not such day is a BusinessDay) will be a SIFMA Index Reset Date. If at any time the SIFMA Index is not available, there shall beused in its place an index that the Trustee, following consultation with the District and the CalculationAgent, determines most closely approximates the SIFMA Index.The SIFMA–Based Interest Rate for each Interest Period shall be determined by the CalculationAgent by applying the SIFMA Index, as determined for each week during the Interest Period to determinethe SIFMA Index Rate, and then applying the Spread to obtain the SIFMA–Based Interest Rate for suchInterest Period. Such SIFMA–Based Interest Rate shall be multiplied against the outstanding principalamount of the Series 2009A-2 Bonds during such Interest Period to determine the interest payable on theInterest Payment Date following such Interest Period. The Spread will remain the same throughout theapplicable SIFMA–Based Term Interest Rate Period for the Series 2009A-2 Bonds.All percentages resulting from any step in the calculation of interest on Series 2009A-2 Bondswhile in a SIFMA–Based Term Interest Rate Period will be rounded, if necessary, to the nearest tenthousandthof a percentage point (i.e., to five decimal places) with five hundred thousandths of apercentage point rounded upward, and all dollar amounts used in or resulting from such calculation ofinterest on Series 2009A-2 Bonds while in a SIFMA–Based Term Interest Rate Period will be rounded tothe nearest cent (with one-half cent being rounded upward).The Bank of New York Mellon Trust Company, N.A., the Trustee for the Series 2009A-2 Bonds,will continue to serve as the Calculation Agent in connection with the Series 2009A-2 Bonds while in theNew SIFMA–Based Term Interest Rate Period.Conversion from a SIFMA–Based Interest Rate or Establishment of a Subsequent SIFMA–BasedTerm Interest Rate PeriodGeneral; Notice Upon Conversion. The District may elect at any time, and shall elect on orbefore the ninetieth (90 th ) day preceding the last day of the New SIFMA–Based Term Interest RatePeriod, by written direction to the Trustee, the Tender Agent and the Remarketing Agents for the Series2009A-2 Bonds, subject to the provisions of the Indenture, that, on the day immediately following the lastday of the New SIFMA–Based Term Interest Rate Period or a day on which such Series 2009A-2 Bondswould otherwise be subject to optional redemption pursuant to the Indenture, the Series 2009A-2 Bondsshall no longer bear interest at the current SIFMA–Based Interest Rate and shall instead bear interest at aWeekly Interest Rate, a Daily Interest Rate, Bond Interest Term Rates, an ARS Rate, a LIBOR–BasedInterest Rate, a CPI–Based Rate or a Long–Term Interest Rate, or that a subsequent SIFMA–Based TermInterest Rate Period shall be established, as specified in such election. In the notice of such election, theDistrict shall also specify the effective date of the new Interest Rate Period, which date (1) shall be aBusiness Day no earlier than the tenth (10 th ) Business Day after the second (2 nd ) Business Day followingthe date of receipt by the Trustee of the notice of election from the District and (2) shall be the dayimmediately following the last day of the SIFMA–Based Term Interest Rate Period currently in effect or a81267597.3 10

day on which the Series 2009A-2 Bonds would otherwise be subject to optional redemption pursuant tothe Indenture. The Series 2009A-2 Bonds shall be subject to mandatory tender for purchase on theeffective date of the new Interest Rate Period, in accordance with the Indenture.The Trustee shall give notice by first-class mail to the Owners of the Series 2009A-2 Bonds ofthe Conversion to a different Interest Rate Period or the establishment of a subsequent SIFMA–BasedTerm Interest Rate Period not less than ten (10) Business Days prior to the effective date of the newInterest Rate Period (or subsequent SIFMA–Based Term Interest Rate Period). A copy of such noticeshall be sent to the Rating Agencies by the Trustee. Such notice shall state (A) that the Interest RatePeriod shall be Converted to a Weekly Interest Rate Period, a Daily Interest Rate Period, a Short-TermInterest Rate Period, an ARS Interest Rate Period, a LIBOR–Based Interest Rate Period, a CPI–BasedInterest Rate Period, a Long–Term Interest Rate Period or a subsequent SIFMA–Based Term InterestRate Period unless (if applicable) the District rescinds its election to Convert the Interest Rate Period to aWeekly Interest Rate Period, a Daily Interest Rate Period, a Short-Term Interest Rate Period, an ARSInterest Rate Period, a LIBOR–Based Interest Rate Period, a CPI–Based Interest Rate Period, a Long–Term Interest Rate Period or a subsequent SIFMA–Based Term Interest Rate Period; (B) the proposedeffective date, and the duration and last day of the Interest Rate Period in the case of a Long–TermInterest Rate Period or another SIFMA–Based Term Interest Rate Period; (C) that the Series 2009A-2Bonds are subject to mandatory tender for purchase on such proposed effective date and setting forth thePurchase Price and the place of delivery for purchase of the Series 2009A-2 Bonds; and (D) theinformation required for a notice of mandatory tender for purchase. See “THE SERIES 2009A-2 BONDS– Mandatory Tender for Purchase of Series 2009A-2 Bonds – Notice of Mandatory Tender for Purchase.”Rescission of Election. In connection with any Conversion of the Interest Rate Period for theSeries 2009A-2 Bonds (other than in connection with the Conversion at the end of a SIFMA–Based TermInterest Rate Period), the District shall have the right to deliver to the Trustee, the Remarketing Agent (ifany) and the Tender Agent (if any) for the Series 2009A-2 Bonds, on or prior to 10:00 a.m., New YorkCity time, on the tenth (10 th ) Business Day prior to any such Conversion a notice to the effect that theDistrict elects to rescind its election to make such Conversion. If the District rescinds its election to makesuch Conversion, then the Interest Rate Period shall not be Converted and the Series 2009A-2 Bonds shallcontinue to bear interest through the end of the New SIFMA–Based Term Interest Rate Period at theSIFMA–Based Interest Rate as in effect immediately prior to such proposed Conversion. In any event, ifnotice of a Conversion has been mailed to the Owners of the Series 2009A-2 Bonds as provided in theIndenture and the District rescinds its election to make such Conversion, then the Series 2009A-2 Bondsshall continue to be subject to mandatory tender for purchase on the date which would have been theeffective date of the Conversion.Certain Additional Conditions. No Conversion of Series 2009A-2 Bonds from one Interest RatePeriod to another shall take effect unless each of the following conditions, to the extent applicable, shallhave been satisfied.(i) With respect to the new Interest Rate Period: (a) the District shall haveappointed a Remarketing Agent and there shall have been executed and delivered a RemarketingAgreement; and (b) there shall be in effect (except in the case of a LIBOR–Based Interest RatePeriod, a CPI–Based Interest Rate Period, a SIFMA–Based Term Interest Rate Period, a Long–Term Interest Rate Period or an ARS Interest Rate Period) a Liquidity Facility or Self LiquidityArrangement if required under the Indenture.(ii) The Trustee shall have received a Favorable Opinion of Bond Counsel withrespect to such Conversion.81267597.3 11

(iii) In the case of any Conversion with respect to which there shall be no LiquidityFacility or Self Liquidity Arrangement in effect to provide funds for the purchase of Series2009A-2 Bonds on the Conversion Date, the remarketing proceeds available on the ConversionDate shall not be less than the amount required to purchase all of the Series 2009A-2 Bonds at thePurchase Price (but not including any premium).(iv) In the case of any Conversion of the Series 2009A-2 Bonds to an ARS InterestRate Period, prior to the Conversion Date the District shall have appointed an Auction Agent andone or more Broker-Dealers and there shall have been executed and delivered an Auction AgentAgreement and one or more Broker-Dealer Agreements.Failure to Meet Conditions. In the event that any condition to the Conversion of the Series2009A-2 Bonds shall not have been satisfied, then the Interest Rate Period shall not be Converted;however, the Series 2009A-2 Bonds shall continue to be subject to mandatory tender for purchase on thedate which would have been the effective date of the Conversion as provided in the Indenture.Mandatory Tender for Purchase of Series 2009A-2 BondsMandatory Tender for Purchase on the Day Next Succeeding the Last Day of New SIFMA–Based Term Interest Rate Period. On [February 28, 2014] * , the first day following the last day of theNew SIFMA–Based Term Interest Rate Period for the Series 2009A-2 Bonds, unless such day is the firstday of a new Interest Rate Period (in which case such Series 2009A-2 Bonds shall be subject tomandatory purchase as described under “–Mandatory Tender for Purchase on the First Day of EachInterest Rate Period” below), the Series 2009A-2 Bonds shall be subject to mandatory tender for purchaseat the Purchase Price, payable by wire transfer in immediately available funds. For payment of thePurchase Price on the Purchase Date, a Series 2009A-2 Bond must be delivered at or prior to 10:00 a.m.,New York City time, on the Purchase Date. If delivered after that time, the Purchase Price shall be paidon the next succeeding Business Day.Mandatory Tender for Purchase on the First Day of Each Interest Rate Period. The Series2009A-2 Bonds shall be subject to mandatory tender for purchase on the first day of each Interest RatePeriod (or on the day which would have been the first day of an Interest Rate Period had the Conversionto such Interest Rate Period not failed to occur) at the Purchase Price, payable in immediately availablefunds. For payment of the Purchase Price on the Purchase Date, a Series 2009A-2 Bond must bedelivered at or prior to 10:00 a.m., New York City time, on the Purchase Date. If delivered after thattime, the Purchase Price shall be paid on the next succeeding Business Day.Notice of Mandatory Tender for Purchase. In connection with any mandatory tender forpurchase of Series 2009A-2 Bonds as described under “–Mandatory Tender for Purchase on the Day NextSucceeding the Last Day of New SIFMA–Based Term Interest Rate Period,” the Trustee shall give noticeof a mandatory tender for purchase by first-class mail to the affected Owners, with a copy to the District,the Tender Agent and the Remarketing Agent, not less than ninety (90) days prior to the Purchase Date.In connection with any mandatory tender for purchase of Series 2009A-2 Bonds as described under “–Mandatory Tender for Purchase on the First Day of Each Interest Rate Period” above, the Trustee shallgive notice of a mandatory tender for purchase by first-class mail to the affected Owners, with a copy tothe District, the Tender Agent and the Remarketing Agent, not less than ten (10) Business Days prior tothe Purchase Date. Such notice shall state: (i) in the case of a mandatory tender for purchase pursuant toa mandatory tender for purchase on first day of a new Interest Rate Period, the type of Interest RatePeriod to commence on such mandatory Purchase Date; (ii) that the Purchase Price of any Series 2009A-2* Preliminary, subject to change.81267597.3 12

Bond subject to mandatory tender for purchase shall be payable only upon surrender of such Series2009A-2 Bond to the Tender Agent at its Corporate Trust Office for delivery of Series 2009A-2 Bonds,accompanied by an instrument of transfer, in form satisfactory to the Tender Agent, executed in blank bythe Owner of such Series 2009A-2 Bond or its duly authorized attorney, with such signature guaranteedby a commercial bank, trust company or member firm of the New York Stock Exchange; (iii) that,provided that moneys sufficient to effect such purchase shall have been provided through the remarketingof such Series 2009A-2 Bonds by the Remarketing Agent or through a Liquidity Facility or Self LiquidityArrangement (if applicable), all Series 2009A-2 Bonds subject to mandatory tender for purchase shall bepurchased on the mandatory Purchase Date; and (iv) that if any Owner of a Series 2009A-2 Bond subjectto mandatory tender for purchase does not surrender that Series 2009A-2 Bond to the Tender Agent forpurchase on the mandatory Purchase Date, then that Series 2009A-2 Bond shall be deemed to be anUndelivered Bond, that no interest shall accrue on that Series 2009A-2 Bond on and after the mandatoryPurchase Date and that the Owner shall have no rights under the Indenture other than to receive paymentof the Purchase Price.Inadequate Funds for Tenders. In the event sufficient funds are not available for the purchase ofall Series 2009A-2 Bonds tendered or deemed tendered and required to be purchased on any PurchaseDate while in the New SIFMA–Based Term Interest Rate Period, then, notwithstanding any otherprovision of the Indenture, in such event, such failed purchase shall constitute an Event of Defaultthereunder. See APPENDIX C – “SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE –Events of Default; Remedies.”Undelivered Bonds. If any Owner of a Series 2009A-2 Bond subject to mandatory tender forpurchase fails to deliver that Series 2009A-2 Bond to the Tender Agent at the place and on the PurchaseDate and at the time specified, or fails to deliver that Series 2009A-2 Bond properly endorsed, that Series2009A-2 Bond shall constitute an Undelivered Bond. If funds in the amount of the Purchase Price of theUndelivered Bond are available for payment to the Owner thereof on the Purchase Date and at the timespecified, then, from and after the Purchase Date and time of that required delivery: (i) the UndeliveredBond shall be deemed to be purchased and shall no longer be deemed to be Outstanding under theIndenture; (ii) interest shall no longer accrue on the Undelivered Bond; and (iii) funds in the amount ofthe Purchase Price of the Undelivered Bond shall be held uninvested by the Tender Agent for the benefitof the Owners thereof (provided that the Owner shall have no right to any investment proceeds derivedfrom such funds), to be paid on delivery (and proper endorsement) of the Undelivered Bond to the TenderAgent at its corporate trust office for delivery of Series 2009A-2 Bonds. Any money which the TenderAgent segregates and holds in trust for the payment of the Purchase Price of any Series 2009A-2 Bondwhich remains unclaimed for two (2) years after the date of purchase shall be paid to the District. Afterthe payment of such unclaimed money to the District, the former Owner of such Series 2009A-2 Bondshall look only to the District for the payment thereof. The District shall not be liable for any interest onunclaimed money and shall not be regarded as a trustee of such money.Series 2009A-2 Bonds to be Paid at Maturity or Redeemed Instead of Being Purchased. Series2009A-2 Bonds that are to be paid at maturity, or to be redeemed as described under “Redemption”below, on the same date that such Series 2009A-2 Bonds are to be purchased as hereinabove described(and Series 2009A-2 Bonds issued in exchange for or upon the registration of transfer of such Series2009A-2 Bonds) shall be paid or redeemed, as applicable, on such date instead of being purchased onsuch date.81267597.3 13

RedemptionOptional Redemption. While in the New SIFMA–Based Term Interest Rate Period ending on[February 27, 2014] * , the Series 2009A-2 Bonds shall be subject to optional redemption by the District, inwhole or in part, in Authorized Denominations, on any date on and after __________, 2013, at aRedemption Price equal to 100% of the principal amount to be redeemed, plus accrued interest, if any, tothe redemption date, without premium.Mandatory Redemption. The Series 2009A-2 Bonds are subject to redemption prior to theirstated maturity, in part, by lot, from Mandatory Sinking Account Payments as specified below at theprincipal amount of each Series 2009A-2 Bond so redeemed plus accrued interest thereon to but notincluding the date fixed for redemption, without premium._______________†Final Maturity.Mandatory SinkingAccount Payment Dates(June 1)Mandatory SinkingAccount Payments2023 $10,285,0002024 10,695,0002025 9,830,0002026 † 10,225,000Selection of Series 2009A-2 Bonds To Be Redeemed. If any Series 2009A-2 Bond is in adenomination larger than a minimum Authorized Denomination, a portion of such Series 2009A-2 Bond(the minimum Authorized Denomination or any integral multiple thereof) may be redeemed, in whichcase the Trustee will, without charge to the Owner of such Series 2009A-2 Bond, authenticate and issue areplacement Series 2009A-2 Bond or Series 2009A-2 Bonds for the unredeemed portion thereof. In thecase of a partial redemption of a maturity of the Series 2009A-2 Bonds, the Trustee will select the Series2009A-2 Bonds to be redeemed by lot at such times as directed by the District in writing at least thirty(30) days prior to the redemption date and if such selection is more than sixty (60) days before aredemption date, will appropriately identify the Series 2009A-2 Bonds so called for redemption bystamping them at the time any Series 2009A-2 Bonds so selected for redemption is presented to theTrustee for stamping or for transfer or exchange, or by such other method of identification as is deemedadequate by the Trustee, and any Series 2009A-2 Bond or Series 2009A-2 Bonds issued in exchange for,or to replace, any Series 2009A-2 Bond so called for prior redemption will likewise be stamped orotherwise identified. The Trustee will not select the Series 2009A-2 Bonds for mandatory redemptionpursuant to the Indenture more than 60 days prior to the redemption date.Upon surrender of any Series 2009A-2 Bond redeemed in part only, the District will execute andthe Trustee shall authenticate and deliver to the Owner thereof, at the expense of the District, a new Series2009A-2 Bond in Authorized Denominations, and of the same maturity date equal in aggregate principalamount to the unredeemed portion of the Series 2009A-2 Bond surrendered.Notice of Redemption. The District will notify the Trustee and the Remarketing Agent (if any) atleast forty (40) days (or such shorter time as may be agreed to by the District, the Trustee and theRemarketing Agent) prior to the redemption date for Series 2009A-2 Bonds. Notice of redemption willbe mailed by the Trustee, not less than thirty (30) days nor more than sixty (60) days prior to the* Preliminary, subject to change.81267597.3 14

edemption date, (i) to the respective Owners of any Series 2009A-2 Bonds designated for redemption attheir addresses appearing on the bond registration books of the Trustee by first-class mail, (ii) to theSecurities Depository by facsimile and by first-class mail, and (iii) to the Information Services by firstclassmail. Notice of redemption will be given in the form and in accordance with the terms of theIndenture.In the event of an optional redemption of Series 2009A-2 Bonds, if the District shall not havedeposited or otherwise made available to the Trustee the money required for the payment of theredemption price of the Series 2009A-2 Bonds to be redeemed at the time of such mailing, such notice ofredemption shall state that the redemption is expressly conditioned upon the timely deposit of sufficientfunds therefor with the Trustee.Effect of Redemption. If notice of redemption having been duly given, and moneys for paymentof the Redemption Price of, together with interest accrued to the redemption date on, the Series 2009A-2Bonds (or portions thereof) so called for redemption is held by the Trustee, on the redemption datedesignated in such notice, the Series 2009A-2 Bonds (or portions thereof) so called for redemption willbecome due and payable at the Redemption Price specified in such notice together with interest accruedthereon to the date fixed for redemption, interest on the Series 2009A-2 Bonds so called for redemptionshall cease to accrue, the Series 2009A-2 Bonds (or portions thereof) shall cease to be entitled to anybenefit or security under the Indenture, and the Owners of the Series 2009A-2 Bonds shall have no rightsin respect thereof except to receive payment of the Redemption Price and accrued interest.GeneralSECURITY FOR THE SERIES 2009A-2 BONDSAuthority for Issuance. The Series 2009A-2 Bonds were issued pursuant to the MunicipalUtility District Act and all laws of the State amendatory thereof or supplemental thereto, including theRevenue Bond Law of 1941, as made applicable by Article 6a of Chapter 6 of Division 6 of the MunicipalUtility District Act, and Article 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Codeof the State (collectively, the “Act”), resolutions adopted by the District and the Indenture. By ResolutionNo. 33606-07, adopted by the Board of Directors of the District on June 12, 2007, the Board declared itsintention to issue up to $1,100,000,000 of Water System revenue bonds. As of January 15, 2013,$602,330,000 of such authorized amount remains unissued. The District has heretofore and may fromtime to time hereafter adopt other resolutions authorizing the issuance of additional Water Systemrevenue bonds or other Parity Debt, subject to the satisfaction of the conditions set forth in the Indenture.The issuance of revenue bonds by the District is not subject to prior voter approval, although such bondresolutions are subject to a 60-day referendum period (which, with respect to bonds to be issued pursuantto Resolution No. 33606-07, expired without challenge). See “– Outstanding Water System RevenueObligations” below.Amendments to the Indenture. The Sixteenth Supplemental Indenture includes a number ofamendments to the Indenture in the manner and effective as of the date described under“AMENDMENTS TO THE INDENTURE.” See also APPENDIX C – “SUMMARY OF CERTAINPROVISIONS OF THE INDENTURE.”Pledge of Subordinated Water RevenuesPursuant to the Indenture, the District has irrevocably pledged to the payment of the principal orredemption price of and interest on the Water System Revenue Bonds, including the Series 2009A-2Bonds and any Parity Debt, all Subordinated Water Revenues (as hereinafter defined) and amounts held81267597.3 15

y the Trustee under the Indenture (except for amounts held in the Rebate Fund) subject only to theprovisions of the Indenture permitting the application thereof for the purposes and on the terms andconditions set forth therein.“Subordinated Water Revenues” is generally defined in the Indenture to mean, for any fiscalperiod, the sum of (a) all charges received for, and all other income and receipts derived by the Districtfrom, the operation of the Water System or arising from the Water System, together with income from theinvestment of any monies in any fund or account established under the Senior Water Bond Resolutionrelating to the District’s Senior Water Bonds or under the Indenture (collectively, the “Water Revenues”)for such fiscal period, plus (b) the amounts, if any, withdrawn by the District from the Rate StabilizationFund established under the Senior Water Bond Resolution for treatment as Water Revenues for suchfiscal period, less the sum of (c) all Water Operation and Maintenance Costs (as hereinafter defined) forsuch fiscal period and (d) the amounts, if any, withdrawn by the District from Water Revenues for suchfiscal period for deposit in the Rate Stabilization Fund, and (e) all amounts required to be paid under theSenior Water Bond Resolution for principal, interest, reserve fund and any other debt servicerequirements on the Senior Water Bonds as the same become due and payable. There are no SeniorWater Bonds currently outstanding and the District has covenanted pursuant to the EighteenthSupplemental Indenture that it will not issue any Senior Water Bonds in the future. See “–Outstanding Water System Revenue Obligations – No Senior Water Bonds” below.The District may deposit into, or withdraw amounts from time to time held in, the RateStabilization Fund within 120 days after the end of the applicable Fiscal Year. Amounts deposited intothe Rate Stabilization Fund shall be deducted from Water Revenues for such Fiscal Year. Amountswithdrawn from the Rate Stabilization Fund shall be included in Water Revenues for such Fiscal Year andmay be applied for any purposes for which Water Revenues generally are available. All interest andearnings upon deposits in the Rate Stabilization Fund will not be held therein, but will be treated andaccounted for as Water Revenues. The amount on deposit in the Rate Stabilization Fund as of January 15,2013 was $50,000,000.“Water Operation and Maintenance Costs” is generally defined in the Indenture to mean thereasonable and necessary costs of maintaining and operating the Water System, calculated on soundaccounting principles, including (among other things) the reasonable expenses of management, repair andother expenses necessary to maintain and preserve the Water System in good repair and working order,and reasonable amounts for administration, overhead, insurance, taxes and other similar costs, butexcluding in all cases depreciation and obsolescence charges or reserves therefor and amortization ofintangibles or other bookkeeping entries of a similar nature, and excluding all costs paid from theproceeds of taxes received by the District.“Parity Debt” means any indebtedness, installment sale obligation, lease obligation or otherobligation of the District for borrowed money or interest rate swap agreement having an equal lien andcharge upon the Subordinated Water Revenues and therefore payable on a parity with the Water SystemRevenue Bonds (whether or not any Water System Revenue Bonds are Outstanding).The Series 2009A-2 Bonds are not payable from or secured by the revenues of the wastewatersystem of the District.The Series 2009A-2 Bonds are special obligations of the District, payable solely from andsecured by a pledge of Subordinated Water Revenues. Neither the full faith and credit nor thetaxing power of the District is pledged to the payment of the Series 2009A-2 Bonds or the interestthereon.81267597.3 16

Allocation of Subordinated Water Revenues Under the IndentureIn accordance with the Indenture, all Subordinated Water Revenues, when and as received by theDistrict, shall be deposited into a fund to be established and maintained by the District designated as the“Revenue Fund.” So long as any Water System Revenue Bonds are Outstanding, the District will transferthe monies in the Revenue Fund into the following respective funds (established, maintained and held bythe Trustee in trust for the benefit of the Owners of the Water System Revenue Bonds) in the followingorder of priority; provided, that on a parity with such deposits the Trustee may set aside or transferamounts with respect to outstanding Parity Debt as provided in the proceedings for such Parity Debt(which deposits shall be proportionate in the event such amounts are insufficient to provide for alldeposits required as of any date to be made with respect to the Water System Revenue Bonds and suchParity Debt):Interest Fund. The District will transfer to the Trustee to be set aside in the Interest Fund on orbefore the Business Day prior to each interest payment date an amount equal to the interest becoming dueand payable on the Outstanding Water System Revenue Bonds (excluding any interest for which there aremonies on deposit in the Interest Fund from the proceeds of any series of Water System Revenue Bondsor other source to pay such interest).Principal Fund; Sinking Accounts. The District shall transfer to the Trustee to be set aside inthe Principal Fund on or before the Business Day prior to each principal or sinking account payment datean amount equal to the amount of Bond Obligation (as defined in the Indenture) plus the MandatorySinking Account Payments becoming due and payable on such date. All Mandatory Sinking AccountPayments shall be made without priority of any payment into any one such sinking account over any othersuch payment.Bond Reserve Funds. Upon the occurrence of any deficiency in any bond reserve fundestablished pursuant to the Indenture for any Series of Water System Revenue Bonds, the District shalltransfer to the Trustee and the Trustee shall set aside in such bond reserve fund an amount equal to theaggregate amount of each unreplenished prior withdrawal from such bond reserve fund until there is ondeposit in such bond reserve fund an amount equal to the respective reserve requirement for such bondreserve fund.The requirements of each such fund (including the making up of any deficiencies in any suchfund resulting from a lack of Subordinated Water Revenues sufficient to make any earlier requireddeposit) at the time of deposit to be satisfied before any deposit is made to any other fund subsequent inpriority. The Indenture provides that any Subordinated Water Revenues remaining in the Revenue Fundafter the foregoing transfers, except as otherwise provided in a Supplemental Indenture, shall be held freeand clear of the Indenture by the District. The District may use and apply such Subordinated WaterRevenues for any lawful purpose of the District, including the redemption of Water System RevenueBonds upon the terms and conditions set forth in a Supplemental Indenture relating to such Water SystemRevenue Bonds and the purchase of Water System Revenue Bonds as and when and at such prices as itmay determine.Under the Indenture the District may enter into an interest rate swap agreement corresponding tothe interest rate or rates payable on a Series of Water System Revenue Bonds or any portion thereof andthe amounts received by the District or the Trustee, if any, pursuant to such an interest rate swapagreement may be applied to the deposits required under the Indenture. If the District so designates,amounts payable under the interest rate swap agreement shall be secured by Subordinated WaterRevenues and other assets pledged under the Indenture to the Water System Revenue Bonds on a paritybasis therewith.81267597.3 17

For further information regarding the allocation of Subordinated Water Revenues with respect tothe Water System Revenue Bonds, see APPENDIX C – “SUMMARY OF CERTAIN PROVISIONS OFTHE INDENTURE – Allocation of Subordinated Water Revenues.”Series 2009A Bond Reserve FundOn the date of the original issuance of the Series 2009A Bonds (being the Series 2009A-1 Bondsand the Series 2009A-2 Bonds), the Series 2009A Bond Reserve Fund was funded with cash in an amountequal to the Series 2009A Bond Reserve Requirement. “Series 2009A Bond Reserve Requirement” isdefined under the Indenture to mean an amount equal to the interest accruing on the Series 2009A Bonds(based upon the Outstanding Series 2009A Bonds as of the date of calculation and a 3.4069% assumedannual interest rate) for the twelve-month period ending June 1, 2010, which amount, upon the redeliveryof the Series 2009A-2 Bonds will be $2,796,213.18, and is on deposit in the Series 2009A Bond ReserveFund. In addition, the Trustee shall deposit in the Series 2009A Bond Reserve Fund, from any amountremaining in the Revenue Fund on any interest payment date following the transfer to the Interest Fundand the Principal Fund as required by the Indenture, that amount of money which shall be required either(i) to maintain the Series 2009A Bond Reserve Fund in the full amount of the Series 2009A BondReserve Requirement or (ii) to repay any and all obligations due and payable under the terms andconditions of any letter of credit or insurance policy or surety bond provided for the Series 2009A BondReserve Fund (as described below). No deposit need be made in the Series 2009A Bond Reserve Fund solong as there shall be on deposit therein a sum equal to at least the amount required by the Indenture to beon deposit therein. Whenever the amount on deposit in the Series 2009A Bond Reserve Fund is less thanthe Series 2009A Bond Reserve Requirement, such amount shall be increased to the Series 2009A BondReserve Requirement as provided for in the Indenture not later than twelve months thereafter. Allamounts in the Series 2009A Bond Reserve Fund shall be used and withdrawn by the Trustee solely forthe purposes of making up any deficiency in the Interest Fund or the Principal Fund for the payment ofprincipal and interest on the Series 2009A Bonds, or (together with any other moneys available therefor)for the payment or redemption of all Series 2009A Bonds then Outstanding, or for the payment of thefinal principal and interest payments of the Series 2009A Bonds. Any amounts in the Series 2009A BondReserve Fund in excess of the Series 2009A Bond Reserve Requirement, shall be transferred by theTrustee to the Interest Fund to be credited toward amounts required to be transferred by the District fordeposit therein for the payment of interest on the Series 2009A Bonds.Pursuant to the Indenture, the District may provide for all or part of the Series 2009A BondReserve Fund by delivering to the Trustee an irrevocable letter of credit issued by a financial institutionhaving unsecured debt obligations rated, at the time of delivery of such letter of credit, in one of the twohighest Rating Categories of Moody’s and Standard & Poor’s, securing an amount, together with moneys,Investment Securities or surety bonds or insurance policies (as described in the next succeeding sentence)on deposit in the Series 2009A Bond Reserve Fund, equal to the Series 2009A Bond ReserveRequirement. The District may also provide for all or part of the Series 2009A Bond Reserve Fund bydelivering to the Trustee a surety bond or an insurance policy securing an amount, together with moneys,Investment Securities or letters of credit on deposit in the Series 2009A Bond Reserve Fund, equal to theSeries 2009A Bond Reserve Requirement. Such surety bond or insurance policy shall be issued by aninsurance company whose unsecured debt obligations (or obligations secured by such insurancecompany’s insurance policies) are rated at the time of delivery of such surety bond or insurance policy inone of the two highest Rating Categories of Moody’s and Standard & Poor’s, and if rated by A.M. Best &Company, rated in the highest Rating Category by A.M. Best & Company.All amounts in the Series 2009A Bond Reserve Fund (including all amounts which may beobtained from letters of credit and surety bonds and insurance policies on deposit in the Series 2009ABond Reserve Fund) may be used and withdrawn by the Trustee, as provided in the Indenture, solely for81267597.3 18

the purpose of making up any deficiency in the Interest Fund or the Principal Fund for the payment of theSeries 2009A Bonds. In the event of any deficiency in the Interest Fund or Principal Fund for thepayment of principal and interest payments for the Water System Revenue Bonds, Subordinated WaterRevenues shall be applied in accordance with the Indenture without regard to the existence of any reservefund for any Series of Water System Revenue Bonds. After first applying all cash and InvestmentSecurities held in the Series 2009A Bond Reserve Fund to pay the Bond Obligation (as defined in theIndenture) of, Mandatory Sinking Account Payments with respect to, and interest on, the Series 2009ABonds when due, the Trustee shall, on a pro rata basis with respect to the portion of the Series 2009ABond Reserve Fund held in the form of letters of credit and amounts held in the form of surety bonds andinsurance policies (calculated by reference to the maximum amounts of such letters of credit and suretybonds and insurance policies), draw under each letter of credit or surety bond or insurance policy issuedwith respect to the Series 2009A Bond Reserve Fund, in a timely manner and pursuant to the terms ofsuch letter of credit or surety bond or insurance policy to the extent necessary in order to obtain sufficientfunds on or prior to the date such funds are needed to pay the Bond Obligation of, Mandatory SinkingAccount Payments with respect to, and interest on, the Series 2009A Bonds when due. In the event thatthe Trustee has written notice from the District or any Series 2009A Bondholder that any payment ofprincipal of, or interest on, a Series 2009A Bond has been recovered from a Series 2009A Bondholderpursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with the final,nonappealable order of a court having competent jurisdiction, the Trustee, pursuant to and provided thatthe terms of the letter of credit or surety bond or insurance policy, if any, credited to the Series 2009ABond Reserve Fund so provide, shall so notify the issuer thereof and draw on such letter of credit orsurety bond or insurance policy to the lesser of the extent required or the maximum amount of such letterof credit or surety bond or insurance policy in order to pay to such Series 2009A Bondholders theprincipal of and interest so recovered.The Series 2009A Bond Reserve Fund secures only the Series 2009A-1 Bonds and the Series2009A-2 Bonds and is not available for the payment of any other Series of Water System Revenue Bonds.Amounts held in any other bond reserve fund or account under the Indenture for any other Series of WaterSystem Revenue Bonds are not available for the payment of the Series 2009A-2 Bonds.Investment of Monies in Funds and Accounts Under the IndentureAll monies held in any of the funds and accounts held by the Trustee and established pursuant tothe Indenture shall be invested, as directed by the District, solely in Investment Securities (seeAPPENDIX C – “SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE – Definitions” forthe definition of Investment Securities under the Indenture). If and to the extent the Trustee does notreceive investment instructions from the District with respect to the monies in such funds and accounts,such monies shall be invested in a cash sweep or similar account arrangement of or available to theTrustee described in clause (xi) of the definition of Investment Securities.Moneys in the Series 2009A Bond Reserve Fund shall be invested, as directed by the District,with a maturity date no later than the next mandatory Purchase Date of the Series 2009A Bonds, in(i) Investment Securities or (ii) investment 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 aguaranteed corporation the long-term debt of the guarantor, or, in the case of a monoline financialguaranty insurance company, the claims paying ability of which, is rated at the time of execution of suchinvestment agreement in one of the two highest Rating Categories of Moody’s and Standard & Poor’s.Unless otherwise provided in a Supplemental Indenture, all interest, profits and other incomereceived from the investment of monies in any fund or account other than the Rebate Fund shall betransferred to the Revenue Fund when received; provided, however, that an amount of interest received81267597.3 19

with respect to any Investment Security equal to the amount of accrued interest, if any, paid as part of thepurchase price of such Investment Security shall be credited to the fund or account from which suchaccrued interest was paid.Rate CovenantThe District has covenanted under the Indenture that it will, at all times while any of the WaterSystem Revenue Bonds remain Outstanding, fix, prescribe and collect rates, fees and charges inconnection with the services and facilities furnished by the Water System so as to yield Water Revenuesin each Fiscal Year sufficient so that the Subordinated Water Revenues for such year shall be at leastequal to 1.1 times the amount of Debt Service on all Water System Revenue Bonds and Parity Debt forsuch Fiscal Year. See APPENDIX C – “SUMMARY OF CERTAIN PROVISIONS OF THEINDENTURE – Definitions” for the definition of Debt Service under the Indenture. See also“AMENDMENTS TO THE INDENTURE.”Outstanding Water System Revenue ObligationsNo Senior Water Bonds. Pursuant to Resolution No. 30050 adopted by the Board of Directors ofthe District on January 26, 1982 (as amended and supplemented, the “Senior Water Bond Resolution”),the District authorized the issuance, from time to time, of bonds of the District designated as “East BayMunicipal Utility District Water System Revenue Bonds” (the “Senior Water Bonds”) and secured by apledge of, and first lien on, the Net Revenues (as defined in the Senior Water Bond Resolution) of theDistrict’s Water System, generally being all of the Water Revenues (adjusted for deposits to andwithdrawals from the Rate Stabilization Fund) after payment of Water Operation and Maintenance Coststhereof, all on the terms and conditions set forth in the Senior Water Bond Resolution. At the time of theinitial execution and delivery of the Indenture in 1990, the Indenture did not preclude the District fromissuing additional Senior Water Bonds pursuant to the Senior Water Bond Resolution. The District lastissued Senior Water Bonds in 1986 and all outstanding Senior Water Bonds were retired in 1997. Thereare currently no Senior Water Bonds outstanding. Pursuant to the Eighteenth SupplementalIndenture, the District has covenanted and agreed that it will not issue any Senior Water Bonds inthe future pursuant to the Senior Water Bond Resolution.Outstanding Water System Revenue Bonds and Parity Debt. As of January 15, 2013, theDistrict had Outstanding $2,244,535,000 aggregate principal amount of Water System Revenue Bonds,including the Series 2009A-2 Bonds (collectively, the “Outstanding Water System Revenue Bonds”),issued under and pursuant to the Indenture. See APPENDIX A – “THE EAST BAY MUNICIPALUTILITY DISTRICT (THE WATER SYSTEM) – WATER SYSTEM FINANCES – Outstanding Debt.”See also “PLAN OF FINANCE – Additional Financings Being Undertaken by the District.”Approximately $446,255,000 principal amount of the District’s Outstanding Water SystemRevenue Bonds are variable rate obligations which are subject to tender prior to maturity in accordancewith their terms. As described herein, in connection with the Outstanding Series 2009A Bonds, theDistrict is solely obligated to provide funds (which may include remarketing or refunding proceeds) forthe payment upon the mandatory tender thereof and failure of the District to provide such funds willconstitute an Event of Default under the Indenture. In connection with $148,530,000 principal amount ofsuch variable rate Outstanding Water System Revenue Bonds (being the District’s Water System RevenueRefunding Bonds, Series 2011A (the “Series 2011A Bonds”)), the failure of the District to pay thepurchase price thereof upon the mandatory tender on certain scheduled mandatory purchase dates will notconstitute an Event of Default under the Indenture; however, in the event sufficient remarketing proceedsare not available for the purchase of such Series 2011A Bonds upon such mandatory tender, such Series2011A Bonds will go into a term-out period and will bear interest at an interest rate which is substantially81267597.3 20

higher than the current variable interest rate on the Series 2011A Bonds, and during such term-out period,the Series 2011A Bonds will be subject to special mandatory redemption over an approximately five-yearperiod, which will result in an acceleration in the repayment of the principal of the Series 2011A Bondsfrom the principal payments that would otherwise be due on such Series 2011A Bonds.In connection with $215,650,000 principal amount of the District’s variable rate OutstandingWater System Revenue Bonds, the District has entered into liquidity agreements with various banks toprovide liquidity facilities for such variable rate Outstanding Water System Revenue Bonds upon tenderthereof. The obligation of the District to repay any draws on such liquidity facilities is payable on a paritywith the Outstanding Water System Revenue Bonds to the extent such repayment is not thereafterprovided from remarketing proceeds of the related Outstanding Water System Revenue Bonds.Unreimbursed draws under liquidity facilities supporting such variable rate Outstanding Water SystemRevenue Bonds bear interest at a maximum rate that may be substantially in excess of the current interestrate on the related variable rate Outstanding Water System Revenue Bonds. Moreover, in certaincircumstances, the failure to reimburse draws on the liquidity facilities may result in the acceleration ofthe scheduled payment of principal on such variable rate Outstanding Water System Revenue Bonds. SeeTable 14 in APPENDIX A – “THE EAST BAY MUNICIPAL UTILITY DISTRICT (THE WATERSYSTEM) – WATER SYSTEM FINANCES – Variable Rate and Swap Obligations” for additionalinformation regarding the liquidity providers, the expiration date of the related liquidity facilities and theprincipal amount of Outstanding Water System Revenue Bonds covered under each such liquidity facility.In addition to the Outstanding Water System Revenue Bonds, the District has outstanding loanswith the State of California’s State Water Resources Control Board and the Department of WaterResources and certain interest rate swap agreements the scheduled payments under which are payablefrom Subordinated Water Revenues on a parity with the Water System Revenue Bonds, as describedbelow. See “–Interest Rate Swap Agreements” and “–State Loans.” The Outstanding Water SystemRevenue Bonds (including the Series 2009A-2 Bonds), together with any additional Water SystemRevenue Bonds issued under the Indenture, and any Parity Debt heretofore or hereafter issued or incurredin accordance with the Indenture, are on a parity as to the pledge of and lien on Subordinated WaterRevenues.Interest Rate Swap Agreements. As of January 15, 2013, the District had outstanding interestrate swap agreements relating to variable rate Outstanding Water System Revenue Bonds (hereinaftercollectively, the “Water Interest Rate Swap Agreements”) with various counterparties (collectively, the“Swap Providers”) in the aggregate notional amount of $446,155,000. The Water Interest Rate SwapAgreements were entered into to hedge the interest rate exposure on the related variable rate WaterSystem Revenue Bonds by synthetically converting the variable interest rate payments that the District isobligated to make with respect to the related Water System Revenue Bonds into substantially fixedpayments. In general, the terms of the Water Interest Rate Swap Agreements provide that, on a same-daynet–payment basis determined by reference to a notional amount, the District will pay a fixed interest rateon the respective notional amount. In return, the applicable Swap Counterparty will pay a variable rate ofinterest (determined as a specified percentage of an interest rate index) on a like notional amount.There is no guarantee that the floating rate payable to the District pursuant to each of the WaterInterest Rate Swap Agreements will match the variable interest rate on the associated Water SystemRevenue Bonds to which the respective Water Interest Rate Swap Agreement relates at all times or at anytime. Since the respective effective dates of the Water Interest Rate Swap Agreements, the floating ratespayable to the District pursuant to the Water Interest Rate Swap Agreements have generally not matchedthe variable interest rates on the associated Water System Revenue Bonds. To the extent that the SwapProviders are obligated to make a payment to the District under their respective Water Interest Rate SwapAgreement that is less than the interest due on the associated Water System Revenue Bonds to which such81267597.3 21

Water Interest Rate Swap Agreement relates, the District is obligated to pay such insufficiency fromSubordinated Water Revenues.The obligation of the District to make regularly scheduled payments to the Swap Providers underthe respective Water Interest Rate Swap Agreements is on a parity with the District’s obligation to makepayments on the Water System Revenue Bonds, including the Series 2009A-2 Bonds. Under certaincircumstances, the Water Interest Rate Swap Agreements may be terminated and the District may berequired to make a substantial termination payment to the respective Swap Providers. Pursuant to theWater Interest Rate Swap Agreements, any such termination payment owed by the District would bepayable on a basis that is subordinate to the Series 2009A-2 Bonds but prior to the District’s ExtendableMunicipal Commercial Paper Notes (Water Series).Pursuant to the terms of certain of the Water Interest Rate Swap Agreements, the District isrequired to post collateral in favor of a counterparty to the extent that the District’s total exposure fortermination payments to that counterparty exceeds the threshold amount specified in the applicable WaterInterest Rate Swap Agreement.See APPENDIX A – “THE EAST BAY MUNICIPAL UTILITY DISTRICT (THE WATERSYSTEM) – WATER SYSTEM FINANCES – Variable Rate and Swap Obligations” for additionalinformation regarding the Water Interest Rate Swap Agreements, including the District’s collateralposting obligations in connection therewith.The District may, from time-to-time, enter into additional interest rate swap agreements withsecurity and payment provisions as determined by the District and subject to any conditions contained inthe Indenture.Parity State Loans. The District participates in the California State Water Resources ControlBoard (the “SWRCB”) and the Safe Drinking Water State Revolving Fund low interest rate loanprograms, which were established to provide below-market rate financing for qualified water resourceprojects in the State. Under these programs, as of January 15, 2013, the District had outstanding loancontracts with the State (the “State Loans”) in the aggregate outstanding principal amount ofapproximately $17,917,000. All such State Loans were entered into subsequent to January 1993 andprovide that such State Loans shall be either senior to or on a parity with all future debt of the District.For purposes of calculating debt service coverage ratios, the District has treated all such State Loans asParity Debt. Any future State Loans would likely constitute Parity Debt under the Indenture.Subordinate Commercial Paper. The District has maintained a commercial paper note programsince 1988. In March 2009, the District implemented an extendable municipal commercial paper noteprogram for the purpose of retiring its then existing commercial paper note program. As of January 15,2013, the District had authorized up to $410,000,000 aggregate principal amount of tax-exemptExtendable Municipal Commercial Paper Notes (Water Series), of which $312,900,000 was outstandingas of January 15, 2013. See APPENDIX A – “THE EAST BAY MUNICIPAL UTILITY DISTRICT(THE WATER SYSTEM) – WATER SYSTEM FINANCES – Outstanding Debt” for a description of theDistrict’s extendable municipal commercial paper note program.Issuance of Additional Water System Revenue Bonds and Parity Debt; Junior and SubordinateObligationsThe Indenture provides conditions under which additional series of Water System Revenue Bondsor other Parity Debt payable from Subordinated Water Revenues may be issued on a parity with theOutstanding Water System Revenue Bonds. Among other conditions, the Indenture requires that the81267597.3 22

District shall have placed on file with the Trustee a certificate of the District certifying that the sum of:(1) the Subordinated Water Revenues for any period of 12 consecutive months during the 18 monthsimmediately preceding the date on which such additional Water System Revenue Bonds or Parity Debtwill become Outstanding; plus (2) 90% of the amount by which the District projects Subordinated WaterRevenues for such period of 12 months would have been increased had increases in rates, fees andcharges during such period of 12 months been in effect throughout such period of 12 months; plus(3) 75% of the amount by which the District projects Subordinated Water Revenues will increase duringthe period of 12 months commencing on the date of issuance of such additional Series of Water SystemRevenue Bonds due to improvements to the Water System under construction (financed from any source)or to be financed with the proceeds of such additional Series of Water System Revenue Bonds, shall havebeen at least equal to 1.1 times the amount of Maximum Annual Debt Service on all Water SystemRevenue Bonds and Parity Debt then Outstanding and the additional Water System Revenue Bonds orParity Debt then proposed to be issued. See APPENDIX C – “SUMMARY OF CERTAINPROVISIONS OF THE INDENTURE – Certain Definitions.”Refunding Water System Revenue Bonds may be authorized and issued by the District withoutcompliance with the provisions described above, subject to the terms and conditions of the Indenture,including the condition that Maximum Annual Debt Service on all Water System Revenue Bonds andParity Debt outstanding following the issuance of such refunding Water System Revenue Bonds is lessthan or equal to Maximum Annual Debt Service on all Water System Revenue Bonds and Parity Debtoutstanding prior to the issuance of such refunding Water System Revenue Bonds. See APPENDIX C –“SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE – Refunding Bonds.”Pursuant to the Indenture, the District may incur obligations which are junior and subordinate tothe payment of the principal, redemption price, interest and reserve fund requirements for the WaterSystem Revenue Bonds and all Parity Debt and which subordinated obligations are payable as toprincipal, redemption price, interest and reserve fund requirements, if any, only out of SubordinatedWater Revenues after the prior payment of all amounts then required to be paid under the Indenture fromSubordinated Water Revenues for principal, redemption price, interest and reserve fund requirements forthe Water System Revenue Bonds and all Parity Debt, as the same become due and payable and at thetimes and in the manner as required in the Indenture or the instrument authorizing such Parity Debt, asapplicable.Limitations on RemediesThe ability of the District to comply with its covenants under the Indenture and to generate WaterRevenues sufficient to pay the principal of and interest on the Series 2009A-2 Bonds may be adverselyaffected by actions and events outside of the control of the District. Furthermore, any remedies availableto the owners of the Series 2009A-2 Bonds upon the occurrence of an event of default under the Indentureare in many respects dependent upon judicial actions which are often subject to discretion and delay andcould prove both expensive and time consuming to obtain. In addition, enforceability of the rights andremedies of the Owners of the Series 2009A-2 Bonds, and the obligations incurred by the District underthe Series 2009A-2 Bonds and the Indenture, may become subject to the following: the federalBankruptcy Code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar lawsrelating to or affecting the enforcement of creditor’s rights generally, now or hereafter in effect; equityprinciples which may limit the specific enforcement under State law of certain remedies; the exercise bythe United States of America of the powers delegated to it by the Constitution; and the reasonable andnecessary exercise, in certain exceptional situations, of the police powers inherent in the sovereignty ofthe State and its governmental bodies in the interest of serving a significant and legitimate public purpose.Bankruptcy proceedings, or the exercise of powers by the federal or State government, if initiated, couldsubject the owners of the Series 2009A-2 Bonds to judicial discretion and interpretation of their rights in81267597.3 23

ankruptcy or otherwise, and consequently may entail risks of delay, limitation, or modification of theirrights.AMENDMENTS TO THE INDENTUREThe Sixteenth Supplemental Indenture includes a number of amendments to the Indenture whichwill become effective upon the earlier to occur of: (i) the first date upon which all of the OutstandingSeries 2001 Bonds, Series 2002 Bonds, Series 2003 Bonds, Series 2005A Bonds, Series 2007A Bonds,Series 2007B Bonds, Series 2008A Bonds, Series 2008B Bonds and Series 2009A Bonds have been paidor discharged in accordance with their terms and shall no longer be Outstanding for purposes of theIndenture (all of which Series 2001 Bonds and Series 2002 Bonds have been retired and all of whichSeries 2003 Bonds are expected to be defeased upon delivery of the Series 2013A Bonds) and allobligations of the District under any interest rate swap agreements and any standby bond purchaseagreements or other liquidity facilities relating thereto shall have been discharged and satisfied, or (ii) thefirst date upon which the District has filed with the Trustee the written consents to the amendments to theIndenture set forth in the Sixteenth Supplemental Indenture of (a) the Owners of a majority in aggregateprincipal amount of Bond Obligation then Outstanding and (b) the providers of any interest rate swapagreements and any standby bond purchase agreements, other liquidity facilities or other agreementsrelating to such Bond Obligation then Outstanding to the extent the consent thereof shall be required bythe terms of such interest rate swap agreements and any standby bond purchase agreements, otherliquidity facilities or other agreements.As modified, the term “Annual Debt Service” shall mean, for any Fiscal Year, the aggregateamount of principal and interest on all Water Bonds, Bonds and Parity Debt becoming due and payableduring such Fiscal Year calculated using the principles and assumptions set forth under the definition ofDebt Service.As modified, the term “Assumed Debt Service” shall mean for any Fiscal Year, the aggregateamount of principal and interest which would be payable on all Water Bonds, Bonds and Parity Debt ifeach Excluded Principal Payment were amortized for a period specified by the District (but no longer thanthirty (30) years from the date of the issuance of the Water Bonds, Bonds or Parity Debt to which suchExcluded Principal Payment relates) on a substantially level debt service basis or other amortization basisprovided by the District, calculated based on a fixed interest rate equal to the rate at which the Districtcould borrow for such period, as certified by a certificate of a financial advisor or investment bankerdelivered to the Trustee, who may rely conclusively on such certificate, within thirty (30) days of the dateof calculation.As modified, the term “Debt Service” shall mean the amount of principal and interest becomingdue and payable on all Water Bonds, Bonds and Parity Debt provided, however, that for the purpose ofcomputing Debt Service:(a) Excluded Principal Payments shall be excluded from such calculation and AssumedDebt Service shall be included in such calculation;(b) if the Water Bonds, Bonds or Parity Debt are Variable Rate Indebtedness, the interestrate thereon for periods when the actual interest rate cannot yet be determined shall be assumed tobe equal to the average of the SIFMA Municipal Swap Index for the five (5) years preceding suchdate of calculation (provided, however, that if such index is no longer published, the interest rateon such Water Bonds, Bonds or Parity Debt shall be calculated based upon such similar index asthe District shall designate in writing to the Trustee) (the “Assumed SIFMA-based Rate”);81267597.3 24

(c) principal and interest payments on Water Bonds, Bonds and Parity Debt shall beexcluded to the extent such payments are to be paid from amounts on deposit with the Trustee oranother fiduciary in escrow or trust specifically therefor and to the extent that such interestpayments are to be paid from the proceeds of Water Bonds, Bonds or Parity Debt held by theTrustee or another fiduciary as capitalized interest;(d) in determining the principal amount, payment shall (unless a different subsection ofthis definition applies for purposes of determining principal maturities or amortization) beassumed to be made in accordance with any amortization schedule established for such debt,including any Mandatory Sinking Account Payments or any scheduled redemption or payment ofWater Bonds, Bonds or Parity Debt on the basis of Accreted Value, and for such purpose, theredemption payment or payment of Accreted Value shall be deemed a principal payment andinterest that is compounded and paid as Accreted Value shall be deemed due on the scheduledredemption or payment date of such Capital Appreciation Indebtedness;(e) if any interest rate swap agreement is in effect with respect to, and the regularlyscheduled payments thereunder are payable on a parity with, the Water Bonds, Bonds or ParityDebt to which it relates, interest deemed to be payable on any such Water Bonds, Bonds or ParityDebt with respect to which an interest rate swap agreement is in effect shall be based on the neteconomic effect expected by the District to be produced by the terms of such Water Bonds,Bonds or Parity Debt and such interest rate swap agreement, including but not limited to theeffects that (i) such Water Bonds, Bonds or Parity Debt would, but for such interest rate swapagreement, be treated as Variable Rate Indebtedness instead shall be treated as Water Bonds,Bonds or Parity Debt bearing interest at a fixed interest rate, and (ii) such Water Bonds, Bonds orParity Debt would, but for such interest rate swap agreement, be treated as Water Bonds, Bondsor Parity Debt bearing interest at a fixed interest rate instead shall be treated as Variable RateIndebtedness; and accordingly, the amount of interest deemed to be payable on any Water Bonds,Bonds or Parity Debt with respect to which an interest rate swap agreement is in force shall be anamount equal to the amount of interest that would be payable at the rate or rates stated in suchWater Bonds, Bonds or Parity Debt plus the amounts payable by the District under such interestrate swap agreement, minus the amounts receivable by the District under such interest rate swapagreement, and for the purpose of calculating as nearly as practicable such amounts, the followingassumptions shall be made:(1) if an interest rate swap agreement has been entered into by the Districtwith respect to Water Bonds, Bonds or Parity Debt providing for the payment of a netvariable interest rate under such interest rate swap agreement with respect to such WaterBonds, Bonds or Parity Debt by the District, the interest rate on such Water Bonds,Bonds or Parity Debt for future periods when the actual interest rate cannot yet bedetermined shall be assumed (but only during the period the interest rate swap agreementis in effect) to be equal to the sum of (A) the fixed rate or rates stated in such WaterBonds, Bonds or Parity Debt minus (B) the fixed rate paid by the counterparty of suchinterest rate swap agreement to the District, plus (C) the lesser of (x) the interest rate cap,if any, provided by a counterparty with respect to such interest rate swap agreement (butonly during the period that such interest rate cap is in effect) and (y) the applicablevariable interest rate calculated in accordance with paragraph (b) above; and(2) if an interest rate swap agreement has been entered into by the Districtwith respect to Water Bonds, Bonds or Parity Debt providing for the payment of a fixedrate of interest to maturity or for a specific term under such interest rate swap agreementwith respect to such Water Bonds, Bonds or Parity Debt by the District, the interest on81267597.3 25

such Water Bonds, Bonds or Parity Debt shall be included in the calculation of payments(but only during the period the interest rate swap agreement is in effect) by including foreach period of calculation an amount equal to the amount of interest payable at the fixedinterest rate pursuant to such interest rate swap agreement.Notwithstanding any other paragraph of this definition of Debt Service, except as setforth in this paragraph (e), no amounts payable under any interest rate swap agreement (includingtermination payments) shall be included in the calculation of Debt Service;(f) if any Water Bonds, Bonds or Parity Debt are Variable Rate Indebtedness subject totender for purchase and funds for the purchase price may be provided by a letter of credit, line ofcredit, revolving credit agreement, standby bond purchase agreement or other liquidity facilitywhich, if drawn upon, could create a repayment obligation which has a lien on SubordinatedWater Revenues on parity with the lien of the Water Bonds, Bonds or Parity Debt, then forpurposes of determining the amounts of principal due in any Fiscal Year on such Water Bonds,Bonds or Parity Debt, (i) the options or obligations of the Owners of such Water Bonds, Bonds orParity Debt to tender the same for purchase or payment prior to the stated maturity or maturitiesshall be ignored and not treated as a principal maturity; and (ii) any repayment obligations of theDistrict to the provider of such letter of credit, line of credit, revolving credit agreement, standbybond purchase agreement or other liquidity facility, other than its obligations on such WaterBonds, Bonds or Parity Debt, shall be treated as Excluded Principal Payments; and(g) if interest on any Water Bonds, Bonds or Parity Debt is reasonably anticipated to bereimbursed to the District by the United States of America pursuant to Section 54AA of the Code,or any future similar program, then interest payments with respect to such Water Bonds, Bonds orParity Debt shall be reduced by the amount of such interest reasonably anticipated to be paid orreimbursed by the United States of America.As modified, the term “Maximum Annual Debt Service” shall mean the greatest amount ofprincipal and interest becoming due and payable on all Water Bonds, Bonds and Parity Debt in the FiscalYear in which the calculation is made or any subsequent Fiscal Year calculated using the principles andassumptions set forth under the definition of Debt Service.The term “SIFMA Municipal Swap Index” means, on any date, a rate determined on the basis ofthe seven-day high grade market index of tax-exempt variable rate demand obligations, as produced byMunicipal Market Data and published or made available by the Securities Industry & Financial MarketsAssociation (formerly the Bond Market Association) (“SIFMA”) or by any Person acting in cooperationwith or under the sponsorship of SIFMA and effective from such date.As modified, the term “Water Revenues” shall mean all charges received for, and all otherincome and receipts derived by the District from, the operation of the Water System, or arising from theWater System, together with income from the investment of any moneys in any fund or accountestablished under the Senior Water Bond Resolution or this Indenture; provided, however, there shall beexcluded therefrom any amounts reimbursed to the District by the United States of America pursuant toSection 54AA of the Code or any future similar program.81267597.3 26

Tax Limitations – Proposition 13CONSTITUTIONAL AND STATUTORY LIMITATIONSON TAXES AND APPROPRIATIONSArticle XIIIA of the State Constitution, known as Proposition 13, was approved by the voters inJune 1978. Section 1(a) of Article XIIIA limits the maximum ad valorem tax on real property to 1% of“full cash value,” and provides that such tax shall be collected by the counties and apportioned accordingto State statutes. Section 1(b) of Article XIIIA provides that the 1% limitation does not apply to advalorem taxes levied to pay interest or redemption charges on (1) indebtedness approved by the votersprior to July 1, 1978, and (2) any bonded indebtedness for the acquisition or improvement of real propertyapproved on or after July 1, 1978, by two-thirds of the votes cast by the voters voting on the proposition.Section 2 of Article XIIIA defines “full cash value” to mean the county assessor’s valuation ofreal property as shown on the 1975-76 Fiscal Year tax bill, or, thereafter, the appraised value of realproperty when purchased, newly constructed, or a change in ownership has occurred. The full cash valuemay be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or to reflect a reductionin the consumer price index or comparable data for the taxing jurisdiction, or may be reduced in the eventof declining property value caused by substantial damage, destruction or other factors. Legislationenacted by the State Legislature to implement Article XIIIA provides that, notwithstanding any other law,local agencies may not levy any ad valorem property tax except to pay debt service on indebtednessapproved by the voters as described above. Such legislation further provides that each county will levythe maximum tax permitted by Article XIIIA, which is $1.00 per $100 of assessed market value. Thelegislation further establishes the method for allocating the taxes collected by each county among thetaxing agencies in the county. Special districts, such as the District, receive an allocation that is basedprimarily upon their tax levies in certain years prior to the amendment’s effective date relative to the taxlevies of other congruent agencies. The District receives approximately 1.25% of the non-debt serviceproperty taxes collected within its jurisdiction from Alameda and Contra Costa counties. See, however,APPENDIX A – “THE EAST BAY MUNICIPAL UTILITY DISTRICT (THE WATER SYSTEM) –WATER SYSTEM FINANCES – Property Tax Revenues” for a discussion of the borrowing by the Stateof certain property tax revenues of local jurisdictions for Fiscal Year 2009-10.Since its adoption, Article XIIIA has been amended a number of times. These amendments havecreated a number of exceptions to the requirement that property be reassessed when purchased, newlyconstructed or a change in ownership has occurred. These exceptions include certain transfers of realproperty between family members, certain purchases of replacement dwellings for persons over age 55and by property owners whose original property has been destroyed in a declared disaster, and certainimprovements to accommodate disabled persons and for seismic upgrades to property. Theseamendments have resulted in marginal reductions in the property tax revenues of the District.Increases of assessed valuation resulting from reappraisals of property due to new construction,change in ownership or from the 2% annual adjustment are allocated among the various jurisdictions inthe “taxing area” based upon their respective “situs.” Any such allocation made to a local agencycontinues as part of its allocation in future years.The effect of Article XIIIA on the District’s finances has been to restrict ad valorem tax revenuesfor general purposes to the statutory allocation of the 1% levy while leaving intact the power to levy advalorem taxes in whatever rate or amount may be required to pay debt service on its outstanding generalobligation bonds and unissued bonds authorized prior to July 1, 1978. Since Fiscal Year 1978-79 taxrevenues for the Water System have consisted exclusively of the District’s allocated share of the 1%county levy.81267597.3 27

Both the California State Supreme Court and the United States Supreme Court have upheld thevalidity of Article XIIIA.For a description of the property tax collection procedure and certain statistical informationconcerning tax collections and delinquencies, see APPENDIX A – “THE EAST BAY MUNICIPALUTILITY DISTRICT (THE WATER SYSTEM) – WATER SYSTEM FINANCES – Property TaxRevenues.”Spending LimitationsAt the statewide special election of November 6, 1979, the voters approved an initiative entitled“Limitation of Government Appropriations” which added Article XIIIB to the California Constitution.Under Article XIIIB, State and local governmental entities have an annual “appropriations limit” whichlimits the ability to spend certain monies which are called “appropriations subject to limitation”(consisting of tax revenues, state subventions and certain other funds) in an amount higher than the“appropriations.” Article XIIIB does not affect the appropriation of monies which are excluded from thedefinition of “appropriations subject to limitation.” Among the exclusions is an “appropriation of anyspecial district which existed on January 1, 1978, and which did not as of the 1977-78 Fiscal Year levy anad valorem tax on property in excess of 12.5 cents per $100 of assessed value.” In the opinion of theDistrict’s General Counsel, the appropriations of the District are excluded from the limitations ofArticle XIIIB under this clause.Proposition 62A statutory initiative (“Proposition 62”) was adopted by the voters voting in the State at theNovember 4, 1986 General Election which (1) requires that any tax for general governmental purposesimposed by local governmental entities be approved by resolution or ordinance adopted by two-thirdsvote of the governmental agency’s legislative body and by a majority of the electorate of thegovernmental entity, (2) requires that any special tax (defined as taxes levied for other than generalgovernmental purposes) imposed by a local governmental entity be approved by a two-thirds vote of thevoters within that jurisdiction, (3) restricts the use of revenues from a special tax to the purposes or for theservice for which the special tax was imposed, (4) prohibits the imposition of ad valorem taxes on realproperty by local governmental entities except as permitted by Article XIIIA, (5) prohibits the impositionof transaction taxes and sales taxes on the sale of real property by local governmental entities and(6) requires that any tax imposed by a local governmental entity on or after March 1, 1985 be ratified by amajority vote of the electorate within two years of the adoption of the initiative or be terminated byNovember 15, 1988.Proposition 218On November 5, 1996, the voters of the State approved Proposition 218, the so-called “Right toVote on Taxes Act.” Proposition 218 added Articles XIIIC and XIIID to the State Constitution, whichcontain a number of provisions affecting the ability of local governments to levy and collect both existingand future taxes, assessments, fees and charges.Article XIIID. Article XIIID established procedural requirements for imposition of assessments,which are defined as any charge on real property for a special benefit conferred upon the real property.Standby charges are classified as assessments. Procedural requirements include the conducting of apublic hearing and an election by mailed ballot, with notice to the record owner of each parcel subject tothe assessment. The assessment may not be imposed if a majority of the ballots returned oppose the81267597.3 28

assessment, with each ballot weighted according to the proportional financial obligation of the affectedparcel. The District does not currently impose standby charges or assessments for its Water System.Article XIIID conditions the imposition or increase of any “fee” or “charge” upon there being nowritten majority protest after a required public hearing and, for fees and charges other than for sewer,water or refuse collection services, voter approval. Article XIIID defines “fee” or “charge” to meanlevies (other than ad valorem or special taxes or assessments) imposed by a local government upon aparcel or upon a person as an incident of the ownership or tenancy of real property, including a user fee orcharge for a “property-related service.” One of the requirements of Article XIIID is that before aproperty-related fee or charge may be imposed or increased, a public hearing upon the proposed fee orcharge must be held and notice must be mailed to the record owner of each identified parcel of land uponwhich the fee or charge is proposed for imposition. In the public hearing if written protests of theproposed fee or charge are presented by a majority of the owners of affected identified parcel(s), anagency may not impose the fee or charge.In Opinion No. 97-302, dated July 14, 1997, the California Attorney General concluded thatArticle XIIID is inapplicable to the District’s tiered water rate structure. The opinion makes a distinctionbetween a water rate structure based upon the amount of water used, which is not subject toArticle XIIID, and fees or assessments that are levied against a parcel of land on a per-parcel or per-acrebasis, which are subject to Article XIIID. The Attorney General concluded that fees for water that arebased upon metered amounts used are not imposed as an incident of property ownership and do not have adirect relationship to property ownership and, consequently, such fees would not be governed byArticle XIIID. On December 1, 2000, the Court of Appeal for the Second Appellate District of the Stateof California published an opinion regarding Proposition 218’s definition of property-related fees that isconsistent with Opinion No. 97-302. In Howard Jarvis Taxpayers Association v. City of Los Angeles, theCourt of Appeal held that fees for water that are based upon metered amounts used are charges for acommodity and not related to property ownership and, consequently, Article XIIID does not apply to suchfees. However, in a decision rendered in February 2004, the California Supreme Court in Richmond et al.v. Shasta Community Services District, 32 Cal. 4th 409, upheld a Court of Appeals decision that waterconnection fees were not property-related fees or charges subject to Article XIIID, while at the same timestating in dicta that fees for ongoing water service through an existing connection were property-relatedfees and charges. In October 2004, the California Supreme Court granted review of the decision of theFourth District Court of Appeal in Bighorn-Desert View Water Agency v. Beringson, 120 Cal. App. 4th891 (2004), in which the appellate court had relied on Howard Jarvis Taxpayers Association v. City ofLos Angeles and rejected the California Supreme Court’s dicta in Richmond et al. v. Shasta CommunityServices District. On March 23, 2005, the California Fifth District Court of Appeal published HowardJarvis Taxpayers Association v. City of Fresno, 127 Cal.App.4th 914 (5th Dist. 2005), holding that an “inlieu” fee which is payable to the City of Fresno’s general fund from its water utility and which is includedin the city’s water rate structure was invalid. In reaching its decision, the court concluded that the city’swater rates were “property related” fees, governed by the limitations of Article XIIID. The City of Fresnorequested a review of this decision by the California Supreme Court, which denied review. On July 24,2006, the California Supreme Court ruled in Bighorn-Desert View Water Agency v. Verjil. In dicta, theCalifornia Supreme Court repeated its previous dicta in Richmond et al. v. Shasta Community ServicesDistrict that fees and charges for ongoing water service through an existing connection were propertyrelated fees and charges under Article XIIID. Prior to 2007, the District did not comply with the notice,hearing and protest procedures in Article XIII with respect to water rate increases based on the decision inHoward Jarvis Taxpayers Association v. City of Los Angeles and Opinion No. 97-302. However, theDistrict has followed the notice, hearing and protest procedures in Article XIIID in connection with waterrate increases since the Fiscal Year 2008 rate increases and plans to follow such notice, hearing andprotest procedures in connection with future rate increases.81267597.3 29

In addition to the procedural requirements of Article XIIID, under Article XIIID all propertyrelatedfees and charges, including those which were in existence prior to the passage of Proposition 218in November 1996, must meet the following substantive standards:(1) Revenues derived from the fee or charge cannot exceed the funds required to provide theproperty-related service.(2) Revenues derived from the fee or charge must not be used for any purpose other than thatfor which the fee or charge was imposed.(3) The amount of a fee or charge imposed upon any parcel or person as an incident ofproperty ownership must not exceed the proportional cost of the service attributable tothe parcel.(4) No fee or charge may be imposed for a service unless that service is actually used by, orimmediately available to, the owner of the property in question. Fees or charges based onpotential or future use of a service are not permitted. Standby charges, whethercharacterized as charges or assessments, must be classified as assessments and cannot beimposed without compliance with Section 4 of Article XIIID (relating to assessments).(5) No fee or charge may be imposed for general governmental services including, but notlimited to, police, fire, ambulance or library services where the service is available to thepublic at large in substantially the same manner as it is to property owners.The District believes that its rates comply with the foregoing standards.Article XIIID provides that nothing in Proposition 218 shall be construed to affect existing lawsrelating to the imposition of fees or charges as a condition of property development. The District believesthat Proposition 218 does not apply to the District’s System Capacity Charge, although there can be noassurance that a court would not determine otherwise. See APPENDIX A – “THE EAST BAYMUNICIPAL UTILITY DISTRICT (THE WATER SYSTEM) – WATER SYSTEM FINANCES –System Capacity Charge.”Article XIIIC. Article XIIIC provides that the initiative power shall not be prohibited orotherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge and that thepower of initiative to affect local taxes, assessments, fees and charges shall be applicable to all localgovernments. Article XIIIC does not define the terms “local tax,” “assessment,” “fee” or “charge.” OnJuly 24, 2006, the California Supreme Court held in Bighorn-Desert View Water Agency v. Verjil that theprovisions of Article XIIIC applied to rates and fees charged for domestic water use. In the decision, theCourt noted that the decision did not address whether an initiative to reduce fees and charges couldoverride statutory rate setting obligations. The District and its General Counsel do not believe thatArticle XIIIC grants to the voters within the District the power to repeal or reduce rates and charges in amanner that would be inconsistent with the contractual obligations of the District. No assurance can begiven that the voters of the District will not, in the future, approve initiatives which seek to repeal, reduceor prohibit the future imposition or increase of assessments, fees or charges, including the District’s waterservice fees and charges, which are the source of Subordinated Water Revenues pledged to the paymentof debt service on the Series 2009A-2 Bonds.The interpretation and application of Proposition 218 will likely be subject to further judicialdeterminations, and it is not possible at this time to predict with certainty the outcome of suchdeterminations.81267597.3 30

Proposition 26Proposition 26 was approved by the electorate at the November 2, 2010 election and amendedCalifornia Constitution Articles XIIIA and XIIIC. The proposition imposes a two-thirds voter approvalrequirement for the imposition of fees and charges by the State. It also imposes a majority voter approvalrequirement on local governments with respect to fees and charges for general purposes, and a two-thirdsvoter approval requirement with respect to fees and charges for special purposes. Proposition 26,according to its supporters, is intended to prevent the circumvention of tax limitations imposed by thevoters in California Constitution Articles XIIIA, XIIIC and XIIID pursuant to Proposition 13, approved in1978, Proposition 218, approved in 1996, and other measures through the use of non-tax fees and charges.Proposition 26 expressly excludes from its scope a charge imposed for a specific government service orproduct provided directly to the payor that is not provided to those not charged, and which does notexceed the reasonable cost to the State or local government of providing the service or product to thepayor. The District believes that the initiative is not intended to and would not apply to fees for utilityservices charged by special districts such as the District. The District, however, is unable to predictwhether Proposition 26 will be interpreted by the courts to apply to the provision of utility services bylocal governments such as the District.Other InitiativesArticles XIIIA, XIIIB, XIIIC and XIIID and Propositions 62 and 26 were adopted as measuresthat qualified for the ballot pursuant to California’s initiative process. From time to time other initiativeshave been and could be proposed and adopted affecting the District’s revenues or ability to increaserevenues. Neither the nature and impact of these measures nor the likelihood of qualification for ballot orpassage can be anticipated by the District.CONTINUING DISCLOSUREPursuant to a Continuing Disclosure Agreement, dated as of March 1, 2011, by and between theDistrict and the Trustee, as dissemination agent, the District has covenanted and agreed for the benefit ofthe holders and beneficial owners of the Series 2009A-2 Bonds to provide in an annual report certainfinancial information and operating data relating to the District (the “Annual Report”) by not later than180 days following the end of the District’s fiscal year (which currently is June 30 of each year),commencing with the Annual Report for Fiscal Year 2010-11, and to provide notices of the occurrence ofcertain specified events. The Annual Report and the notices of specified events will be filed by theTrustee on behalf of the District with the Municipal Securities Rulemaking Board through the ElectronicMunicipal Marketplace Access (EMMA) website. The Municipal Securities Rulemaking Board has madesuch information available to the public without charge through such internet portal. The specific natureof the information to be contained in the Annual Report and the notices of specified events is set forth inAPPENDIX F – “FORM OF CONTINUING DISCLOSURE AGREEMENT.”As of the date hereof, the District is in compliance in all material respects with its continuingdisclosure undertakings for the last five years; however, due to administrative oversight, the District’scomplete Annual Report for 2008 was filed 27 days after the specified filing deadline and the District’scomplete Annual Report for 2011 was filed three days after the specified filing deadline. In addition, inconnection with the preparation of its Annual Report filing for Fiscal Year 2012, the District determinedthat a separate table summarizing the sources of revenues and contributions for each of the Water Systemand the Wastewater System was unintentionally omitted from the District’s filings prior to its AnnualReport for Fiscal Year 2012. The information contained in such table of sources of revenues andcontributions can be derived from the District’s audited financial statements and such information wasalso routinely made available in the District’s official statements during such period. In filing its Annual81267597.3 31

Report for Fiscal Year 2012, the District has included such a table with five years of data and thereby haseffectively provided all information necessary to make its prior filings for such years complete. TheDistrict’s Annual Report for Fiscal Year 2012 was timely filed on December 21, 2012. The District hasimplemented additional procedures to timely file complete annual reports in the future.LITIGATIONThere is no action, suit or proceeding known to be pending or threatened contesting or affectingthe validity of the Series 2009A-2 Bonds. There is no litigation known to be pending, or to theknowledge of the District, threatened, questioning the existence of the District or the title of the officersof the District to their respective offices.There exist lawsuits and claims against the District, which are incidental to the ordinary course ofoperations of the Water System. In the view of the District’s management and General Counsel, there isno litigation, present or pending, which will, individually or in the aggregate, materially impair theDistrict’s ability to service its indebtedness or which will have a material adverse effect on the businessoperations of the District. See APPENDIX A – “THE EAST BAY MUNICIPAL UTILITY DISTRICT(THE WATER SYSTEM)” for a discussion of certain pending litigation.RATINGSFitch Ratings, Inc. (“Fitch”) has assigned the Series 2009A-2 Bonds the short-term rating of“F1+” and the long-term rating of “AA+ (stable outlook).” Standard & Poor’s Ratings Services, aStandard & Poor’s Financial Services LLC business (“S&P”) and Moody’s Investors Service, Inc.(“Moody’s”) have assigned the Series 2009A-2 Bonds the short-term ratings of “____” and “_____,”respectively. Moody’s has also assigned the long-term rating of “_____________” to the Series 2009A-2Bonds. S&P has not assigned long-term ratings to the Series 2009A-2 Bonds. No application has beenmade to any other rating agency for the purpose of obtaining any additional rating on the Series 2009A-2Bonds. Any desired explanation of such ratings should be obtained from the rating agency furnishing thesame. Generally, rating agencies base their ratings on information and materials furnished to them and oninvestigations, studies and assumptions by the rating agencies. There is no assurance that any rating willcontinue for any given period of time or that it will not be revised downward or withdrawn entirely bysuch rating agency if, in the judgment of such rating agency, circumstances so warrant. Any such changein or withdrawal of such ratings may have an adverse effect on the market price of the Series 2009A-2Bonds.TAX MATTERSIn the opinion of Orrick, Herrington & Sutcliffe LLP, Special Tax Counsel to the RemarketingAgents (“Special Tax Counsel”), based upon an analysis of existing laws, regulations, rulings and courtdecisions, and assuming, among other matters, the accuracy of certain representations and compliancewith certain covenants, interest on the Series 2009A-2 Bonds is excluded from gross income for federalincome tax purposes under Section 103 of the Internal Revenue Code of 1986 (the “Code”) and is exemptfrom State of California personal income taxes. In the further opinion of Special Tax Counsel, interest onthe Series 2009A-2 Bonds is not a specific preference item for purposes of the federal individual orcorporate alternative minimum taxes nor is it included in adjusted current earnings when calculatingcorporate alternative minimum taxable income. A complete copy of the proposed form of opinion ofSpecial Tax Counsel is set forth in APPENDIX D.Series 2009A-2 Bonds purchased, upon redelivery or otherwise, for an amount higher than theirprincipal amount payable at maturity (or, in some cases, at their earlier call date) (the “Premium Bonds”)81267597.3 32

will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bondpremium in the case of Series 2009A-2 Bonds, like the Premium Bonds, the interest on which is excludedfrom gross income for federal income tax purposes. However, the amount of tax-exempt interestreceived, and a beneficial owner’s basis in a Premium Bond, will be reduced by the amount ofamortizable bond premium properly allocable to such beneficial owner. Beneficial owners of PremiumBonds should consult their own tax advisors with respect to the proper treatment of amortizable bondpremium in their particular circumstances.The Code imposes various restrictions, conditions and requirements relating to the exclusion fromgross income for federal income tax purposes of interest on obligations such as the Series 2009A-2Bonds. The District has made certain representations and covenanted to comply with certain restrictions,conditions and requirements designed to ensure that interest on the Series 2009A-2 Bonds will not beincluded in federal gross income. Inaccuracy of these representations or failure to comply with thesecovenants may result in interest on the Series 2009A-2 Bonds being included in gross income for federalincome tax purposes, possibly from the date of original issuance of the Series 2009A-2 Bonds. Theopinion of Special Tax Counsel assumes the accuracy of these representations and compliance with thesecovenants. Special Tax Counsel has not undertaken to determine (or to inform any person) whether anyactions taken (or not taken), or events occurring (or not occurring), or any other matters coming to SpecialTax Counsel’s attention after the date of redelivery of the Series 2009A-2 Bonds may adversely affect thevalue of, or the tax status of interest on, the Series 2009A-2 Bonds. Accordingly, the opinion of SpecialTax Counsel is not intended to, and may not, be relied upon in connection with any such actions, eventsor matters.Although Special Tax Counsel is of the opinion that interest on the Series 2009A-2 Bonds isexcluded from gross income for federal income tax purposes and is exempt from State of Californiapersonal income taxes, the ownership or disposition of, or the accrual or receipt of interest on, the Series2009A-2 Bonds may otherwise affect a beneficial owner’s federal, state or local tax liability. The natureand extent of these other tax consequences depends upon the particular tax status of the beneficial owneror the beneficial owner’s other items of income or deduction. Special Tax Counsel expresses no opinionregarding any such other tax consequences.Current and future legislative proposals, if enacted into law, clarification of the Code or courtdecisions may cause interest on the Series 2009A-2 Bonds to be subject, directly or indirectly, to federalincome taxation or to be subject to or exempted from state income taxation, or otherwise preventbeneficial owners from realizing the full current benefit of the tax status of such interest. Theintroduction or enactment of any such legislative proposals, clarification of the Code or court decisionsmay also affect, perhaps significantly, the market price for, or marketability of, the Series 2009A-2Bonds. Prospective purchasers of the Series 2009A-2 Bonds should consult their own tax advisorsregarding any pending or proposed federal or state tax legislation, regulations or litigation, and regardingthe impact of future legislation, regulations or litigation, as to which Special Tax Counsel expresses noopinionThe opinion of Special Tax Counsel is based on current legal authority, covers certain matters notdirectly addressed by such authorities, and represents Special Tax Counsel’s judgment as to the propertreatment of the Series 2009A-2 Bonds for federal income tax purposes. It is not binding on the InternalRevenue Service (“IRS”) or the courts. Furthermore, Special Tax Counsel cannot give and has not givenany opinion or assurance about the future activities of the District, or about the effect of future changes inthe Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS. TheDistrict has covenanted, however, to comply with the requirements of the Code.81267597.3 33

Special Tax Counsel’s engagement with respect to the Series 2009A-2 Bonds ends with theremarketing of the Series 2009A-2 Bonds, and, unless separately engaged, Special Tax Counsel is notobligated to defend the District or the beneficial owners regarding the tax-exempt status of the Series2009A-2 Bonds in the event of an audit examination by the IRS. Under current procedures, parties otherthan the District and their appointed counsel, including the beneficial owners, would have little, if any,right to participate in the audit examination process. Moreover, because achieving judicial review inconnection with an audit examination of tax-exempt bonds is difficult, obtaining an independent reviewof IRS positions with which the District legitimately disagree, may not be practicable. Any action of theIRS, including but not limited to selection of the Series 2009A-2 Bonds for audit, or the course or resultof such audit, or an audit of Series 2009A-2 Bonds presenting similar tax issues may affect the marketprice for, or the marketability of, the Series 2009A-2 Bonds, and may cause the District or the beneficialowners to incur significant expense.REMARKETINGPursuant to the terms of an amended and restated remarketing agreement, datedFebruary __, 2013 (the “Remarketing Agreement”), between the District and E.J. De La Rosa & Co., Inc.,as representative of itself and RBC Capital Markets, LLC (the “Remarketing Agents”), relating to theSeries 2009A-2 Bonds, the Remarketing Agents have agreed, subject to certain conditions set forth in theRemarketing Agreement, to purchase all (but not less than all) of the Series 2009A-2 Bonds from theDistrict on the Conversion Date at a price of par for reoffering to the public. The Remarketing Agentswill be paid compensation (including expenses) for such services of $_________.CERTAIN LEGAL MATTERSThe validity of the Series 2009A Bonds upon their original issuance was approved by Fulbright &Jaworski L.L.P., Los Angeles, California, and Curls Bartling P.C., Oakland, California, Co-Bond Counselto the District. Certain legal matters in connection with the remarketing will be passed upon for theDistrict by its General Counsel and for the Remarketing Agents by their counsel, Orrick, Herrington &Sutcliffe LLP, San Francisco, California.FINANCIAL ADVISORThe District has retained Montague DeRose and Associates, LLC, Walnut Creek, California, asfinancial advisor (the “Financial Advisor”) in connection with the remarketing of the Series 2009A-2Bonds. The Financial Advisor is not obligated to undertake, and has not undertaken to make, anindependent verification or assume responsibility for the accuracy, completeness, or fairness of theinformation contained in this Reoffering Circular. The Financial Advisor is an independent financialadvisory firm and is not engaged in the business of underwriting, trading or distributing municipalsecurities or other public securities.INDEPENDENT ACCOUNTANTSIncluded as APPENDIX B to this Reoffering Circular are the audited financial statements of theDistrict for the Fiscal Years ended June 30, 2012 and 2011. The District’s financial statements for theFiscal Years ended June 30, 2012 and 2011, included in APPENDIX B, have been audited by Maze &Associates, certified public accountants. Maze & Associates has not been requested to consent to theinclusion of its report in APPENDIX B and it has not undertaken to update its report or to take any actionintended or likely to elicit information concerning the accuracy, completeness or fairness of thestatements made in this Reoffering Circular, and no opinion is expressed by Maze & Associates withrespect to any event subsequent to the date of its report.81267597.3 34

It is District policy to competitively select and retain independent accountants on a periodic basis.Maze & Associates began serving as the District’s independent accountants in Fiscal Year 2005. In 2012,following a request for proposals and competitive selection process, Maze and Associates was retained toserve as independent accountants for the three additional fiscal years ending June 30, 2012 through 2014.CERTAIN RELATIONSHIPSThe Remarketing Agents and their respective affiliates are full service financial institutionsengaged in various activities, which may include securities trading, commercial and investment banking,financial advisory, investment management, principal investment, hedging, financing and brokerageactivities. The Remarketing Agents and their respective affiliates have, from time to time, performed, andmay in the future perform, various investment banking services for the District, for which they received orwill receive customary fees and expenses.In addition, in the ordinary course of sales, trading, brokerage and financing activities, theRemarketing Agents may at any time hold long or short positions, and may trade or otherwise effecttransactions, for their own accounts or the accounts of customers, in debt or equity securities and financialinstruments or bank loans, as applicable, of the District and other governmental entities and utilities. Inconnection with these activities and the provision of other services, the Remarketing Agents may be orbecome creditors of such entities. In addition, the Remarketing Agents, or their affiliates, currently serveas remarketing agents or providers of credit enhancement or liquidity facilities for variable rateobligations issued by, or as interest rate swap providers to, the District and other governmental entitiesand utilities.MISCELLANEOUSReferences made herein to certain documents and reports are brief summaries thereof and do notpurport to be complete or definitive and reference is hereby made to such documents and reports for a fulland complete statement of the contents thereof.Any statements in this Reoffering Circular involving matters of opinion, whether or not expresslyso stated, are intended as such and not as representations of fact. This Reoffering Circular is not to beconstrued as a contract or agreement between the District and the purchasers or registered owners of anyof the Series 2009A-2 Bonds. The delivery and distribution of this Reoffering Circular have been dulyauthorized by the District.EAST BAY MUNICIPAL UTILITY DISTRICTBy:General Manager81267597.3 35

APPENDIX ATHE EAST BAY MUNICIPAL UTILITY DISTRICT(THE WATER SYSTEM)81267597.3 A-1

APPENDIX BEAST BAY MUNICIPAL UTILITY DISTRICTAUDITED FINANCIAL STATEMENTSFOR THE YEARS ENDED JUNE 30, 2012 AND 201181267597.3

APPENDIX CSUMMARY OF CERTAIN PROVISIONS OF THE INDENTUREThe following is a summary of certain provisions of the Indenture. This summary is not to beconsidered a full statement of the terms of the Indenture and accordingly is qualified by reference theretoand is subject to the full text thereof. Capitalized terms not defined in this summary or elsewhere in theReoffering Circular have the respective meanings set forth in the Indenture.There are no senior Water Bonds outstanding, and the District has covenanted in the Indenturenot to issue any senior Water Bonds in the future. Therefore, all references herein to “Water Bonds”may be disregarded.Certain Definitions“Accreted Value” means, with respect to any Capital Appreciation Indebtedness, the principalamount thereof plus the interest accrued thereon, compounded at the interest rate thereon on each date asspecified in the Indenture.“Act” means the Municipal Utility District Act, constituting Division 6 of the Public UtilitiesCode of the State of California, and all laws of the State of California amendatory thereof or supplementalthereto, including the Revenue Bond Law of 1941, as made applicable by Article 6a of Chapter 6 of saidDivision 6, and Article 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code of theState of California.“Annual Debt Service” (I) prior to the Effective Date, means, for any Fiscal Year the aggregateamount of principal and interest on all Water Bonds, Bonds and Parity Debt becoming due and payableduring such Fiscal Year calculated using the principles and assumptions set forth under the definition ofMaximum Annual Debt Service; and(II) on and after the Effective Date, means, for any Fiscal Year, the aggregate amount of principaland interest on all Water Bonds, Bonds and Parity Debt becoming due and payable during such FiscalYear calculated using the principles and assumptions set forth under the definition of Debt Service.“Assumed Debt Service” (I) prior to the Effective Date, means for any Fiscal Year the aggregateamount of principal and interest which would be payable on all Water Bonds, Bonds and Parity Debt ifeach Excluded Principal Payment were amortized for a period specified by the District (but no longer thanthirty (30) years from the date of the issuance of the Water Bonds, Bonds or Parity Debt to which suchExcluded Principal Payment relates) on a substantially level debt service basis, calculated based on afixed interest rate equal to the rate at which the District could borrow for such period, as certified by acertificate of a financial advisor or investment banker delivered to the Trustee, who may rely conclusivelyon such certificate, within thirty (30) days of the date of calculation; and(II) on and after the Effective Date, means, for any Fiscal Year, the aggregate amount of principaland interest which would be payable on all Water Bonds, Bonds and Parity Debt if each ExcludedPrincipal Payment were amortized for a period specified by the District (but no longer than thirty (30)years from the date of the issuance of the Water Bonds, Bonds or Parity Debt to which such ExcludedPrincipal Payment relates) on a substantially level debt service basis or other amortization basis providedby the District, calculated based on a fixed interest rate equal to the rate at which the District couldborrow for such period, as certified by a certificate of a financial advisor or investment banker delivered81267597.3 C-1

to the Trustee, who may rely conclusively on such certificate, within thirty (30) days of the date ofcalculation.“Bond Obligation” means, as of any given date of calculation, (1) with respect to anyOutstanding Bond or Water Bond which is Current Interest Indebtedness, the principal amount thereof,and (2) with respect to any Outstanding Bond or Water Bond which is Capital Appreciation Indebtedness,the Accreted Value thereof.“Bonds” means the bonds authorized by, and at any time Outstanding pursuant to, the Indenture.“Business Day” means any day other than (1) a Saturday, Sunday, or a day on which bankinginstitutions in the State of California or the State of New York are authorized or obligated by law orexecutive order to be closed, and (2) for purposes of payments and other actions related to Bonds securedby a letter of credit, a day upon which commercial banks in the city in which is located the office of theissuing bank at which demands for payment under the letter of credit are to be presented are authorized orobligated by law or executive order to be closed.“Capital Appreciation Indebtedness” means Water Bonds, Bonds and Parity Debt on whichinterest is compounded and paid less frequently than annually.“Code” means the Internal Revenue Code of 1986, and the regulations applicable thereto orissued thereunder, as amended from time to time.“Current Interest Indebtedness” means the Water Bonds, Bonds and Parity Debt on whichinterest is paid at least annually.“Debt Service” (I) prior to the Effective Date, means, the amount of principal and interestbecoming due and payable on all Water Bonds, Bonds and Parity Debt provided, however, that for thepurposes of computing Debt Service:(a) Excluded Principal Payments shall be excluded from such calculation andAssumed Debt Service shall be included in such calculation;(b) if the Water Bonds, Bonds or Parity Debt are Variable Rate Indebtedness, theinterest rate thereon for periods when the actual interest rate cannot yet be determined shall beassumed to be twelve percent (12%) per annum;(c) principal and interest payments on Water Bonds, Bonds and Parity Debt shall beexcluded to the extent such payments are to be paid from amounts on deposit with the Trustee oranother fiduciary in escrow specifically therefor and to the extent that such interest payments areto be paid from the proceeds of Water Bonds, Bonds or Parity Debt held by the Trustee or anotherfiduciary as capitalized interest;(d) in determining the principal amount, payment shall (unless a different subsectionof this definition applies for purposes of determining principal maturities or amortization) beassumed to be made in accordance with any amortization schedule established for such debt,including any Mandatory Sinking Account Payments or any scheduled redemption or payment ofWater Bonds, Bonds or Parity Debt on the basis of Accreted Value, and for such purpose, theredemption payment or payment of Accreted Value shall be deemed a principal payment andinterest that is compounded and paid as Accreted Value shall be deemed due on the scheduledredemption or payment date of such Capital Appreciation Indebtedness;81267597.3 C-2

(e) if any interest rate swap agreement is in effect with respect to, and is payable ona parity with, the Water Bonds, Bonds or Parity Debt to which it relates, no amounts payableunder such interest rate swap agreement shall be included in the calculation of Debt Serviceunless the sum of (i) interest payable on such Water Bonds, Bonds or Parity Debt, plus(ii) amounts payable by the District under such interest rate swap agreement, less (iii) amountsreceivable by the District under such interest rate swap agreement are greater than the interestpayable on the Water Bonds, Bonds or Parity Debt to which it relates, then, in such instance, theamount of such payments to be made that exceed the interest to be paid on the Water Bonds,Bonds or Parity Debt shall be included in such calculation. For such purposes, the variableamount under any such interest rate swap agreement shall be assumed to be equal to twelvepercent (12%) per annum; and(f) if any Water Bonds, Bonds or Parity Debt include an option or an obligation totender all or a portion of such Water Bonds, Bonds or Parity Debt to the District, the Trustee oranother fiduciary or agent and require that such Water Bonds, Bonds or Parity Debt or portionthereof be purchased if properly presented, then for purposes of determining the amounts ofprincipal and interest due, the options or obligations to tender shall be treated as a principalmaturity occurring on the first date on which holders or owners thereof may or are required totender, except that any such option or obligation to tender shall be ignored and not treated as aprincipal maturity, if (1) such Water Bonds, Bonds or Parity Debt are in one of the two highestRating Categories by Moody’s and by Standard & Poor’s or such Water Bonds, Bonds or ParityDebt are rated in the highest short-term, note or commercial paper Rating Categories by Moody’sand by Standard & Poor’s and (2) funds for the purchase price are to be provided by a letter ofcredit or standby bond purchase agreement and the obligation of the District with respect to theprovider of such letter of credit or standby bond purchase agreement, other than its obligations onsuch Water Bonds, Bonds or Parity Debt, shall be subordinated to the obligation of the District onthe Bonds and Parity Debt or, if not subordinate, shall be incurred (assuming such immediatetender) under the conditions and meeting the tests for the issuance of Parity Debt set forth in theIndenture; and(II) on and after the Effective Date, means, the amount of principal and interest becoming due andpayable on all Water Bonds, Bonds and Parity Debt provided, however, for the purpose of computingDebt Service:(a) Excluded Principal Payments shall be excluded from such calculation andAssumed Debt Service shall be included in such calculation;(b) if the Water Bonds, Bonds or Parity Debt are Variable Rate Indebtedness, theinterest rate thereon for periods when the actual interest rate cannot yet be determined shall beassumed to be equal to the average of the SIFMA Municipal Swap Index for the five (5) yearspreceding such date of calculation (provided, however, that if such index is no longer published,the interest rate on such Water Bonds, Bonds or Parity Debt shall be calculated based upon suchsimilar index as the District shall designate in writing to the Trustee) (the “Assumed SIFMAbasedRate”);(c) principal and interest payments on Water Bonds, Bonds and Parity Debt shall beexcluded to the extent such payments are to be paid from amounts on deposit with the Trustee oranother fiduciary in escrow or trust specifically therefor and to the extent that such interestpayments are to be paid from the proceeds of Water Bonds, Bonds or Parity Debt held by theTrustee or another fiduciary as capitalized interest;81267597.3 C-3

(d) in determining the principal amount, payment shall (unless a different subsectionof this definition applies for purposes of determining principal maturities or amortization) beassumed to be made in accordance with any amortization schedule established for such debt,including any Mandatory Sinking Account Payments or any scheduled redemption or payment ofWater Bonds, Bonds or Parity Debt on the basis of Accreted Value, and for such purpose, theredemption payment or payment of Accreted Value shall be deemed a principal payment andinterest that is compounded and paid as Accreted Value shall be deemed due on the scheduledredemption or payment date of such Capital Appreciation Indebtedness;(e) if any interest rate swap agreement is in effect with respect to, and the regularlyscheduled payments thereunder are payable on a parity with, the Water Bonds, Bonds or ParityDebt to which it relates, interest deemed to be payable on any such Water Bonds, Bonds or ParityDebt with respect to which an interest rate swap agreement is in effect shall be based on the neteconomic effect expected by the District to be produced by the terms of such Water Bonds,Bonds or Parity Debt and such interest rate swap agreement, including but not limited to theeffects that (i) such Water Bonds, Bonds or Parity Debt would, but for such interest rate swapagreement, be treated as Variable Rate Indebtedness instead shall be treated as Water Bonds,Bonds or Parity Debt bearing interest at a fixed interest rate, and (ii) such Water Bonds, Bonds orParity Debt would, but for such interest rate swap agreement, be treated as Water Bonds, Bondsor Parity Debt bearing interest at a fixed interest rate instead shall be treated as Variable RateIndebtedness; and accordingly, the amount of interest deemed to be payable on any Water Bonds,Bonds or Parity Debt with respect to which an interest rate swap agreement is in force shall be anamount equal to the amount of interest that would be payable at the rate or rates stated in suchWater Bonds, Bonds or Parity Debt plus the amounts payable by the District under such interestrate swap agreement, minus the amounts receivable by the District under such interest rate swapagreement, and for the purpose of calculating as nearly as practicable such amounts, the followingassumptions shall be made:(1) if an interest rate swap agreement has been entered into by the Districtwith respect to Water Bonds, Bonds or Parity Debt providing for the payment of a netvariable interest rate under such interest rate swap agreement with respect to such WaterBonds, Bonds or Parity Debt by the District, the interest rate on such Water Bonds,Bonds or Parity Debt for future periods when the actual interest rate cannot yet bedetermined shall be assumed (but only during the period the interest rate swap agreementis in effect) to be equal to the sum of (A) the fixed rate or rates stated in such WaterBonds, Bonds or Parity Debt minus (B) the fixed rate paid by the counterparty of suchinterest rate swap agreement to the District, plus (C) the lesser of (x) the interest rate cap,if any, provided by a counterparty with respect to such interest rate swap agreement (butonly during the period that such interest rate cap is in effect) and (y) the applicablevariable interest rate calculated in accordance with paragraph (b) above; and(2) if an interest rate swap agreement has been entered into by the Districtwith respect to Water Bonds, Bonds or Parity Debt providing for the payment of a fixedrate of interest to maturity or for a specific term under such interest rate swap agreementwith respect to such Water Bonds, Bonds or Parity Debt by the District, the interest onsuch Water Bonds, Bonds or Parity Debt shall be included in the calculation of payments(but only during the period the interest rate swap agreement is in effect) by including foreach period of calculation an amount equal to the amount of interest payable at the fixedinterest rate pursuant to such interest rate swap agreement.81267597.3 C-4

Notwithstanding any other paragraph of this definition of Debt Service, except as setforth in this paragraph (e), no amounts payable under any interest rate swap agreement (includingtermination payments) shall be included in the calculation of Debt Service;(f) if any Water Bonds, Bonds or Parity Debt are Variable Rate Indebtedness subjectto tender for purchase and funds for the purchase price may be provided by a letter of credit, lineof credit, revolving credit agreement, standby bond purchase agreement or other liquidity facilitywhich, if drawn upon, could create a repayment obligation which has a lien on SubordinatedWater Revenues on parity with the lien of the Water Bonds, Bonds or Parity Debt, then forpurposes of determining the amounts of principal due in any Fiscal Year on such Water Bonds,Bonds or Parity Debt, (i) the options or obligations of the owners of such Water Bonds, Bonds orParity Debt to tender the same for purchase or payment prior to the stated maturity or maturitiesshall be ignored and not treated as a principal maturity; and (ii) any repayment obligations of theDistrict to the provider of such letter of credit, line of credit, revolving credit agreement, standbybond purchase agreement or other liquidity facility, other than its obligations on such WaterBonds, Bonds or Parity Debt, shall be treated as Excluded Principal Payments; and(g) if interest on any Water Bonds, Bonds or Parity Debt is reasonably anticipated tobe reimbursed to the District by the United States of America pursuant to Section 54AA of theCode, or any future similar program, then interest payments with respect to such Water Bonds,Bonds or Parity Debt shall be reduced by the amount of such interest reasonably anticipated to bepaid or reimbursed by the United States of America.“Effective Date” means the earlier to occur of: (i) the first date upon which all of theOutstanding Series 2001 Bonds, Series 2002 Bonds, Series 2003 Bonds, Series 2005A Bonds, Series2007A Bonds, Series 2007B Bonds, Series 2008A Bonds, Series 2008B Bonds and Series 2009A Bondshave been paid or discharged in accordance with their terms and shall no longer be Outstanding forpurposes of the Indenture and all obligations of the District under any interest rate swap agreements andany standby bond purchase agreements or other liquidity facilities relating thereto shall have beendischarged and satisfied, or (ii) the first date upon which the District has filed with the Trustee the writtenconsents to the amendments to the Indenture set forth in the Sixteenth Supplemental Indenture of (a) theOwners of a majority in aggregate principal amount of Bond Obligation then Outstanding and (b) theproviders of any interest rate swap agreements and any standby bond purchase agreements, other liquidityfacilities or other agreements relating to such Bond Obligation then Outstanding to the extent the consentthereof shall be required by the terms of such interest rate swap agreements and any standby bondpurchase agreements, other liquidity facilities or other agreements.“Excluded Principal Payments” means each payment of principal (or the principal componentof lease or installment purchase payments) of Water Bonds, Bonds or Parity Debt which the Districtdetermines on a date not later than the date of issuance thereof that the District intends to pay with monieswhich are not Water Revenues or Subordinated Water Revenues but from the proceeds of future debtobligations of the District and the Trustee may rely conclusively on such determination of the District.“Fiscal Year” means the period beginning on July 1 of each year and ending on the nextsucceeding June 30, or any other twelve-month period selected and designated as the official fiscal yearperiod of the District, which designation shall be provided to the Trustee in a certificate of the District.“Indenture” means the Water System Subordinated Revenue Bond Indenture, dated as ofApril 1, 1990, by and between the Trustee and the District, as originally executed or as it may from timeto time be supplemented or amended by any Supplemental Indenture delivered pursuant to the provisionsof the Indenture.81267597.3 C-5

“Investment Securities” means the following:(i) any bonds or other obligations which as to principal and interest constitute directobligations of, or are unconditionally guaranteed by, the United States of America, includingobligations of any of the Federal agencies and Federally sponsored entities set forth in clause(iii) below to the extent unconditionally guaranteed by the United States of America;(ii) any certificates, receipts, securities or other obligations evidencing ownership of,or the right to receive, a specified portion of one or more interest payments or principal payments,or any combination thereof, to be made on any bond, note, or other obligation described above inclause (i);(iii) obligations of the Federal National Mortgage Association, the GovernmentNational Mortgage Association, Federal Home Loan Banks and Federal Home Loan MortgageCorporation;(iv) obligations of any state, territory or commonwealth of the United States ofAmerica or any political subdivision thereof or any agency or department of the foregoing;provided that at the time of their purchase such obligations are rated not lower than theirrespective ratings on the Bonds by Moody’s (if Moody’s is then rating the Bonds) and Standard& Poor’s (if Standard & Poor’s is then rating the Bonds);(v) any bonds or other obligations of any state of the United States of America orany political subdivision thereof (a) which are not callable prior to maturity or as to whichirrevocable instructions have been given to the trustee of such bonds or their obligations by theobligor to give due notice of redemption and to call such bonds for redemption on the date ordates specified in such instructions, (b) which are secured as to principal and interest andredemption premium, if any, by a fund consisting only of cash or bonds or other obligations ofthe character described above in clause (i), (ii) or (iii) which fund may be applied only to thepayment of such principal of and interest and redemption premium, if any, on such bonds or otherobligations on the interest payment dates and the maturity date or dates thereof or the specifiedredemption date or dates pursuant to such irrevocable instructions, as appropriate, (c) as to whichthe principal of and interest on the bonds and obligations of the character described above inclause (i), (ii) or (iii) which have been deposited in such fund along with any cash on deposit insuch fund are sufficient to pay the principal of and interest and redemption premium, if any, onthe bonds or other obligations described in this clause (v) on the interest payment dates and thematurity date or dates thereof or on the redemption date or dates specified in the irrevocableinstructions referred to in subclause (a) of this clause (v), as appropriate, and (d) which have beenrated not lower than their respective ratings on the Bonds by Moody’s (if Moody’s is then ratingthe Bonds) and Standard & Poor’s (if Standard & Poor’s is then rating the Bonds);(vi) bonds, notes, debentures or other evidences of indebtedness issued or guaranteedby any corporation which are, at the time of purchase, rated by Moody’s (if Moody’s is thenrating the Bonds) and Standard & Poor’s (if Standard & Poor’s is then rating the Bonds) in theirrespective highest short-term Rating Categories, or, if the term of such indebtedness is longerthan three (3) years, rated not lower than their respective ratings on the Bonds by Moody’s (ifMoody’s is then rating the Bonds) and Standard & Poor’s (if Standard & Poor’s is then rating theBonds);(vii) demand or time deposits or certificates of deposit, whether negotiable ornonnegotiable, issued by any bank or trust company organized under the laws of any state of the81267597.3 C-6

United States of America or any national banking association (including the Trustee), providedthat such certificates of deposit shall be purchased directly from such a bank, trust company ornational banking association and shall be either (1) continuously and fully insured by the FederalDeposit Insurance Corporation, or (2) continuously and fully secured by such securities andobligations as are described above in clauses (i) through (iv), inclusive, which shall have a marketvalue (exclusive of accrued interest) at all times at least equal to the principal amount of suchcertificates of deposit and shall be lodged with the Trustee, as custodian, by the bank, trustcompany or national banking association issuing such certificates of deposit, and the bank, trustcompany or national banking association issuing each such certificate of deposit required to be sosecured shall furnish the Trustee with an undertaking satisfactory to it that the aggregate marketvalue of all such obligations securing each such certificate of deposit will at all times be anamount equal to the principal amount of each such certificate of deposit and the Trustee shall beentitled to rely on each such undertaking;(viii) taxable commercial paper or tax-exempt commercial paper rated in theirrespective highest Rating Categories by Moody’s (if Moody’s is then rating the Bonds) andStandard & Poor’s (if Standard & Poor’s is then rating the Bonds);(ix) variable rate obligations required to be redeemed or purchased by the obligor orits agent or designee upon demand of the holder thereof secured as to such redemption orpurchase requirement by a liquidity agreement with a corporation and as to the payment ofinterest and principal either upon maturity or redemption (other than upon demand by the holderthereof) thereof by an unconditional credit facility of a corporation, provided that the variable rateobligations themselves are rated in their respective highest Rating Categories for its short-termrating, if any, and not lower than their respective ratings on the Bonds for its long-term rating, ifany, by Moody’s (if Moody’s is then rating the Bonds) and Standard & Poor’s (if Standard &Poor’s is then rating the Bonds), and that the corporations providing the liquidity agreement andcredit facility have, at the date of acquisition of the variable rate obligation by the Trustee, anoutstanding issue of unsecured, uninsured and unguaranteed debt obligations rated not lower thantheir respective ratings on the Bonds by Moody’s (if Moody’s is then rating the Bonds) andStandard & Poor’s (if Standard & Poor’s is then rating the Bonds);(x) any repurchase agreement with any bank or trust company organized under thelaws of any state of the United States or any national banking association (including the Trustee)having a minimum permanent capital of one hundred million dollars ($100,000,000) and withshort-term debt rated by Moody’s (if Moody’s is then rating the Bonds) and Standard & Poor’s (ifStandard & Poor’s is then rating the Bonds) in their respective four highest short-term ratingcategories or government bond dealer reporting to, trading with, and recognized as a primarydealer by the Federal Reserve Bank of New York, which agreement is secured by any one ormore of the securities and obligations described in clauses (i), (ii) or (iii) above, which shall havea market value (exclusive of accrued interest and valued at least monthly) at least equal to theprincipal amount of such investment and shall be lodged with the Trustee or other fiduciary, ascustodian for the Trustee, by the bank, trust company, national banking association or bond dealerexecuting such repurchase agreement, and the entity executing each such repurchase agreementrequired to be so secured shall furnish the Trustee with an undertaking satisfactory to it that theaggregate market value of all such obligations securing each such repurchase agreement (asvalued at least monthly) will be an amount equal to the principal amount of each such repurchaseagreement and the Trustee shall be entitled to rely on each such undertaking;(xi) any cash sweep or similar account arrangement of or available to the Trustee, theinvestments of which are limited to investments described in clauses (i), (ii), (iii), (iv) and (x) of81267597.3 C-7

this definition of Investment Securities and any money market fund, the entire investments ofwhich are limited to investments described in clauses (i), (ii), (iii), (iv) and (x) of this definition ofInvestment Securities and which money market fund is rated in their respective highest RatingCategories by Moody’s (if Moody’s is then rating the Bonds) and Standard & Poor’s (if Standard& Poor’s is then rating the Bonds); provided that as used in this clause (xi) and clause (xii)investments will be deemed to satisfy the requirements of clause (x) if they meet the requirementsset forth in clause (x) ending with the words “clauses (i), (ii) or (iii) above” and without regard tothe remainder of such clause (x);(xii) a guaranteed investment contract with a financial institution or insurancecompany which has at the date of execution thereof an outstanding issue of unsecured, uninsuredand unguaranteed debt obligations or a claims paying ability rated not lower than their respectiveratings on the Bonds by Moody’s (if Moody’s is then rating the Bonds) and Standard & Poor’s (ifStandard & Poor’s is then rating the Bonds);(xiii) shares of beneficial interest in diversified management companies investingexclusively in securities and obligations described in clauses (i) through (xii) of this definition ofInvestment Securities and which companies are rated in their respective highest Rating Categoriesby Moody’s (if Moody’s is then rating the Bonds) and Standard & Poor’s (if Standard & Poor’s isthen rating the Bonds) or have an investment advisor registered with the Securities and ExchangeCommission with not less than five years experience investing in such securities and obligationsand with assets under management in excess of $500,000,000; and(xiv) any investment approved by the Board for which confirmation is received fromeach rating agency then rating any of the Bonds that such investment will not adversely affectsuch agency’s rating on such Bonds.“Mandatory Sinking Account Payment” means the amount required to be deposited by theDistrict in a sinking account for the payment of term Bonds.“Maximum Annual Debt Service” (I) prior to the Effective Date, means, the greatest amount ofprincipal and interest becoming due and payable on all Water Bonds, Bonds and Parity Debt in the FiscalYear in which the calculation is made or any subsequent Fiscal Year; provided, however, that for thepurposes of computing Maximum Annual Debt Service:(a) Excluded Principal Payments shall be excluded from such calculation andAssumed Debt Service shall be included in such calculation;(b) if the Water Bonds, Bonds or Parity Debt are Variable Rate Indebtedness, theinterest rate thereon for periods when the actual interest rate cannot yet be determined shall beassumed to be twelve percent (12%) per annum;(c) principal and interest payments on Water Bonds, Bonds and Parity Debt shall beexcluded to the extent such payments are to be paid from amounts on deposit with the Trustee oranother fiduciary in escrow specifically therefor and to the extent that such interest payments areto be paid from the proceeds of Water Bonds, Bonds or Parity Debt held by the Trustee or anotherfiduciary as capitalized interest;(d) in determining the principal amount due in each Fiscal Year, payment shall(unless a different subsection of this definition applies for purposes of determining principalmaturities or amortization) be assumed to be made in accordance with any amortization schedule81267597.3 C-8

established for such debt, including any Mandatory Sinking Account Payments or any scheduledredemption or payment of Water Bonds, Bonds or Parity Debt on the basis of Accreted Value,and for such purpose, the redemption payment or payment of Accreted Value shall be deemed aprincipal payment and interest that is compounded and paid as Accreted Value shall be deemeddue on the scheduled redemption or payment date of such Capital Appreciation Indebtedness;(e) if any interest rate swap agreement is in effect with respect to, and is payable ona parity with, the Water Bonds, Bonds or Parity Debt to which it relates, no amounts payableunder such interest rate swap agreement shall be included in the calculation of Maximum AnnualDebt Service unless the sum of (i) interest payable on such Water Bonds, Bonds or Parity Debt,plus (ii) amounts payable by the District under such interest rate swap agreement, less(iii) amounts receivable by the District under such interest swap agreement are greater than theinterest payable on the Water Bonds, Bonds or Parity Debt to which it relates, then, in suchinstance, the amount of such payments to be made that exceed the interest to be paid on the WaterBonds, Bonds or Parity Debt shall be included in such calculation. For such purposes, thevariable amount under any such interest rate swap agreement shall be assumed to be equal totwelve percent (12%) per annum; and(f) if any Water Bonds, Bonds or Parity Debt include an option or an obligation totender all or a portion of such Water Bonds, Bonds or Parity Debt to the District, the Trustee oranother fiduciary or agent and require that such Water Bonds, Bonds or Parity Debt or portionthereof be purchased if properly presented, then for purposes of determining the amounts ofprincipal and interest due in any Fiscal Year, the options or obligations to tender shall be treatedas a principal maturity occurring on the first date on which holders or owners thereof may or arerequired to tender, except that any such option or obligation to tender shall be ignored and nottreated as a principal maturity, if (1) such Water Bonds, Bonds or Parity Debt are rated not lowerthan their respective ratings on the Bonds by Moody’s (if Moody’s is then rating the Bonds) andby Standard & Poor’s (if Standard and Poor’s is then rating the Bonds) or such Water Bonds,Bonds or Parity Debt are rated in the highest short-term note or commercial paper RatingCategories by Moody’s (if Moody’s is then rating the Bonds) and by Standard & Poor’s (ifStandard and Poor’s is then rating the Bonds) and (2) funds for the purchase price are to beprovided by a letter of credit or standby bond purchase agreement and the obligation of theDistrict with respect to the provider of such letter of credit or standby bond purchase agreement,other than its obligations on such Water Bonds, Bonds or Parity Debt, shall be subordinated to theobligation of the District on the Bonds and Parity Debt or, if not subordinate, shall be incurred(assuming such immediate tender) under the conditions and meeting the tests for the issuance ofParity Debt set forth in the Indenture; and(II) on and after the Effective Date, means, the greatest amount of principal and interest becomingdue and payable on all Water Bonds, Bonds and Parity Debt in the Fiscal Year in which the calculation ismade or any subsequent Fiscal Year calculated using the principles and assumptions set forth under thedefinition of Debt Service.“Moody’s” means Moody’s Investors Service, a corporation duly organized and existing underand by virtue of the laws of the State of Delaware, and its successors and assigns, except that if suchcorporation shall be dissolved or liquidated or shall no longer perform the functions of a securities ratingagency, then the term “Moody’s” shall be deemed to refer to any other nationally recognized securitiesrating agency selected by the District and not objected to by the Trustee.“Opinion of Bond Counsel” means a written opinion of a law firm of national standing in thefield of public finance selected by the District and not objected to by the Trustee.81267597.3 C-9

“Outstanding,” when used at any particular time with reference to Bonds, means (subject to theprovisions relating to disqualified bonds) all Bonds theretofore, or thereupon being, authenticated anddelivered by the Trustee under the Indenture except (1) Bonds theretofore cancelled by the Trustee orsurrendered to the Trustee for cancellation; (2) Bonds with respect to which all liability of the Districtshall have been discharged under the Indenture; and (3) Bonds for the transfer or exchange of or in lieu ofor in substitution for which other Bonds shall have been authenticated and delivered by the Trusteepursuant to the Indenture.“Owner” or “Bondholder” or “Bondowner,” whenever used with respect to a Bond, means theperson in whose name such Bond is registered.“Parity Debt” means any indebtedness, installment sale obligation, lease obligation or otherobligation of the District for borrowed money or interest rate swap agreement having an equal lien andcharge upon the Subordinated Water Revenues and therefore payable on a parity with the Bonds (whetheror not any Bonds are Outstanding).“Person” means a corporation, firm, association, partnership, trust, or other legal entity or groupof entities, including a governmental entity or any agency or political subdivision thereof.“Rating Category” means (i) with respect to any long-term rating category, all ratingsdesignated by a particular letter or combination of letters, without regard to any numerical modifier, plusor minus sign or other modifier and (ii) with respect to any short-term or commercial paper ratingcategory, all ratings designated by a particular letter or combination of letters and taking into account anynumerical modifier, but not any plus or minus sign or other modifier.“Redemption Price” means with respect to any Bond (or portion thereof) the principal amountof such Bond (or portion thereof) plus the applicable premium, if any, payable upon redemption thereofpursuant to the provisions of such Bond and the Indenture.“Revenue Fund” means the fund held in trust by the District to which the Subordinated WaterRevenues are required to be deposited.“Series” whenever used with respect to Bonds, means all of the Bonds designated as being of thesame series, authenticated and delivered in a simultaneous transaction, regardless of variations inmaturity, interest rate, redemption and other provisions, and any Bonds thereafter authenticated anddelivered upon transfer or exchange or in lieu of or in substitution for (but not to refund) such Bonds asprovided in the Indenture.“SIFMA Municipal Swap Index” means, on any date, a rate determined on the basis of theseven-day high grade market index of tax-exempt variable rate demand obligations, as produced byMunicipal Market Data and published or made available by the Securities Industry & Financial MarketsAssociation (formerly the Bond Market Association) (“SIFMA”) or by any Person acting in cooperationwith or under the sponsorship of SIFMA and effective from such date.“Standard & Poor’s” means Standard & Poor’s Corporation, a corporation duly organized andexisting under and by virtue of the laws of the State of New York, and its successors and assigns, exceptthat if such corporation shall be dissolved or liquidated or shall no longer perform the functions of asecurities rating agency, then the term “Standard & Poor’s” shall be deemed to refer to any othernationally recognized securities rating agency selected by the District and not objected to by the Trustee.81267597.3 C-10

“Subordinated Water Revenues” for any fiscal period means the sum of (a) the WaterRevenues for such fiscal period plus (b) the amounts, if any, withdrawn by the District from the RateStabilization Fund created in the Water Bond Resolution for treatment as Water Revenues for such fiscalperiod, less the sum of (c) all Water Operation and Maintenance Costs for such fiscal period, (d) theamounts, if any, withdrawn by the District from Water Revenues for such fiscal period for deposit in suchRate Stabilization Fund, and (e) all amounts required to be paid under the Water Bond Resolution forprincipal, interest, reserve fund and any other debt service requirements on the Water Bonds as the samebecome due and payable.“Variable Rate Indebtedness” means any indebtedness the interest rate on which is not fixed atthe time of incurrence of such indebtedness, and has not at some subsequent date been fixed, at a singlenumerical rate for the entire term of the indebtedness.“Water Bond Resolution” means Resolution No. 30050 of the District, adopted on January 26,1982, as amended and supplemented from time to time. All obligations of the District under the WaterBond Resolution have ceased and been discharged; provided, however, that the Rate Stabilization Fundcreated thereunder shall continue.“Water Bonds” means all bonds and other obligations of the District issued pursuant to theWater Bond Resolution.“Water Operation and Maintenance Costs” means the reasonable and necessary costs ofmaintaining and operating the Water System, calculated on sound accounting principles, including(among other things) the reasonable expenses of management, repair and other expenses necessary tomaintain and preserve the Water System in good repair and working order, and reasonable amounts foradministration, overhead, insurance, taxes and other similar costs, but excluding in all cases depreciationand obsolescence charges or reserves therefor and amortization of intangibles or other bookkeepingentries of a similar nature, and excluding all costs paid from the proceeds of taxes received by the District.“Water Revenues” (I) prior to the Effective Date, means, all charges received for, and all otherincome and receipts derived by the District from, the operation of the Water System, or arising from theWater System, together with income from the investment of any monies in any fund or accountestablished under the Water Bond Resolution or the Indenture; and(II) from and after the Effective Date, means, all charges received for, and all other income andreceipts derived by the District from, the operation of the Water System, or arising from the WaterSystem, together with income from the investment of any moneys in any fund or account establishedunder the Water Bond Resolution or the Indenture; provided, however, there shall be excluded therefromany amounts reimbursed to the District by the United States of America pursuant to Section 54AA of theCode, or any future similar program.“Water System” means the entire water system of the District and all of the facilities thereof,including all facilities for the storage, transmission or distribution of water or the generation ortransmission of hydroelectric power, together with all additions, betterments, extensions andimprovements to said system or any part thereof. The term “Water System” does not include the sewagedisposal system or facilities of Special District No. 1 of the District (including any power generationfacilities constituting a part of said system).81267597.3 C-11

Pledge of RevenuesThe Bonds are revenue obligations of the District and are payable as to both principal andinterest, and any premium upon redemption thereof, exclusively from the Subordinated Water Revenuesand other amounts held by the Trustee (except for amounts held in the Rebate Fund). The SubordinatedWater Revenues are pledged to the payment of Bonds and Parity Debt without priority or distinction ofone over the other. Said pledge constitutes a first lien on the Subordinated Water Revenues and suchother amounts referred to in this paragraph.Allocation of Subordinated Water RevenuesThe District is to transfer the monies in the Revenue Fund, into the following respective funds, inthe following amounts, in the following order of priority, the requirements of each such fund (includingthe making up of any deficiencies in any such fund resulting from lack of Subordinated Water Revenuessufficient to make any earlier required deposit) at the time of deposit to be satisfied before any deposit ismade to any fund subsequent in priority.(1) Interest Fund. The District shall transfer to the Trustee and the Trustee shall setaside in the Interest Fund on or before the Business Day prior to each interest payment datetherefor an amount equal to the interest becoming due and payable on the Outstanding Bondswhich are Current Interest Indebtedness (excluding any interest for which there are monies ondeposit in the Interest Fund from the proceeds of any Series of Bonds or other source to pay suchinterest).(2) Principal Fund; Sinking Accounts. The District shall transfer to the Trustee andthe Trustee shall set aside in the Principal Fund on or before the Business Day prior to eachprincipal or Sinking Account payment date therefor an amount equal to (a) the amount of BondObligation becoming due and payable on the Outstanding Serial Bonds, plus (b) the MandatorySinking Account Payments to be paid into the respective Sinking Accounts for the Term Bonds;provided that if the District certifies to the Trustee that any principal payments are expected to berefunded on or prior to their respective due dates or paid from excess amounts on deposit in abond reserve fund upon such payment, no amounts need be set aside towards such principal to beso refunded or paid. All of the aforesaid Mandatory Sinking Account Payments shall be madewithout priority of any payment into any one such Sinking Account over any other such payment.(3) Bond Reserve Funds. Upon the occurrence of any deficiency in any BondReserve Fund established under the Indenture for any Series of Bonds, the District shall transferto the Trustee and the Trustee shall set aside in such Bond Reserve Fund an amount equal to theaggregate amount of each unreplenished prior withdrawal from the Bond Reserve Fund untilthere is on deposit in such Bond Reserve Fund an amount equal to the respective reserverequirement.Any Subordinated Water Revenues remaining after the foregoing transfers shall be held free andclear of the Indenture by the District and it may use and apply such Subordinated Water Revenues for anylawful purpose of the District, including the redemption and purchase of Bonds.If on any principal payment date, interest payment date or mandatory redemption date theamounts on deposit in the Interest Fund and Principal Fund, including the Sinking Accounts therein areinsufficient to make such payments, the Trustee shall immediately notify the District of such deficiencyand direct that the District transfer the amount of such deficiency to the Trustee on such payment date.The District covenants and agrees to transfer to the Trustee from any Subordinated Water Revenues in its81267597.3 C-12

possession the amount of such deficiency on the principal, interest or mandatory redemption datereferenced in such notice.InvestmentsAll monies in any of the funds and accounts held by the Trustee shall be invested, as directed bythe District, solely in Investment Securities.The District may and the Trustee shall, upon the Request of the District, enter into a financialfutures or financial option contract with an entity the debt securities of which are rated in their respectivehighest short-term Rating Categories by Moody’s and Standard & Poor’s.The District may and the Trustee shall, upon the Request of the District, and provided that theTrustee is supplied with an Opinion of Bond Counsel to the effect that such action is permitted under thelaws of the State of California, enter into an interest rate swap agreement corresponding to the interestrate or rates payable on a Series of Bonds or any portion thereof and the amounts received by the Districtor the Trustee, if any, pursuant to such a swap agreement may be applied to the deposits requiredhereunder; in which case, the entity with which the District or the Trustee may contract for an interest rateswap is limited to entities the debt securities of which are rated in their respective highest short-term debtRating Categories by Moody’s and Standard & Poor’s. If the District so designates, amounts payableunder the interest rate swap agreement shall be secured by Subordinated Water Revenues and other assetspledged hereunder to the Bonds on a parity basis therewith and, in such event, the District shall pay to theTrustee for deposit in the Interest Fund, at the times and in the manner provided in the Indenture, theamounts to be paid under such interest rate swap agreement, as if such amounts were additional interestdue on the Bonds to which such interest rate swap agreement relates, and the Trustee shall pay to theother party to the interest rate swap agreement, to the extent required thereunder, amounts deposited in theInterest Fund for the payment of interest on the Bonds with respect to which such agreement was enteredinto.Additional Bonds; Parity DebtThe issuance of additional Water Bonds is not limited by the Indenture. The District may issueBonds and Parity Debt payable from Subordinated Water Revenues and secured equally and ratably withBonds previously issued, subject to the following specific conditions precedent to the issuance of anysuch additional Bonds or Parity Debt:(a)No Event of Default shall have occurred and then be continuing.(b) The aggregate principal amount of Bonds or Parity Debt shall not exceed anylimitation imposed by law or by any Supplemental Indenture.(c) The District shall have placed on file with the Trustee a Certificate of the Districtcertifying that the sum of: (1) the Subordinated Water Revenues plus all amounts required to bepaid under the Water Bond Resolution for principal, interest, reserve fund and any other debtservice requirements on the Water Bonds for any period of 12 consecutive months during the 18months immediately preceding the date on which such additional Bonds or Parity Debt willbecome Outstanding; plus (2) 90% of the amount by which the District projects SubordinatedWater Revenues for such period of 12 months would have been increased had increases in rates,fees and charges during such period of 12 months been in effect throughout such period of 12months; plus (3) 75% of the amount by which the District projects Subordinated Water Revenueswill increase during the period of 12 months commencing on the date of issuance of such81267597.3 C-13

additional Series of Bonds due to improvements to the Water System under construction(financed from any source) or to be financed with the proceeds of such additional Series ofBonds, shall (4) have been at least equal to 1.1 times the amount of Maximum Annual DebtService on all Water Bonds, Bonds and Parity Debt then Outstanding and the additional Bonds orParity Debt then proposed to be issued.Refunding BondsRefunding Bonds may be authorized and issued by the District without compliance with theprovisions described above under “Additional Bonds; Parity Debt,” provided that Maximum Annual DebtService on all Water Bonds, Bonds and Parity Debt Outstanding following the issuance of such refundingBonds is less than or equal to Maximum Annual Debt Service on all Water Bonds, Bonds and Parity DebtOutstanding prior to the issuance of such refunding Bonds.CovenantsAmong other covenants the District has agreed as follows:The District will not create any pledge, lien or charge upon any of the Subordinated WaterRevenues having priority over or having parity with the lien of the Bonds except only as described above.The District will not amend or change the Water Bond Resolution in any manner which would permit theissuance of additional Water Bonds in a greater principal amount than would have been permittedthereunder prior to such amendment or change or reduce the debt service percentage or coveragerequirements contained therein. The District will not issue Water Bonds pursuant to the Water BondResolution in such amount as would cause the District to fail to be in compliance with the rate covenantdescribed in the second succeeding paragraph hereof.The District will not take any action, or fail to take any action, if any such action or failure to takeaction would adversely affect the exclusion from gross income of the interest on the Bonds underSection 103 of the Code. The District will not directly or indirectly use or permit the use of any proceedsof the Bonds or any other funds of the District, or take or omit to take any action that would cause theBonds to be “arbitrage bonds” within the meaning of Section 148(a) of the Code. To that end, the Districtwill comply with all requirements of Section 148 of the Code to the extent applicable to the Bonds.The District will, at all times while any of the Bonds remain Outstanding, fix, prescribe andcollect rates, fees and charges in connection with the services and facilities furnished by the WaterSystem so as to yield Water Revenues in each Fiscal Year sufficient so that the sum of the SubordinatedWater Revenues for such year plus all amounts required to be paid under the Water Bond Resolution forsuch year for principal, interest, reserve fund and any other debt service requirements on the Water Bondsshall be at least equal to 1.1 times the amount of Debt Service on all Water Bonds, Bonds and Parity DebtOutstanding for such Fiscal Year.The District will maintain and preserve the Water System in good repair and working order at alltimes, and will operate the Water System in an efficient and economical manner. Subject in each case tothe condition that insurance is obtainable at rates deemed reasonable by the District and upon terms andconditions deemed reasonable by the District, the District will procure and maintain at all times:(a) insurance on the Water System against such risks as and in such amounts as the District deems prudenttaking into account insurance coverage for similar utilities, and (b) public liability insurance in suchamounts as the District deems prudent taking into account insurance coverage for similar utilities.81267597.3 C-14

Events of Default; RemediesThe following events are Events of Default under the Indenture:(a) default in the due and punctual payment of the principal or Redemption Price ofany Bond when and as the same shall become due and payable, whether at maturity as thereinexpressed, by proceedings for redemption, by declaration or otherwise, or default in theredemption from any Sinking Account of any Bonds in the amounts and at the times providedtherefor;(b) default in the due and punctual payment of any installment of interest on anyBond when and as such interest installment shall become due and payable;(c) if the District shall fail to observe or perform any covenant, condition, agreementor provision in the Indenture on its part to be observed or performed, other than as referred to insubsection (a) or (b), for a period of sixty (60) days after written notice, specifying such failureand requesting that it be remedied, has been given to the District by the Trustee; except that, ifsuch failure can be remedied but not within such sixty (60) day period and if the District hastaken all action reasonably possible to remedy such failure within such sixty (60) day period, suchfailure shall not become an Event of Default for so long as the District shall diligently proceed toremedy the same in accordance with and subject to any directions or limitations of timeestablished by the Trustee;(d) if any default shall exist under any agreement governing any Parity Debt andsuch default shall continue beyond the therein stated grace period, if any, with respect to suchdefault;(e) if any default shall exist under the Water Bond Resolution and such default shallcontinue beyond the therein stated grace period, if any, with respect to such default;(f) if the District files a petition in voluntary bankruptcy, for the composition of itsaffairs or for its corporate reorganization under any state or Federal bankruptcy or insolvencylaw, or makes an assignment for the benefit of creditors, or admits in writing to its insolvency orinability to pay debts as they mature, or consents in writing to the appointment of a trustee orreceiver for itself;(g) if a court of competent jurisdiction shall enter an order, judgment or decreedeclaring the District insolvent, or adjudging it bankrupt, or appointing a trustee or receiver of theDistrict, or approving a petition filed against the District seeking reorganization of the Districtunder any applicable law or statute of the United States of America or any state thereof, and suchorder, judgment or decree shall not be vacated or set aside or stayed within 60 days from the dateof the entry thereof; and(h) if, under the provisions of any other law for the relief or aid of debtors, any courtof competent jurisdiction shall assume custody or control of the District or of the SubordinatedWater Revenues, and such custody or control shall not be terminated within 60 days from the dateof assumption of such custody or control.In addition, pursuant to the Fifteenth Supplemental Indenture, with respect to the Series 2009ABonds while bearing interest in a SIFMA–Based Term Interest Rate Period pursuant to such FifteenthSupplemental Indenture, in the event sufficient funds are not available for the purchase of all Series81267597.3 C-15

2009A Bonds tendered or deemed tendered and required to be purchased on any purchase date thereforpursuant to the Indenture, notwithstanding any other provision of the Indenture, in such event, such failedpurchase shall constitute an Event of Default.If an Event of Default shall occur and be continuing, the District is to immediately transfer to theTrustee all Subordinated Water Revenues held by it and received thereafter and the Trustee shall apply allSubordinated Water Revenues and any other funds then held or thereafter received by the Trustee underany of the provisions of the Indenture (except as otherwise provided in the Indenture) as follows and inthe following order:(1) To the payment of any expenses necessary in the opinion of the Trustee to protectthe interests of the Owners of the Bonds and Parity Debt, including the costs and expenses of theTrustee and the Bondholders in declaring such Event of Default, and payment of reasonable feesand expenses of the Trustee (including reasonable fees and disbursements of its counsel and otheragents) incurred in and about the performance of its powers and duties under the Indenture;(2) To the payment of the whole amount of Bond Obligation then due on the Bondsand Parity Debt (upon presentation of the Bonds and Parity Debt to be paid, and stamping thereonof the payment if only partially paid, or surrender thereof if fully paid) subject to the provisions ofthe Indenture, with interest on such Bond Obligation, at the rate or rates of interest borne by therespective Bonds and Parity Debt, to the payment to the persons entitled thereto of allinstallments of interest then due and the unpaid principal or Redemption Price of any Bonds andParity Debt which shall have become due, whether at maturity or by call for redemption, in theorder of their due dates, with interest on the overdue Bond Obligation and Parity Debt at the rateborne by the respective Bonds and Parity Debt, and, if the amount available shall not be sufficientto pay in full all the Bonds and Parity Debt due on any date, together with such interest, then tothe payment thereof ratably, according to the amounts of principal or interest or Accreted Value(plus accrued interest) due on such date to the persons entitled thereto, without any discriminationor preference.In each and every such case during the continuance of such Event of Default, the Owners of notless than a majority in aggregate principal amount of the Bonds at the time Outstanding shall be entitled,upon notice in writing to the District, to declare the principal of all of the Bonds then Outstanding, and theinterest accrued thereon, to be due and payable immediately, and upon any such declaration the sameshall become and shall be immediately due and payable.This provision, however, is subject to the condition that if, at any time after the principal of theBonds shall have been so declared due and payable, the District shall pay to or shall deposit with theTrustee a sum sufficient to pay all principal on such Bonds matured prior to such declaration and allmatured installments of interest (if any) upon all the Bonds, and the reasonable expenses of the Trustee,and any and all other defaults known to the Trustee (other than in the payment of principal of and intereston the Bonds due and payable solely by reason of such declaration) shall have been made good or curedto the satisfaction of the Trustee, or provision deemed by the Trustee to be adequate shall have been madetherefor, then, and in every such case, the Owners of not less than a majority in aggregate principalamount of the Bonds at the time Outstanding, by written notice to the District and to the Trustee, may, onbehalf of the Owners of all the Bonds, rescind and annul such declaration and its consequences; but nosuch rescission and annulment shall extend to or shall affect any subsequent default, or shall impair orexhaust any right or power consequent thereon.The Trustee is appointed (and the successive respective Owners of the Bonds, by taking andholding the same, shall be conclusively deemed to have so appointed the Trustee) to represent the Owners81267597.3 C-16

in the matter of exercising and prosecuting on their behalf such rights and remedies as may be available tosuch Owners under the provisions of the Bonds, the Indenture, the Act and applicable provisions of anyother law. Upon any default or other occasion, giving rise to a right in the Trustee to represent theBondholders, the Trustee may take such action as may seem appropriate and, upon the request in writingof Owners of not less than twenty-five percent (25%) in aggregate principal amount of Bonds thenOutstanding, and upon being indemnified to its satisfaction therefor, shall proceed to protect or enforce itsrights or the rights of such Owners by such appropriate actions as it shall deem most effectual to protectand enforce any such right.No remedy conferred upon or reserved to the Trustee or to the Owners of the Bonds is intended tobe exclusive of any other remedy or remedies, and each and every such remedy to the extent permitted bylaw, shall be cumulative and in addition to any other remedy given under the Indenture or now orhereafter existing at law or in equity or otherwise.AmendmentsThe Indenture and the rights and obligations of the District, the Owners of the Bonds and theTrustee may be modified or amended at any time by a Supplemental Indenture, with the written consentof the Owners of a majority in the aggregate amount of Bonds then Outstanding. No such modification oramendment shall (a) extend the fixed maturity of any Bond or reduce the amount of principal thereof, orextend the time of payment or reduce the amount of any Mandatory Sinking Account Payment providedfor the payment of any Bonds, or reduce the rate of interest thereon, or extend the time of payment ofinterest thereon, or reduce any premium payable upon the redemption thereof, without the consent of theOwner of each Bond so affected, or (b) reduce the aforesaid percentage of Bond Obligation the consent ofthe Owners of which is required to effect any such modification or amendment, or permit the creation ofany lien on the Subordinated Water Revenues and other assets pledged under the Indenture, or deprive theOwners of the Bonds of the lien created by the Indenture on such Subordinated Water Revenues and otherassets, without the consent of the Owners of all of the Bonds then Outstanding.The Indenture may also be modified or amended at any time with the written consents of eachprovider of a letter of credit or a policy of bond insurance for the Bonds, provided that at such time thepayment of all the principal of and interest on all Outstanding Bonds shall be insured by a policy orpolicies of municipal bond insurance or payable under a letter of credit the provider of which shall be afinancial institution or association having unsecured debt obligations rated, or insuring or securing otherdebt obligations rated on the basis of such insurance or letters of credit, rated not lower than therespective ratings on the Bonds by Moody’s (if Moody’s is then rating the Bonds) or Standard & Poor’s(if Standard & Poor’s is then rating the Bonds).The Indenture and the rights and obligations of the District, of the Trustee and the Owners of theBonds may also be modified or amended at any time by a Supplemental Indenture, without the consent ofany Bondholders but only to the extent permitted by law and only for any one or more of the followingpurposes:(1) to add to the covenants and agreements of the District or to surrender any right orpower reserved to or conferred upon the District;(2) to make such provisions for the purpose of curing any omission or ambiguity, orof curing or correcting any defective provision contained in the Indenture, or in regard toquestions arising under the Indenture, as the District may deem necessary or desirable, and whichshall not materially and adversely affect the interests of the Owners of the Bonds;81267597.3 C-17

Defeasance(3) to modify the Indenture in such manner as to permit qualification under the TrustIndenture Act of 1939, as amended, or any similar federal statute hereafter in effect, and to addsuch other terms, conditions and provisions as may be permitted by said act or similar federalstatutes and which shall not materially and adversely affect the interests of the Owners of theBonds;(4) to make modifications or adjustments necessary or desirable to provide for theissuance of Variable Rate Indebtedness, Capital Appreciation Indebtedness or Parity Debt, withsuch interest rate, payment, maturity and other terms as the District may deem desirable, subjectto the provisions of the Indenture;(5) to provide for the issuance of Bonds in book-entry form or bearer form, providedthat such provisions shall not materially and adversely affect the interest of the Owners of theBonds;(6) if the District agrees in a Supplemental Indenture to maintain the exclusion ofinterest on a Series of Bonds from gross income for purposes of federal income taxation, to makesuch provisions as are necessary or appropriate to ensure such exclusion;(7) to provide for the issuance of an additional Series of Bonds pursuant toprovisions of the Indenture; and(8) for any other purpose that does not materially and adversely affect the interests ofthe Owners of the Bonds.Bonds may be paid by the District in any of the following ways:(a) by paying or causing to be paid the Bond Obligations of and interest on suchOutstanding Bonds, as and when the same become due and payable;(b) by depositing with the Trustee, an escrow agent or other fiduciary, in trust, at orbefore maturity, money or securities in the necessary amount to pay or redeem such OutstandingBonds; or(c)by delivering to the Trustee, for cancellation by it, such Outstanding Bonds.Upon the deposit with the Trustee, escrow agent or other fiduciary, in trust, at or before maturity,of money or securities in the necessary amount to pay or redeem any Outstanding Bond (whether upon orprior to its maturity or the redemption date of such Bond), provided that, if such Bond is to be redeemedprior to maturity, notice of such redemption shall have been given or provision satisfactory to the Trusteeshall have been made for the giving of such notice, then all liability of the District in respect of such Bondshall cease, terminate and be completely discharged, provided that the Owner thereof shall thereafter beentitled to the payment of the principal of and premium, if any, and interest on the Bonds, and the Districtshall remain liable for such payment, but only out of such money or securities deposited with the Trusteeas aforesaid for their payments.The District may at any time surrender to the Trustee for cancellation by it any Bonds previouslyissued and delivered, which the District may have acquired in any manner whatsoever, and such Bonds,upon such surrender and cancellation, shall be deemed to be paid and retired.81267597.3 C-18

Whenever in the Indenture it is provided or permitted that there be deposited with or held in trustby the Trustee money or securities in the necessary amount to pay or redeem any Bonds, the money orsecurities so to be deposited or held may include money or securities held by the Trustee in the funds andaccounts established pursuant to the Indenture and shall be:(a) lawful money of the United States of America in an amount equal to the principalamount of such Bonds and all unpaid interest thereon to maturity, except that, in the case ofBonds which are to be redeemed prior to maturity and in respect of which notice of suchredemption shall have been given or provision satisfactory to the Trustee shall have been madefor the giving of such notice, the amount to be deposited or held shall be the principal amount orRedemption Price of such Bonds and all unpaid interest thereon to the redemption date; or(b) Investment Securities described in clauses (i), (ii) or (v) of the definition thereofthe principal of and interest on which when due will, in the opinion of an independent certifiedpublic accountant delivered to the Trustee (upon which opinion the Trustee may conclusivelyrely), provide money sufficient to pay the principal or Redemption Price of and all unpaid interestto maturity, or to the redemption date, as the case may be, on the Bonds to be paid or redeemed,as such principal or Redemption Price and interest become due, provided that, in the case ofBonds which are to be redeemed prior to the maturity thereof, notice of such redemption shallhave been given as required by the Indenture or provision satisfactory to the Trustee shall havebeen made for the giving of such notice; provided, in each case, that the Trustee shall have beenirrevocably instructed (by the terms of the Indenture or by Request of the District) to apply suchmoney to the payment of such principal or Redemption Price and interest with respect to suchBonds.81267597.3 C-19

APPENDIX DPROPOSED FORM OF OPINION OF SPECIAL TAX COUNSELUpon the redelivery of the Series 2009A-2 Bonds, Orrick, Herrington & Sutcliffe LLP, SpecialTax Counsel to the Remarketing Agents, proposes to render its tax opinion with respect to the Series2009A-2 Bonds in substantially the following form:[Redelivery Date]East Bay Municipal Utility DistrictOakland, CaliforniaLadies and Gentlemen:$41,035,000 East Bay Municipal Utility DistrictWater System Revenue Refunding Bonds, Series 2009A-2(Special Tax Opinion)We have acted as special tax counsel in connection with the remarketing of $41,035,000aggregate principal amount of East Bay Municipal Utility District Water System Revenue RefundingBonds, Series 2009A-2 (the “Bonds”). The Bonds were on March 12, 2009, pursuant to a Water SystemSubordinated Revenue Bond Indenture, dated as of April 1, 1990, as supplemented by supplementalindentures, including a Fifteenth Supplemental Indenture, dated as of March 1, 2009 (collectively, the“Indenture”), between the East Bay Municipal Utility District (the “District”) and First Interstate Bank ofCalifornia, which has been succeeded by The Bank of New York Mellon Trust Company, N.A., astrustee. Capitalized terms not otherwise defined herein shall have the meanings set forth in the Indenture.In such connection, we have reviewed the Indenture, the Tax Certificate of the District, datedMarch 12, 2009 and relating to the Bonds (the “Original Tax Certificate”), the Supplemental TaxCertificate of the District dated the date hereof and relating to the Bonds (the “Supplemental TaxCertificate” and together with the Original Tax Certificate, the “Tax Certificate”), opinions of counsel tothe Trustee and the District, certificates of the District, the Trustee and others, and such other documents,opinions and matters to the extent we deemed necessary to render the opinions set forth herein. Inparticular, we have relied on the opinion of Fulbright & Jaworski L.L.P. and Curls Bartling P.C., co-bondcounsel to the District, dated March 12, 2009 (the “Bond Counsel Opinion”), regarding, among othermatters, the validity of the Bonds. In rendering the opinions expressed herein, we expressly have reliedon the Bond Counsel Opinion that, among other matters, the Bonds are valid, binding and enforceable inaccordance with their terms. We call attention to the fact that the interest on the Bonds may not beexcluded from gross income for federal income tax purposes or exempt from State of California personalincome taxes if the Bonds are not valid, binding and enforceable in accordance with their terms.The opinions expressed herein are based on an analysis of existing laws, regulations, rulings andcourt decisions and cover certain matters not directly addressed by such authorities. Such opinions maybe affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken81267597.3 D-1

to determine, or to inform any person, whether any such actions are taken or omitted or events do occur orany other matters come to our attention after the date hereof. Accordingly, this opinion is not intended to,and may not, be relied upon in connection with any such actions, events or matters. Our engagement withrespect to the Bonds has concluded with their remarketing, and we disclaim any obligation to update thisletter. We have assumed the genuineness of all documents and signatures presented to us (whether asoriginals or copies) and the due and legal execution thereof by, and validity against, all parties. We haveassumed, without undertaking to verify, the accuracy of the factual matters represented, warranted orcertified in the documents, and of the legal conclusions contained in the opinions, referred to in thesecond paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreementscontained in the Indenture and the Tax Certificate, including (without limitation) covenants andagreements compliance with which is necessary to assure that past and future actions, omissions or eventshave not caused and will not cause the interest on the Bonds to be included in gross income for federalincome tax purposes. We call attention to the fact that the rights and obligations under the Bonds, theIndenture and the Tax Certificate and their enforceability may be subject to bankruptcy, insolvency,reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affectingcreditors’ rights, to the application of equitable principles, to the exercise of judicial discretion inappropriate cases and to the limitations on legal remedies against municipal utility districts in the State ofCalifornia. Finally, we undertake no responsibility for the accuracy, completeness or fairness of theReoffering Circular or other offering material relating to the Bonds and express no opinion with respectthereto.Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of theopinion that the interest on the Bonds is excluded from gross income for federal income tax purposesunder Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personalincome taxes. Interest on the Bonds is not a specific preference item for purposes of the federalindividual or corporate alternative minimum taxes nor is it included in adjusted current earnings whencalculating corporate alternative minimum taxable income. We express no opinion regarding other taxconsequences related to the ownership or disposition of, or the accrual or receipt of such interest on, theBonds.Faithfully yours,ORRICK, HERRINGTON & SUTCLIFFE LLP81267597.3 D-2

APPENDIX EDTC AND THE BOOK-ENTRY ONLY SYSTEMThe information in this Appendix E concerning The Depository Trust Company, New York, NewYork (“DTC”), and DTC’s book-entry system has been obtained from DTC and the District and theTrustee take no responsibility for the completeness or accuracy thereof. The District and the Trusteecannot and do not give any assurances that DTC, Direct Participants (as defined below) or IndirectParticipants (as defined below) will distribute to the Beneficial Owners (a) payments of interest, principalor premium, if any, with respect to the Series 2009A-2 Bonds, (b) certificates representing ownershipinterest in or other confirmation of ownership interest in the Series 2009A-2 Bonds, or (c) redemption orother notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Series 2009A-2Bonds, or that they will do so on a timely basis, or that DTC, Direct Participants or Indirect Participantswill act in the manner described in this Appendix E. The District, the Trustee and the RemarketingAgents are not responsible or liable for the failure of DTC or any DTC Direct or Indirect Participant tomake any payment or give any notice to a Beneficial Owner with respect to the Series 2009A-2 Bonds oran error or delay relating thereto. The current “Rules” applicable to DTC are on file with the Securitiesand Exchange Commission and the current “Procedures” of DTC to be followed in dealing with DTC’sDirect and Indirect Participants are on file with DTC.DTC acts as securities depository for the Series 2009A-2 Bonds. The Series 2009A-2 Bonds willbe reissued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnershipnominee) or such other name as may be requested by an authorized representative of DTC. One fullyregisteredcertificate will be issued for the Series 2009A-2 Bonds, in the aggregate principal amount ofsuch Series 2009A-2 Bonds, and will be deposited with DTC.DTC, the world’s largest securities depository, is a limited-purpose trust company organizedunder the New York Banking Law, a “banking organization” within the meaning of the New YorkBanking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning ofthe New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisionsof Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and moneymarket instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit withDTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and othersecurities transactions in deposited securities, through electronic computerized book-entry transfers andpledges between Direct Participants’ accounts. This eliminates the need for physical movement ofsecurities 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-ownedsubsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding companyfor DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of whichare registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to theDTC 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 relationshipwith a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard &Poor’s rating of AA+. The DTC Rules applicable to Direct and Indirect Participants are on file with theSecurities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Theinformation on such website is not incorporated herein by reference.Purchases of Series 2009A-2 Bonds under the DTC book-entry system must be made by orthrough Direct Participants, which will receive a credit for the Series 2009A-2 Bonds on DTC’s records.81267597.3 E-1

The ownership interest of each actual purchaser of each Series 2009A-2 Bond (“Beneficial Owner”) is inturn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receivewritten confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receivewritten confirmations providing details of the transaction, as well as periodic statements of their holdings,from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction.Transfers of ownership interests in the Series 2009A-2 Bonds are to be accomplished by entries made onthe books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Ownerswill not receive certificates representing their ownership interests in the Series 2009A-2 Bonds, except inthe event that use of the book-entry system for the Series 2009A-2 Bonds is discontinued.To facilitate subsequent transfers, all Series 2009A-2 Bonds deposited by Direct Participants withDTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as maybe requested by an authorized representative of DTC. The deposit of the Series 2009A-2 Bonds withDTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect anychange in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series2009A-2 Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts suchSeries 2009A-2 Bonds are credited, which may or may not be the Beneficial Owners. The Direct andIndirect Participants will remain responsible for keeping account of their holdings on behalf of theircustomers.Conveyance of notices and other communications by DTC to Direct Participants, by DirectParticipants to Indirect Participants, and by Direct Participants and Indirect Participants to BeneficialOwners will be governed by arrangements among them, subject to any statutory or regulatoryrequirements as may be in effect from time to time. Beneficial Owners of the Series 2009A-2 Bonds maywish to take certain steps to augment the transmission to them of notices of significant events with respectto the Series 2009A-2 Bonds, such as redemptions, tenders, defaults, and proposed amendments to theSeries 2009A-2 Bond documents. For example, Beneficial Owners of the Series 2009A-2 Bonds maywish to ascertain that the nominee holding the Series 2009A-2 Bonds for their benefit has agreed to obtainand transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to providetheir names and addresses to the 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 Series 2009A-2 Bonds are beingredeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant insuch issue to be redeemed.Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect tothe Series 2009A-2 Bonds unless authorized by a Direct Participant in accordance with DTC’s MMIProcedures. Under its usual procedures, DTC mails an Omnibus Proxy to the District as soon as possibleafter the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to thoseDirect Participants to whose accounts the Series 2009A-2 Bonds are credited on the record date(identified in a listing attached to the Omnibus Proxy).Payments of principal of, premium, if any, and interest on the Series 2009A-2 Bonds will bemade 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 correspondingdetail information from the District or the Trustee, on the payable date in accordance with their respectiveholdings shown on DTC’s records. Payments by Direct or Indirect Participants to Beneficial Owners willbe governed by standing instructions and customary practices, as is the case with securities held for theaccounts of customers in bearer form or registered in “street name,” and will be the responsibility of suchParticipant and not of DTC, the Trustee, or the District, subject to any statutory or regulatoryrequirements as may be in effect from time to time. Payment of principal of, premium, if any, and81267597.3 E-2

interest on the Series 2009A-2 Bonds to Cede & Co. (or such other nominee as may be requested by anauthorized representative of DTC) is the responsibility of the District or the Trustee, disbursement of suchpayments to Direct Participants will be the responsibility of DTC, and disbursement of such payments tothe Beneficial Owners will be the responsibility of Direct and Indirect Participants.DTC may discontinue providing its services as securities depository with respect to the Series2009A-2 Bonds at any time by giving notice to the Trustee and the District. Under certain circumstances,in the event that a successor depository is not obtained, Series 2009A-2 Bond certificates are required tobe printed and delivered.The District may decide to discontinue use of the system of book-entry transfers for the Series2009A-2 Bonds through DTC (or a successor securities depository). In that event, Series 2009A-2 Bondcertificates will be printed and delivered as provided in the Indenture. In addition, the followingprovisions would apply: the principal or redemption price of the Series 2009A-2 Bonds will be payableupon presentation thereof, at the principal corporate trust office of the Trustee, in San Francisco,California; interest on the Series 2009A-2 Bonds will be payable by check mailed on each interestpayment date to the registered owners thereof as shown on the registration books of the Trustee as of theas of the last business day of the calendar month immediately preceding the applicable interest paymentdate (the “record date”), except that in the case of an owner of $1,000,000 or more in aggregate principalamount of Series 2009A-2 Bonds, upon written request of such owner to the Trustee received at least 10days prior to the record date for the payment of interest, specifying the account or accounts to which suchpayment shall be made (which request shall remain in effect until revoked by such owner in a subsequentwriting delivered to the Trustee), such interest shall be paid in immediately available funds by wiretransfer to such account or accounts on the following interest payment date; and the Series 2009A-2Bonds will be transferable and exchangeable on the terms and conditions provided in the Indenture.The information in this Appendix E concerning DTC and DTC’s book-entry system has beenobtained from sources the District believes to be reliable, but the District takes no responsibility for theaccuracy thereof.81267597.3 E-3

APPENDIX FFORM OF CONTINUING DISCLOSURE AGREEMENT81267597.3 F-1

Fulbright & Jaworski L.L.P. – Draft of 12/27/12APPENDIX ATHE EAST BAY MUNICIPAL UTILITY DISTRICT(THE WATER SYSTEM)81277574.3

The East Bay Municipal Utility District occupies 332 square miles of the San Francisco – Oaklandmetropolitan region. The Water System serves approximately 1.3 million people, or approximately 53% ofthe population of Alameda and Contra Costa Counties.EAST BAY MUNICIPAL UTILITY DISTRICTWATER SYSTEM81277574.3

TABLE OF CONTENTSTHE DISTRICT.......................................................................................................................................A-1Organization................................................................................................................................A-1District Board..............................................................................................................................A-1District Management...................................................................................................................A-3Employees and Employee Relations...........................................................................................A-4Service Area................................................................................................................................A-4Taxation of the District ...............................................................................................................A-5THE WATER SYSTEM..........................................................................................................................A-6General........................................................................................................................................A-6Water Supply ..............................................................................................................................A-6Water Recycling .......................................................................................................................A-11Water Rights and Related Proceedings.....................................................................................A-12Water Supply Management Plan ..............................................................................................A-13Water Conservation ..................................................................................................................A-15Water Facilities .........................................................................................................................A-16Water Supply Operations..........................................................................................................A-18Water Quality and Treatment....................................................................................................A-23Statewide Water Issues .............................................................................................................A-23Climate Change.........................................................................................................................A-24Seismic Matters.........................................................................................................................A-25Security and Emergency Preparedness .....................................................................................A-26Insurance...................................................................................................................................A-27Capital Improvement Program..................................................................................................A-27WATER SYSTEM FINANCES ............................................................................................................A-31Basis of Accounting..................................................................................................................A-31Sources of Funds.......................................................................................................................A-31Water Sales Revenues...............................................................................................................A-32Rates and Charges.....................................................................................................................A-33Seismic Surcharge.....................................................................................................................A-34Comparison of Annual Water Service Charges ........................................................................A-35Billing and Collection Procedures ............................................................................................A-35System Capacity Charge...........................................................................................................A-36Supplemental Supply Charge....................................................................................................A-37Property Tax Revenues.............................................................................................................A-37Power Sales Revenues ..............................................................................................................A-39Developer Contributions...........................................................................................................A-39Grants........................................................................................................................................A-39Operation and Maintenance Costs ............................................................................................A-39Outstanding Debt ......................................................................................................................A-40Variable Rate and Swap Obligations ........................................................................................A-41Debt Service Requirements.......................................................................................................A-45Financial Management Policies ................................................................................................A-46District Investment Policy.........................................................................................................A-46Cash and Investments ...............................................................................................................A-46Historical Operating Results.....................................................................................................A-47District Management’s Discussion of Operating Results .........................................................A-49Projected Operating Results......................................................................................................A-49Employees’ Retirement System................................................................................................A-52Page81277574.3 i

THE DISTRICTOrganizationIn May 1923, voters in cities along the eastern shore of the San Francisco Bay located in portionsof Alameda and Contra Costa Counties (known throughout the San Francisco Bay Area as the “EastBay”) elected to create the East Bay Municipal Utility District (the “District”) under the provisions of theMunicipal Utility District Act. Under the Municipal Utility District Act, municipal utility districts areempowered to acquire, construct, own, operate or control works for supplying the district and publicagencies in the territory of the district with light, water, power, heat, transportation, telephone service orother means of communications, means for the collection, treatment or disposition of garbage, sewage orrefuse matter, and public recreation facilities appurtenant to its reservoirs and may do all things necessaryand convenient to the full exercise of powers granted in the Municipal Utility District Act. The Districtpresently exercises only those functions relating to water supply, power generation and recreationalfacilities through its Water System, and sewerage and wastewater interception, treatment and disposal andpower generation through its Wastewater System, within an area known as Special District No. 1. SpecialDistrict No. 1 covers only a portion of the service area of the District. The District presently does notintend to exercise other functions. Such other functions and the related facilities, if exercised, would notconstitute part of the Water System or the Wastewater System.District BoardThe District, a public agency, is governed by an elected seven-member Board of Directors (the“Board”) which determines such matters as rates and charges for services, approval of contracts, andDistrict policy. Voters elect directors by ward to four-year terms. There are seven wards which togethercover the entire service area of the District. Each year, the Board elects from among its members personsto serve as Board officers (President and Vice President). With an average service tenure of almost 15years, each of the Board members has served one or more years as an officer of the Board of Directorsand has chaired one or more of the Board’s standing committees that review financial, long-rangeplanning, and legislative matters. The following persons currently serve on the Board:John A. Coleman has been a Board member since 1990 and represents Ward 2, which includesAlamo, Lafayette, Walnut Creek, the Town of Danville, the communities of Blackhawk andDiablo, and portions of Pleasant Hill and San Ramon. Mr. Coleman is currently President of theBoard, and he represents the District on the governing boards of the joint powers authorities inwhich the District participates that manage the provision of recycled water service (theDSRSD/EBMUD Recycled Water Authority (DERWA)), Sierra Nevada watershed managementand protection (the Upper Mokelumne River Watershed Authority) and supplemental watersupplies for dry years (the Freeport Regional Water Authority (FRWA). Mr. Coleman is VicePresident of the Association of California Water Agencies (“ACWA”), a board member of theNational Water Resources Association and a board member of the WateReuse Association. He isalso a past president of the California Association of Sanitation Agencies. Mr. Coleman isemployed as the Executive Director of the Bay Planning Coalition. He has a Bachelor of Sciencedegree in Natural Resources from the University of California, Berkeley and a certificate inmanagement from the University of Pacific School of Business and Public Administration. Hiscurrent term expires on December 31, 2014.Andy Katz has been a Board member since 2006 and represents Ward 4, which includes Albany,Berkeley, El Cerrito, Emeryville, Kensington and North Oakland. Mr. Katz is currently VicePresident of the Board and Chair of the Board’s Finance and Administration Committee. He isemployed as an attorney and public health advocate for Breathe California. Mr. Katz has aBachelor of Arts degree and a Master of City Planning degree from the University of California,81277574.3 A-1

Berkeley, and a law degree from Santa Clara University. His current term expires onDecember 31, 2014.Katy H. Foulkes has been a Board member since 1994 and represents Ward 3, which includesthe City of Piedmont and a portion of Oakland, in Alameda County, the Contra Costa Countycities of Orinda and El Sobrante, the Town of Moraga, and portions of Pinole and Richmond.Ms. Foulkes represents the District on the governing boards of the Upper Mokelumne RiverWatershed Authority and FRWA. Ms. Foulkes served multiple terms as an officer for Region 5 ofACWA and as a member of ACWA’s Board of Directors. She is Vice-President of the AlamedaChapter of the California Special Districts Association and Co-Chair of the Bay Area WaterForum. Ms. Foulkes has a Bachelor of Arts degree in English from the University of California,Berkeley. Her current term expires on December 31, 2014.Doug A. Linney has served on the Board since 2000 and represents Ward 5, which includes theAlameda County cities of Alameda and San Lorenzo, the West Oakland and Oakland AirportArea, and a portion of San Leandro. Mr. Linney is currently chair of the Board’s PlanningCommittee. He is employed as President of The Next Generation, a public relations firmproviding services that emphasize achieving environmental protection. Mr. Linney has a Bachelorof Science degree in environmental science and public policy from the University of California,Davis. Mr. Linney’s was re-elected in the most recent election for another term of office, whichwill expire on December 31, 2016.Lesa R. McIntosh has served on the Board since 1999 and represents Ward 1, which includes theContra Costa County cities of Crockett, Hercules, Rodeo and San Pablo; portions of Richmondand Pinole, and the communities of North Richmond and Selby. Ms. McIntosh is currently chairof the Legislative/Human Resources Committee. Ms. McIntosh is employed as a lawyerspecializing in business, land use and estate planning. She has a Bachelor of Science degree inpolitical science from the University of California, Berkeley and a law degree from John F.Kennedy University. Ms. McIntosh was re-elected in the most recent election for another term ofoffice, which will expire on December 31, 2016.Frank G. Mellon has served on the Board since 1994 and represents Ward 7, which includes theareas of Castro Valley, communities of Cherryland and Fairview; portions of San Leandro andHayward in Alameda County, and a portion of San Ramon in Contra Costa County. Mr. Melloncurrently serves on the District’s Retirement Board and on the Legislative/Human ResourcesCommittee. He also represents the District on the governing board of DERWA. Mr. Mellon isemployed as a consultant specializing in human resources and labor relations and he teaches laborlaw in the California State University East Bay Human Resources Certificate Program.Mr. Mellon has a Bachelor of Arts degree in Management from the University of Hawaii and aMaster’s Degree in Business Administration from St. Mary’s College in Moraga. His current termexpires on December 31, 2014.William B. Patterson has served on the Board since 1997 and represents Ward 6, which includesAlameda County’s East Oakland Hills and south of Lake Merritt to the San Leandro cityboundary. Mr. Patterson is currently Vice-President of the District’s Retirement Board. He retiredseveral years ago, after working for many years as the City of Oakland Manager of Parks andRecreation. He has Bachelor’s and Master’s degrees in Parks and Recreation Administration fromSan Francisco State University and a Social Services Certificate from the University ofCalifornia, Berkeley. Mr. Patterson was re-elected in the most recent election for another term ofoffice, which will expire on December 31, 2016.81277574.3 A-2

District ManagementAlexander R. Coate joined the District in 1993 and was appointed General Manager in 2011.Prior to his appointment as General Manager, he was Director of Water and Natural Resourceswith responsibility for water supply planning, water rights, and watershed management includingrecreation and fisheries. He has more than 29 years of experience with public agencies,engineering consulting firms, research and law. Mr. Coate is a member of the American WaterWorks Association and the Association of California Water Agencies. He currently serves on theBoard of Directors of the Central Valley Project Water Association and California Urban WaterAgencies. Mr. Coate has a Bachelor’s degree in Neurobiology and a Master’s degree in CivilEngineering, both from the University of California, Berkeley.Jylana D. Collins joined the District in 1994 and was appointed General Counsel in 2006. Priorto her appointment as General Counsel, she was Assistant General Counsel. Before joining theDistrict, she was Deputy City Attorney for the City of Berkeley. She has over 29 years ofexperience in public law. Ms. Collins has a Bachelor’s degree in Psychology from AntiochUniversity West and a law degree from the University of San Francisco School of Law.Eric L. Sandler was appointed Director of Finance in 2012. He has over 24 years of experiencein municipal and infrastructure financing. Prior to joining the District, he was Director ofFinance/Treasurer at the San Diego County Water Authority. He also served as Director ofFinancial Planning and Acting Director of Finance for the San Francisco Public UtilitiesCommission. Previously, he was employed by Lehman Brothers in the municipal investmentbanking group in San Francisco. He has a Bachelor’s degree in Biology from Stanford Universityand a Master’s degree in Business Administration from the University of California, Berkeley.Xavier J. Irias joined the District in 1986 and was appointed Director of Engineering andConstruction in 2006. Prior to that appointment, he held progressively more responsible positionsmanaging engineering design and engineering services, and he has over 28 years of experience inthe engineering field. Mr. Irias has a Bachelor of Science degree in Civil Engineering from theUniversity of California, Berkeley.Carol K. Nishita joined the District in 1989 and was appointed Director of Administration in2007. Prior to that appointment, she held progressively more responsible positions, including tenyears as the Manager of Budget and Rates. Before joining the District, Ms. Nishita worked as amanager in non-profit and county agencies and as a policy analyst for the Governor’s Office ofPlanning and Research in Sacramento. Ms. Nishita has a Bachelor of Arts degree in Sociologyfrom the University of California, Berkeley and a Master’s degree in Social ServiceAdministration from the University of Chicago.Richard G. Sykes joined the District in 1989 and was appointed Director of Water and NaturalResources in 2011. Mr. Sykes has held progressively more responsible positions over that time;he has broad knowledge of the District’s operations and is very experienced in water quality andregulatory issues. He has a Bachelor’s degree in Conservation of Natural Resources and Englishand a Master’s degree in Environmental Engineering from the University of California, Berkeley.Michael J. Wallis joined the District in 1985 and was appointed Director of Operations andMaintenance in 1996. Prior to his current appointment Mr. Wallis held progressively moreresponsible positions in the District’s Wastewater Department, and served as Director ofWastewater for several years. Mr. Wallis has over 35 years of water and wastewater relatedexperience. He serves on the Board of Directors for the Association of Metropolitan Water81277574.3 A-3

Agencies and currently holds the position of Secretary. He has a Bachelor of Science degree anda Master’s degree in Civil Engineering from North Carolina State University.David R. Williams joined the District in 1993 and was appointed Director of Wastewater in1997. Prior to his appointment, he served as Manager of Wastewater Engineering. Mr. Williamshas more than 35 years of wastewater related experience, and is currently Past President of theBoard of Directors of the National Association of Clean Water Agencies. He has anundergraduate degree in Civil Engineering and a Master’s degree in Sanitary Engineering fromPurdue University and a Master’s in Business Administration from the University of California,Berkeley.Lynelle M. Lewis joined the District in 1993 and was appointed Secretary of the District in 1995.She is a Certified Municipal Clerk and a member of the City Clerks Association of California andthe International Institute of Municipal Clerks. Ms. Lewis received her Bachelor of Sciencedegree in Business Administration from San Jose State University.Wanda B. Hendrix joined the District in 1994 and was appointed Treasury Manager in 2006.She served as Principal Management Analyst for the Finance Department of the District prior toher appointment. Before joining the District, Ms. Hendrix worked for the City of Hayward as theBudget Administrator for eight years. Ms. Hendrix has a Bachelor’s degree in Sociology and aMaster’s degree in Public Administration from San Jose State University.Employees and Employee RelationsAs of November 30, 2012, the District has approximately 1,480 regular (full-time equivalent)employees in the Water System and approximately 253 regular (full-time equivalent) employees in theWastewater System.The District has four unions representing approximately 1,582 workers out of a total full-timeequivalent workforce of 1,733 employees: Local 2019 of the American Federation of State, County andMunicipal Employees (“AFSCME”) represents white collar workers including professionals; Local 444of AFSCME represents blue collar workers; Local 21, International Federation of Professional andTechnical Engineers represents supervisory employees; and Local 39, International Union of OperatingEngineers represents water treatment/distribution workers.Locals 2019, 444, 21 and 39 are operating under Memoranda of Understanding (“MOUs”), firstapproved by the District Board in 2008, and extended by mutual agreement in 2011 for an additional twoyears. Each of the current MOUs expire on April 21, 2013. The MOUs are comprehensive in scope andprovide for binding arbitration for the resolution of grievances. The District has not had a strike or workstoppage since 1985, and MOU negotiations have historically concluded prior to the expiration dates ofthe contracts.For a discussion of the District Employees’ Retirement System, see “WATER SYSTEMFINANCES – Employees’ Retirement System.”Service AreaOriginally formed to include nine cities covering 92.6 square miles, the District has grown bymore than 450 separate annexations to a present area of 332 square miles in 20 incorporated and 15unincorporated communities in both Alameda and Contra Costa Counties. It covers the eastern shore ofSan Francisco Bay from Carquinez Strait on the north to and including San Lorenzo on the south and itextends approximately 20 miles east, beyond the Oakland-Berkeley hills, into Contra Costa County.81277574.3 A-4

The District’s Water System serves this entire area, reaching 53% of the combined population ofAlameda County and Contra Costa County. Approximately two-thirds of the population within theDistrict service area resides in the cities of Alameda, Berkeley, Oakland, San Leandro, Richmond andWalnut Creek.The land area between the present service area boundary and the ultimate service area boundary,approximately 69 square miles, includes some areas of potential development. However, a large part ofthis land area is parklands and other undeveloped lands that are not anticipated to be developed in theforeseeable future. Another 81 square miles within the ultimate service area boundary outside theDistrict’s present service area boundary is under the waters of the San Francisco and San Pablo Bays. Theultimate service area boundary is limited on the west and north by the shorelines of the San Francisco andSan Pablo Bays. The ultimate service area boundary is limited on the south and northeast by adjoiningwater agencies which have sources of supply independent of the District. There is limited potential fornew development at the southern end of the San Ramon Valley, now in the early stages of land useplanning and environmental documentation, which is located just outside the ultimate service areaboundary. The District service area population, currently 1.3 million, is projected to grow by 2035 to apopulation of 1.75 million, with much of that growth expected to come from infill development within theurbanized parts of the service area.The Municipal Utility District Act was amended in 1941 to enable formation of special districtsfor wastewater service provision. In 1944, voters elected to form the District’s Special District No. 1 totreat wastewater released into the San Francisco Bay. The District’s wastewater treatment system (the“Wastewater System”) presently serves approximately 650,000 people in an 88-square-mile area of thetwo counties along the east shore of the San Francisco Bay, extending from Richmond on the north,southward to San Leandro. Domestic, commercial and industrial wastewater is treated for the six cities ofAlameda, Albany, Berkeley, Emeryville, Oakland and Piedmont, and for the Stege Sanitary District,which includes El Cerrito, Kensington and part of Richmond. Each of these entities operates a sewercollection system that discharges into the District’s intercepting sewers. At the request of the City ofRichmond, the District is presently participating in a study to explore the possibility of the Districtaccepting waste from sewers in that city. In addition to treating waste received through the sewercollection system, the District accepts high-organic waste streams delivered in trucks. The wastes includedomestic waste from septic tanks, fat, oil and grease from restaurants and other food and drink wastes.Taxation of the DistrictAll property of the District within the District’s boundaries generally is exempt from propertytaxation. District-owned land outside of the District’s boundaries is taxable, but improvementsconstructed on that land by the District are not taxable. As a public agency, the District is exempt fromthe payment of State of California (the “State”) and federal income taxes.81277574.3 A-5

THE WATER SYSTEMGeneralThe District supplies water for major parts of Alameda and Contra Costa Counties.Approximately 1.3 million people are served by the District’s Water System in an approximately 332square-mile area extending from Crockett on the north, southward to and including San Lorenzo,encompassing the major cities of Oakland and Berkeley, and eastward from San Francisco Bay to WalnutCreek.The District’s Water System currently serves the incorporated communities of Alameda, Albany,Berkeley, Danville, El Cerrito, Emeryville, part of Hayward, Hercules, Lafayette, Moraga, Oakland,Orinda, Piedmont, Pinole, part of Pleasant Hill, Richmond, San Leandro, San Pablo, San Ramon, and partof Walnut Creek, and the unincorporated communities of Alamo, Ashland, Blackhawk, Castro Valley,Cherryland, Crockett, Diablo, El Sobrante, Fairview, Kensington, North Richmond, Olium, Rodeo, SanLorenzo and Selby.Table 1 shows the population trends for the six largest cities in the District, Alameda and ContraCosta Counties and the State for the last five years.Table 1SIX LARGEST DISTRICT CITIESALAMEDA, CONTRA COSTA COUNTIES AND CALIFORNIAPopulation Trends (1)2008 2009 2010 2011 2012Six Largest District Cities:Oakland 415,492 419,095 390,757 392,333 395,341Berkeley 106,347 106,697 112,621 113,925 114,821Richmond 103,828 103,577 103,661 104,382 104,887San Leandro 81,466 81,851 84,977 85,364 86,053Alameda 75,254 74,015 73,835 74,052 74,640Walnut Creek 65,384 65,306 64,140 64,710 65,233Total Six Cities 847,771 850,541 829,991 834,766 840,975Alameda County 1,537,719 1,557,749 1,509,240 1,517,756 1,532,137Contra Costa County 1,048,242 1,061,325 1,047,948 1,056,306 1,065,117California 37,172,000 37,883,992 37,223,900 37,427,948 37,678,563____________________(1)As of January 1 of each year.Source: 2008-2010: State of California, Department of Finance, E-8 Historical Population and Housing Estimates, 2000-2012 Report, by Year, Sacramento, California, November 2012 (Revised Estimates).2011-2012: State of California, Department of Finance, E-1 Population Estimates for Cities, Counties and theState with Annual Percent Change – January 1, 2011 and 2012, Sacramento, California, May 2012.Water SupplyDuring wet and normal rainfall years, the District’s water supply is obtained from three sources:the 627-square mile Mokelumne River watershed in the Sierra Nevada mountains, runoff from streams81277574.3 A-6

within the District, and recycled water produced at various locations in the service area. During droughttimes, the District has substantial additional supplies from the Sacramento River via the FreeportRegional Water Project as described below. The District can also utilize water stored within a localaquifer through its Bayside Groundwater Project.Mokelumne River Watershed. The District holds permits and licenses issued by the State WaterResources Control Board (the “SWRCB”) which enable the District to utilize waters of the MokelumneRiver as the primary source of the water supply for the District’s service area. The average annual runoffof the Mokelumne River is about 745,000 acre-feet. (An acre-foot is the amount of water that will coverone acre to a depth of one foot and equals approximately 326,000 gallons, which represents the needs oftwo average families in and around the home for one year.) As described below under “– Water Rightsand Related Proceedings,” the District’s water rights permit the total diversion of approximately 364,000acre-feet per year from the Mokelumne River, subject to certain prior water rights. Annual waterproduction in the District to serve its customers has not exceeded 252,000 acre-feet. Water productionincludes the total water produced at the District’s water treatment plants and water moved through thedistribution system that was delivered to customers, as well as water lost through leaks in the transmissionsystem, water used in the treatment process, evaporation, water used for fighting fires and othermiscellaneous causes.Annual water production in the District since Fiscal Year 2003 is shown in Table 2 below.FiscalYearTable 2WATER PRODUCTION BY FISCAL YEAR (1)AnnualProduction(Acre-Feet)AnnualProduction(Thousands of Ccf)AnnualProduction(Million Gallons)Average ProductionPer Day (MillionGallons per Day)2003 238,721 103,987 77,782 2132004 251,935 109,743 82,088 2242005 229,155 99,820 74,666 2052006 236,866 103,179 77,174 2112007 236,111 102,850 76,932 2112008 230,363 100,346 75,059 2052009 203,423 (2) 88,611 (2) 66,281 (2) 182 (2)2010 195,158 (2) 85,011 (2) 63,588 (2) 174 (2)2011 194,642 (2) 84,786 (2) 63,420 (2) 174 (2)2012 200,220 (2) 87,216 (2) 65,242 (2) 178 (2)____________________(1)Water production includes water lost through leaks in the transmission system, used in the treatment process,evaporation, fighting fires and other miscellaneous causes, which approximates 10.0% of gross production.(2)Reflects implementation of conservation measures as a result of drought conditions and reduced post-droughtconsumption.Source: The District.See also “– Water Supply Operations” below.During the ten-year period from 2002 to 2011, the annual Mokelumne River runoff has rangedfrom a low of just over 400,000 acre-feet in Water Year 2008 to a high of over 1.45 million acre-feet inWater Year 2006. (A Water Year begins on October 1 and ends of the following September 30). In 1977,the lowest year of record since records have been kept, the annual runoff from the Mokelumne River was129,000 acre-feet. Faced with fluctuating runoff volumes and periodic drought conditions, the District hasdeveloped a comprehensive approach to ensuring reliable water supply. That approach, its Water Supply81277574.3 A-7

Management Plan, utilizes demand management and multiple supply options to meet long-term waterneeds. The plan is discussed below under “– Water Supply Management Plan” below.The Mokelumne River watershed also serves municipal, industrial and agricultural water needs inthree Sierra Nevada foothill counties (Amador, Calaveras and San Joaquin), in addition to the municipaland industrial needs of the District’s service area. The agencies and individual diverters on theMokelumne River each operate and divert water under separate entitlements, permits and licenses, alongwith a number of contracts and agreements among various agencies and under certain court decrees.Entities with water rights in the Mokelumne River watershed senior to those of the Districtinclude Pacific Gas and Electric Company (“PG&E”) (which rights are essentially non-consumptive otherthan for project uses), Amador Water Agency and Jackson Valley Irrigation District (referred tocollectively in the graphic on the next page as “AWA”) (for a total potential consumptive diversion of20,000 acre-feet per year in Amador County); Calaveras County Water District and Calaveras PublicUtility District (for a total potential consumptive diversion of 27,000 acre-feet per year in CalaverasCounty); and Woodbridge Irrigation District and the City of Lodi (for a total potential consumptivediversion of 63,600 acre-feet in normal and wet years and 42,600 acre-feet in dry years in San JoaquinCounty). In addition, adjacent property owners retain certain historical riparian and appropriative rights towater from the river. See “– Water Supply Management Plan” for discussion of potential effects ofprojected increased use of senior water rights holders on District water supplies and the District’s effortsto increase future supply through multiple water supply projects. In addition, the District’s water rightsfrom the State for the Camanche Reservoir, including the District’s obligations under a 1998 JointSettlement Agreement among the District, the U.S. Fish and Wildlife Service and the CaliforniaDepartment of Fish and Game incorporated therein (the “1998 Joint Settlement Agreement”), requiresthat minimum releases be made from Camanche Reservoir for the protection of downstream fisheries. Seealso “– Water Rights and Related Proceedings” below.The following graphic summarizes the priorities of Mokelumne River water rights and other flowcommitments with respect to the Mokelumne River water supply in a normal Water Year. “TAF” as usedin the graphic refers to thousand acre-feet.[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]81277574.3 A-8

81277574.3 A-9

Local runoff. In normal Water Years, District reservoirs in the East Bay receive an additional30,000 acre-feet of water from local watershed runoff. Much of the local runoff is stored in the East Bayreservoirs for system use. In dry years, evaporation and other reservoir losses can total more than therunoff. Thus, there is no firm yield from local watersheds.United States Bureau of Reclamation Central Valley Project Contract; Freeport RegionalWater Project. In December 1970, the District entered into its original Central Valley Project Contract(“CVP Contract”) with the United States Bureau of Reclamation (the “Bureau”), entitling the District totake up to a specified quantity of American River water from the Folsom-South Canal Unit of theBureau’s Central Valley Project (“CVP”) annually. The CVP Contract was superseded on July 20, 2001by an Amendatory Contract, which, in turn, was superseded on April 10, 2006 by a Long-Term RenewalContract (“Long-Term Renewal CVP Contract”). The Long-Term Renewal CVP Contract has a term of40 years, with a right of renewal for an additional 40 years available to the District. Historically, theDistrict did not have permanent infrastructure in place to receive CVP contract water. The FreeportRegional Water Project (hereinafter, the “FRWP”), which was placed in commercial operation onNovember 15, 2011, provides the permanent infrastructure to allow the District to receive water deliveriespursuant to the Long-Term Renewal CVP Contract. Under the Long-Term Renewal CVP Contract, theDistrict is entitled to receive deliveries of up to 133,000 acre-feet per year (119 million gallons per day(hereinafter, “MGD”)) of CVP water in a single dry year, and no more than 165,000 acre-feet over thecourse of any three consecutive dry-years. The FRWP can provide up to 100 MGD (112,000 acre-feet peryear) of supplemental water supplies to the District in dry years which helps meet projected drought yearneeds.The FRWP is a regional water supply project undertaken by the District in partnership with theSacramento County Water Agency (“SCWA”). In February 2002, with the support of the Bureau, theDistrict and SCWA formed the Freeport Regional Water Authority (“FRWA”) under a joint powersagreement to develop the FRWP. The FRWP provides the permanent infrastructure to allow the Districtto receive water deliveries pursuant to the Long-Term Renewal CVP Contract at a new point of diversionalong the Sacramento River. In addition to providing the District up to 100 MGD of supplemental waterin dry years as described above, the FRWP can provide up to 85 MGD to SCWA in all years.In 2007, the District entered into a Dedicated Capacity Purchase Agreement, dated as of May 1,2007, by and between FRWA and the District (the “Dedicated Capacity Purchase Agreement”). Pursuantto the Dedicated Capacity Purchase Agreement, FRWA sells to the District and the District agrees toacquire 100 MGD of capacity in the FRWP (“Dedicated Capacity”) in accordance with the SecondAmended Joint Exercise of Powers Agreement Concerning the Freeport Regional Water Authority datedas of November 20, 2006 (the “FRWA JPA Agreement”). The purchase price of the Dedicated Capacityhas been paid by the District in accordance with the FRWA JPA Agreement as a portion of the District’scapital cost of the FRWP pursuant to the FRWA JPA Agreement. In the event of future capitalimprovements to the FRWP, the District may be required to make additional capital contributions for itsshare of such costs pursuant to the FRWA JPA Agreement.The FRWP diverts water from the Sacramento River near the community of Freeport and conveysthis water through new pipelines and the existing Folsom South Canal (“FSC”) to the District’sMokelumne Aqueduct near Camanche Reservoir. A turnout in the pipe within central Sacramento Countydelivers water to SCWA. Water is delivered to the District pursuant to its Long-Term Renewal CVPContract. CVP water received by the District will be treated at existing District treatment facilities prior todelivery to customers. Short-term storage, if needed, will be provided at the District’s San Pablo terminalreservoir or Upper San Leandro reservoir. See “– Water Facilities” below.The FRWP includes a number of significant components. Chiefly, the components consist of anintake and pumping plant, approximately 16 miles of pipeline and a communications system. Thecapacity of the intake and pumping plant is 185 MGD. The pipeline includes a 7-foot diameter segment81277574.3 A-10

which runs from the intake to the SCWA turnout, a 5-foot, 6-inch diameter pipeline segment which feedsa new SCWA Treatment Plant and a 6-foot diameter pipeline segment which discharges to the FSC. Fiberoptic and radio systems link project facilities and key outside agencies.Water flows within the FSC for 14 miles and, in turn, is recaptured by the District and directedvia pipeline along a route which leads to the District’s Mokelumne Aqueducts. That southern system(known as the FSC Connection or the “FSCC”) is a District-only element, and includes two 100 MGDpumping plants (an intake and a pumping plant at the terminus of the FSC and a high head pumping plantnear Camanche Reservoir) and approximately 18 miles of 6-foot diameter pipeline.The combined FRWP/FSCC system underwent a successful integrated operational test and,following such test was placed into commercial operation on November 15, 2011, and can be utilized bythe District during dry years when the District’s contractual right to CVP water is made available.The District has adopted a supplemental supply charge of 14% of total water flow charges whichmay be added to customers’ water bills during droughts when the Board declares a need to take deliveriesof its CVP water under the Long-Term Renewal CVP Contract. The supplemental supply charge isdesigned to cover the costs of operating the Freeport Regional Water Project and the costs of CVP waterduring dry year periods when the District takes deliveries of CVP water. See “WATER SYSTEMFINANCES – Supplemental Supply Charge.”Bayside Groundwater Project. In December 2009, the District completed another supplementalsupply project, the Bayside Groundwater Project Phase 1. The Bayside Groundwater Project consists offacilities designed to provide a means of storing treated drinking water in a deep underground aquiferduring wet years for future recovery, re-treatment and distribution to customers during times of drought.Implementation of the project is planned in two phases. The Bayside Groundwater Project Phase 1,completed in December 2009, provides a modest, locally available supplemental water supply that helpsreduce the need for rationing in the event of a prolonged drought. Phase 1 is used to store an annualaverage of one MGD (1,120 acre-feet per year) of water within a deep aquifer that extends beneath thecommunity of San Lorenzo. Storage operations will take place when water can be made available (duringwet years). The District stored (injected) water for an eight week period beginning on June 2, 2011 andending at the end of July 2011. The estimated volume of water stored is in the range of 30-40 milliongallons (92-123 acre-feet). A volume equal to the total stored can be supplied to customers during dryyears (at a delivery rate that does not exceed one MGD), helping to reduce the need for rationing. PrimaryPhase 1 facilities as constructed include an injection/extraction well (and pump), a treatment plant, agroundwater monitoring network and instruments used to measure minute changes (if any) in groundsurface elevation (subsidence) during Phase 1 operations. The District intends to continue to operatePhase 1 facilities in either a storage mode or possibly an extraction mode (as based on water supplyavailable for storage and/or drought conditions coupled with the need for water). Information gatheredfrom Phase 1 operations will be used in part to determine the feasibility of Phase 2 and inform its futuredeterminations on how to proceed with Phase 2 (which could provide an additional 9 MGD of supply).Water RecyclingThe District has undertaken a Water Recycling Program to develop and implement projects thatreduce demands on potable water supplies. Recycled water has been used for landscape irrigation,cooling, equipment washdown and construction purposes at the District’s Main Wastewater TreatmentPlant since the early 1970s, as well as at a number of golf courses in the District’s service area, beginningin 1984. Since 1993, the District has implemented various other recycled water projects that are designedto produce in the aggregate 9.3 MGD of additional supply. The program currently includes six operatingrecycled water projects. In 1996, the District began providing recycled water to the Richmond ChevronOil Refinery for use in recirculating cooling towers. In 2006, the District began providing recycled waterto a number of sites in San Ramon for irrigation purposes through the San Ramon Valley Recycled Water81277574.3 A-11

Program described below. In 2008, the District began providing recycled water to a number of sites inOakland primarily for irrigation purposes.On April 9, 1996, the District’s Board adopted the Nonpotable Water Policy which requirescustomers of the District to use nonpotable water (recycled water and other nonpotable water sources) fornondomestic purposes when it is of adequate quality and quantity, available at reasonable cost, notdetrimental to public health, and not injurious to plant life, fish and wildlife. The District has undertakenor will undertake in the future several water recycling project expansions in accordance with the longtermwater recycling goal of 20 MGD by the year 2040. See “– Water Supply Management Plan” below.The District has entered into a Joint Exercise of Powers Agreement with the Dublin San Ramon ServicesDistrict (“DSRSD”) creating the DSRSD/EBMUD Recycled Water Authority (“DERWA”) for thepurpose of implementing a recycled water program to make available reliable supplies of recycled waterto be provided to the District and DSRSD for their distribution within portions of their existing and futureservice areas. The first phase of the DERWA recycled water program, the San Ramon Valley RecycledWater Program, which provides recycled water supplies to a number of sites in San Ramon, wascompleted and became operational in 2006. The costs of such initial phase of facilities were financedfrom commercial paper notes issued by DERWA, State loan and grant moneys and capital contributionsmade by the District and DSRSD. The DERWA commercial paper notes were fully retired in January2011 through the refinancing by each of DSRSD and the District of their respective obligations under theDERWA commercial paper program. The second phase of the DERWA recycled water program has alsobeen completed. The District’s share of the costs of the second phase of facilities was financed fromfederal grant funding and District capital contributions for the District’s local share portion. The Districthas also completed additional distribution systems which were also financed by federal grants and Districtcapital contributions for the local share match. The District and DSRSD have entered into an agreementfor the sale of recycled water by DERWA to the District and DSRSD pursuant to which each of theDistrict and DSRSD are responsible for paying their respective share of the costs incurred by DERWA inimplementing the DERWA recycled water program (including among other things, administrative costs,construction costs, operation and maintenance costs and costs of debt service on any obligations issued byDERWA for the purposes of the recycled water program). Payments to be made by the District undersuch recycled water sales agreement for the purchase of recycled water are payable as a Water Operationand Maintenance Cost regardless of whether any recycled water is made available to the District fromsuch facilities.Another key water recycling project that is part of the District’s Water Recycling Program is theRichmond Advanced Recycled Expansion (“RARE”) Water Project. Construction of the RARE WaterProject began in Fiscal Year 2009 and the first phase of the project was completed in Fiscal Year 2011. Itinitially provides 3.5 MGD of high quality recycled water to the Chevron refinery for use in industrialboilers (recycled water has been provided by the District to the Chevron refinery for use in recirculatingcooling towers since 1996 as noted above). The project consists of a new high-purity recycled watertreatment plant at the refinery, an influent pump station, flow equalization and a standby generator. Intotal, Chevron reimbursed the District approximately $55 million for capital costs of the RARE WaterProject. The Chevron Oil Refinery is currently the largest single user of recycled water in the District’sservice area.Water Rights and Related ProceedingsMokelumne River Rights. The District’s appropriative rights to its Mokelumne River watersupply include a license, which has a priority date of 1924, entitling the District to divert up to 200 MGD(approximately 224,000 acre-feet per year) to its service area from the Mokelumne River, and a permit,which has a 1949 priority, entitling the District to divert up to an additional 125 MGD (approximately140,000 acre-feet per year) to the service area. The permit by its terms required that application of thewater to the proposed use be made by December 1, 2000. The District has completed construction of81277574.3 A-12

water diversion and storage facilities authorized by the permit for the diversion of up to the additional125 MGD and in 2000, petitioned the SWRCB to extend the time to complete the application of waterunder the permit beyond the initial permit term of December 1, 2000 to allow additional time to put theentitlement to full beneficial use. The SWRCB posted a public notice of the petition in January 2007,commencing a formal proceeding which included an opportunity for other entities to protest the District’spetition. The protest period ended on February 9, 2007, resulting in seven protests. The District had 180days within which to resolve the protests from the date which the SWRCB accepted the protests as valid.The SWRCB accepted portions of the protests as valid in November 2007. Since all of the protests werenot dismissed, a hearing before the SWRCB on the petition is likely to commence at some point in 2013or later. Although the District is unable to predict the final outcome of these proceedings at this time, theDistrict does not expect that such proceedings will materially adversely affect its water supply oroperations. In accordance with the California Environmental Quality Act (“CEQA”), the District issued aNotice of Preparation of an Environmental Impact Report (“EIR”) for the permit extension inNovember 2008. The comment period for the Notice of Preparation closed on December 11, 2008, andthe District received seven comment letters. The District will consider the comments in preparing thedraft EIR which is anticipated to be released for public review and comment in 2013. In addition to thewater rights described above, the District also has a series of rights for the production of hydroelectricpower at Pardee and Camanche Dams. The District also holds rights associated with its local reservoirs.As previously noted, the State has placed conditions on operations in the District’s MokelumneRiver water rights requiring that minimum releases be made from Camanche Reservoir for the protectionof anadromous fisheries. The District has entered into a series of agreements with State and federalagencies which are incorporated into its water rights and implemented through the annual Water Systemoperations plan. Notably, the 1998 Joint Settlement Agreement is a multi-party agreement that providesfor mitigation of the impact of the construction of Camanche Dam and Reservoir on historical spawninggrounds for anadromous fish. Pursuant to the 1998 Joint Settlement Agreement, the District’s requiredminimum releases from Camanche Dam are adjusted to reflect the time of year and type of Water Year(e.g., Normal/Above Normal, Below Normal, Dry and Critically Dry). In critically dry and dry years, aminimum average of from 22,500 to 65,000 acre-feet per year must be released downstream by theDistrict to satisfy its obligations for the protection of fisheries resources. See “Water Supply – MokelumneRiver Watershed” above.Central Valley Project Improvement Act. In 1992, Congress enacted the Central Valley ProjectImprovement Act (“CVPIA”) which provides environmental protections for fish and wildlife in theoperation of the CVP. In 2000, the Bureau issued a Record of Decision on the CVPIA ProgrammaticEnvironmental Impact Statement (“PEIS”). The PEIS identified the impacts to CVP contract watersupplies as a result of implementing the new fish and wildlife protection provisions of the CVPIA. AllCVP contractors will be subject to shortages in CVP supply during dry years. The CVPIA requires that allCVP contracts contain provisions consistent with the CVPIA, including provisions for conservation andtiered prices. The District has executed the Long-Term Renewal CVP Contract consistent with theCVPIA provisions. See “– Water Supply – United States Bureau of Reclamation Central Valley ProjectContract; Freeport Regional Water Project” above.Water Supply Management PlanThe District recently updated it long range planning with the Water Supply Management Plan,extending the planning horizon from 2020 to 2040 (“WSMP 2040”). WSMP 2040 serves as the plan toensure an adequate supply of water through the year 2040 for District customers. The primary objectivesof WSMP 2040 are to maintain and improve the District’s water supply reliability to its customers andhelp meet the growing need for water in the future. WSMP 2040 also guides adaption of the District’swater planning approach to circumstances that have changed since its prior Water Supply ManagementPlan, WSMP 2020, was adopted, such as competing and changing demands for water, the availability of81277574.3 A-13

water from the completed FRWP and Bayside Groundwater Project Phase 1, and long-term climatechange. Further, the goal of the WSMP 2040 continues to be to examine what the District has donehistorically and what it can do in the future to ensure optimal use of the District’s water resources.WSMP 2040 assesses the supplemental supplies that are expected to be needed to serve aprojected increase in water demand in the District’s service area of approximately 0.8% per year between2010 and 2040 (an additional 60 MGD from 2010 to 2040). WSMP 2040 also addresses the potential foradditional constraints on the water supply available to the District arising from increased demand of thesenior water rights holders along the Mokelumne River.The WSMP 2040 provides for the District to meet its future drought year needs for water through2040 by:• increasing water conservation by an additional 39 MGD beyond current savings of 23MGD (the savings achieved from 1993 to 2008) for a total 2040 savings of 62 MGD;• increasing water recycling from 9 to 20 MGD;• continued rationing during times of drought by up to 15%; and• securing an additional 115,000 acre-feet (35 MGD annual average) of supplemental watersupplies.WSMP 2040 addresses the uncertainties posed by future climate change through its multi-elementapproach of demand management and a wide array of potential future supply options. In 2008, the Districtincorporated climate change into its strategic plan and issued its first Climate Change Monitoring andResponse Plan. Both documents were updated in 2010. An interdisciplinary staff committee is reviewingthe evolving science of climate change, assessing potential water supply impacts and vulnerabilities, anddeveloping strategies for adaptation and mitigation. This information will continuously inform theimplementation process for projects and programs under the WSMP 2040. See also “– Climate Change”below.As a result of the completion of WSMP 2040 as described above, the District is undertakingefforts to identify and secure sources of supplemental water supply. For example, during the next severalyears, the District will be working to identify water transfer opportunities with various entities withinNorthern California, and specifically within the Sacramento River watershed, with a view toward utilizingthe FRWP to move supplies as secured via water transfers. As part of WSMP 2040, the District identifieda possible contractual relationship and/or partnership opportunity with Contra Costa Water District(“CCWD”), an adjacent water agency, to secure from 20,000 to 30,000 acre-feet of storage in CCWD’sLos Vaqueros Reservoir (the expansion of which was completed in 2012 to increase its total storage from100,000 acre-feet to 160,000 acre-feet). The District initiated discussions with CCWD this year regardingthe storage sharing opportunity. Within the next five to ten years approximately, the District will alsoreview the operation of the Bayside Groundwater Project Phase 1, to determine the possibility for aPhase 2 expansion (which could provide an additional 9 MGD of supply).Beyond those efforts, the District will also be reviewing other regional partnership opportunities.The District will work with Sacramento County water providers to evaluate the possibility of developinga regional groundwater banking operation. Further, the District will work with San Joaquin County waterproviders to evaluate the possibility of developing a conjunctive use/groundwater banking operation.Also, the District will continue to work with foothill water agencies to evaluate the possibility ofexpanding the storage in Lower Bear Reservoir (located on an upper tributary to the Mokelumne River).Finally, the District will work to assess the potential to develop a regional desalination project inpartnership with other Bay Area water agencies. Regional groundwater banking and desalination planningefforts are described below.81277574.3 A-14

Groundwater Banking Options. The District has been exploring groundwater resourcedevelopment in San Joaquin County. The District began negotiating with San Joaquin County waterinterests for a groundwater banking and conjunctive-use program in 1992. The overdrafted aquifer withinSan Joaquin County, which is traversed by the Mokelumne River and the District’s Mokelumneaqueducts, presented an opportunity for a joint project of mutual benefit. However, lack of consensusamong local water users and the absence of a legal framework to assure that a portion of the stored watercould be exported to serve District customers during droughts has prevented a project from beingdeveloped. The District will continue to seek opportunities to develop a banking project within SanJoaquin County, but no project has currently been identified.Bay Area Regional Desalination Project. Since 2003, the District has been working with otherBay Area water agencies, specifically the San Francisco Public Utilities Commission (“SFPUC”), CCWDand Santa Clara Valley Water District, and since 2010, the Zone 7 Water Agency, to explore thedevelopment of regional desalination facilities that could (1) provide additional source(s) of water duringemergencies, (2) provide an alternative water supply that would allow major facilities to be taken out ofservice for an extended period of time for inspection, maintenance or repairs, and (3) provide asupplemental supply during drought periods.In the spring of 2010, the District and its partners finalized a report on the completed pilot testingof a desalination facility concept. The test was conducted in 2009 within the CCWD service area alongMallard Slough. In 2012, a study is being conducted to review the mechanisms by which water would beconveyed from a regional plant to the various water supply agencies. That work is expected to becompleted in early 2013. Test results will be used to help evaluate the technical feasibility of developingand operating the above-mentioned regional desalination facilities in the form of a full scale project.Water ConservationThe District has developed a Water Conservation Master Plan, most recently updated in 2011 (the“WCMP”), which directs the District’s comprehensive water conservation strategies and initiatives topromote water conservation and reduce demand for water. The WCMP serves as a blueprint forimplementation strategies, goals and objectives for achieving additional water savings consistent with thetargets identified in the District’s 2010 Urban Water Management Plan (“UWMP”). The District providestechnical and financial assistance to encourage customers to help assure an adequate water supply byusing water efficiently. The District advises customers on selecting water-efficient products,implementing best management practices, and designing/maintaining WaterSmart landscaping andefficient irrigation methods. Water conservation services include water use surveys, incentives for highefficiencyplumbing fixtures, appliances, process equipment and irrigation systems, and free distributionof conservation self-survey kits and water efficient devices (i.e., showerhead, faucet aerators) that reducewater use. The District is also very active in new water conservation technology research and thedevelopment of education and demonstration projects.The WCMP incorporates elements of the State Water Conservation Act of 2009 (Senate Bill X7-7) toward a statewide goal of a 20% reduction in urban per capita water use by the year 2020. All urbanwater agencies in the State were required to report their baseline per capita water use and reductiontargets in their 2010 UWMP. The District has determined its base daily per capita use utilizing a Stateapprovedmethodology which applies a 5% reduction from the District’s 2003 to 2007 baseline usage.The resulting District target for the year 2020 is 150 gallons per capita per day with an interim target forthe year 2015 of 158 gallons per capita per day. The District is on track to meet these targets. The Districtcurrently assesses that with the implementation of the planning programs outlined in its 2010 UWMP, amore aggressive and lower year 2020 demand level can be achieved (estimated at 144 gallons per capitaper day). The District’s 2015 UWMP will identify the District’s final target for the year 2020 and itsprogress toward meeting that goal.81277574.3 A-15

Water FacilitiesPardee Reservoir. The District’s Mokelumne River water is collected and stored at PardeeReservoir, located in the Sierra Nevada foothills approximately 90 miles east of the District and 38 milesnortheast of Stockton. Pardee Reservoir has a storage capacity of 197,950 acre-feet.Camanche Reservoir. Camanche Reservoir is located ten miles below Pardee Reservoir on theMokelumne River. Camanche Reservoir has a capacity of 417,120 acre-feet and serves to control floodsand to regulate the river flow in order to satisfy downstream water rights.Terminal Reservoirs. Five terminal reservoirs are located within the District’s service area: SanPablo (with a capacity of 38,600 acre-feet), Briones (with a capacity of 60,510 acre-feet), Lafayette (witha capacity of 4,250 acre-feet), Upper San Leandro (with a capacity of 37,960 acre-feet) and Chabot (witha capacity of 10,350 acre-feet), provide usable storage of approximately 151,670 acre-feet.Aqueducts. Raw untreated water is transported 91.5 miles from Pardee Reservoir, through thePardee Tunnel, the Mokelumne Aqueducts and the Lafayette Aqueducts, to the District’s service area,where it is stored in terminal reservoirs or delivered directly to treatment plants prior to distribution. ThePardee Tunnel is an 8-foot high horseshoe structure 2.2 miles long. The three Mokelumne Aqueductshave a combined capacity of 200 MGD under gravity flow, and approximately 325 MGD with existingpumping facilities. The first Mokelumne Aqueduct is 5-feet, 5-inches in diameter, the second is 5-feet,7-inches in diameter, and the third is 7-feet, 3-inches in diameter. All are steel pipelines extending 81miles from the Pardee Tunnel to the east end of the two Lafayette Aqueducts in Walnut Creek.Approximately nine miles of pipeline is above-ground and the balance is below-ground.Lafayette Aqueduct No. 1 is a 9-foot in diameter circular concrete pipe and three tunnels thatextend 7.1 miles from Walnut Creek to the Orinda Filter Plant. Lafayette Aqueduct No. 2 is a 9-foot indiameter concrete pipe with seven tunnels extending 7.3 miles from the Walnut Creek Water TreatmentPlant to the Briones Diversion Works near Orinda. The supply is then pumped (or diverted) through the7-foot, 6-inch diameter steel Briones Aqueduct into Briones Reservoir, discharged into San PabloReservoir, or diverted through the 7-foot, 6-inch diameter steel Orinda Raw Water Line to Orinda FilterPlant. Either or both Lafayette Aqueducts can be used to divert Mokelumne River water from Pardeedirectly or indirectly to all of the District’s water treatment plants.The Mokelumne Aqueducts cross the Sacramento-San Joaquin Delta for about fifteen miles andare protected by 51 miles of levees maintained by five reclamation districts governing Lower Roberts andWoodward Islands, Orwood and Palm, Upper Jones, and Lower Jones Tracts. The District has establisheda multi-pronged approach to protect the aqueducts from flooding and to recover from failures. Thesestrategies include levee strengthening, aqueduct interconnections, and standby materials and supplies torespond to an emergency.The District worked with the five reclamation districts to obtain $33.5 million in funding forlevee strengthening and to purchase emergency supplies and the District provided the $6 million localcost share. This funding is being used to bring forty-one miles of levees, adjacent to the MokelumneAqueducts, up to the U.S. Army Corps of Engineers standards and to purchase materials and supplies tofacilitate emergency response. These levee improvements substantially improve the stability of the leveesand help protect the District’s water supply and the region’s agriculture, cultural, and historical resources,as well as the ecosystems in the Delta.At a cost of $14 million, the District is also constructing interconnections to the three MokelumneAqueducts on each side of the Delta. This will allow the District to restore 77% of the raw water systemcapacity with only one pipe in operation across the Delta. The District has six months of storage locally to81277574.3 A-16

serve its customers during an outage of the raw water system resulting from a failure in the Delta. Thiswill bolster the resilience of the District’s water supply system by enabling a rapid return to service after afailure with sufficient capacity to meet customer needs and begin to recover local storage.Tunnels. Untreated water from San Pablo Reservoir is delivered to Sobrante Treatment Plantthrough a 5-foot, 6-inch diameter steel pipe; water from the Upper San Leandro Reservoir is delivered tothe Upper San Leandro Treatment Plant through a 1.35 mile, 6-foot, 6-inch diameter horseshoe tunnel.The San Pablo Tunnel is 5-feet in diameter and can carry water 2.57 miles from the San Pablo Reservoirto the standby San Pablo Water Treatment Plant.Raw Water Pumping Plants. The majority of the Water System is gravity-fed, with seasonalpumping. Walnut Creek No. 1, No. 2 and No. 3 Pumping Plants increase the capacities of the MokelumneAqueducts. When operating, these three pumping plants increase the combined capacity of the aqueductsto approximately 325 MGD. The Moraga Pumping Plant and Aqueduct supply water from the LafayetteAqueducts to Upper San Leandro Reservoir. The plant’s four pumps have a combined delivery capacityof 105 MGD; however, the configuration of the existing outlet works limits delivery to a maximum rateof 58 MGD. The Moraga aqueduct is six miles of 5.5-foot, 5-foot and 4-foot diameter steel and concretepipe between Lafayette and the Upper San Leandro Reservoir near Moraga. The Briones Pumping Plantand Aqueduct were placed in service following completion of Briones Reservoir. These facilities supplyBriones Reservoir with Mokelumne River water. The four pumps in the Briones No. 2 Pumping Plant candeliver up to a total of 60 MGD.Treatment Plants. Water delivered to the District’s customers is first treated at one ofsix treatment plants. The six water treatment plants in the District’s Water System are capable of filteringand processing a combined total of approximately 415 MGD. The water treatment plants are Upper SanLeandro in Oakland, San Pablo in Kensington (standby only), Sobrante in El Sobrante, and plants locatedin and named for Orinda, Lafayette and Walnut Creek. Orinda Water Treatment Plant is the largest, with apeak capacity of 200 MGD.Distribution Facilities. From the Orinda Water Treatment Plant treated water is carried 3.41miles through the Claremont Tunnel, a 9-foot diameter horseshoe bore to three distribution aqueducts.The water distribution network includes over 4,100 miles of pipe, 132 pumping plants and 171neighborhood reservoirs (including approximately 143 above-ground concrete or steel reservoirs), havingan operating capacity of 636 million gallons. The District’s service area is divided into 124 pressurezones, ranging in elevation from sea level to 1,450 feet. About 60% of treated water is distributed tocustomers by gravity flow.Pardee and Camanche Power Plants. The District operates hydropower plants at Pardee andCamanche Reservoirs pursuant to a Federal Energy Regulatory Commission (“FERC”) license. TheDistrict’s Pardee and Camanche hydropower plants are licensed as one project, the Lower MokelumneRiver Hydroelectric Project No. 2916. The current FERC license for these hydropower plants expires onMarch 31, 2031. These plants generate 185 million kilowatt hours of electricity in normal rainfall years.Other than a small amount of power being used at the District facilities at Pardee and Camanche, thepower produced is currently being sold by the District to the Sacramento Municipal Utility District. See“WATER SYSTEM FINANCES – Sources of Funds.”Regional Intertie. In 2007, the District, the City of Hayward (“Hayward”) and SFPUC completedan intertie to allow for 30 MGD of water to be conveyed between the District and SFPUC water systemsvia Hayward’s distribution system. This project, which was funded by the participating agencies and theState of California through a Proposition 50 grant, provides the District and neighboring agenciesincreased flexibility to provide water throughout the region during an emergency. The intertie allowssharing of water among the parties during emergencies or planned critical work on facilities that would be81277574.3 A-17

difficult to remove from service without an alternative water source. The project consisted primarily ofimprovements within Hayward’s water system, although there were associated minor improvements inthe District and SFPUC systems.Water Supply OperationsGeneral. As described above, the District’s water supply system consists of an integrated networkof reservoirs, aqueducts, raw water pumping plants, treatment plants, and distribution facilities that extendfrom its principal water source, the Mokelumne River watershed basin in the Sierra Nevada range, acrossthe San Francisco Bay – San Joaquin Delta, to the East San Francisco Bay Area. Set forth below is alocation map depicting the District’s water supply system facilities.[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]81277574.3 A-18

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Streamflow from the Mokelumne River is collected and stored in the District’s Pardee andCamanche Reservoirs, located in the Sierra foothills. Raw water from Pardee Reservoir is transported tothe East Bay terminal reservoirs and treatment plants through the Pardee Tunnel, the three MokelumneAqueducts, and the Lafayette Aqueducts. The raw water is treated at one of the District’s treatment plantsbefore being delivered to customers.The District operates the water system to achieve multiple objectives. These objectives are toprovide municipal water supply benefits, stream flow regulation, fishery/public trust interests, floodcontrol, temperature management and obligations to downstream diverters. All of the components of thesystem, including Pardee and Camanche Reservoirs, the Mokelumne Aqueducts, and the East Bayterminal reservoirs are interdependent; for this reason, the District develops an annual operations plan forthe entire water supply system. The annual water supply operations plan includes scheduled operationsfrom April through September and identifies all District requirements.The District plans its operations according to three projections: the California Department ofWater Resources (“CDWR”) April 1st Water Supply Forecast, the District’s End of September (the end ofthe Water Year) projected total system storage, and the District’s projected November 5th combinedstorage for Pardee and Camanche Reservoirs. Reservoir storage levels are required to be reduced byNovember 5th of each year to maintain the minimum level of available capacity necessary for floodcontrol purposes. The projected November 5th combined storage for Pardee and Camanche is alsoutilized in determining the required releases for fish flows for the October through March period eachyear. The District monitors projections throughout the year and adjusts reservoir operations, as conditionschange, to meet its goals, objectives and requirements.The District begins the Water Year by committing to provide the required minimum fish flows,associated with the projected November 5th storage levels for Pardee and Camanche Reservoirs, for theperiod October through March. Through fall and winter, the District continues to track rainfall, runoff,storage and demand to reassess reservoir operations as needed. By April, the District has a goodindication of projected storage conditions for End-of-September total system storage, and November 5thPardee and Camanche reservoir storage.On April 1 st of each year, CDWR publishes its snow survey water supply forecast of runoff forthe Mokelumne River. The District uses the forecast to develop its Annual Water Supply Operations Plan,in which it schedules operations to meet all requirements according to the forecast for the period Aprilthrough September. Scheduled operations include Camanche Reservoir releases in accordance with theprescribed flow requirements. As required by the District’s Water Supply Availability and DeficiencyPolicy, the District Board is informed of the forecasted water supply condition for the end of the WaterYear on September 30th. The September 30th storage forecast is used to determine if droughtmanagement measures will need to be implemented to reduce demand to ensure sufficient carryoverstorage for the following year. If dry year conditions exist (i.e., projected total system storage onSeptember 30th is less than 500,000 acre-feet), the Board will typically consider implementing demandmanagement measures for the rest of the Water Year if the projected storage is significantly below500,000 acre-feet. Projected end of September storage is required to be less than 500,000 acre-feet for theDistrict to be able to utilize the supplemental supply made available under the Long-Term Renewal CVPContract.The following graph shows historical end of September storage from 1965 to 2011. As shown onthe below graph, the driest period for the District was 1976 to 1977. The longest dry period during suchtime frame was the extended drought from 1987 to 1992.81277574.3 A-20

Set forth below is a graph depicting the total Water System demand for each Water Year from1965 to 2011.81277574.3 A-21

In dry periods, the District first relies on storage to meet demands. The District was able toprovide water to its customers during the 1976-1977 drought, and during the extended five year droughtfrom 1987 to 1992 without supplemental supply, by relying on available storage. In future dry periods,the District will first rely on storage to meet demands. If there are two dry years in a row, then the Districtwould rely on its supplemental supply from the FRWP, which was completed in 2011. With thecompletion of the FRWP, the District can take up to 165,000 acre-feet of water under its Long-TermRenewal CVP Contract over a three-year period as described herein. See “– Water Supply – United StatesBureau of Reclamation Central Valley Project Contract; Freeport Regional Water Project.”Current Water Conditions. The District began Water Year 2013, which commenced onOctober 1, 2012, with 570,900 acre-feet in storage. Following a dry Water Year 2012 season, thecombined Pardee and Camanche Reservoir storage on November 5, 2012 was 439,540 acre-feet, which is20,700 acre-feet below the maximum allowable level.Mokelumne River runoff for Water Year 2012, which ended on September 30, 2012, wasapproximately 420,400 acre-feet or 56% of the long-term average of 745,000 acre-feet. Although WaterYear 2012 was the tenth driest on record for precipitation, total Water System storage, as ofOctober 1, 2012, the start of Water Year 2013, was 74% of capacity or 99% of average.The table below sets forth the capacity and water storage levels at the District’s water reservoirsas of December 1, 2012.Table 3DISTRICT WATER RESERVOIRSCurrent Capacity and Storage LevelsData as of December 1, 2012Capacity(acre-feet)CurrentStorage(acre-feet)% ofCapacity% ofAverageMokelumnePardee 197,950 186,360 94% 111%Camanche 417,120 254,580 61 100Total Mokelumne 615,070 440,940 72 104Terminal ReservoirsBriones 60,510 58,870 97 112Upper San Leandro 37,960 29,980 79 120San Pablo 38,600 23,870 62 91Chabot 10,350 7,210 70 87Lafayette 4,250 3,810 90 108Total Terminal Reservoirs 151,670 123,740 82 107Total System Storage 766,740 564,680 74 105____________________Source: District Water Operations Department.81277574.3 A-22

Water Quality and TreatmentFederal and State regulatory agencies continually monitor and establish new water qualitystandards. New water quality standards could affect availability of water and impose compliance costs onthe District. The federal Safe Drinking Water Act (“SDWA) establishes drinking water quality standards,monitoring, public notification and enforcement requirements for public water systems. To achieve theseobjectives, the United States Environmental Protection Agency (the “EPA”), as the lead regulatoryauthority, promulgates national drinking water regulations and develops the mechanism for individualstates to assume primary enforcement responsibilities. The California Department of Public Health(“CDPH”), formerly known as the Department of Health Services, has lead authority over Californiawater agencies.Currently, the State and the federal government regulate over 100 potential contaminants.Because the District’s water supply comes primarily from a remote, semi-protected watershed, the rawwater requires minimal treatment to meet or surpass all health and aesthetic standards. The District’sdrinking water is sampled and tested on an ongoing basis from all parts of the Water System to ensurethat it meets or surpasses all primary (health related) and secondary (aesthetic) regulatory standardsestablished by the EPA and the CDPH. Test results on the District’s water consistently show thatregulated constituents of drinking water either are not detected at all, or they are present in amounts farbelow limits permitted by State and federal drinking water standards.The District is actively involved with professional organizations at the federal and State levelsrelated to water quality, including the American Water Works Association, the Association of CaliforniaWater Agencies and the Association of Metropolitan Water Agencies. The District serves on technicaladvisory committees that interact with the Environmental Protection Agency during regulatorydevelopment or alteration, and recently worked with the EPA on updates to the Total Coliform Rule. Inaddition to working with the EPA, the District has developed its own water quality initiatives, includingdeveloping state and federal legislation to limit lead levels in household plumbing fixtures. The Districtalso sits on national standards organizations which set standards for all aspects of water quality. TheDistrict was a founding member of the Water Research Foundation (“WRF”) and actively participates inresearch projects; with the WRF, the District participates on numerous project advisory committees andcarries out funded research.Statewide Water IssuesThere has been substantial attention at the State and federal level on restoring the San FranciscoBay/Sacramento-San Joaquin Delta Estuary (the “Bay Delta”). Processes to achieve this end and therecommendations of agencies charged with this “Delta Fix” have been very controversial. The twoprimary proceedings are the Delta Plan and the Bay Delta Conservation Plan (the “BDCP”).CDWR is leading the development of the BDCP to meet the requirements of the federal and StateEndangered Species Acts in the operation of the export projects in the Delta. The BDCP is best known asthe process through which new water conveyance would be built to divert Sacramento River water into atunnel system or canal that would bypass the Delta (previously proposed as the “Peripheral Canal” andmost recently as twin tunnels that would follow a fairly direct alignment between several intake facilitieson the Sacramento River and south to the Clifton Court Forebay). Numerous export water users areseeking permits through this process, which will also incorporate ecosystem restoration measures amongthe permit conditions. Governor Jerry Brown proposed a redesigned, downsized facility (from 15,000 cfsto 9,000 cfs) in July 2012, and the State later revised the schedule for completion of the draft BDCP, with81277574.3 A-23

the release of draft environmental impact documents expected in the spring of 2013 and a finalenvironmental impact report/statement later in the summer of 2013.The Sacramento-San Joaquin Delta Reform Act of 2009 (the “Delta Reform Act”), which becamelaw on November 12, 2009, established the Delta Stewardship Council tasked with developing acomprehensive, long-term management plan for the Delta, known as the “Delta Plan.” The Delta Plan isintended to implement the State’s co-equal goals of providing a more reliable water supply for Californiaand protecting, restoring, and enhancing the Delta ecosystem. Pursuant to the Delta Reform Act, the DeltaStewardship Council was tasked with the development of the Delta Plan. A final draft of the Delta Planwas released by the Delta Stewardship Council in May 2012.The District’s water rights are not directly affected by these proceedings but the District hasactively followed and commented on these plans for several reasons:• the District’s fishery restoration efforts on the Mokelumne could be impacted by restorationand or conveyance components of the BDCP;• the District’s aqueducts cross the Delta and are protected by miles of levees which theDistrict believes should continue to be maintained as part of any “Delta Fix”;• the BDCP process will likely result in new flow requirements for the State and federalpumping facilities and the District does not believe that these requirements should have aripple effect on upstream water users relative to Delta outflows; and• the District is interested in ensuring that its ratepayers are not required to subsidize BDCPconveyance and mitigation costs which it believes only benefit the State and federal watercontractors who receive water pumped from the South Delta.Another proceeding of significance to the Delta is the update to be conducted by the SWRCB onits Water Quality Control Plan. On January 24, 2012, the SWRCB published a Supplemental Notice ofPreparation announcing its intention to review the 2006 WQCP for the Bay Delta. The WQCP sets flowstandards and other water quality objectives that must be met to protect beneficial uses. The Notice ofPreparation also provided that the SWRCB will prepare a substitute environmental document to evaluatepotential modifications to current, and the establishment of new, objectives for the WQCP. The SWRCBalso plans to approve a program of implementation that would modify water rights to help meet WQCPobjectives. The new or revised objectives and program of implementation will have regulatory effectwhen implemented. The program of implementation, which will occur over a series of years, may addressflow requirements for the Mokelumne River, Sacramento River, and San Joaquin River and tributariesthereto.Climate ChangeGlobal climate change is expected to create greater uncertainty in water supplies and demands inthe future. The District has developed mitigation and adaptation strategies to deal with the changingclimate and its effect on water resources. In 2008, the District incorporated climate change into itsStrategic Plan, and has developed and implemented a climate change monitoring and response plan toinform future water supply, water quality, and infrastructure planning.The District’s response to climate change focuses on:• keeping current with science and assessing potential effects of climate change in theMokelumne and East Bay watersheds;• determining water supply and infrastructure vulnerabilities;81277574.3 A-24

Seismic Matters• monitoring and reducing greenhouse gas emissions caused by the District’s operations;• integrating climate change in strategic planning and budgeting decisions;• advocating for new legislation and regulations that help water and wastewater agenciesbetter respond to climate change; and• developing adaptation and mitigation strategies as part of a water supply managementprogram.The District’s service area is in a seismically active region of the State. The Hayward Fault runsthrough the entire western portion of the District and the Calaveras Fault runs through the southeasternportion of the District’s service area. The Concord and Mt. Diablo Thrust Faults are located close to theeast side of the District’s service area and the San Andreas Fault is located to the west. The Pardee andCamanche Dams and the District’s three aqueducts which carry water from Pardee Reservoir to theDistrict’s service area are in other active earthquake fault areas. Although the District has not experiencedsignificant earthquake-related damage to its facilities, the District’s Water System and/or its water supplycould be adversely affected by a major local earthquake impacting the District’s service area, or byearthquake damage to the Pardee or the Camanche Dams or the aqueducts delivering water to theDistrict’s service area.A magnitude 6.8 to 7.0 earthquake on the Hayward Fault is likely within the next few decadesaccording to the United States Geological Survey. A 1994 seismic study prepared for the Districtexamined the likely effects on the District’s existing local water system at that time of earthquakes on theHayward Fault, the Calaveras Fault and the Concord Fault. The study concluded that, in the event of amagnitude 7.0 earthquake on the Hayward Fault, the District would likely experience major damage tothe water transmission tunnels, substantial damage to distribution pipes, damage to potable waterreservoirs and operational disruptions of the District’s pumping plants, rate control stations and watertreatment plants. The District also would likely experience significant damage in connection with a lessermagnitude earthquake on the Hayward Fault or an earthquake on the Calaveras or Concord Faults. Ifdamage to the Claremont tunnel made it unusable, severe water rationing would be required in thewestern portion of the District during the estimated 26-week repair period. Further, in the event of severeearthquake damage to the District’s Mokelumne Aqueducts, which carry water from Pardee Reservoir tothe District’s service area, it was determined repair efforts could take up to one year before water could betransported again to the District’s terminal reservoirs. This would necessitate stringent customerconservation, as the District’s terminal reservoirs store roughly six months’ supply under normalconsumption patterns. A major earthquake could also have a severe adverse impact on the economy of theDistrict’s service area.In response to the 1994 seismic study, the District initiated a multi-year Water System SeismicImprovement Program and by 2007, the District substantially completed a $200 million SeismicImprovement Program (the “SIP”), which focused on improving seismic performance of the distributionsystems and facilities and better enabling the District to provide post-earthquake water service. The SIPincluded upgrades to 70 reservoirs, 130 pumping plants, six water treatment plants, three maintenanceyards, the Administration Building and various electrical equipment anchorages throughout the District,as well as the completion of an alternate transmission pipeline, the Southern Loop; the completion of afault-line by-pass for the primary transmission line, the Claremont Tunnel; and seismic upgrades ofMokelumne Aqueduct No. 3, which is the aqueduct most relied on by the District to carry water across 15miles of the Sacramento-San Joaquin Delta.Key projects within the SIP include:81277574.3 A-25

Southern Loop Pipeline. The Oakland-Berkeley hills divide the District’s service area into twowater distribution areas, west-of-hills and east-of-hills. The Southern Loop Pipeline is an 11-mile longemergency transmission pipeline that provides an alternate water supply route after a major earthquake.The Southern Loop connects San Ramon and Castro Valley to create a loop at the southern ends of thewater distribution system. This benefits customers by providing increased system redundancy, flexibilityand reliability in the District’s transmission system across the Hayward Fault.Claremont Tunnel Seismic Improvement Project. This project upgraded the Claremont Tunnel, avital transmission facility providing service to 800,000 customers west of the Oakland-Berkeley Hills.This tunnel crosses the Hayward Fault and seismic analysis had suggested that in a magnitude 7.0earthquake the tunnel would be damaged and most likely be out of service for up to six months for tunnelrepairs, resulting in severe water rationing and reduced supplies for firefighting. The facility upgrade,completed in March 2007, consisted of a new 1,501-foot bypass tunnel to replace a vulnerable portion ofthe tunnel through the Hayward Fault zone as well as repair and reinforcement of other areas. Theupgraded tunnel affords District customers substantially enhanced post-earthquake reliability.Mokelumne Aqueduct No. 3 Seismic Upgrade Project. This project involved seismicallyretrofitting Mokelumne Aqueduct No. 3, the District’s largest aqueduct, at a cost of approximately $40million, to improve its ability to withstand a maximum credible seismic event.Building Structure Seismic Improvement Project. The Building Structure Seismic ImprovementProject retrofitted occupied District buildings, including, but not limited to, the upgrade of theAdministration Building to meet life safety performance goals and to ensure availability of facilities forpost-earthquake operation.Reservoir Seismic Upgrades Project. The Reservoir Seismic Upgrades Project addressed seismicrisks to 70 distribution tanks to assure continued water storage following an earthquake and mitigate therisks to life safety that would result from tank failure. Other accomplishments include the completion oflandslide mitigations and the installation of seismic isolation valves at reservoirs and valve pit roofanchorages.The SIP improvements collectively will allow the District to meet its service restoration goal ofproviding water service to 70% of its customers within ten days after a major seismic event. The Districtcontinues to enhance seismic safety as part of its comprehensive capital improvement project planningprocess (discussed under “– Capital Improvement Program” below). That process has to date resulted inmajor seismic upgrades, such as a $76 million seismic upgrade to the dam at the largest of the local waterstorage reservoirs, San Pablo Reservoir, which was completed in 2010, and the integration of seismicupgrades into ongoing facility renewal work.Despite the completed and continuing seismic work, in the event of significant earthquakedamage to the Water System and/or the District’s service area, there can be no assurance thatSubordinated Water Revenues would be sufficient to pay the principal of and interest on any outstandingWater System Revenue Bonds.Security and Emergency PreparednessThe District has implemented a security and emergency preparedness program that includes aSecurity Operations Control Center (the “SOCC”) that is staffed seven days a week, 24 hours a day. TheSOCC houses a proprietary centralized security system to monitor access controls, digital video camerasand recorders, and security alarms; which include supervisory control and data acquisition (“SCADA”)alarms related to entry points and critical water distribution system hatches. The dispatchers at the SOCCmonitor alarms, assess conditions using a closed circuit television system, and dispatch security and law81277574.3 A-26

enforcement response as needed for alarms and reports of suspicious circumstances or crimes at Districtfacilities. In addition, the District maintains access controls for its water and wastewater treatment,administrative and maintenance facilities, its storage yards and service centers, and the reservoirs andpumping plants in its water distribution system. District security includes an internal security staff andsecurity contracts, and both units patrol the District’s critical infrastructure and key resource facilitiesfrom the foothills in the Sierra Mountains to the San Francisco Bay. Contract security officers are alsoused to supplement automated access controls at certain key facilities.In order to address emergency response by the District, the District has an established EmergencyOperations Plan. Pursuant to the District’s Emergency Operations Plan, District employees are sworndisaster services workers, and staff is trained to use the State Office of Emergency Services StandardizedEmergency Management System (SEMS) in response to emergencies and security incidents. As part of itsEmergency Operations Plan, the District maintains two strategically located emergency operations centersand a mobile emergency command center, and has in place an emergency operations team to leademergency response activities. The District also has adopted business continuity plans to ensure theDistrict’s ability to respond to, work through and recover from any emergency or other event that disruptsits normal business functions.InsuranceThe District uses a combination of self-funding/self-insuring and insurance coverage in theDistrict’s risk management program. The program provides protection for the District’s buildings andfacilities, including their contents and equipment, from fire, explosion and related perils, including flood.The District’s insurance program does not currently include earthquake coverage. The District selfinsuresfor liability claims up to $10 million for bodily injury and property damage that may arise fromthe District’s operations, including but not limited to use of its property, facilities, or vehicles. TheDistrict also maintains fidelity protection against fraudulent acts of employees.The District maintains a reserve of approximately $10 million that is earmarked to pay bothliability and workers’ compensation claims. Selected insurance coverages include the following:– $90 million of commercial general and automobile liability insurance, subject to a $10million self-insured retention for the Water System and the Wastewater System;– Statutory limits of excess workers’ compensation coverage, subject to a $5 million selfinsuredretention for the Water System and the Wastewater System;– $200 million in coverage for District all risk property insurance, excluding coverage forunderground pipes, earthquake and flood, subject to a $500,000 deductible;– $25 million in coverage for flood perils, subject to a $1.5 million deductible peroccurrence;– $10 million in coverage for boiler and machinery insurance, subject to a $25,000deductible (except for Pardee Dam, Camanche Dam and the Main Wastewater TreatmentPlant, for which a $50,000 deductible applies); and– $10 million in coverage for crime insurance, subject to a $25,000 deductible.81277574.3 A-27

Capital Improvement ProgramThe District’s biennial planning process includes an update of facilities needs for the ensuing fivefiscal years. A series of master plans document needs by specific asset classes (such as pipes, reservoirsand other assets). The master plans include assessments of key facilities, considering engineeringcondition assessments as well as operational performance and maintenance histories. Facilities in need ofrehabilitation or replacement are identified and prioritized. Project scopes are also defined (for example,replacement of aging mechanical or electrical gear, seismic upgrades, or other defined scopes).The results of the master plans are considered during the biennial update to the CapitalImprovement Program (the “CIP”). The last CIP update was completed in 2011 and included a five-yearcapital expenditure forecast for Fiscal Years 2012 through 2016. The next biennial plan will be completedin 2013 and will include a five-year capital expenditure forecast for Fiscal Years 2014 through 2018.Based upon the District’s five-year capital expenditures forecast for Fiscal Years 2012 through 2016 andDistrict staff’s current projections for capital needs for Fiscal Year 2017, the District projects cashexpenditures for capital improvements to the Water System for the current and next four Fiscal Years(Fiscal Years 2013 through 2017) to aggregate approximately $1.079 billion for improvements to theWater System.The current five-year capital plan includes the following major programs and projects:System Extensions and Improvements. System extensions and improvements provide service tonew customers and/or improve service to existing customers. These projects include: (i) improvements inoperations networking and mapping capabilities, (ii) the pressure zone improvements program, and(iii) the water treatment and transmission improvements program, each as described below.Operations network and mapping improvements involve continued improvements to the District’scontrol systems for water operations and the operations of the District’s pumping plants. The benefits ofthe program include maintaining efficient and reliable operation of the Water System, optimizing energycost savings for pumping plants and improving response to disasters and outage planning.The pressure zone improvements program includes the continued upgrade and improvements tothe District’s 124 pressure zones that include upgrading or replacing reservoirs, pumping plants andtransmission systems to improve storage, pumping and/or water quality. These improvements includereplacement reservoirs in Berkeley and Oakland, and numerous transmission improvements in areas westof the Berkeley hills.The water treatment and transmission improvements program includes new facilities, as well asupgrades to existing facilities. The improvements will allow the District to more efficiently meet currentand future regulatory standards related to source and treated water quality, to comply with environmentalpermit conditions and to maintain reliability of existing facilities. The program includes near-termelements such as a new Highland Reservoir in Lafayette (recently completed), the addition of new filtersat the Walnut Creek Treatment Plant (recently completed), and a new pumping station and pipeline inOrinda (in design), as well as longer-term elements to improve storage, pumping and treatment facilities.Maintaining Infrastructure. These programs focus on replacement or rehabilitation of Districtfacilities to ensure continued reliable performance. The District’s inventory of 4,100 miles of distributionpipe is managed to maintain reliable service and a leak rate that is consistent with industry standards. Thisinvolves scheduling pipe for renewal based on several factors including leak history. Included within thisprogram is the ongoing evaluation of various pipe materials and their performance over time; forexample, the performance of asbestos cement pipe is currently being evaluated. In Fiscal Year 2012, ninemiles of pipe, consisting mostly of older cast iron pipe, were replaced out of 4,100 total miles, comprised81277574.3 A-28

of various materials. In Fiscal Year 2013, 10 miles are planned. Additional pipeline installation isperformed as needed to serve new customers, and to relocate existing pipelines to accommodate work ofother agencies. The costs of some of those relocations are reimbursed by other agencies, and the costs ofothers are borne by the District.Appurtenances such as service laterals, hydrants and meters are also managed such that devicesare installed to accommodate new service connections, and existing appurtenances are replaced at the endof their useful life. One focus area for several years has been cost-effective replacement of defectivepolybutylene service laterals. As of June 30, 2012, over half of the estimated 64,300 polybutylene lateralshave been replaced.Major facilities such as reservoirs, pumping plants, and rate control stations are addressed in theCIP, based on the master planning process described earlier. For example, each year on average three ofthe District’s 80 steel reservoirs are recoated in order to prevent corrosion and thereby extend the life ofthe facilities. In general, the projects address structural integrity, worker safety, operational reliability,regulatory requirements and water quality issues. Recent and ongoing projects include the replacement ofthe Schapiro Reservoir in Richmond, the replacement of South Reservoir in Castro Valley and thereplacement of Estates Reservoir in Piedmont.Facilities, Services & Equipment. The facilities, services and equipment projects provide for therenovation of existing facilities to improve public and/or employee safety, and provide upgrades to majorinformation systems. A primary component of the facilities, services and equipment capital plan is thecommunications program, which involved replacement of the District’s 20 year-old CustomerInformation System to better meet the District’s billing, revenue collection and customer service needs.This project was completed in Fiscal Year 2012. Additional projects to be completed in the current fiveyearcapital plan include security improvements to numerous facilities, including a combination offencing, lighting, alarms, video monitors and access card readers. This program also includes funding forvehicle and construction equipment replacements of approximately $5.0 million a year.Regulatory Compliance. Regulatory compliance projects are designed to ensure compliance withall air, land and water discharge requirements, implement preventive and corrective maintenanceprograms, including dam safety improvements and modifications. The District’s dams frequently undergorequired State and federal dam safety inspections in addition to ongoing monitoring of the performance ofthe dams by the District. The District has implemented a dam safety program which includes a variety ofprojects to provide for upgrades to existing dams and associated critical facilities such as outlet towersand spillways to meet earthquake and flood safety requirements. One of the more significant projects inthis regard was San Pablo Dam, completed in 2010 at a cost of $76 million.Recent studies of Pardee and Camanche Dams for seismic and extreme flood events have beencompleted; the results indicate that both dams would perform satisfactorily in the event of a maximumcredible seismic event, which is estimated at magnitude 6.4. The study of the Camanche Dam didindicate, however, that some relief wells may be damaged in an earthquake, so the need for remedial workis being evaluated. Another dam safety project is under way for at Chabot Reservoir, a small terminalreservoir, to address concerns of slope instability in a maximum credible seismic event. Other plannedprojects in the dam safety area include modifications to outlet towers at four terminal reservoirs:Lafayette Reservoir, Upper San Leandro Reservoir, Chabot Reservoir, and Briones Reservoir.Water Supply. Water supply projects include those capital projects being undertaken infurtherance of the District’s objectives to ensure a reliable, high quality water supply for the future and topreserve current entitlements and obtain additional supplemental supplies, as well as conservation andrecycling projects designed to reduce the demand for potable water.81277574.3 A-29

The East Bayshore Recycled Water Project began recycled water service in Fiscal Year 2008 andwill ultimately supply up to 2.5 MGD of recycled water to portions of Alameda, Albany, Berkeley,Emeryville and Oakland for irrigation, industrial, commercial and environmental uses. Customer siteretrofits are ongoing. Pending funding availability, additional elements of the project will be completedand/or implemented in Fiscal Years 2013 through 2025.Included within the water supply capital programs is the aqueducts program, which involves thereplacement of cement lining in the Mokelumne Aqueducts. Design and construction of the relining ofMokelumne Aqueduct No. 3 across Upper Jones tract in the Delta began in Fiscal Year 2010 and wascompleted in Fiscal Year 2012. In Fiscal Years 2013 and 2014 relining of Mokelumne Aqueduct No. 3across Woodward Island and Orwood Tract is planned. Additionally, the seismic isolators on MokelumneNo. 3 are being examined and remedial work is being planned.Resource Management. Resource management projects involve improvements to theMokelumne River habitat and recreation areas and water quality on the watershed. These projects includeupgrades to campgrounds, docks and roadways in the District’s recreation areas, as well as theimprovements in site drainage and stormwater management to the District’s watershed lands to enhancewater quality, support customer needs and protect the environment.Water Quality. In the area of water quality, the District seeks to operate and maintain facilities tosurpass federal and state drinking water regulations and to make system improvements that meet orsurpass environmental and regulatory requirements. Projects include making improvements to reservoirsand water treatment plants to improve water quality. Examples include installation of mixing equipmentin reservoirs, installation of hydrogen peroxide controls systems at the Sobrante and Upper San LeandroTreatment Plants, and sludge processing improvements at the Walnut Creek Treatment Plant.Table 4 below summarizes the District’s Fiscal Years 2013 through 2017 projected CIP cashexpenditures by major category.Table 4Fiscal Years 2013-2017Capital Improvement ProgramForecast – Cash Expenditures(Millions)Fiscal Year ended June 302013 2014 2015 2016 2017 TotalExtensions/Improvements &Maintaining Infrastructure $107.403 $127.285 $133.391 $150.078 $170.659 $688.816Facilities, Services & Equipment 9.092 9.329 5.824 5.459 7.234 36.938Regulatory Compliance 5.547 13.802 12.990 10.460 18.565 61.364Water Supply 11.745 11.098 11.600 16.802 19.028 70.273Resource Management & Other 10.485 11.506 12.628 17.197 14.835 66.651Admin. & General Expense (1) 35.000 30.000 30.000 30.000 30.000 155.000Total $179.272 $203.020 $206.433 $229.996 $260.321 $1,079.042(1)Includes overhead, construction management and other administrative costs which are allocated to individual projects upontheir completion.Source: The District.The cost estimates are adjusted periodically and represent preliminary estimates at the time ofdevelopment of the capital plan for planning purposes only. The District’s currently estimated fundingsources for its CIP for Fiscal Years 2013 through 2017 is set forth below:81277574.3 A-30

Table 5Fiscal Years 2013-2017Sources of Funds for CapitalImprovement Program ExpendituresFunding Sources(Millions)Commercial Paper Proceeds $ 92.6Bond Proceeds 401.7Advances, Contributions and Grants 134.2Revenues 450.5Total $1,079.0Source: The District.WATER SYSTEM FINANCESBasis of AccountingThe District reports operations on a Fiscal Year basis (currently July 1 through June 30).Enterprise funds are used to account for operations that are financed and operated in a manner similar toprivate business enterprises, where the costs of providing goods and services to the general public arefinanced or recovered primarily through user charges. Enterprise funds are accounted for using theaccrual basis of accounting. The accounting policies of the District conform to generally acceptedaccounting principles for municipal water utilities. The accounts are maintained substantially inaccordance with the Uniform System of Accounts for Water Utilities prescribed for investor-owned andmajor municipally-owned water utilities.Sources of FundsThe Water System’s principal source of revenues is water sales. In Fiscal Year 2012,approximately 76.5% of the Water System’s $400.2 million in total sources of funds was provided fromwater sales. Sources of funds other than water sales include taxes, income from the sale of energy fromthe District’s hydroelectric power plants, investment income, and grants and contributions in aid ofconstruction. The District’s share of the county 1% property tax levy contributed approximately 5.8%, or$23.4 million of the total sources of funds. In Fiscal Year 2012, the Water System’s hydroelectric powerplants produced power revenues of approximately $4.6 million and the District’s income on investmentswas approximately $4.6 million. Contributions in aid of construction totaled $45.2 million, including$19.2 million of seismic surcharge collections, $16.1 million of system capacity charges collected duringsuch year (which excludes accumulated system capacity charge funds available to offset debt servicecosts for such Fiscal Year), $5.8 million of contributions for facility relocations, main extensions andservice installations, and $4.1 million of grants and other reimbursements.The following Table 6 sets forth the District’s Water System sources of funds for the five mostrecent Fiscal Years ended June 30, 2012. The sources of funds in the table below include certain fundswhich do not constitute Subordinated Water Revenues for purposes of the Indenture. Subordinated WaterRevenues include all charges received for, and all other income and receipts derived by the District from,the operation of the Water System or arising from the Water System, which includes, without limitation,the District’s water rates, system capacity charge and seismic surcharge, as well as investment income.Property taxes are applied to reduce Operation and Maintenance Costs and are not pledged to therepayment of the Water System Revenue Bonds. See “– Tax Revenues.” Contributions received forfacility relocations, main extensions and service installations, and grants and other reimbursements, whichare restricted to use for the specified purposes are not included in Subordinated Water Revenues for81277574.3 A-31

purposes of the Indenture. Only Subordinated Water Revenues are pledged to the payment of the WaterSystem Revenue Bonds. See “SECURITY FOR THE SERIES 2009A-2 BONDS – Pledge ofSubordinated Water Revenues.” Comparative summaries of the Water System’s historical operatingresults and debt service coverage ratio for each of the last five Fiscal Years appear in Table 18.Table 6WATER SYSTEM SOURCES OF FUNDSFive Fiscal Years Ended June 30, 2012(Millions)Fiscal Year Ending June 302008 2009 2010 2011 2012Operating Revenue and Other Income:Water sales $270.5 $287.3 $271.0 $283.6 $306.2Power sales 3.1 4.3 6.2 8.1 4.6Interest (1) 40.6 24.5 9.6 5.7 5.5Taxes 22.7 23.4 22.9 22.2 23.4Other (2) 29.4 (5) 6.1 7.7 13.4 (6) 16.2 (6)Total Operating Revenue andOther Income $366.3 $345.6 $317.4 $333.0 $355.9Capital Contributions:Seismic Surcharge $ 14.8 $ 15.5 $ 16.7 $ 18.1 $ 19.2System Capacity Charge (3) 19.8 10.9 12.5 17.6 16.1Earned contributions on construction (4) 10.4 10.8 6.0 6.5 5.8Grants and reimbursements 5.5 1.2 4.7 3.6 4.1Total Contributions $ 50.5 $ 38.4 $ 39.9 $ 45.8 $ 45.2Total $416.8 $384.0 $357.3 $378.8 $401.1_____________________(1)Includes interest earnings on Water System Fund, including earnings on proceeds of the District’s Water SystemRevenue Bonds.(2)Other Revenues include receipts from property sales, rental of District property, fees for use of District recreationalfacilities and other miscellaneous receipts. Excludes reimbursements and other receipts applied directly to operatingexpenses.(3)System capacity charge collections presented in the table above include the “buy in” portion and the “future watersupply” portion of SCC charges when collected. Does not include the “future water supply” portion of SCC chargesapplied from the Future Water Supply Fund to offset debt service costs. See “ – System Capacity Charge” below.(4)Includes contributions for facility relocations, main extensions and service installations.(5)Includes approximately $23.7 million of non-recurring litigation and insurance proceeds.(6)In Fiscal Years 2011 and 2012, includes approximately $8.2 million of interest subsidy payments in each year receivedby the District in connection with its Series 2010B Bonds which were Build America Bonds.Source: The District.Water Sales RevenuesWater sales to residential accounts provide approximately 62.5% of the District’s water salesrevenues. Approximately 92% of the District’s accounts are residential, but because residentialconsumption per account is lower than for other customer types, residential sales account for only 60% ofconsumption. The District’s five largest customers are Chevron U.S.A. Inc. and its subsidiaries, ToscoRefinery, the University of California, the C&H Sugar Company and Golden Rain Foundation (Rossmoorretirement community). In Fiscal Year 2012, the five largest customers consumed approximately 10.7%of the District’s water; Chevron U.S.A. Inc. and its subsidiaries alone consumed 5.1%.81277574.3 A-32

The following Table 7 sets forth water sales revenues, consumption and number of connectionsby customer type.Type ofCustomerTable 7WATER SALES REVENUES, CONSUMPTION AND NUMBEROF CONNECTIONS BY CUSTOMER TYPEFiscal Year Ended June 30, 2012SalesRevenues (1)Percent ofRevenuesConsumption(MGD)Percent ofConsumptionNumber ofConnectionsPercent ofConnectionsResidential $191,110,387 62.5% 97.9 60.3% 350,066 91.9%Commercial 76,108,520 24.9 40.1 24.7 27,465 7.2Industrial 20,964,619 6.9 17.4 10.7 1,168 0.3Other (2) 18,044,831 5.7 6.9 4.3 2,280 0.6Total $306,228,357 100.0% 162.1 100.0% 380,979 100.0%___________________(1)Excludes proceeds from the seismic surcharge which the District capitalizes in its audited financial statements inaccordance with Generally Accepted Accounting Principles. Seismic surcharge revenues are Water Revenues forpurposes of the Indenture. Does not include account establishment fees, recycled water fees and certain othermiscellaneous charges.(2)Includes public agencies, recycled water customers and late charges.Source: The District.Rates and ChargesThe District’s rates and rate structure are established by its Board of Directors after a publichearing process, and are not subject to regulation by any other agency. See “CONSTITUTIONAL ANDSTATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS – Proposition 218” for adiscussion of the notice, hearing and protest procedures to which the District’s proposed rate increases aresubject.From Fiscal Year 2009 through Fiscal Year 2013, residential rates have increased by an averageof 6.6% per Fiscal Year. The District’s most recent rate increase included the adoption on June 14, 2011of a 6.0% system-wide rate increase for each of Fiscal Years 2012 and 2013. The average residential rateincreases enacted by the District for the current and four preceding Fiscal Years are as follows:Table 8WATER RATE INCREASESLast Five Fiscal YearsFiscalYearAverage RateIncrease(Residential)2009 5.1%2010 8.7 (1)2011 7.52012 6.02013 6.0______________________(1)Residential customers accounted for a higher portion of the 7.5% system-wide rate increase in Fiscal Year 2010 toreflect the results of a cost allocation study conducted by the District in 2009. The average rate increase forcommercial and industrial users for Fiscal Year 2010 were 5.2% and 4.9%, respectively.Source: The District.81277574.3 A-33

The District’s water rate structure is based on a cost of service methodology by customer class.The rate structure consists of two elements: a monthly service charge and a commodity charge for waterdelivered. With the exception of single family residential customers, commodity charges for waterdelivered are based on a uniform volume rate. Single family residential customers are billed on a threetierinclining block rate structure.Table 9 shows the rate schedule effective July 1, 2012 for Fiscal Year 2013, which represents anaverage increase of 6.0% for residential customers from Fiscal Year 2012 rates. The monthly water billfor a typical residential account consuming 1,100 cubic feet (11 Ccf or 8,228 gallons) per month is$43.45. See Table 19 under “– Projected Operating Results” for a description of projected future rateincreases.(1)Table 9WATER SYSTEM RATES AND CHARGES (1)Effective July 1, 2012Service ChargeMeter SizePer Month5/8-inch and ¾-inch $12.231-inch 19.661 ½-inch 31.702-inch 46.31Over 2-inchVariousCharge for Water DeliveredPer HundredRate ClassCubic Feet (Ccf)Basic Rate – Single Family (2) $2.42Basic Rate – Multi Family 3.06Basic Rate – Other 3.17Elevation Surcharges (3) – Pressure Zones 2 through 5 0.46Pressure Zones 6 and higher 0.93A seismic surcharge is added to each customer’s water bill. The surcharge consists of a meter charge component that variesby meter size and a volume surcharge. See “– Seismic Surcharge” below.(2)Applies to first 172 gallons per day (7 Ccf) for single family residential customers. Additional consumption by residentialcustomers is billed at $3.00 per Ccf for consumption between 173 and 393 gallons per day (16 Ccf) and $3.68 for all waterused in excess of 393 gallons per day. For a household using 11 Ccf, the water usage charge for the first 7 Ccf at the first tierrate of $2.42 per Ccf would be $16.94 and the water usage charge for the additional 4 Ccf at the second tier rate of $3.00 perCcf would be $12.00, for a total charge for water delivered of $28.94; the monthly service charge would be $12.23 and theseismic surcharge would include a $1.14 monthly meter charge component and a $1.14 water service availabilitycomponent, resulting in a total monthly bill of $43.45.(3)The water elevation surcharge provides for the increased power and facility costs needed to pump water to locations (zones)200 or more feet above sea level.Source: The District.Seismic SurchargeThe District’s seismic surcharge is a rate surcharge designed to recover costs of the SIP. See“THE WATER SYSTEM – Seismic Matters.” The basis for the charges is to: (i) provide fire flowavailability for real property after a seismic event; and (ii) provide continued water service to residential,commercial and industrial customers after a seismic event. The surcharge is collected as part of the water81277574.3 A-34

ill and was established for the period of May 1, 1996 through February 28, 2025. The surcharge is sizedto ensure that sufficient funds are available to fund construction of recommended seismic improvementswith allowance for inflation in construction costs and growth in customer base.For a typical residential customer in Fiscal Year 2013, the seismic surcharge consists of a$1.14/month meter charge for a typical 5/8” meter plus a charge of $1.14/month per single-familyresidential customer for water service availability. Outside of single-family and multi-family residentialcustomers, the water service availability component is based on the customer’s consumption and ischarged at a rate of $0.13 per 748 gallon billing unit due to the wide variation in water use by nonresidentialcustomers. The District’s Board annually reviews these charges and adjusts them as necessaryto ensure the seismic surcharge collected will meet all obligations of the program.Comparison of Annual Water Service ChargesTable 10 shows comparative average annual water service charges by various Bay Area wateragencies for a typical residential account with a 5/8-inch meter using 1,100 cubic feet of water (8,228gallons) per month. Charges are for the minimum cost zone or area served by the agency as of June 2012.(1)Water SupplierTable 10COMPARATIVE ANNUAL RESIDENTIAL WATER CHARGESFor 11 Ccf/Month and 5/8” MeterAs of June 2012Average Annual HouseholdWater Service ChargeCity of Palo Alto $915City of Hayward 785City and County of San Francisco 734Marin Municipal Water District 623Contra Costa Water District 620City of Los Altos 583Dublin San Ramon Services District 572North Marin Water District 555City of San Jose 545City of Livermore 529East Bay Municipal Utility District (1) 521Alameda County Water District 506City of Pleasanton 361Based on District’s Fiscal Year 2013 rates effective July 1, 2012 through June 30, 2013. Includes seismic surcharge.Source: The District.Billing and Collection ProceduresAll water service customers are billed directly by the District bimonthly, with the exception ofapproximately 1,000 accounts consisting of the largest users in the District, which are billed monthly.Billing is staggered throughout the billing cycle by geographic location within the District. Service maybe discontinued if an overdue account is not paid after appropriate customer notification. The Districtconsiders its rates of payment delinquency, service discontinuance for non-payment, and write-offs foruncollectible accounts to be low by water industry standards for urban areas. The write-offs foruncollectible accounts by Fiscal Year have been:81277574.3 A-35

____________________Source: The District.System Capacity ChargeTable 11WATER SALES UNCOLLECTIBLE REVENUESLast Five Fiscal YearsFiscal YearEnded June 30UncollectibleRevenuesPercent of GrossBillings2008 $1,396,934 0.51%2009 1,876,591 0.652010 1,745,358 0.642011 1,588,746 0.562012 1,377,558 0.42The District’s system capacity charge (“SCC”) is designed to recover from new accounts aportion of the costs of existing facilities, as well as the costs of additional facilities (primarily watersupply projects) to be constructed in the future to provide water service to new customers based on landuse plans. Under the existing SCC policy, funds collected from SCCs are applied toward the costs of theDistrict’s capital program for such facilities, and in the case of future water supply projects, to reimbursethe Water System for the payment of debt service on Water System Revenue Bonds issued to financesuch facilities.The SCC includes both a “buy-in” portion and a “future water supply” portion. The “buy-in”portion includes the costs of existing District storage, treatment and distribution facilities, as well asexisting water supply facilities (including reservoirs and aqueducts) and administration facilities. As the“buy-in” portion of the SCC, new accounts are charged for their share of the costs of these existingDistrict facilities (escalated to current dollars). The “future water supply” portion of SCC receipts iscollected to fund the costs of additional facilities required to service new accounts. The “future watersupply” portion of SCC receipts when collected are deposited in the Future Water Supply Fund, asegregated account of the Revenue Fund, to be applied in future years to offset debt service costsattributable to SCC-related capital facilities. In Fiscal Year 2012, SCCs collected totaled $16.1 million(the “buy in” portion of $10.8 million and the “future water supply portion” of $5.3 million). As ofJune 30, 2012, the District had approximately $18.9 million of SCC revenues on deposit in the FutureWater Supply Fund.For purposes of the Indenture, the District has included in the SCC Revenues as shown in Table18 for Fiscal Years 2008 through 2012, the “buy in” portion of SCC charges when collected and the debtservice repayment component of the “future water supply” portion of SCC charges when applied from theFuture Water Supply Fund to offset debt service costs attributable to SCC-related capital facilities. ForFiscal Year 2012, the District recognized SCC Revenues of $30.7 million.For financial statement purposes, however, the District has elected to account for both the “buyin” portion of SCC charges when collected and the debt service repayment component of the SCC whenapplied as part of capital contributions. As a result, no SCC amounts are reflected as operating revenuesin the District’s financial statements.Due to the significant capital expenditures by the District on the FRWP and other capitalimprovements and the associated application of SCCs to the reimbursement of debt service and othercosts related thereto, the application of SCC funds to offset debt service increased significantly beginningin Fiscal Year 2010.81277574.3 A-36

Supplemental Supply ChargeAs described under “Water Supply – United States Bureau of Reclamation Central Valley ProjectContract; Freeport Regional Water Project,” in connection with the FRWP, the District adopted asupplemental supply charge of 14% of total water flow charges which may be added to customers’ waterbills during droughts when the Board declares a need to take deliveries of its CVP water under the Long-Term Renewal CVP Contract. The supplemental supply charge is designed to cover the costs of operatingthe FRWP and the costs of CVP water during dry year periods when the District takes deliveries of CVPwater.Prior to completion of the FRWP, during the 2008-09 drought, the District implemented specialdrought rate increases that included a 10% rate increase on water flow charges, a new surcharge for eachaccount’s water use allocation equal to $2.00 per Ccf of all water used in excess of the account’s wateruse allocation, and a new non-potable water use incentive rate. These rates were designed to encouragecustomers to reduce water use, to compensate for lost revenue due to reduced water use, and to funddrought management programs in the District. The drought surcharge was rescinded by the District as ofJuly 1, 2009 as drought conditions subsided.Property Tax RevenuesThe District’s share of the county 1% ad valorem property tax levy has provided approximately5% to 6% of total operating revenues of the Water System in each of the past five Fiscal Years for theDistrict (after adjusting for one time nonrecurring receipts). The District’s share of the county 1% advalorem property tax is not pledged as a source of payment for the Water System Revenue Bonds,although such amounts are applied to pay Water Operation and Maintenance Costs in accordance with theIndenture.Table 12 shows a five-year record of assessed valuations, secured roll levies and delinquenciesfor the taxable property included within the District. Assessed valuations are expressed by countyassessors as “full cash value” as defined by Article XIIIA of the State Constitution. The tax levy shown isthe District’s allocated share of the maximum ad valorem tax levy by each county of 1% of full cashvalue. Pursuant to California Revenue and Taxation Code Sections 4701 et seq., Contra Costa County andAlameda County each maintain a reserve fund for the purpose of guaranteeing 100% of the secured leviesof the electing governmental jurisdictions for which such county collects taxes (commonly referred to as“The Teeter Plan”). The District has elected to participate in Contra Costa County’s Teeter Plan programbut has elected not to participate in Alameda County’s Teeter Plan program. Consequently, the District isexposed to the effect of delinquencies in collections only for property located in Alameda County.[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]81277574.3 A-37

Table 12TAXABLE PROPERTY WITHIN THE WATER SYSTEMAssessed Valuation and Tax Collection RecordFiscal Year Ending June 302008 2009 2010 2011 2012Assessed Valuation forTaxation Purposes (1)Alameda County $ 95,616,366,046 $ 93,523,188,294 $ 91,896,215,219 $ 92,498,938,097 $ 94,461,089,218Contra Costa County 85,734,696,051 82,362,321,780 79,539,647,643 79,611,319,471 81,232,708,213Total $181,351,062,097 $175,885,510,074 $171,435,862,862 $172,110,257,568 $175,693,797,431District Secured Roll TaxReceipts (2)Alameda County $11,506,461 $11,862,545 $11,820,322 $11,404,014 $12,463,643Contra Costa County 11,224,591 11,554,756 11,068,795 10,831,553 10,921,960Total $22,731,052 $23,417,301 $22,889,117 $22,235,567 $23,385,603Delinquent June 30 (3)Amount $ 640,441 $ 671,633 $ 463,326 $ 377,242 $ 353,191Percent 2.82% 2.87% 2.02% 1.70% 1.51%(1)Net of all exemptions except homeowner’s exemptions, the taxes on which are paid by the State. All valuations are stated on a100% of full cash value basis. Assessed valuations shown include redevelopment project area incremental valuations.(2)Net basis excluding all exemptions. Levies reflect the tax reductions effected by the adoption of Article XIIIA of the StateConstitution in 1978, the “Jarvis-Gann Initiative.” For Alameda County, receipts include District’s share of prior years’delinquencies when collected.(3)Amounts apply to Alameda County only, since Contra Costa County guarantees 100% payment of the District’s secured roll levyas described above. The delinquency percentages are calculated based on the two counties’ secured roll levies.Sources: Auditor-Controller’s Office, Alameda and Contra Costa Counties, as compiled by the District.From time to time legislation has been considered as part of the State budget to shift the share ofthe 1% ad valorem property tax collected by counties from special districts to school districts or othergovernmental entities. The State budgets for Fiscal Years 2003-04 and 2004-05 reallocated portions ofspecial districts’ shares of the countywide 1% ad valorem tax, shifting a portion of the property taxrevenues collected by the counties from special districts to school districts. The District has historically,since the 1970’s, applied its share of property tax revenues to fund the maintenance of fire protectioncapacity. As a result of legislation providing for an exemption from the property tax shift for funding fireprotection services and facilities, the District did not lose any property tax revenues allocable to the WaterSystem in Fiscal Years 2004 and 2005. Additionally, on November 2, 2004 voters within the Stateapproved Proposition 1A, which prevents the State from reducing local government’s share of the 1% advalorem property tax below current levels, except in the case of fiscal emergency. Proposition 1Aprovides that in the case of fiscal emergency, the State could borrow up to 8% of local property taxrevenues to be repaid within three years.The 2009-10 State budget provided for the borrowing of 8% of property taxes from localjurisdictions, including the District, under Proposition 1A. This borrowing resulted in a reduction ofapproximately $1.85 million from property tax revenues allocable to the Water System. As noted above,under Proposition 1A, the State was required to repay the property taxes with interest within three years.State legislation allowed the District to sell its right to receive this repayment to a joint powers authority,which sold bonds payable from the receivables it purchased from participating local jurisdictions. TheDistrict participated in this program in order to replace the lost property taxes at no cost to the District,and treated amounts received under the program as it would have treated the State borrowed property taxrevenues replaced thereby.81277574.3 A-38

There can be no assurances that future legislation or voter initiatives will not reduce or eliminatethe District’s share of the 1% county-wide ad valorem property tax revenues. See also“CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS.”The tax rolls for property located within the District Water System service area for the FiscalYear ended June 30, 2012, aggregated a total assessed valuation of approximately $175.7 billion,including redevelopment project areas incremental valuations of which the taxes payable were due to theredevelopment agency. In 2011, the State of California enacted legislation commonly referred to as“AB1X 26,” which required the dissolution of California redevelopment agencies and the dissolution andwinding up of the operations of those agencies, which dissolution occurred on February 1, 2012. AB1X26 provides a framework for the management of the remaining obligations of the dissolvedredevelopment agencies by their respective successor agencies and oversight boards to oversee thosesuccessor agencies. Pursuant to AB1X 26, tax increment will continue to flow to the payment of“enforceable obligations” (such as tax allocation bonds) of the dissolved redevelopment agencies.Power Sales RevenuesThe District operates hydropower plants at Pardee and Camanche Reservoirs. These plantsgenerate 185 million kilowatt hours of electricity in normal rainfall years. The power is sold to theSacramento Municipal Utility District under a 10-year power purchase agreement which expires in July2015. This power purchase agreement includes the sale of hydroelectric power, available capacity duringsummer months, and environmental attributes (i.e., credits, benefits, offsets, reductions or allowancesresulting from the generation of renewable energy). Annual revenues to the District from power saleshave ranged from approximately $3.1 million to $8.1 million over the last five fiscal years. Revenuesfrom power sales vary depending on power prices and the volume of water available for release from thereservoirs. The District currently budgets $5.7 million annually in hydropower revenue.Developer ContributionsCash contributions for main extension and other facilities to serve new customers depend on thelevel of development. In addition to collection of its SCC (as described under “System Capacity Charge”above), District policy requires new applicants for service to pay direct charges for mains, hydrants, andservices necessary to serve them. In Fiscal Year 2012, developer contributions collected for facilityrelocation charges, mains and hydrants and service installations totaled $5.8 million. These developercontributions are treated as capital contributions and are not included in Subordinated Water Revenues forpurposes of the Indenture.GrantsGrants are received for specific projects. In Fiscal Year 2012, $2.0 million was collected. TheDistrict also received $2.1 million in federal and State Disaster Relief funds in Fiscal Year 2012 primarilyto reimburse the District for damages resulting from a levee break in the Sacramento-San Joaquin Deltathat occurred in 2006 causing damage to the District’s Mokelumne Aqueducts. An aggregate amount of$9.1 million in grants and reimbursements is budgeted for Fiscal Years 2013 through 2017. Grants andreimbursements are treated as capital contributions and are not included in Subordinated Water Revenuesfor purposes of the Indenture.Operation and Maintenance CostsThe primary component of the District’s Operation and Maintenance Costs is labor costs,including wages, salaries and benefits. Operation and Maintenance Costs also include materials, supplies81277574.3 A-39

and services such as costs of chemicals for water treatment and electrical power, and other general andadministrative expenses.Outstanding DebtTable 13 shows the District’s Water System debt outstanding as of January 15, 2013. ByResolution No. 33606-07 adopted June 12, 2007, the Board declared its intention to issue up to$1,100,000,000 of Water System revenue bonds, of which $602,330,000 of such authorized amountremained unissued as of January 15, 2013. The District may from time to time in the future adopt otherresolutions authorizing the issuance of additional Water System Revenue Bonds and Parity Debt, subjectto the satisfaction of the conditions set forth in the Indenture. See “SECURITY FOR THE SERIES2009A-2 BONDS – Issuance of Additional Water System Revenue Bonds and Parity Debt; Junior andSubordinate Obligations.”Low-interest loans were made by the SWRCB and the CDWR to the District to finance certainwater reclamation and reuse facilities within the District to conserve fresh water supplies. See“SECURITY FOR THE SERIES 2009A-2 BONDS – Outstanding Water System Revenue Obligations –State Loans.”Tax-exempt Extendable Municipal Commercial Paper Notes (Water Series) (“Water System CPNotes”) are issued by the District from time to time pursuant to Resolution No. 33705-09, whichauthorizes, as provided in the Municipal Utility District Act, a maximum outstanding principal amount ofnotes not exceeding the lesser of (1) the annual average of the District’s total revenue for the threepreceding years or (2) 25% of the District’s total outstanding bonds issued pursuant to Chapters 6, 7 and 8of the Municipal Utility District Act. As of January 15, 2013, $312,900,000 principal amount of suchWater System CP Notes were outstanding. In January 2011, the District determined the issued amount forthe Water System will not exceed $410,000,000 until subsequently increased by the District in an amountnot to exceed such authorized maximum. The Water System CP Notes are payable from and secured by apledge of Water Revenues on a basis subordinate to the Water System Revenue Bonds.[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]81277574.3 A-40

IssueTable 13OUTSTANDING WATER SYSTEM DEBTAs of January 15, 2013Date ofIssueLastMaturityAmountIssuedOutstandingJanuary 15, 2013Water System Revenue BondsRevenue Refunding Bonds, Series 2003 (1) 7/17/03 6/01/21 $ 115,730,000 $ 56,080,000Revenue Bonds, Series 2005A (2) 6/02/05 6/01/35 300,000,000 228,250,000Revenue Bonds, Series 2007A (2) 5/23/07 6/01/37 450,000,000 330,000,000Revenue Refunding Bonds, Series 2007B 5/23/07 6/01/19 54,790,000 40,750,000Revenue Refunding Bonds, Series 2008A (3) 3/20/08 6/01/38 322,525,000 200,550,000Revenue Refunding Bonds, Series 2008B-3 (3) 4/24/08 6/01/26 160,000,000 15,100,000Revenue Refunding Bonds, Series 2009A (3) 3/12/09 6/01/26 331,155,000 82,075,000Revenue Refunding Bonds, Series 2010A 2/03/10 6/01/31 192,830,000 192,830,000Revenue Bonds, Series 2010B (Build America Bonds) 2/23/10 6/01/40 400,000,000 400,000,000Revenue Refunding Bonds, Series 2011A 12/29/11 6/01/25 159,210,000 148,530,000Revenue Refunding Bonds, Series 2012A (2) 10/10/12 6/01/37 191,750,000 191,750,000Revenue Refunding Bonds, Series 2012B 11/13/12 6/01/26 358,620,000 358,620,000Total Water System Revenue Bonds $3,036,610,000 $2,244,535,000Parity Debt:Safe Drinking Water State Revolving Fund Loan(Upper San Leandro Reservoir) 1/01/03 1/01/23 2,188,000 1,337,000State Water Resources Control Board Loan(East Bayshore Recycled Water Project) 5/22/08 4/01/28 20,100,000 16,580,000Total Parity State Loans $ 22,288,000 $ 17,917,000Subordinate Debt:Extendable Municipal Commercial Paper Notes(Water Series) (4) Various Various 410,000,000 (5) 312,900,000Total Debt $3,468,898,000 $2,575,352,000(1)The outstanding Series 2003 Bonds are expected to be refunded with the proceeds of the Series 2013A Bonds expected to bedelivered on or about March 5, 2013. See “SECURITY FOR THE SERIES 2009A-2 BONDS – Outstanding Water SystemRevenue Obligations – Outstanding Water System Revenue Bonds and Parity Debt.”(2)On October 10, 2012, the District issued its $191,750,000 principal amount of Series 2012A Bonds for the purpose ofrefunding $71,750,000 principal amount of the Series 2005A Bonds and $120,000,000 principal amount of the Series 2007ABonds.(3)On November 13, 2012, the District issued its $358,620,000 principal amount of Series 2012B Bonds. A portion of theproceeds of the Series 2012B Bonds refunded and defeased on such date $228,725,000 principal amount of the Series 2009ABonds, $115,100,000 principal amount of the District’s variable rate Series 2008A Bonds and $43,350,000 principal amountof the District’s variable rate Series 2008B-3 Bonds, which were redeemed on December 3, 2012, and to pay the costs ofterminating a portion of certain interest rate swap agreements related to the Water System Revenue Bonds to being refunded.(4)Water System CP Notes may be issued in an amount up to the statutory limit described above. As of January 2011, theDistrict determined the issued amount for the Water System will not exceed $410,000,000 until subsequently increased bythe District.(5)Authorized amount.Source: The District.Variable Rate and Swap ObligationsAs of January 15, 2013, of the District’s $2,244,535,000 aggregate principal amount ofoutstanding Water System Revenue Bonds, $446,255,000 principal amount are variable rate obligationswhich are subject to tender prior to maturity in accordance with their terms, including the $82,075,000principal amount of Water System Revenue Refunding Bonds, Series 2009A (the “Series 2009A Bonds”)and $148,530,000 principal amount of District’s Water System Revenue Refunding Bonds, Series 2011A(the “Series 2011A Bonds”) which bear interest in a SIFMA-Based Term Interest Rate Period (the“SIFMA Index Bonds”). The SIFMA Index Bonds bear interest at a rate that fluctuates based on theweekly SIFMA Municipal Swap Index published weekly by Municipal Market Data plus a spread and aresubject to mandatory tender on specified mandatory tender dates to occur at the end of each rate period. If81277574.3 A-41

the purchase price of the Series 2009A Bonds is not paid from proceeds of a remarketing or other fundson or prior to a scheduled mandatory tender at the end of the applicable rate period, failure of the Districtto provide funds for the purchase of such Series 2009A Bonds will constitute an Event of Default underthe Indenture. If the purchase price of the Series 2011A Bonds is not paid from proceeds of a remarketingor other funds on or prior to a scheduled mandatory tender at the end of the applicable rate period, failureof the District to provide such funds will not constitute an Event of Default under the Indenture; however,in the event sufficient remarketing proceeds are not available for the purchase of such Series 2011ABonds upon such mandatory tender, such Series 2011A Bonds will go into a term-out period and will bearinterest at an interest rate which is substantially higher than the current variable interest rate on the Series2011A Bonds, and during such term-out period, the Series 2011A Bonds will be subject to specialmandatory redemption over an approximately five-year period, which will result in an acceleration in therepayment of the principal of the Series 2011A Bonds from the principal payments that would otherwisebe due on such Series 2011A Bonds. See also “SECURITY FOR THE SERIES 2009A-2 BONDS –Outstanding Water System Revenue Bonds – Outstanding Water System Revenue Bonds and ParityDebt.”The interest rates for the District’s $215,650,000 principal amount of other outstanding variablerate Water System Revenue Bonds are reset on a weekly basis. Such variable rate demand obligations aresupported by Standby Bond Purchase Agreements between the District and various liquidity providers.Table 14 sets forth a listing of the liquidity providers, the expiration date of each facility and the principalamount of outstanding bonds covered under each facility as of January 15, 2013.Water SystemRevenue BondIssue (1)Table 14LIQUIDITY FACILITIES AND EXPIRATION DATESOutstandingPrincipal Amount Liquidity Provider Facility ExpirationSeries 2008A-1 $ 61,725,000 [Wells Fargo Bank,July 3, 2014National Association]Series 2008A-2 46,275,000 [U.S. Bank NationalJuly 1, 2015Association]Series 2008A-3 46,275,000 [U.S. Bank NationalJuly 1, 2015Association]Series 2008A-4 46,275,000 Bank of America, N.A. January 10, 2014Series 2008B-3 15,100,000 JPMorgan Chase Bank, N.A. January 10, 2014Total $215,650,000Source: The District.In connection with the District’s $466,255,000 principal amount of outstanding variable rateWater System Revenue Bonds, the District has entered into various interest rate swap agreements(collectively, the “Water Interest Rate Swap Agreements”). By virtue of these Water Interest Rate SwapAgreements, the related variable rate Water System Revenue Bonds are essentially treated by the Districtas fixed rate debt for the purpose of calculating debt service requirements, although the variable paymentsthat the District receives from swap counterparties do not usually equal the payments that the Districtmakes on associated variable rate debt. There is no guarantee that the floating rate payable to the Districtpursuant to each of the Water Interest Rate Swap Agreements will match the variable interest rate on theassociated Water System Revenue Bonds to which the respective Water Interest Rate Swap Agreementrelates at all times or at any time. Under certain circumstances, the Swap Providers may be obligated tomake a payment to the District under their respective Water Interest Rate Swap Agreement that is lessthan the interest due on the associated Water System Revenue Bonds to which such Water Interest Rate81277574.3 A-42

Swap Agreement relates. In such event, the District would be obligated to pay such insufficiency fromSubordinated Water Revenues.As of January 15, 2013, the District had outstanding the following Water Interest Rate SwapAgreements relating to variable rate Water System Revenue Bonds with the following counterparties(collectively, the “Swap Providers”) in the aggregate notional amount of $446,155,000.Table 15WATER INTEREST RATE SWAP AGREEMENTSRelated Water SystemRevenue Bond IssueOutstandingNotionalAmountSwap ProviderDistrictPaysDistrict ReceivesScheduledMaturity/TerminationDateSeries 2011A Bonds $ 99,020,000 The Bank of NewYork MellonSeries 2011A Bonds 49,510,000 JPMorgan ChaseBank, N.A.Series 2008A Bonds 30,850,000 Merrill Lynch & Co.,Inc.Series 2008A Bonds 70,965,000 Bank of America,N.A.Series 2008A Bonds 27,770,000 The Bank of NewYork MellonSeries 2008A Bonds 70,965,000 ) JPMorgan ChaseBank, N.A.Series 2008B-3 Bonds/Series 2009A BondsSeries 2008B-3 Bonds/Series 2009A BondsSeries 2008B-3 Bonds/Series 2009A Bonds3.835% 65.0% of 30-dayLIBOR3.835 65.0% of 30-dayLIBOR3.115 62.3% of 30-dayLIBOR3.115 62.3% of 30-dayLIBOR3.115 62.3% of 30-dayLIBOR3.115 62.3% of 30-dayLIBOR61,050,000 Deutsche Bank AG 3.407 91.0% of USD-SIFMA MunicipalSwap Index20,350,000 Merrill Lynch & Co.,Inc.15,675,000 Citibank, N.A., NewYork3.407 91.0% of USD-SIFMA MunicipalSwap Index3.407 91.0% of USD-SIFMA MunicipalSwap Index06/01/202506/01/202506/01/203806/01/203806/01/203806/01/203806/01/202606/01/202606/01/2026Source: The District.Under certain circumstances, the Water Interest Rate Swap Agreements may be terminated andthe District may be required to make a substantial termination payment to the respective Swap Providers.Pursuant to the Water Interest Rate Swap Agreements, any such termination payment owed by the Districtwould be payable on a basis that is subordinate to the Water System Revenue Bonds but prior to theDistrict’s Water System CP Notes.Early termination of an interest rate swap agreement could occur due to a default by either partyor the occurrence of a termination event. In the event of early termination of any of the Water InterestRate Swap Agreements, there can be no assurance that (i) the District will receive any terminationpayment payable to the District by the respective Swap Providers, (ii) the District will at all times havesufficient available cash on hand to pay any termination payment payable by it to the respective SwapProviders, or (iii) the District will be able to obtain a replacement Water Interest Rate Swap Agreementwith comparable terms. As of November 30, 2012, the District would have been required to pay tocounterparties termination payments if its then outstanding Water Interest Rate Swap Agreements wereterminated on that date. The District estimated its net exposure to its counterparties for all suchtermination payments at November 30, 2012 to be approximately $118.8 million. {update to year-end inJanuary} As of November 30, 2012, the largest aggregate termination payment owed to a single81277574.3 A-43

counterparty was estimated by the District to be approximately $27.2 million. {update to year-end inJanuary} The District does not presently anticipate early termination of any of its Water Interest RateSwap Agreements due to default by either party or the occurrence of a termination event. The Districtroutinely monitors its swap counterparties’ creditworthiness and performance under the Water InterestRate Swap Agreements and may from time to time replace existing swap counterparties and WaterInterest Rate Swap Agreements with new replacement interest rate swap agreements if the Districtdetermines such action is warranted. See also Note 6(F) in APPENDIX B – “EAST BAY MUNICIPALUTILITY DISTRICT AUDITED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30,2012 AND 2011” for additional information regarding the terms of the Water Interest Rate SwapAgreements.Pursuant to the terms of certain of the Water Interest Rate Swap Agreements, the District isrequired to post collateral in favor of a counterparty to the extent that the District’s total exposure fortermination payments to that counterparty exceeds the threshold amount specified in the applicable WaterInterest Rate Swap Agreement. The applicable collateral posting threshold amounts specified in suchWater Interest Rate Swap Agreements would be lower in the event certain ratings assigned to the WaterSystem Revenue Bonds were to be revised downward or withdrawn. In the case of a ratings withdrawal orsignificant downward rating revision, such decline in the applicable threshold amounts could significantlyincrease the District’s collateral posting obligation thereunder. If the District’s ratings are revised upward,the amount of collateral required to be posted by the District under certain of the Water Interest RateSwap Agreements could be reduced.Under the terms of the Water Interest Rate Swap Agreements, the counterparties are required torelease collateral to the District as market conditions become favorable to the District and may berequired to post collateral for the benefit of the District to the extent that such counterparty’s totalexposure for termination payments to the District exceeds the threshold amount specified in the applicableWater Interest Rate Swap Agreement. As of December 1, 2012, the District had $9.39 million {update inJanuary} in collateral posted in favor of the counterparties to the Water Interest Rate Swap Agreements.The highest amount of collateral the District has been required to post in connection with the WaterInterest Rate Swap Agreements on any date was approximately $24.70 million, as of November 30, 2011.The amount of collateral varies from time to time due primarily to interest rate movements and canchange significantly over a short period of time. In the future, the District may be required to postadditional collateral, or may be entitled to a reduction or return of the required collateral amount.Collateral deposited by the District is held by the counterparties or an agent therefor. A bankruptcy of anycounterparty holding collateral posted by the District could adversely affect the return of the collateral tothe District. Moreover, posting collateral limits the District’s liquidity. If collateral requirements increasesignificantly, the District’s liquidity may be adversely affected.81277574.3 A-44

Debt Service RequirementsTable 16 shows future payments on outstanding debt.Table 16WATER SYSTEM ESTIMATED DEBT SERVICE (1)Series 2012B Series 2013A State Parity Loans (3) Ending June 30Parity Debt CP Notes (4)Service (5)Total Water SystemFiscal Year Series 2005A ThroughRevenue Bonds and Water System Total Debt2013 $ 130,290,849 $ 581,336 $ 1,400,108 $ 132,272,293 $ 9,387,000 $ 141,659,2932014 119,216,895 5,578,500 1,400,108 126,195,503 9,387,000 135,582,5032015 132,717,435 7,786,250 1,400,108 141,903,793 9,387,000 151,290,7932016 145,033,604 7,815,750 1,400,108 154,249,462 9,387,000 163,636,4622017 146,429,385 7,845,000 1,400,108 155,674,493 9,387,000 165,061,4932018 150,185,667 7,868,250 1,400,108 159,454,025 9,387,000 168,841,0252019 150,028,295 7,900,000 1,400,108 159,328,403 9,387,000 168,715,4032020 149,859,181 7,934,000 1,400,108 159,193,289 9,387,000 168,580,2892021 149,631,246 7,964,250 1,400,108 158,995,604 9,387,000 168,382,6042022 157,380,105 -- 1,400,108 158,780,213 9,387,000 168,167,2132023 157,199,809 -- 1,400,108 158,599,917 9,387,000 167,986,9172024 157,487,728 -- 1,400,108 158,887,836 9,387,000 168,274,8362025 157,463,332 -- 1,260,248 158,723,579 9,387,000 168,110,5792026 157,454,993 -- 1,260,248 158,715,241 9,387,000 168,102,2412027 152,220,505 -- 1,260,248 153,480,753 9,387,000 162,867,7532028 152,200,775 -- 1,260,248 153,461,023 9,387,000 162,848,0232029 152,178,142 -- -- 152,178,143 9,387,000 161,565,1432030 153,415,504 -- -- 153,415,504 9,387,000 162,802,5042031 153,395,663 -- -- 153,395,663 9,387,000 162,782,6632032 153,370,111 -- -- 153,370,111 9,387,000 162,757,1112033 153,342,912 -- -- 153,342,913 9,387,000 162,729,9132034 153,322,285 -- -- 153,322,285 9,387,000 162,709,2852035 153,296,325 -- -- 153,296,325 9,387,000 162,683,3252036 153,267,783 -- -- 153,267,783 9,387,000 162,654,7832037 152,331,545 -- -- 152,331,545 9,387,000 161,718,5452038 150,904,698 -- -- 150,904,698 9,387,000 160,291,6982039 148,347,851 -- -- 148,347,851 9,387,000 157,734,8512040 37,542,920 -- -- 37,542,920 9,387,000 46,929,920Total (6) $4,079,515,548 $61,273,336 $21,842,285 $4,162,631,168 $262,836,000 $4,425,467,168_____________________(1)Debt service is calculated on a cash basis.(2)On November 1, 2012, the District entered into a forward delivery purchase contract for the sale of $48,670,000 aggregate principal amount of Series 2013A Bonds to be delivered, subject to theterms and conditions set forth in such forward delivery purchase contract, on or about March 5, 2013. Excludes Series 2003 Bonds expected to be refunded by the Series 2013A Bonds. Fiscal Year2013 includes debt service on refunded Series 2008A Bonds, Series 2008B-3 Bonds and Series 2009A Bonds prior to the refunding of portions of such bonds in November 2012. Includes fees toliquidity providers. Assumes debt service on outstanding Series 2008A Bonds, Series 2008B-3 Bonds and Series 2011A Bonds has been fixed pursuant to interest rate swap agreements. Assumesdebt service on hedged principal amount of Series 2009A Bonds has been fixed pursuant to interest rate swap agreements. See “– Variable Rate and Swap Obligations” above. Assumes 10-yearaverage SIFMA Index plus 10 basis points on unhedged Series 2009A Bonds. Includes total interest before application of any cash subsidy received by the District from the United States Treasuryrelating to the Series 2010B Bonds (Build America Bonds).(3)Includes Parity State Loans. See “SECURITY FOR THE SERIES 2009A-2 BONDS – Outstanding Water System Revenue Obligations – State Loans.”(4)Assumes $312,900,000 outstanding and interest rate of 3.00%. Includes interest only (no principal amortization). While the commercial paper program is limited by statute to seven years, it is theDistrict’s intention to reestablish the commercial paper program prior to the expiration of each seven-year period.(5)May not add due to rounding.Source: The District.81277574.3 A-45

Financial Management PoliciesThe District has detailed management policies that include guidelines for debt, capital planning,investments, derivatives, and formal reserves. It is the current policy of the District to seek to maintain adebt service coverage ratio of 1.6 times on its outstanding Water System Revenue Bonds and to fundapproximately 35% of its capital program over each five-year planning period from revenues and sourcesother than debt. The debt policy also limits unhedged variable rate debt to 25% of the total debt portfolio.Derivatives use is governed by a comprehensive derivatives policy with guidelines for counterparties,termination, and risk exposure. The District budgets for a number of formal reserves, including: (i) aworking capital reserve equal to three months of operation and maintenance expenses; (ii) a self-insurancereserve equal to 1.25 times the expected annual expenditure; (iii) a workers’ compensation reserve ofapproximately $3.2 million in Fiscal Year 2013; and (iv) a contingency/rate stabilization reserve of 20%of projected annual water volume sales revenues. The aggregate budgeted reserves level for Fiscal Year2013 is approximately $115.3 million, which amount the District currently maintains in accordance withits reserve policies. The current investment policy dictates investment criteria, reporting, andadministrative requirements.District Investment PolicyFunds of the District are invested in accordance with the Government Code of the State ofCalifornia (the “State”), the Municipal Utility District Act and the District’s investment policy. The fourprimary investment criteria set forth in the District’s written investment policy are (in order of priority):(1) preservation of principal; (2) maintenance of liquidity; (3) yield; and (4) diversity. In order to keepfunds available to meet commitments, the District’s investment policy provides that the maturity date (orput provision) of individual investments shall not exceed five years and that the average maturity of theportfolio shall not exceed 720 days. Investments permitted by the District’s current investment policyinclude U.S. Treasury notes, bonds and bills, the State of California Local Agency Investment Fund,obligations issued by federal agencies, bankers’ acceptances and commercial paper rated in the highestshort-term rating category, as well as collateralized repurchase agreements, certificates of time depositwith maturities not to exceed five years and negotiable certificates of deposit, with maturities not toexceed five years, medium term corporate notes with maturities not to exceed five years, and Californiamunicipal bonds with maturities (or put provisions) not to exceed five years. Monies in the funds andaccounts held by the Trustee under the Indenture may be invested only in Investment Securities, asdefined therein. The District does not enter into reverse repurchase agreements or otherwise borrow forpurposes of investing, and the District does not invest in derivatives. The District has, however, enteredinto interest rate swap transactions to hedge interest rate exposure on outstanding variable rate WaterSystem Revenue Bonds as described herein.Pursuant to the District’s investment policy, all securities purchased from dealers and brokers areheld in safekeeping by the trust department of a state or national bank on a payment vs. delivery basis.Collateral is delivered or assigned under a tri-party agreement for all repurchase agreements. Tradeconfirmations are reviewed for conformity to the original transaction by an individual other than the onewho originated the transaction. Transactions are ratified by the General Manager and reported quarterly tothe Finance/Administration Committee of the Board.Cash and InvestmentsThe District’s cash and investments are segregated by restricted and unrestricted amounts.Restricted cash and investments generally include bond proceeds and debt service reserve funds,developer advances and capital contributions, and other miscellaneous restricted amounts. At June 30,2012, the breakdown between restricted and unrestricted amounts is as follows:81277574.3 A-46

Source: The District.Table 17CASH AND INVESTMENTS(Thousands)Cash and investments included in current assets $279,970Cash and investments included in unrestricted assets 7,844Total unrestricted cash and investments $287,814Cash and investments included in restricted assets 97,803Total cash and investments $385,617See also Note 2 in APPENDIX B – “EAST BAY MUNICIPAL UTILITY DISTRICT AUDITEDFINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2012 AND 2011” for a descriptionof the District’s investment portfolio.Historical Operating ResultsThe District’s financial statements for Fiscal Year 2012, and the Report of Maze & Associates,independent accountants, are included as Appendix B, and should be read in their entirety. The summaryof operating results for Fiscal Years 2008 through 2012 contained in Table 18 is derived from informationfrom the audited financial statements for such Fiscal Years and is qualified in its entirety by reference tosuch statements, including the notes thereto.Table 18 sets forth the historical operating results and the calculation of the debt service coverageratio for the Water System for each of the last five Fiscal Years.[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]81277574.3 A-47

Table 18WATER SYSTEMHistorical Operating Results and Debt Service Coverage (1)Fiscal Years 2008 through 20122008 2009 2010 2011 2012WATER REVENUES (2) :Water Sales (3) $270,564,429 $287,313,350 (10) $271,022,353 $283,643,516 $306,228,357Power Revenue 3,090,201 4,319,127 6,232,524 8,081,710 4,609,259Interest 40,635,646 (7) 24,529,822 9,567,239 (11) 5,333,109 4,551,068SCC Revenue (4) 19,743,005 16,090,659 40,490,369 46,190,321 30,733,972Seismic Rate Surcharge (5) 14,842,821 15,479,577 16,657,412 18,102,265 19,172,928Other Revenue 29,364,932 (8) 6,084,034 7,726,627 (12) 13,363,139 (12)(13) 16,159,977 (13)TOTAL WATER REVENUES $378,241,034 $353,816,569 $351,696,524 $374,714,060 $381,455,561WATER OPERATION &MAINTENANCE COSTS:Operating Expenses $177,589,113 $199,631,357 $178,964,687 $181,709,853 $197,818,566(Less Tax Receipts) (6) (22,731,052) (23,417,301) (22,889,117) (22,235,567) (23,385,603)TOTAL WATER OPERATION &MAINTENANCE COSTS $154,858,061 $176,214,056 $156,075,570 $159,474,286 $174,432,963NET WATER REVENUES $223,382,973 $177,602,513 $195,620,954 $215,239,774 $207,022,598PARITY DEBT SERVICE:Water System Revenue Bonds (9) $119,395,490 $117,591,055 $123,816,375 $140,187,590 $127,235,004Parity State Loans 139,860 1,400,108 1,400,108 1,400,108 1,400,105TOTAL PARITY DEBT SERVICE $119,535,350 $118,991,163 $125,216,483 $141,587,698 $128,635,109PARITY DEBT SERVICE COVERAGE 1.87 1.49 1.56 1.52 1.61SUBORDINATE WATER SYSTEMDEBT SERVICE (14) $ 12,485,052 $ 6,109,336 $ 4,425,458 $ 3,086,117 $ 8,495,107TOTAL PARITY AND SUBORDINATEDEBT SERVICE $132,020,402 $125,100,499 $129,641,941 $144,673,815 $137,130,216PARITY AND SUBORDINATE DEBTSERVICE COVERAGE 1.69 1.42 1.51 1.49 1.51______________________(1)Calculated in accordance with the Indenture as footnoted.(2)Revenues exclude grant receipts, taxes, and certain developer contributions which are treated as contributions (not WaterRevenues).(3)Reflects average daily billed consumption of 191.0 MGD in Fiscal Year 2008, 169.8 MGD in Fiscal Year 2009, 160.4 MGD inFiscal Year 2010, 160.5 MGD in Fiscal Year 2011 and 162.1 MGD in Fiscal Year 2012.(4)System Capacity Charge (“SCC”) Revenues presented in the table above include the “buy in” portion of SCC charges whencollected and the “future water supply” portion of SCC charges when applied from the Future Water Supply Fund to offset suchdebt service costs. See “– System Capacity Charge” above. SCC Revenues are capitalized and are not recognized as operatingrevenues for purposes of the District’s audited financial statements.(5)Seismic rate surcharge revenues are capitalized and are not recognized as operating revenues for purposes of the District’s auditedfinancial statements.(6)Operation and Maintenance Costs exclude those expenses paid from District’s share of countywide 1% property tax revenues.Under current District policy, District’s share of countywide 1% property tax revenues are used to pay for operations allocable tomaintenance of fire protection capacity.(7)Includes interest earnings on District’s Series 2007A Bond proceeds.(8)Includes receipt of approximately $23.7 million of nonrecurring litigation and insurance proceeds.(9)Includes net swap payments.(10)Reflects adoption of drought surcharge during Fiscal Year 2009. See “ – Supplemental Supply Charge.”(11)Includes interest earnings on District’s Series 2010B Bonds proceeds.(12)Includes interest subsidy received in connection with the Series 2010B Bonds (Build America Bonds).(13)Does not include payment received by the District from Chevron for reimbursement of capital costs incurred by the District for theRARE Water Project. See “THE WATER SYSTEM – Water Recycling.”(14)Includes outstanding Water System commercial paper notes and certain federal and State subordinate loans (which loans havesubsequently been retired). With respect to commercial paper notes includes interest only with no principal amortization.Source: The District.81277574.3 A-48

District Management’s Discussion of Operating ResultsAs reflected in the preceding table summarizing the District’s operating revenues, operatingexpenses and net revenues for the five Fiscal Years ended June 30, 2008 through June 30, 2012, recentFiscal Years have been characterized by decreased water sales volumes which resulted from the impact ofpast conservation combined with a prolonged economic downturn. Since Fiscal Year 2007, water salesvolumes have decreased from 193.1 MGD to 162.1 MGD in Fiscal Year 2012. Water sales revenuesincreased in Fiscal Year 2012 by $22.6 million from Fiscal Year 2011 as a result of a water rate increaseof 6.0% and slightly higher billed consumption of 0.9% compared to Fiscal Year 2011. Power revenuesdecreased by $3.5 million from Fiscal Year 2011 to Fiscal Year 2012 due to a decrease in available waterrun-off. SCC Revenues decreased from $46.2 million to $30.7 million as a result of lower application ofreimbursements for debt service repayment from the Future Water Supply Fund and lower collectionsfrom developers. Fiscal Year 2012 interest income decreased by $0.7 million due to a generally lowerinterest rate environment. In response to reduced water sales and the effects of the economic downturn,the District continued its cost containment efforts such as not filling budgeted positions, foregoing salaryincreases, decreasing contract services, and deferring discretionary expenses. Operating expenses forFiscal Year 2012 increased by $16.1 million primarily reflecting increases in expenses for energy,chemicals and solids and additional infrastructure repair and maintenance costs. The District’s debtservice coverage ratio for Fiscal Year 2012 met the Board target of 1.60 through significant expensereductions, a rate increase, and debt service savings. The decrease of $12.9 million in debt serviceexpenses included the application of approximately $1 million in available bond reserve funds for finalprincipal payment on the now-retired Series 2001 bonds and the release of $7.5 million of excess funds inthe bond reserve fund for the early retirement of a portion of the principal of the subsequently refundedSeries 2002 Bonds. An additional $3.5 million of savings were realized in connection with the refundingof the Series 2002 bonds by the Series 2011A Bonds in December 2011.See also “Management’s Discussion and Analysis” contained in APPENDIX B – “EAST BAYMUNICIPAL UTILITY DISTRICT AUDITED FINANCIAL STATEMENTS FOR THE YEARSENDED JUNE 30, 2012 AND 2011.”Projected Operating ResultsIn the preparation of the projections in this section, the District has made certain assumptionswith respect to conditions that may occur in the future. While the District believes these assumptions arereasonable for the purpose of the projections, they are dependent on future events, and actual conditionsmay differ from those assumed. To the extent actual future factors differ from those assumed by theDistrict or provided to the District by others, the actual results will vary from those forecasted. Thisprojected information has not been compiled, reviewed or examined by the District’s independentaccountants.Table 19 sets forth the projected operating results and calculation of the debt service coverageratio for the Water System for the current and next four Fiscal Years. The projected results are based onthe District’s Biennial Budget for Fiscal Years 2012 and 2013 (which provided a budget forecast forFiscal Years 2012 through 2016), the District’s Mid-Cycle Budget Update for Fiscal Year 2013 (whichwas presented to the Board in May 2012) and additional information based on recent experience. Theprojections reflect the issuance of the District’s Series 2012B Bonds in November 2012 and assume theissuance of the Series 2013A Bonds in March 2013. In the preparation of the projected operating results,the District developed forecasts of water consumption for the projection period, taking into accounthistorical consumption levels, the continuing effects of conservation measures, limited growth in theservice area, and the expectations for the future economic environment. The District is adjusting to a“new normal” without expectation that growth will significantly bolster net revenues. As such,81277574.3 A-49

maintaining the District's policy target of 1.60x for debt service coverage on its Water System RevenueBonds will require annual rate increases, continued cost containment efforts, and debt service savings.The projection period assumes a 6.8% average annual rate increase, consistent with historic levels.Operating expenses incorporate salary and benefit expectations. The District's service area is mature andsignificant increases in SCC revenues are not expected. A higher level of cash funded capital spending isassumed as a result of the cash generated by higher coverage levels and in response to the nature of theDistrict's capital plan which is largely comprised of renewal and replacement projects.The District’s next Biennial Budget will be prepared for Fiscal Years 2014 and 2015 and willinclude a new budget forecast for Fiscal Years 2014 through 2018 and proposed rate increases for FiscalYears 2014 and 2015. The Biennial Budget for Fiscal Years 2014 and 2015 is expected to be adopted byJune 30, 2013.[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]81277574.3 A-50

Table 19WATER SYSTEMProjected Operating Results and Debt Service Coverage (Millions)Fiscal Year Ending June 302013 2014 2015 2016 2017WATER REVENUES (1) :Water Sales (2) $323.5 $352.7 $387.8 $412.1 $438.0Power Revenue 5.7 5.7 5.7 5.7 5.7Interest Earnings (3) 4.0 4.5 4.5 4.5 4.5SCC Revenue (4) 40.0 23.7 23.3 24.6 25.9Seismic Rate Surcharge (5) 20.3 22.2 24.2 25.4 26.6Other Revenue (6) 15.1 15.2 15.2 15.2 15.2TOTAL WATER REVENUES $408.6 $424.0 $460.7 $487.5 $515.9WATER OPERATION & MAINTENANCE COSTS:Operating Expense $207.3 $239.5 $247.7 $248.2 $256.1(Less Tax Receipts) (7) (22.9) (23.4) (23.8) (24.3) (24.8)TOTAL WATER OPERATION & MAINTENANCE COSTS $184.4 $216.1 $223.9 $223.9 $231.3NET WATER REVENUES $224.2 $207.9 $236.8 $263.6 $284.6PARITY DEBT SERVICE:Water System Revenue Bonds (8) $132.1 $125.7 $141.4 $153.7 $165.1Parity State Loans 1.4 1.4 1.4 1.4 1.4TOTAL PARITY DEBT SERVICE $133.5 $127.1 $142.8 $155.1 $166.5PARITY DEBT SERVICE COVERAGE 1.68 1.64 1.66 1.70 1.71SUBORDINATE WATER SYSTEMCP NOTES DEBT SERVICE (9) $ 3.2 $ 7.6 $ 8.2 $ 8.2 $ 8.2TOTAL PARITY AND SUBORDINATEDEBT SERVICE $136.7 $134.7 $151.0 $163.3 $174.7PARITY AND SUBORDINATEDEBT SERVICE COVERAGE 1.64 1.54 1.57 1.61 1.63__________________________(1)Revenues exclude grant receipts, taxes, and certain developer contributions which are treated as contributions (not Water Revenues).(2)(3)(4)(5)(6)(7)(8)Assumes projected average daily billed consumption per day of 162.1 MGD in Fiscal Year 2013, 164.0 MGD in Fiscal Year 2014, 166.0MGD in Fiscal Year 2015, 168.8 MGD in Fiscal Year 2016 and 171.7 MGD in Fiscal Year 2017. Assumes an annual average rate increase of6.8% over the projection period. See “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS.”Assumes approximately 1.0% earnings rate on fund balances for Fiscal Year 2013 and 1.5% earning rate in Fiscal Year 2014 and thereafter.SCC Revenues presented in the table above include the projected “buy in” portion of SCC charges when collected and the “future watersupply” portion of SCC charges when applied from the Future Water Supply Fund to offset such debt service costs. See “– System CapacityCharge” above. SCC Revenues are capitalized and are not recognized as operating revenues for purposes of the District’s audited financialstatements.Seismic rate surcharge revenues are capitalized and are not recognized as operating revenues for purposes of the District’s audited financialstatements.Anticipated receipt of Build America Bonds Subsidy relating to Series 2010B Bonds has been included in Other Revenue.Water Operation and Maintenance Costs exclude those expenses paid from ad valorem taxes. Under current District policy, taxes are used topay for operations allocable to maintenance of fire protection capacity.Reflects the issuance of the Series 2012B Bonds in November 2012 and assumes the issuance of the Series 2013A Bonds in March 2013.Assumes that interest with respect to the outstanding Series 2008A Bonds, the Series 2008B-3 Bonds, the Series 2011A Bonds and thehedged principal amount of the Series 2009A Bonds have been swapped to fixed rates. See “SECURITY FOR THE SERIES 2009A-2BONDS – Outstanding Water System Revenue Obligations – Interest Rate Swap Agreements.” Assumes 10-year average SIFMA Index plus10 basis points on unhedged Series 2009A Bonds. Includes liquidity fees. Assumes future issuance of additional Bonds of approximately$79.3 million in Fiscal Year 2014, approximately $96.5 million in Fiscal Year 2015, $103.5 million in Fiscal Year 2016 and $122.4 million inFiscal Year 2017. Assumes three years capitalized interest on such Bonds. Also includes additional amount budgeted by the District (notincluded in Table 16) for estimated basis differential between variable rate bond interest rates and related swap receipts.81277574.3 A-51

(9)Assumes interest only at 1.00% per annum in Fiscal Year 2013 and 2.00% per annum thereafter with no principal amortization.Source: The District.81277574.3 A-52

Employees’ Retirement SystemGeneral. The District has a contributory retirement system covering substantially all of itsemployees (including the Water System and Wastewater System). The East Bay Municipal Utility DistrictEmployees’ Retirement System (“Retirement System”) was established in 1937 to administer a singleemployer,contributory, defined benefit pension plan (the “Plan”) to provide retirement, disability,survivorship and post-employment health insurance benefits for eligible directors, officers and employeesof the District. The Plan is funded by contributions from its members and from the District, and frominvestment earnings on Plan assets. The payment of benefits earned by plan members of the RetirementSystem is an obligation of the District. Employees of the District are also covered by Social Security.The Retirement System is administered by a Retirement Board composed of three membersappointed by the District Board, two members elected by and from the active membership and one(nonvoting) member elected by and from the retired membership of the Retirement System. OrdinanceNo. 40 of the District, effective October 1, 1937, as amended (the “Retirement System Ordinance”),assigns the authority to establish Plan benefit provisions to the District Board.Contributions to the Retirement System are made by the members and the District. Eachmember’s contribution is based upon a percentage of that member’s covered compensation. Theemployee contribution rates are prescribed in the Retirement System Ordinance and may be adjusted bythe District Board solely pursuant to the terms of a negotiated collective bargaining agreement or MOUwith employee bargaining units. The District employees’ contribution rate has been 6.86% since April2006. The District (employer) contributions are based upon percentages of the aggregate amount ofmembers’ covered compensation. Employer contribution percentages are established by the DistrictBoard. Such percentages are based upon actuarial valuations.As of June 30, 2012, collectively for the Water and Wastewater Systems, there were 1,705 activeplan members, 223 terminated plan members entitled to but not yet receiving benefits and 1,369 retireesand beneficiaries receiving benefits.Table 20 below sets forth the number of active members, total plan assets, District and Membercontributions and retirement allowances paid in the five Fiscal Years 2008 through 2012.Table 20RETIREMENT SYSTEMActive Members, Total Plan Assets, District and Member Contributions and Allowances PaidFive Fiscal Years Ended June 30, 2012 (1)Fiscal YearEndedJune 30ActiveDistrictMembers (2) Total Plan Assets (3) Contribution (4)MemberContributionsAllowancesPaid FromRetirement Plan (5)2008 2,029 $838,614,000 $44,603,000 $10,394,000 $50,780,0002009 2,022 668,750,000 45,803,000 10,740,000 54,502,0002010 1,978 769,052,000 51,756,000 10,918,000 58,109,0002011 1,928 968,239,000 58,481,000 10,850,000 62,114,0002012 1,925 986,972,000 59,651,000 10,723,000 66,843,008(1)(2)(3)(4)(5)Includes Health Insurance Benefit Plan.Includes active plan members and terminated plan members entitled to but not yet receiving benefits.Market value as of June 30 of such Fiscal Year as shown in the audited financial statements of the Retirement System.The District estimates that approximately 85% of the District’s annual contributions are attributable to the Water System andapproximately 15% are attributable to the Wastewater System.Includes benefits paid and refunds of contributions.81277574.3 A-53

Source: The District.The Retirement System is an integral part of the District and, as noted above, the District appointsthe majority of the governing body of the Retirement System and provides for its funding. Accordingly,the Retirement System’s operations are reported as a Pension and Other Employee Benefit Trust Fund inthe District’s basic financial statements. The Retirement System also issues separately available financialstatements on an annual basis. Such financial statements can be obtained from the District at 375 EleventhStreet, Oakland, California 94607.The amounts set forth in this discussion of the Employees’ Retirement System, including, forexample, actuarial accrued liabilities and funded ratios, are based upon numerous demographic andeconomic assumptions, including investment return rates, inflation rates, salary increase rates, cost ofliving adjustments, postemployment mortality, active member mortality, and rates of retirement.Prospective purchasers of the District’s bonds are cautioned to review and carefully assess thereasonableness of the assumptions set forth in the documents that are cited as the sources for suchinformation. In addition, prospective purchasers of the District’s bonds are cautioned that such sourcesand the underlying assumptions speak as of their respective dates, and are subject to change. Prospectivepurchasers of the District’s bonds should also be aware that some of the information presented in thisdiscussion of the Employees’ Retirement System contains forward-looking statements and the actualresults of the Retirement System may differ materially from the information presented herein.Benefits. All regular full-time employees (as well as certain job share and intermittentemployees) of the District are members of the Plan. In accordance with the Retirement System Ordinance,eligible employees become members of the Plan on the first day they are physically on the job.Retirement plan benefits are generally determined by formula based on the employee’s compensation inthe last two years of employment and the length of employment with the District. Benefits adopted by theDistrict vest in part with members after five years of continuous full-time employment. Vested memberswho terminate employment may elect a refund of their contributions or leave them in the Plan untileligible to receive benefits.In addition to retirement benefits, the District provides post-employment health benefitsassistance, administered by the Retirement System, for employees who retire from the District or theirsurviving spouses. As of June 30, 2012, there were 1,261 participants receiving these healthcare benefits.For participants entering the Retirement System prior to July 1, 1996, a monthly allowance of up to $450($550 for married retirees and retirees with financially dependent registered domestic partners) is paid toretirees with at least five years of full-time service to reimburse the retiree-paid medical expenses(including any health, dental or long-term care insurance premiums paid by the retiree for his or her self,and current spouse or domestic partner, or any health, dental or long-term care insurance premiums paidby the eligible surviving spouse of a retiree). Effective July 1, 1996, a 20-year vesting schedule for fullbenefits was implemented for all new employees. Effective January 1, 1999, retired members who hadseparated from the District prior to their retirement and who had at least 10 years of service also becomeeligible for the post-employment healthcare benefits based on the same sliding scale.Actuarial Assumptions and Funding Policy. Under the ordinance governing the RetirementSystem, the District is required to have an actuarial study performed at least every two years, but theDistrict’s current policy is to have an actuarial study performed each year. The most recent actuarial studyof the Retirement System, including the pension and the HIB trusts, was performed by The SegalCompany, as of June 30, 2011. A new actuarial study as of June 30, 2012 is expected to be completed inJanuary 2013. {check to update when completed}81277574.3 A-54

The actuarial report provides a basis for the District Board’s decision regarding the rate ofcontributions by the District to the Retirement System, including both the pension and the healthinsurance benefit (“HIB”) trusts. The District makes its contribution using rates determined by its outsideactuaries.The actuarial valuation results included in this disclosure for the pension plan have been preparedusing parameters required under Governmental Accounting Standards Board (“GASB”) Statements 25and 27. These GASB Statements will be replaced by GASB Statements 67 and 68 for financial reportingpurposes effective with Fiscal Year 2014 for the Plan and Fiscal Year 2015 for the District. The newGASB Statements will require much shorter amortization periods for recognition of non-investmentgains/losses and actuarial assumption changes, as well as changes in the recognition of investmentgains/losses. GASB has indicated throughout their process of obtaining comments from the retirementand accounting communities that the new GASB Statements may provide for a new and completeseparation between financial reporting and funding requirements for pension plans.To calculate the required contribution for each Fiscal Year, assumptions are made about futureevents that affect the amount and timing of benefits to be paid and assets to be accumulated. Each yearactual experience is measured against the assumptions. If overall experience is more favorable thananticipated (an actuarial gain), the contribution requirement will decrease from the previous year. On theother hand, the contribution requirement will increase if overall actuarial experience is less favorable thanassumed (an actuarial loss). If assumptions are changed, the contribution requirement is adjusted to takeinto account a change in experience anticipated for all future years.A summary of the funding method and assumptions utilized in the actuarial study as of June 30,2011 are described below.Funding Method. The Plan’s funding policy provides for periodic District contributions atactuarially determined amounts sufficient to accumulate the necessary assets to pay benefits when due asspecified by the ordinance governing the Retirement System. The entry age normal cost method is usedfor this purpose. Under the entry age normal cost method, there are two components to the totalcontributions: (i) the normal cost, which is the amount of contributions required to fund the benefitallocated to the current year of service (associated with active employees only), and (ii) an amortizationpayment on any unfunded actuarial accrued liability (“UAAL”). The normal cost is calculated on anaggregate basis by taking the present value of future normal costs divided by the present value of futuresalaries to obtain a normal cost rate. The normal cost rate is then multiplied by the total current salaries.The UAAL (past service liability) is amortized as a level percentage of payroll on a closed basis over a 30year period. The actuarial accrued liability is calculated on an individual basis and is based on costsallocated as a level percentage of compensation.Amortization Periods. As of June 30, 2011, the unfunded actuarial accrued liability is currentlybeing funded using a layered approach. Each layer of the UAAL is being funded over a separate 30-yeardecreasing period, starting from the date the layer was originally established. Under the layered approach,any new UAAL that emerges between the prior and the current actuarial valuation (due to deviationsbetween actual and expected actuarial experience, changes in actuarial assumptions used to measure theliabilities or other factors) will be determined and factored into the District’s contribution rates so that itwill be paid off in 30 years from the date of the current valuation.Actuarial Assumptions. A number of assumptions are used to calculate the costs of the Plan andto compute contribution requirements for the Plan. The principal assumptions used in preparing theactuarial study as of June 30, 2011 include:81277574.3 A-55

1. Investment rate of return: 8.00%.2. Inflation rate: 3.50%.3. Interest credited to member contributions: 8.00%.4. Projected salary increases: Ranges from 4.70% to 10.00% based on years of service(includes inflation at 3.50% plus across the board salary increase of 0.50% plus merit andpromotional increases).5. Cost of living adjustments: 3.25%.6. Increase in HIB maximum monthly allowance: The Plan does not provide for anautomatic increase in the HIB allowance and no such increase is assumed in thevaluation.7. Additional assumptions: Additional assumptions were used regarding rates oftermination from active membership, post-retirement mortality, active member mortality,disability rates and rates of retirement.Actuarial Value of Assets (Asset Smoothing Method). Methods used to compute Districtcontribution requirements include a five-year smoothing of the difference between the actual marketreturn and the expected return on the market value of the assets (with further adjustments as may berequired to keep the smoothed assets within 30% of market value). The impact of this will result in a“smoothed” valuation value of assets (or “Actuarial Value of Assets”) that is higher or lower than themarket value of the assets depending on whether the amount that is being smoothed is either a net gain ora net loss.Adopted Changes in Actuarial Assumption and Amortization Periods. Under the ordinancegoverning the Retirement System, the District is required to have an actuarial experience study conductedduring each four-year period in order to review the mortality, service and compensation experience of themembers, retired members and beneficiaries of the Retirement System, over the study period. Theexperience study provides the factual information upon which the outside actuary makesrecommendations to the District regarding the economic and demographic assumptions that provide thebasis for the actuarial valuation of the assets and liabilities of the Retirement System. In November 2012,The Segal Company completed and presented to the Retirement Board, its Analysis of ActuarialExperience During the Period July 1, 2008 through June 30, 2012, for the Retirement System (the “2012Experience Study”). The 2012 Experience Study utilized demographic data of the Plan’s members andretirees from the last four actuarial valuations and provided recommendations regarding changes to theeconomic and demographic actuarial assumptions to be used in the June 30, 2012 and later actuarialvaluations. Pursuant to the 2012 Experience Study, the actuary recommended changes in a number of theactuarial assumptions used to calculate the costs of the Plan and to compute the future contributionrequirements for the Plan, including changes in the assumptions from those used in the actuarial study ofthe Plan as of June 30, 2011 as described under “Actuarial Assumptions” above. The recommendedchanges in the actuarial assumptions include, among others, the following: (i) a reduction in the assumedinvestment rate of return from 8.00% to 7.75%; (ii) a reduction in the assumed inflation rate from 3.50%to 3.25%; (iii) a reduction in the projected salary increases from the range of 4.70% to 10.00% based onyears of service (and including the 3.50% assumed inflation rate plus across the board salary increases of0.50% plus merit and promotional increases) to a range of 4.25% to 9.75% (including the newrecommended 3.25% assumed inflation rate plus across the board salary increases of 0.50% plus meritand promotional increases); and (iv) a reduction in the assumed long-term annual average cost of livingadjustment from 3.25% to 3.15%. At its November 15, 2012 meeting, the Retirement Board approved thechanges in assumptions recommended by the actuary for the actuarial valuation to be performed as ofJune 30, 2012. The actuary estimated the change in total normal cost and actuarial accrued liability for thepension plan (not including the HIB) due to the proposed assumption changes, as if they were applied in81277574.3 A-56

the June 30, 2011 actuarial valuation. As reported in the 2012 Experience Study, if all of the proposedassumption changes were implemented in the June 30, 2011 valuation, the total normal cost of thepension plan (not including the HIB) would have increased by approximately $1.4 million and theactuarial accrued liability of the pension plan as of June 30, 2011 would have increased by approximately$48.4 million.At the November 15, 2012 meeting, the Retirement Board also adopted a change in theamortization policy for the unfunded actuarial accrued liability (UAAL), effective with the June 30, 2012valuation. In particular, changes in the UAAL due to actuarial assumption or method changes on or afterJuly 1, 2011 will be amortized on a 25-year period (the current amortization period for assumption ormethod changes is 30 years). In their experience study report, The Segal Company, the actuary, hadpreviously estimated the effect of this change in the amortization policy combined with the effect of thechanges in the actuarial assumptions, assuming all of these changes had been implemented in the June 30,2011 valuation. Assuming payment at the beginning of the year, all of these changes were estimated toincrease the District contribution rate for the pension plan (not including the HIB) by about 2.8% ofpayroll.It should also be mentioned that, at the September 20, 2012 meeting, the Retirement Board alsoadopted a modification from an aggregate version to an individual version of the Entry Age Normalfunding method. In their November 7, 2012 letter, the actuary estimated that this modification wouldincrease the District’s normal cost rate by about 0.7% of payroll. This estimate was again based on theresults of the June 30, 2011 valuation.Contribution History. The schedule of District contributions for each of the pension plan and theHIB plan for the last five Fiscal Years are shown in Table 21 below:Pension Plan:Fiscal YearEnded June 30:Table 21RETIREMENT SYSTEMHistory of ContributionsFive Fiscal Years Ended June 30, 2012($ in 000’s)DistrictContribution Rateat June 30Annual RequiredContributionActualContributionPercentageContributed2008 24.42% $37,387 $37,387 100%2009 24.96 39,485 39,485 1002010 27.24 44,031 44,031 1002011 31.80 50,987 50,987 1002012 32.91 52,156 52,156 100Health Insurance Benefit:Fiscal YearEnded June 30:DistrictContribution Rateat June 30Annual RequiredContributionActualContributionPercentageContributed (1)2008 3.83% $ 9,114 $7,216 79%2009 3.98 9,114 6,318 692010 4.91 11,370 7,725 682011 4.78 10,496 7,494 712012 4.83 11,518 7,495 6581277574.3 A-57

(1)Percentage contributed was less than 100% as the District does not pre-fund the implicit retiree rate subsidy required to bevalued under GASB Statements Nos. 43 and 45. See “– Schedule of Funding Progress” below.As reflected in the actuarial study and shown in Table 22 below, the combined Actuarial AccruedLiability for pension and HIB benefits at June 30, 2011 was $1,544,486,000 and the Actuarial Value ofAssets was $966,767,0000, resulting in an Unfunded Actuarial Accrued Liability of $577,719,000 and afunded ratio of the Plan under the entry age normal basis of 62.6%. As described above, the ActuarialValue of Assets has been calculated using a five-year smoothing of the difference between the actualmarket return and the expected return on the market value of the assets. The liabilities for the pensionbenefits are calculated in compliance with GASB Statement No. 25 (“Financial Reporting for DefinedBenefit Pension Plans, Note Disclosures for Defined Contribution Plans”) and Statement No. 27(“Accounting for Pensions by State and Local Governmental Employers”), but do not reflect theparameters of GASB Statement No. 45. See also “– Schedule of Funding Progress” below.Table 22 below sets forth the Actuarial Accrued Liability, Actuarial Value of Assets, theUnfunded Actuarial Accrued Liability and Funded Ratio as of June 30 of each of the Fiscal Years 2007through 2011 (the most recent actuarial information available).Fiscal YearEndedJune 30ActuarialAccrued Liability(AAL)Table 22RETIREMENT SYSTEMActuarial Accrued Liability, Actuarial Value of Assets,Unfunded Actuarial Accrued Liability and Funded RatioFive Fiscal Years Ended June 30, 2011 (1)($ in 000’s)ActuarialValueof AssetsMarketValueof AssetsUnfundedActuarialAccrued Liability(UAAL) (2)Funded Ratioon ActuarialValueFunded Ratioon MarketValue2007 $1,201,950 $831,306 $911,104 $370,644 69.16% 75.80%2008 1,336,676 907,927 838,614 428,749 67.92 62.742009 1,415,392 869,375 668,750 546,017 61.42 47.252010 1,491,885 925,907 769,052 565,978 62.06 51.552011 1,544,486 (3) 966,767 968,239 577,719 62.59 62.69(1)(2)Dollars rounded to nearest thousand.The District estimates that approximately 85% of the UAAL is attributable to the Water System and approximately 15% isattributable to the Wastewater System. The UAAL is determined based on the Actuarial Value of Assets.(3)Of this amount, $98,446,000 is attributable to the HIB liabilities. The HIB liabilities as calculated for GASB reportingpurposes, which include the implicit retiree rate subsidy, were $135,360,000 using a discount rate of 7.25%.Source: The Segal Company.As of June 30, 2011, the market value of the combined pension and HIB plan’s assets was$968,239,000 and the projected benefit obligation (“PBO”) was $1,498,879,000, resulting in a fundedratio of the plan under the PBO basis of 64.6%. Under the plan provisions, determination of the fundedratio on a PBO basis is required and certain cost of living increases are granted when the funded ratio ofthe plan is 85% or higher as calculated on the PBO basis.Schedule of Funding Progress. As required by GASB 45, the District reports the schedule offunding progress for each of the pension plan and the post-employment healthcare plan (HIB). Theschedule of funding progress presents multiyear trend information that shows whether the actuarial valueof plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.The schedule of funding progress for the pension plan is set forth in Table 23 below.81277574.3 A-58

ActuarialValuationDate June 30ActuarialValue ofAssetsTable 23PENSION PLANSchedule of Funding Progress(Dollar Amounts in Thousands)ActuarialAccruedLiability(AAL)UnfundedAAL(UAAL)Funded RatioCoveredPayrollUAAL as aPercentageof CoveredPayroll2007 $827,098 $1,126,106 $299,008 73.4% $153,394 194.9%2008 900,917 1,244,993 344,076 72.4 158,499 217.12009 862,021 1,323,555 461,534 65.1 161,893 285.12010 915,845 1,396,003 480,158 65.6 164,085 292.62011 954,719 1,446,039 491,320 66.0 159,505 308.0________________________________Source: The Segal Company’s Actuarial Valuation and Review of Pension Plan as of June 30, 2011.below.The schedule of funding progress for the post-employment healthcare plan is set forth in Table 24The retiree health liabilities reported in the actuarial study as of June 30, 2011 (and referred to inTable 22 above) will not match those required to be used for GASB reporting purposes as shown in Table24 below. The liabilities as reflected in the actuarial study have not been adjusted to include the implicitretiree rate subsidy as required under GASB reporting requirements. (Note that when premiums for activeemployees are determined on a pooled basis with premiums for retirees under age 65, a significantaccounting obligation may exist even though the retiree under age 65 contributes most or all of theblended premium cost of the plan. The average costs for retirees if determined on a stand-alone basis islikely to exceed the average cost for the whole group, leading to an implicit subsidy for these retirees. TheGASB accounting standard requires the employer to identify and account for this implicit subsidy as wellas any explicit subsidies the employer may provide.) In addition, the liabilities for GASB reportingpurposes for the HIB portion of the obligations shown below were determined based upon a lowerdiscount rate (i.e., 7.25%) than the 8.00% investment rate of return used in The Segal Companyprefunding study. The liabilities calculated for GASB reporting purposes shown in Table 24 below aretherefore higher than those reflected in the actuarial study as of June 30, 2011 and described above.ActuarialValuationDate June 30ActuarialValue ofAssetsTable 24POST-EMPLOYMENT HEALTHCARE BENEFIT (HIB)Schedule of Funding Progress(Dollar Amounts in Thousands)ActuarialAccruedLiability(AAL)UnfundedAAL(UAAL)Funded RatioCoveredPayrollUAAL as aPercentageof CoveredPayroll2007 $ 4,208 $105,409 $101,200 4.0% $153,394 66.0%2008 7,010 137,055 130,045 5.1 158,499 82.02009 7,354 130,245 122,891 5.6 161,893 75.92010 10,061 135,379 125,318 7.4 164,085 76.42011 12,047 135,360 123,312 8.9 159,505 77.3________________________________Source: The Segal Company Actuarial Valuation and Review of Other Postemployment Benefits (OPEB) as of June 30, 2011 inaccordance with GASB Statements No. 43 and 45.81277574.3 A-59

Related Matters. In the past few years, the Internal Revenue Service (the “IRS”) has focused itsauditing activities towards governmental retirement plans to determine if those plans are complying withfederal tax laws. While the District has consistently amended its Retirement Ordinance to comply withchanges in the federal tax code, other governmental plans failed to amend their plans to reflect changes intax laws. The failure to include these amendments put those plans at risk of a range of consequences frombeing assessed significant penalties to losing its tax-qualified status, wherein all assets under the planwould become immediately taxable. Because so many governmental plans were at risk, the IRS instituteda voluntary correction program (“VCP”), which provided such plans the opportunity to voluntarily reportany failures and institute corrective measures. In participating in the voluntary correction program,governmental plans would be protected from enforcement actions for such failures. Under the VCP, theIRS would review and approve the corrective measures proposed by the plan and at the end of the review,issue a letter of determination of tax qualified status. A letter of determination of tax qualified statuswould serve as protection against liability for prior violations of federal tax laws as well as serve as a safeharbor for future IRS audits. The District has taken advantage of this “safe harbor” opportunity byparticipating in the IRS’ voluntary correction program to make additional necessary corrections to its Planwhile protecting itself against potential tax liability. The District’s application for a determination letter tothe IRS is still under review due to the voluminous number of VCP filings. While the District is unable topredict when the IRS will ultimately act on the District’s application or what action the IRS will take inits review of such application, since the District has been amending its Retirement Ordinance to maintaincompliance with the federal tax code during the past two decades and because the voluntary correctionprogram offers a safe harbor for non-complaint plans, the District expects that the IRS will provide astatement that the District’s Plan is in compliance with the tax code and that the Plan is tax qualified.California Pension Reform Act. On August 31, 2012, the California legislature enactedAssembly Bill 340, the California Public Employees’ Pension Reform Act of 2013 (the “PEPRA”). ThePEPRA was signed into law by Governor Jerry Brown on September 12, 2012 and will become effectiveon January 1, 2013. Pursuant to the provisions of the PEPRA, as enacted, the PERPA is intended to applyto all state and local public retirement systems, independent public retirement systems, and to individualretirement plans offered by public employers, with the exception of the University of California, andCalifornia charter cities and counties, except to the extent such entities participate in any retirementsystem governed by State statute. The provisions of the PERPA will primarily apply to employees firsthired by a public agency or after January 1, 2013. Some of these provisions include certain limits on theamount and types of compensation that may be included by a retirement system in calculating pensionbenefits, the imposition of new formulas for the calculation of pension benefits for employees, certainrequirements for the sharing of the costs of pension benefits by employees, and certain limitations on theadoption of new defined benefit plans. The PERPA would prohibit certain retroactive enhancements topension benefit formulas for all employees, impose certain limits on post-retirement employment for allemployees, prohibit the purchase of non-qualified permissive service credit by all employees afterJanuary 1, 2013, and require for any employee the forfeiture of pension and retirement-related benefits forcertain felony convictions.The provisions of the PERPA and its applicability to the District’s Retirement System is currentlybeing reviewed by District management and its General Counsel, and it is too early to assess at this timewhat its ultimate impact will be. In addition, the interpretation and application of the PERPA will likelybe subject to judicial determination, and further implementing legislation.Additional information concerning the Retirement System may be found in APPENDIX B –“EAST BAY MUNICIPAL UTILITY DISTRICT AUDITED FINANCIAL STATEMENTS FOR THEYEARS ENDED JUNE 30, 2012 AND 2011.”81277574.3 A-60

Draft Prepared ByRESOLUTION NO.'tJULj-;e of General CounselAPPROVE THE FORM AND AUTHORIZE THE EXECUTION OF AREMARKETING AGREEMENT IN CONNECTION WITH THE DISTRICT'SWATER SYSTEM REVENUE REFUNDING BONDS, SERIES 2009A-2;AUTHORIZE THE DELIVERY OF A PRELIMINARY REOFFERINGCIRCULAR AND THE EXECUTION AND DELIVERY OF A FINALREOFFERING CIRCULAR; AUTHORIZE AND RATIFY CERTAINRELATED ACTIONS; AND AUTHORIZE THE OFFICERS OF THEDISTRICT TO DO ALL OTHER THINGS DEEMED NECESSARY ORADVISABLE RELATING THERETOIntroduced by Director; Seconded by DirectorWHEREAS, as authorized by Resolution No. 33704-09 adopted on February 24, 2009("Resolution No. 33704-09"), the East Bay Municipal Utility District (the "District") previouslyissued its Water System Revenue Refunding Bonds, Series 2009A (previously designated "WaterSystem Subordinated Revenue Refunding Bonds, Series 2009A" and hereinafter referred to asthe "Series 2009A Bonds") in the aggregate principal amount of $331,155,000, pursuant to theWater System Subordinated Revenue Bond Indenture, dated as of April 1, 1990, by and betweenthe District and First Interstate Bank of California, which has been succseded by The Bank ofNew York Mellon Trust Company, N.A., as successor trustee (the "Trustee"), as amended andsupplemented, including as supplemented by the Fifteenth Supplemental Indenture, dated as ofMarch 1, 2009 (the "Fifteenth Supplemental Indenture"), by and between the District and theTrustee (as so amended and supplemented, the "Water Bond Indenture"), of which $82,075,000aggregate principal amount of such Series 2009A Bonds is outstanding as of the date hereof; andWHEREAS, the Series 2009A Bonds are comprised of two subseries, Series 2009A-1 currentlyoutstanding in the aggregate principal amount of $41,040,000 (the "Series 2009A-1 Bonds") andSeries 2009A-2 currently outstanding in the aggregate principal amount of $41,035,000 (the"Series 2009A-2 Bonds"), and each subseries is currently in a SIFMA-Based Term Interest RatePeriod (during any such SIFMA-Based Term Interest Rate Period the Series 2009A Bonds ofeach subseries will bear interest at a variable rate determined on the basis of the weeklySecurities Industry and Financial Markets Association ("SIFMA") Municipal Swap Index plus orminus a spread, if any); andWHEREAS, the current SIFMA-Based Term Interest Rate Period for the Series 2009A-2 Bondsends on February 28, 2013 with the Series 2009A-2 Bonds subject to mandatory tender onMarch 1,2013; andWHEREAS, the District has reviewed its alternatives with respect to the Series 2009A-2 Bondsas the end of the current SIFMA-Based Term Interest Rate Period for such Series 2009A-2Bonds approaches and has determined that it is in the best interests of the District to provide forthe remarketing of the Series 2009A-2 Bonds upon the mandatoiy tender thereof on

March 1, 2013 and the establishment of a new SIFMA-Based Term Interest Rate Period for suchSeries 2009A-2 Bonds to take effect on March 1, 2013 and the proper officers of the Districthave taken, and will take, such actions and have given, and will give, such notices as requiredunder the Water Bond Indenture in connection therewith; andWHEREAS, the District intends to enter into a remarketing agreement, by and between theDistrict and the remarketing agents named therein, pursuant to which ttie remarketing agentsnamed therein shall agree, upon certain conditions, to purchase the Series 2009A-2 Bonds and toremarket such Series 2009 A-2 Bonds upon the mandatory tender thereof on March 1, 2013; andWHEREAS, the remarketing agents will distribute a preliminary and a final reoffering circularrelating to the Series 2009A-2 Bonds to prospective and actual purchasers of the Series 2009A-2Bonds in connection with the remarketing thereof; andWHEREAS, there has been presented to this meeting proposed form!! of certain financingdocuments relating to the Series 2009A-2 Bonds and the remarketing thereof;NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of East Bay MunicipalUtility District, as follows:Section 1. Recitals True and Correct. The Board hereby finds and determines that theforegoing recitals are true and correct.Section 2. Approval of Remarketing Agreement(s). The Board hereby approves theengagement of E.J. De La Rosa & Co., Inc. acting solely or with RBC Capital Markets, LLC asremarketing agents for the Series 2009A-2 Bonds (and/or the engagement of such otherremarketing agents as the General Manager, the Director of Finance or the Treasury Managershall determine) (collectively, the "Remarketing Agents") in connection with the remarketing ofthe Series 2009A-2 Bonds upon the mandatory tender thereof on March 1, 2013. The GeneralManager, the Director of Finance or the Treasury Manager or the designee of any of suchofficers is hereby authorized and directed to execute for and on behalf of the District one or morenew or amended and restated remarketing agreements, in substantially the form as submitted tothis meeting, with such changes, insertions and omissions as the General Manager, the Directorof Finance or the Treasury Manager shall approve after consultation with the District's GeneralCounsel and Fulbright & Jaworski L.L.P. and Curls Bartling P.C., the District's Co-BondCounsel, such approval to be conclusively evidenced by the execution and delivery thereof;provided that the remarketing agents' fees thereunder in connection with the remarketing of theSeries 2009A-2 Bonds upon the mandatory tender thereof on March 1, 2013 shall not exceed0.250% of the aggregate principal amount of the Series 2009 A-2 Bonds purchased or remarketedthereunder. The new or amended and restated remarketing agreement(s), as executed anddelivered, are hereinafter referred to as the "Remarketing Agreement(s)" and the RemarketingAgreement(s) are hereby approved.Section 3. Approval of Preliminary Reoffering Circular. The Board hereby approves theform of preliminary reoffering circular of the District relating to the Series 2009A-2 Bonds, insubstantially the form as submitted to this meeting, with such additions thereto and changestherein (including such changes and additions to reflect the terms of the Series 2009A-2 Bonds

as are approved by the General Manager, the Director of Finance or the Treasury Manager afterconsultation with the District's General Counsel and Co-Bond Counsel). The General Manager,the Director of Finance or the Treasury Manager is hereby authorized to authorize theRemarketing Agents to distribute such preliminary reoffering circular in connection with theremarketing of the Series 2009A-2 Bonds. The General Manager, the Director of Finance or theTreasury Manager or any duly authorized designee of the General Manager designated by theGeneral Manager in writing to act on behalf of such officer for such purpose is hereby authorizedto certify that the preliminary reoffering circular is as of its date "deemed final" for purposes ofRule 15c2-12 of the Securities and Exchange Commission. The General Manager, the Directorof Finance or the Treasury Manager or any duly authorized designee of the General Managerdesignated by the General Manager in writing to act on behalf of such officer for such purpose ishereby authorized to cause to be prepared and to execute for and on behalf of the District a finalreoffering circular in substantially the form of the preliminary reoffering circular with suchchanges therein (and additions thereto) to reflect the terms of the remarketing of the Series2009A-2 Bonds and to comply with applicable federal securities laws as the General Manager,the Director of Finance or the Treasury Manager shall approve after consultation with theDistrict's General Counsel and Co-Bond Counsel, such approval to be evidenced by theexecution and delivery thereof.Section 4. Authorization to Make Certain Determinations and Take Other Actions inConnection with Series 2009A-2 Bonds Prior to the End of the New SIFMA-Based Term InterestRate Period. The General Manager, the Director of Finance or the Treasury Manager or any dulyauthorized designee of the General Manager designated by the General Manager in writing to acton behalf of such officer for such purpose is hereby authorized prior i:o the end of the newSIFMA-Based Term Interest Rate Period for the Series 2009A-2 Bonds to take effect onMarch 1, 2013 (a) to determine whether, upon the mandatory tender of such Series 2009A-2Bonds following the end of the new SIFMA-Based Term Interest Rate Period, the Series2009A-2 Bonds are to be remarketed in a subsequent SIFMA-Based Term Interest Rate Period oranother Interest Rate Period (as such term is defined in the Fifteenth Supplemental Indenture),which determination shall be made taking into account the advice of the District's FinancialAdvisor and on the basis of what bond structure in light of the existing market conditions is inthe best interests of the District, and (b) to take all actions to provide for the preparation anddelivery of all written directions and notices required under the Waier Bond Indenture inconnection with any such remarketing; and (c) to provide for the preparation of a reofferingcircular, one or more remarketing agreements and such other documents necessary to effect suchremarketing which, once prepared, will be presented for the Board's consideration.Section 5. Additional Actions. The General Manager, the Dirsctor of Finance, theTreasury Manager and all such other proper officers of the District

General Manager, the Director of Finance or the Treasury Manager to be necessary or advisableand (ii) providing for the giving of written directions and notices or the securing of any requiredthird party approvals required by the Water Bond Indenture or otherwise in connection with thetransactions contemplated by this Resolution) as may be necessary, convenient, or advisable inorder to consummate the remarketing and redelivery of the Series 2009A-2 Bonds and otherwiseto carry out, give effect to and comply with the terms and intent of this Resolution, the Series2009A-2 Bonds, the Water Bond Indenture, the Remarketing Agreement(s), the preliminaryreoffering circular(s) and the final reoffering circular(s) and the transactions herein authorized.All such actions heretofore taken by such officers or their designeeg are hereby ratified,confirmed and approved.ADOPTED this 8 th day of January, 2013 by the following vote:AYES:NOES:ABSENT:ABSTAIN:ATTEST:PresidentSecretaryAPPROVED AS TO FORM AND PROCEDURE:General CounselW:\400 GOV-MGMT\410 EBMUDBOAREA410.01 Resolutions\Bonds\Water Bonds Series 2009A-2 l-8-13.doc

9EAST BAY MUNICIPAL UTILITY DISTRICTDATE: January 3, 2013MEMO TO:FROM:Board of DirectorsAlexander R. Coate, General Manager /f^C-SUBJECT: Monthly Report - December 2012HIGHLIGHTSThe United States Army Corps of Engineers (USAGE) is planning to move forward with anew recycled water project in San Ramon. There is $200,000 remaining from previousWRDA appropriations that has not been committed, and up to $300,000 from previousSRVRWP projects that could be de-obligated and applied to a new project. USACE plans tonegotiate a contract for approximately $500,000 with North Star Construction to install recycledwater pipes in Bishop Ranch Business Park. The work will likely begin in 2013.WATER SUPPLY AND WATER RIGHTS PROGRAMS AND ACTIVITIESMokelumne River Fish Hatchery. The total number of salmon returning to the Mokelumnenow exceeds 12,000 for the 2012 season. 6,199 Chinook salmon have entered the MokelumneRiver Fish Hatchery resulting in 1,701 females being spawned producing approximately 9million eggs of which 5.2 million are being kept for production. Weekly salmonid redd surveyson the lower Mokelumne River continued and 1,270 Chinook salmon redds have been identified.Coordination continues with the SWRCB on the Camanche permit extension and additionalchange petitions. Staff continues to work with the SWRCB on water right!; issues includingenvironmental analysis associated with the permit and additional change petitions recently filed bythe District. Staff is preparing the environmental analysis and will publish the draft EIR in early2013. On December 19, five change petitions were submitted to the State Water Board. Thechanges consist of adding recreation and fish and wildlife preservation and enhancement to theuses of Pardee and Camanche reservoirs, and adding Camanche powerhouss as a place of use andpoint of re-diversion to the three Pardee power rights.The Oakland Museum conversion to recycled water is complete. The final repair and pressuretesting on the fire service backflow was successfully conducted and the irrigation systemseparation was completed on December 19. Staff performed a final inspection of the piping andthe Museum's grounds signage, labeling and pending punch list items to their satisfaction.Accordingly, recycled water was turned on.

Board of DirectorsMonthly Report - December 2012Page 2Work continues with the City of Richmond on the wastewater joint implementation study.Initial modeling results indicated that conveying the City's wastewater to the District's system atPoint Isabel could lead to significantly increased discharges from Point Isabel during wetweather, which may not receive regulatory support. Staff is identifying and evaluating otherDistrict alternatives. One alternative would be to construct a pipeline connecting to a pointdownstream of Point Isabel, or all the way to the Main Wastewater Treatment Plant. Anotherpossible alternative would be to maintain the Richmond Water Pollution Control Plant as a liquidtreatment facility but convey solids to the District for treatment and recycling as renewableenergy and fertilizer product.Precipitation. The East Bay precipitation for December was 5.26 inches (] 09% of average, 22ndwettest December on record) and a season total of 12.54 inches (127% of average, 20th wettestseason to-date). The Mokelumne precipitation for December was 11.82 inches (148% of average,21st wettest December on record) and a season total of 24.10 inches (139% of average, 16thwettest season to-date).Releases from Camanche Reservoir. The average rate of Camanche Reservoir release forDecember was 430 cfs (367 cfs generation, 28 cfs sluice, and 35 cfs through the hatchery), andthe average flow below Woodbridge Dam was 358 cfs, both in accordance with the JointSettlement Agreement "Below Normal" criteria for December 2012.Mokelumne Reservoirs Storage. As of December 31, 2012, Pardee Reservoir level was at 559.3feet or 103% of average, and the Camanche Reservoir level was at 217.5 feet or 114% ofaverage. Combined Pardee and Camanche Reservoir storage is 472,000 acre-feet compared to422,000 acre-feet last year.Releases from East Bay Reservoirs. Releases are being made to bring the reservoirs to theirnormal operating ranges for the winter season. Upper San Leandro Reservoir release is 100 cfs.Chabot Reservoir release is 125 cfs.East Bay Reservoirs Storage. As of December 31,2012, USL Reservoir level was at 451.2 feetor 118% of average, San Pablo Reservoir was at 301.6 feet or 103% of average, and BrionesReservoir was at 572.9 feet or 106% of average. Total terminal reservoir storage was 132,000acre-feet compared to 124,000 acre-feet last year.Mokelumne Aqueducts and Raw Water Pumping Plants. The average rate of MokelumneAqueduct draft for December 2012 was 112 MGD. Mokelumne Aqueduct Nos. 1 and 2 weretaken out of service to support construction work through January 2013. Walnut Creek No. 1 and3, Moraga and Briones Raw Water Pumping Plants remained out of service for the month.

Board of DirectorsMonthly Report - December 2012Page 3Water Production. Average rate of gross water production for December:East of HillsWest of Hills[TotalMax Day-ProductionDecember201226MGD107MGD133 MGD143 MGD(12/7/2012)December201137 MGD117 MGD154 MGD163 MGD(12/23/2011)December201025 MGD109 MGD134 MGD143 MGD(12/16/2010)Average of2005-200731 MGD127 MGD158 MGDNote: Data are all from preliminary daily operational reports and are subject to revisionCUSTOMER EVENTS AND PUBLIC OUTREACHLower Mokelumne Partnership Steering Committee annual meeting. Staff provided the JSAPartnership Steering Committee with updates on the adaptive management flows, spawninggravel enhancement, and the Camanche permit extension. The fisheries agency partners wouldlike to see the continuation of the fall pulse flows, possible spring pulse flews to provide for anincreased natural smolt outmigration, continuation of the DCC gate closure studies to managestraying rates, and preservation of an oak woodland parcel in the lower Mokelumne River.Northern California coalition sends unified position on BDCP. On December 20, the Districtled a coalition of 38 water agencies and other organizations in sending a letter to John Laird,Natural Resources Secretary and Charlie Hoppin, Chairman of the State Water Resources ControlBoard (SWRCB) expressing concern over the timing and coordination of two actions by theSWRCB. The issues involve revising the water quality standards for the Delta, which could resultin amending water rights to provide increased flows, and approving a permit for the newconveyance in the Bay Delta Conservation Plan (BDCP). The letter urges the SWRCB to ensurethat any permit granted to the BDCP does not absolve the export contractors from further flowobligations, particularly if the BDCP is permitted first.Affirmative Action outreach.• On December 18, the District hosted a reception to recognize five interns who completedthe 15-week Industrial Maintenance Internship training program at Laney College. Thefive student interns will be among the first graduates of Laney College's four semesterIndustrial Maintenance training program this spring. These internships are the results of thesuccessful three-year partnership between Laney College and EBMUD.Contract Equity outreach.• On December 18, the District hosted the 4 th Construction Business Roundtable at theAdministration Building. The Forum provided prime contractors, subcontractors andrepresentatives from community organizations the opportunity to discuss their experiences in

Board of DirectorsMonthly Report - December 2012Page 4doing business with EBMUD, to review the District's contracting process, and to fostermutually beneficial relationships in the construction industry. Approximately 30 participantsattended.• Staff participated in the following community events:- December 4, City of Richmond - Government Affairs and Econom ic DevelopmentCommittee meeting in Richmond.- December 6, American Indian Chamber of Commerce - General Membership meetingand workshop in Santa Rosa.- December 7, Northern California Minority Supplier Development Council - AnnualGeneral Membership Meeting in San Francisco.- December 12, Multi Ethnic Chambers of Commerce - Holiday Mixer in Oakland.- December 18, National Association of Minority Contractors (North ern CaliforniaChapter) - General Membership meeting in Oakland.- December 20, Northern California Community Advisory Team - quarterly committeemeeting in San Leandro.CAPITAL IMPROVEMENT AND FACILITIES MAINTENANCECalifornia Air Resources Board (CARS) mandated smog and smoke tests reports werecompleted on December 21 st . The annual certification of compliance under the California AirResources Board Public Fleet Rule regarding CARB retrofits, replacements and low-useclassification was completed on December 26 th .Paving projects completed. The City of Albany's joint paving project with the District wasfinalized in December for 12,502 square feet of trench paving on Spokane/Portland Avenue thatthe City incorporated into its larger project. Also in December, the District completed 16,000square feet of trench paving on Best Avenue in Oakland related to a recent mainextension. Efforts to coordinate joint paving projects are ongoing.The Berrymam Reservoir Replacement Project will require an increase in the change ordercontingency. The changes include floor leak repairs and the addition of darker gravel on the roof;the leak repairs address a design issue, while the darker gravel addresses neighborhood concernsabout excessive roof glare. This work will be performed by Ghilotti Construction Company, Inc.The cost for this work is estimated to be $ $162,000 and will increase the cumulative total changeorder amount to $721,440 or 12 percent of the original contract amount of $6,012,000.The Central and Road 20 Rate Control Stations Rehabilitation requires an increase in thechange order contingency. The change order will address conditions at bo:h sites that were notknown including additional lead paint, mechanical, electrical, and pipe size and locationdifferences. This work will be performed by Ranger Pipelines, Inc. The cosi for this work is

Board of DirectorsMonthly Report - December 2012Page 5estimated to be $92,000 and will increase the total change order amount to $151,400 or14 percent of the original contract amount of $1,081,998.Operational testing at the Walnut Creek Raw Water Pumping Plant No. 2 is on hold.Operational testing of the three refurbished raw water pumps and switchgear for Walnut CreekPumping Plant (WCPP) No. 2 was conducted the week of December 3. An existing thrustbearing in pump units 4 and 6 overheated and will need to be repaired. District forces beganinstalling new butterfly valves on pump units 1-3 at WCPP No. 1.The Walnut Creek Pumping Plant Roof Replacement requires an increase in the changeorder contingency. The project involves demolition and removal of roofing, flashing and fascia,and installation of new roofing with cap sheet, flashing, fascia, gutters and downspouts. Saggingof some of the existing roof beams resulted in water ponding on the newly installed roof.Correction of this problem by the contractor, State Roofing Systems Inc., vail cost $4,000 andwill increase the total change order amount to $27,833 or 11.7% of the ori^nal contract amountof$237,388.The Sobrante Water Treatment Plant Reclaim Facility Fence Improvement (El Sobrante)was completed on December 18. The project involved removal of the existing gates andportions of the existing fence and construction of approximately 1,520 linear feet of eight foothigh security chain-link fence and gates.Construction on the Lafayette Reservoir Parking Improvements project continues. Theproject involves reconfiguring parking areas on the reservoir to add additio rial spaces andimprove traffic flow. The installation of automatic pay stations and completion of slurry sealing,paving, and striping of some areas will be delayed due to weather. The project is anticipated to besubstantially completed in January with project closeout in February 2013.Mokeiumne Aqueduct Nos. 1 and 2 are out of service to accommodate the repair of atemperature anchor and tie-ins for the Mokeiumne Aqueducts Interconnection projectConstruction continues to ensure the aqueducts are in service by the end of January 2013. Asubsequent outage of Mokeiumne Aqueduct No. 3 is planned for mid-February 2013 to allow tieinwork on that aqueduct.Diablo Vista Pumping Plant Replacement Project. The California Environmental Quality ActMitigated Negative Declaration (MND) was released on November 16. The 30-day public reviewperiod ended on December 17. No comment letters were received. A project update and reviewof the MND comments will be presented to the Planning Committee on January 8,2013; theMND is scheduled for Board consideration on January 22, 2013.Cost liability discussions continue on pipeline relocations needed for the Alameda CountyTransit Commission (ACTC) project on Interstate 880. This project involves freeway andovercrossing improvements being undertaken jointly by CalTrans and ACTC. Staff met withACTC on December 7 to discuss the cost liability for relocating approximately 1,600 feet of

Board of DirectorsMonthly Report - December 2012Page 6pipeline near the 23 rd and 29 th Avenue ramps of 1-880. ACTC provided a draft Utility Agreementwith Liability in Dispute language that allows the District to proceed with design andconstruction of the relocations while resolving cost liability.A Remote Operated Vehicle (ROV) inspection of the Pardee Outlet Tower was performedas part of the seismic evaluation of the tower. The ROV was used to take video of the tower,gates, valves, and reinforcement and integrity of the concrete tower. The rssults are beingevaluated and will be used for the tower assessment and for planning maintenance upgrades.WATER AND WASTEWATER SYSTEM OPERATIONSWater Treatment Plant operations. With reduced winter demands, Upper San Leandro,Lafayette and Sobrante Water Treatment Plants are out of service. These tliree seasonal plantswill return to service when demands rise in the spring. Currently, only Walnut Creek and OrindaWater Treatment Plants are needed to meet demand.Lafayette slide remediation. The City of Lafayette has installed an upsizcd twelve-foot concreteculvert at the creek crossing on Mountain View Drive. The District has two mains that cross theculvert. Staff repaired the twelve-inch steel main following the culvert installation. Repairs to theadjacent eight-inch water main will be completed by January 10, 2013.Pipeline. Staff installed 1,330 feet of eight-inch pipe on Devon Avenue and Royston Walk inPleasant Hill on December 6 th . 935 feet of eight-inch steel water pipe was installed on ArlingtonAvenue in Berkeley on December 14 th , and 640 feet of six-inch pipe was installed on MountDiablo Boulevard in Lafayette on December 17 th .December main breaks. The attached table lists the main breaks repaired by staff in December,sorted by city and street. The associated map shows the locations of the breaks geographically.Upcountry water quality system violations. On November 6 th , the Central Valley RegionalWater Quality Control Board (CVRWQCB) entered 124 alleged violations into the CaliforniaIntegrated Water Quality System (CIWQS) database regarding the District's upcountry facilities.The District took exception to 90 of the alleged violations. The CVRWQCB notified the Districtin a December 11 th email of its intent to dismiss 53 of the 90 issues that the District tookexception to, and is in the process of removing them from the CIWQS database. The District iscurrently evaluating the CVRWQCB's response and may schedule a meeting to discuss theremaining 37 issues.On December 13, the District received a complaint regarding a mild sewage odor from theMain Wastewater Treatment Plant. At the time of the complaint dilute sewage that had beenstored in the basin was being returned to the head works for treatment. Staff has implemented atemporary repair of a mechanical problem that necessitated prolonged storage. All of the storeddilute sewage has now been treated.

Board of DirectorsMonthly Report - December 2012Page 7All discharges from the MWWTP complied with the permit limits for the month ofDecember. This is the 160 th consecutive month that the Main Wastewater Treatment Plantexperienced no exceedances.December 2012 storms caused sufficient collection system inflow and infiltration to requireactivation of two of the three wet weather facilities. The Oakport, Pt. Isabel and San AntonioCreek wet weather facilities have a combined total of 84 hours of discharge time and havedischarged a total of 98 million gallons so far this weather season. These discharge events havebeen reported to the State OES, Regional Water Quality Control Board, and Alameda and ContraCosta County Health agencies in accordance with the District's wet weather discharge permit.On December 1,2012 the MWWTP had an unauthorized discharge event when the sluicegate on the Wet Weather Storage Basin fill/drain channel failed and closed whenattempting to drain the storage basin. The small amount of spilled sewage exited a manhole onthe fill/drain channel and was contained on the plant site and adjacent CalTrans property. Thisincident was reported to the RWQCB and is not expected to result in enforcement action.On December 1, 2012 the Pt. Isabel Wet Weather Facility discharged approximately140,000 gallons of effluent with a chlorine residual of-2.0 mg/L Follow up sampling andanalysis determined that the root cause of this incident was inadequate mix:.ng of thedechlorinating chemical with the effluent. An engineering study is underway to identify theappropriate long term improvements to ensure adequate mixing under all conditions and interimsteps have been taken to reduce the likelihood of a recurrence. This incident was reported to theRWQCB and is likely to result in enforcement action under the minimum mandatory fineregulations.On December 2, 2012, the Pt. Isabel Wet Weather Facility experienced a single phase powerinterruption which damaged the dechlorinating chemical feed system and prevented itsoperation when the backup generator restored power. In response to this incident, staffstarted up a backup dechlorination chemical feed system to restore dechlorination. During thistime the facility discharged approximately 560,000 gallons. Given the circumstances it wouldappear likely that this discharge included chlorine residual. This incident has been reported to theRWQCB and may result in a fine.Negotiations with the Department off Justice, USEPA, and the State and Regional WaterBoards regarding a long-term consent decree to address the District's Wet Weather Facilitydischarges are scheduled to begin on January 23. Staff has been working closely with thesatellite agencies on legal and technical issues in preparation for the negotiations. It is anticipatedthat negotiations will take at least one year and result in a consent decree that outlines a 20-30year program of work by the District and the satellite agencies on the collecdon systems andprivate sewer laterals.

Board of DirectorsMonthly Report - December 2012Page 8ORGANIZATION EFFECTIVENESS AND EFFICIENCYThe District received the 2013 National Environmental Achievement Award from theNational Association of Clean Water Agencies (NACWA) in the Operations andEnvironmental Performance category for the Main Wastewater Treatment PlantRenewable Energy Program. The award acknowledges staff for their efforts in the design andconstruction of the Power Generation Station Renewable Energy Expansion Project, and thesustainable practices of the program that include maximizing energy efficiency, increasingproduction of renewable energy and reducing greenhouse gas emissions. Staff will be presentedwith the award at NACWA's 2013 Winter Conference on February 3-6, 2013.Employment Information.Retirements*Other SeparationsHiresTuition ReimbursementDecember 20121255FY13 Totals522553includes Vested Employees who left District employment and retired at a la ter date.# of Employees# of ClassesTotal ReimbursedFINANCIAL NEWSDecember 20121111$8,403FY13 Total81136$63,447The Net Mokelumne Power Revenue for December was $693,408 vs. the $406,928 planned.Inflows into Pardee for December were 135% higher than expected and generation was 178% ofplan. The average electricity price was a little under the plan at $32/MWh. Renewable power andrelated Renewable Energy Credits (RECs) were sold to the Sacramento Municipal Utility Districtunder the Power Purchase Agreement. REC revenue for December was $103,000. Total netrevenue through December is $1,702,497 which is 30% of the annual budgeted revenue of $5.7million.FY13OctoberNovemberDecemberFY13 YTD Totalm DOW arePlan$150,480$270,690$406,928$1,137,789Net RevenueActual$266,055$153,784$693,408$1,702,497Inflow (Aire Feet)Plan33,60032,40049,700197,700Actual26,38132,37967,000208,574

Board of DirectorsMonthly Report - December 2012Page 9Additional professional services for waste to biodiesel research assistance agreement withBay Systems Consulting, Inc. The Board of Directors authorized an agreement to Bay SystemsConsulting in an amount of $150,000 on February 8,2011 to provide assistance to a District-rungrant-funded research project investigating low-cost alternatives for converting wastes intobiodiesel. Staff proposes to increase the agreement amount by 10% ($15,000), which wouldchange the total agreement ceiling to $165,000. The additional funds would allow for furtherinvestigations into wastewater sludge to biodiesel technologies. These costs will be fullyreimbursed by the California Energy Commission (CEC). On December 1!), 2012, the CEC GrantCommittee reviewed the District's progress and approved continued funding for the waste tobiodiesel research project.The City of Oakland approved reimbursement of all costs associated with the design of thenew Engineers Road and intersection with the realigned Wake Avenue. The City approvedcosts not to exceed $292,036 for District labor and consultant costs for the design andcoordination of the improvements. The District issued a Notice to Proceed to TranSystems onDecember 14, 2012. The first design coordination meeting between TranSystems and the City'sconsultant team was facilitated by District staff on December 19, 2012.There were no contracts over $70,000 and less than $100,000 approved by the GeneralManger in December 2012.Monthly yield on all investments including reserve funds and Wastewater 2010B bondproceeds was 0.74%, a decrease of 0.01% from November 2012. New investments inDecember were at an average rate of 0.69%. The yield on 90-day Treasury bills on December 302012 was 0.05%.Average interest cost during the month of December on outstanding commercial paperissued for the Water System was 0.23%, a decrease of 0.01% from November 2012. Theaverage interest cost for outstanding Wastewater System commercial paper in December was0.23%, no change from November 2012.Fiscal year-to-date water consumption for water bills issued through November 2012 was199.1 MGD, which is 5.3% more than billed consumption of 189.1 MGD at the same timelast year and 5.0% less than budgeted consumption of 209.6 MGD.Billed Water ConsumptionJuly 1,2012 to November 30,2012Usage TypeResidentialCommercialIndustrialPublic AuthorityTotal Billed Water ConsumptionFY13MGD120.350.918.69.3199.1FY12MGD1K.947.81778.7189.1

Board of DirectorsMonthly Report - December 2012Page 10Water revenues billed for the fiscal year-to-date were $168.8 million, which is 11.4% morethan the prior year actual revenue of $151.5 million due to increased consumption and the6% rate increase and is 3.8% less than the fiscal year-to-date budget of $175.5 million.300BILLED WATER CONSUMPTION(MGD)V13YTO-FV13 BUDGETFV12 ACTUAL^ / £ o* ^ J> / # /• /y #CONSUMPTIONSource: Customer Information System400-CUMULATIVE BILLED WATER REVENUE($ MILLIONS)-FY13YTD-FY13 BUDGETFY12ACTUAL/ # # O^ ^

Board of DirectorsMonthly Report - December 2012Page 1112345678910111213141516171819202122232425CityALAMOALBANYBERKELEYBERKELEYBERKELEYBERKELEYBERKELEYBERKELEYCASTROVALLEYCASTROVALLEYEL CERRITOKENSINGTONLAFAYETTEOAKLANDOAKLANDOAKLANDOAKLANDOAKLANDOAKLANDOAKLANDOAKLANDOAKLANDOAKLANDOAKLANDOAKLANDBldg575113412340244018191740418775141630312914160064350505936644832661116537786144136PreStreetBROOKDALESAN PABLO7THASHBYCORONAMCGEESTUARTVIRGINIAALMONDVINEYARDDEVONSHIREGRIZZLY PEAKGABLE23RD84TH71STCLEVELANDDUBLINHAYESHILLEGASSHYDELOCHARDMADRONEMANDANAMERASufCTAVESTAVECTAVESTSTRDRDDRBLLNAVEAVEAVESTAVESTAVESTSTAVEBLSTPipe MaterialCAST IRONCAST IRONCAST IRONCAST IRONSTEELASBESTOSCEMENTCAST IRONCAST IRONCAST IRONCAST IRONCAST IRONCAST IRONCAST IRONCAST IRONCAST IRONCAST IRONCAST IRONCAST IRONCAST IRONCAST IRONCAST IRONCAST IRONCAST IRONCAST IRONCAST IRONPipeDiameter6466666684644664«466666106Yearinstalled1962193819271929196819571909192519531953192719501931192719471938193819351948192519301949EstWaterLoss(Gal)90023,0403,1505,7605,76028,80014,22018,00028,80045,0002,2501,35017,2804,50018,0004,500ACf\r\*T,UUU11,5201,8001,8001,3502,2501,080900540IdentifiedOn12/10/1212/01/1212/19/1211/29/1212/26/1212/11/1212/01/1212/02/1212/27/1212/28/1212/17/1212/26/1211/20/1212/09/1212/16/1212/07/12A r\ lr\r\ IA s>\£.I£.OI \C12/30/1212/09/1212/27/1212/27/1212/31/1212/18/1212/19/1212/26/12CompletedOn12/11/1212/01/1212/19/1212/13/1212/28/1212/14/1212/01/1212/02/1212/29/1212/29/1212/17/1212/26/1212/05/1212/09/1212/16/1212/07/1212/31/1212/09/1212/27/1212/27/1212/31/1212/18/1212/19/1212/27/12

Board of DirectorsMonthly Report - December 2012Page 12December 2012 Main Breaks (as of 1/2/13 10:15am)262728293031323334353637383940CityOAKLANDOAKLANDOAKLANDOAKLANDORINDAORINDAORINDAPLEASANT HILLRICHMONDRICHMONDRICHMONDRODEOSAN LEANDROSAN LEANDROWALNUTCREEKBldg14149159084615316156103875202021119191584226PreSEStreetROBLESHATTUCKSONIAYORKDARYLGLORIETTAMORAGADONEGAL45THPOTREROPOTREROMARIPOSA14TH166THNOB HILLSufRDAVESTSTDRBLWAYWAYSTAVEAVESTSTAVEDRPipe MaterialSTEELCAST IRONCAST IRONCAST IRONCAST IRONCAST IRONCAST IRONASBESTOSCEMENTCAST IRONCAST IRONCAST IRONCAST IRONCAST IRONCAST IRONASBESTOSCEMENTPipeDiameter24446684846648410YearInstalled19311897193519371947194519651933194019401939192519381955| TOTALEstWaterLoss(Gal)46,0802,25011,5209001,8004502,7009005,4009,0004501,8009005,7604,500341,460 |IIdentifiedOn12/07/1212/11/1212/24/1212/26/1212/13/1212/28/1212/15/1212/10/1212/21/1212/13/1212/13/1212/08/1212/16/1212/14/1212/02/12CompletedOn12/09/1212/11/1212/26/1212/26/1212/13/1212/28/1212/15/1212/10/1212/21/1212/14/1212/13/1212/08/1212/16/1212/19/1212/03/12

Board of DirectorsMonthly Report - December 2012Page 13December 2012 Main Breaks (40)Within the EBMUDCurrent Service Area• Main BreakHighwayCityEBMUD Service Area(___J Service&BBIVIUDNon-Service 1:250,000° 1 2 Miles., -. * • ^-'*

9.EAST BAY MUNICIPAL UTILITY DISTRICTDATE: January 3, 2013MEMO TO:THROUGH:FROM:Board of DirectorsAlexander R. Coate, General Manager f i ^Cheryl A. Fair, Special Assistant to the General ManagerSUBJECT: Summary of Board 2012 Committee Agendas and Upcoming Topics for 2013The attached table lists items that have been reviewed by committees during 2012 and presentsthe January- June 2013 forecast of items staff proposes to bring before committees, and notesupcoming workshops and events.We welcome Board feedback and comments on this report.ARC:CAF:rcAttachment

JanFebMarchAprilMay2012 BOARD COMMITTEES AND WORKSHOPSFinance—4 th Tuesdays• Remarketing Series of2009A Water System Bonds• Review of Revisions toDistrict Policies• Semi-Annual Internal AuditReport» Financial Quarterly Reports• FY12 Semi-Annual BudgetPerformance Rpt® Cancelled• Review of Revisions toDistrict Policieso Financial Quarterly Reports• CancelledPlanning—2 nd Tuesdayso Estates ReservoirReplacement Update• Main Wastewater TreatmentPlant (MWWTP) BioassayUpdate9 Oaldand Land Use Planningnear the MWWTP• Mokelumne Aqueduct LeveeImprovements• Mokelumne AqueductsInterconnection Project -Update« Water Quality ProgramSemi-Annual Updateo Chabot Dam SeismicUpgrade Project• 2011 Mokelumne Fall RunChinook Salmon Returns* Regulatory ComplianceSerai-Annual Reporta 2012 Community CleanWater Initiativeo Lafayette Reservoir ParkingImprovements« Water Transfers Updates® South East Bay Plain BasinGroundwater ManagementPlan• Oursan Ridge ConservationBank and Pinole ValleyMitigation BankLeg/HR—2 nd Tuesdayso Federal LegislativeInitiatives 2012• Legislative Update• Legislative Updatee Affirmative ActionPlan 2012• BenefitsAdministration SystemUpdate» Water Meter DivisionOrganization• Legislative Update© Legislative Update:9 Legislative UpdateEnergy -SustainabilityCommittee• EPA ClimateResilience Evaluationand Awareness ToolUpdate• Power GenerationStation RenewableEnergy ExpansionProject Update• Water System EnergyManagement Strategy• Community ChoiceAggregation UpdateWorkshops/Events1/27 - UMRWA2/16-FRWA3/23 - UMRWA 13/27 - WSMP 2040 14/3 - Turbine Dedication \4/22-FRWA \4/23 - DERWA4/27 - UMRWA 15/3 - FRWA I5/22 - FY13 Mid-Cycle 1Budget & Rates I

JuneJulyAugustSeptemberOctoberFinance—4"' Tuesdays• Records Retention Schedule• Private Sewer LateralRebate Program Update• Review of Revisions toDistrict Policies• Cancelled• Semi-annual InternalAudit Report• Proposed FinancingsforFY13• Financial QuarterlyReports• Annual Audit & MgmtLetter & Financial TrendsReport• FY12 Annual BudgetPerformance Report« Key Performance IndicatorsReport for FY12• FY13 Insurance Summary• Proposed FY13 Financings• Resource Recovery ProgramAnnual Update FY12• Resource Recovery ProgramAnnual Update FY12• Annual Power Sales Rpt• Proposed FY13 FinancingsUpdate• Financial Quarterly ReportsPlanning—2 nd Tuesdayse Richmond WastewaterServices• 39th Avenue ReservoirReplacement Project» Potable Water and OrindaWater Treatment PlantDischarge Permit Status• Mokelumne Aqueducts 1&2-Temperature AnchorSettlement« Cancelled• FY12 EmergencyPreparedness and BusinessContinuity Readiness• Diablo Vista Pumping PlantReplacement Project — Update• Annual Update onWastewater Stipulated Orderand Inflow/InfiltrationProgram© Mokelumne WatershedMaster Plan - ManagementPlans• Richmond WW ServicesUpdate• Regulatory ComplianceSemi-Annual Report• Water Quality ProgramSemi-Annual UpdateLeg/HR—2 nd Tuesdays• Legislative Updateo Project LaborAgreements• Proposed EmployeeAssistance ProgramContact• Update on FederalHealth Care Reform• California PensionReform» Resolution in Supportof Drinking TapWater• Legislative Update• Legislative Update• Legislative Update• Benefit Plan Renewalsfor CY 2013 andBenefitsAdministration• Operations andMaintenance of WaterRecycling Facilities• Legislative Update9 Contract EquityProgram Annual RptEnergy -SustainabilityCommittee• Community ChoiceAggregation Update9 2011 Greenhouse GasInventory» Wastewater EnergySystem Master PlanUpdate• Wastewater EnergySales UpdateWorkshops/Events6/27 -EBRPD Liaison7/19 - FRWA7/27 - UMRWA8/27 - DERWA9/24 DERWAi|10/5 - Pardee BBQ !10/5 - UMRWA !10/11-FRWA |10/22-DERWA j!I

NovemberDecemberFinance—4 th Tuesdays• Proposed FY13 FinancingsUpdate• Improving Efficiencies withTablet Computers• Chabot ReservoirWatershed Lease with EastBay Regional Park District• District Participation in Cityof Oakland Zero WasteRequests for Proposals• Review of Revisions toDistrict PoliciesPlanning—2 nd Tuesdays• Cancelled• 39th Avenue Reservoir •Replacement Project• Water Conservation RebateUpdateLeg/HR—2 nd Tuesdays• Legislative UpdateEnergy -SustainabilityCommittee• Community ChoiceAggregation Update• Briones In-ConduitHydro-Generation• Power GenerationStation Turbine Update• Port of Oakland PowerPurchase AgreementUpdateWorkshops/Events

Jan 2013FebMarchAprilFinance—4 lh Tuesdays• Richmond WastewaterServices Project Update• Quarterly FinancialReportso FY13 Semi Annual RnHcrptReport• Semi-Annual InternalAudit Report» Private Sewer LateralRebate Program Update» Investment Policy AnnualReview• Commercial PaperIssuance» Quarterly FinancialReportsPlanning—2 nd Tuesdayso Diablo Vista PumpingPlant Replacement Update• Orinda Water TreatmentPlant NPDES PermitC.nnrpUpd due tn w/irlr?hnn• Biosolids ManagementProgram Update» Main WastewaterTreatment Plant OdorControl Update« West of Hills NorthernPipeline Project• Water Quality ProgramSemi-Annual Update• Regional DesalinationUpdate9 Water Transfer UpdateLeg/HR—2 nd Tuesdays» Proposed Policy on ProjectLabor Agreementso 2013 Federal LegislativeInitiatives» Legislative Update• Affirmative Action Plan2013 and EqualEmployment OpportunityPolicies« Health Care ReformUpdate• Legislative Update• Legislative UpdateEnergy-SustainabilityCommittee• rv aStcw'cuci jLincigyMaster PlanImplementationUpdate• Review of RenewableEnergy Policy andGreenhouse GasReduction Goals• Turbine ExtendedService AgreementWorkshops/Events1/9- ACSDA1/10-FRWA1/22 - Water SupplyWorkshop1/25 - UMRWAi/u-riii-lj Buugciand Strategic PlanUpdate Workshop2/27 - DERWATBD - EBRPD Liaison4/9-FY14-15 BudgetWorkshop4/11 - FRWA4/23 - DERWAIjMayJune° Richmond WastewaterServices Project Updates Bay Area IntegratedRegional WaterManagement Plan• Regulatory ComplianceProgram Semi-AnnualReporto Legislative Update• Legislative Update5/22 - 90"' Anniversaryof first EBMUDBoard meeting5/28 - EmployeeExcellence6/25 - DERWA

EAST BAY MUNICIPAL UTILITY DISTRICTDATE: January 3, 2013MEMO TO:Board of DirectorsTHROUGH: Alexander R. Coate, General Manager/' ,---,FROM: Lynelle M. Lewis, Secretary of the Distnk^/ 71SUBJECT: Planning Committee Minutes - December 11, 2012Chair Doug Linney called to order the Planning Committee at 9:30 a.m. in the Training ResourceCenter. Directors Lesa R. Mclntosh and Katy Foulkes were present at rol! call. Staff present included:General Manager Alexander R. Coate, General Counsel Jylana Collins, Director of Engineering andConstruction Xavier J. Irias, Director of Administration Carol Y. Nishita, Manager of WaterConservation Richard W. Harris, Associate Civil Engineer Bill Jeng, Special Assistant to the GeneralManager Cheryl A. Farr, and Secretary of the District Lynelle M. Lewis.Public Comment. None.39th Avenue Reservoir Replacement Project. Associate Civil Engineer Bill Jeng provided a statusupdate on the project, the environmental review process, and the public outreach efforts. He reportedthat the current reservoir roof needs structural upgrades and doesn't meet current seismic codes.Additionally, the current storage capacity is too large for the area it serves, which leads to water qualityoperational challenges. Staff proposed installing a smaller capacity tank to improve the seismic stabilityand water quality capability rather than installing a new roof and making other major upgrades.Next, Mr. Jeng highlighted the key environmental factors associated with the project includingaesthetics, air quality; greenhouse gas emissions; biological resources; geology/soils; hazardousmaterial; noise; and traffic/transportation. He said the environmental impact report studies concludedthat the impacts are less than significant and that no comments were received on the Mitigated NegativeDeclaration (MND).Mr. Jeng said that District staff conducted two public outreach meetings to provide a briefing onthe project and to solicit input regarding three different architectural concepts for the tank and sitelayout. In general, neighbors were pleased with the refined concept and had only minor inputregarding the site plan. Construction-related concerns focused on noise, dust, and neighborhoodtraffic impacts as well as the preservation of the existing open space and lar.dscaping to the extentfeasible. Adoption of the MND will be scheduled for consideration at a future Board meeting anddesign and construction will be completed in future years.Water Conservation Rebate Update. Manager of Water Conservation Richard W. Harris highlightedcurrent and planned conservation incentive programs. He reported that beginning in early 2013, theDistrict plans to offer all customers a new bundled outdoor conservation rebate program that combinesa total of six existing residential and commercial conservation rebates into a single offer. The incentivesinclude lawn conversion, drip irrigation, high-efficiency sprinkler nozzles, self-adjusting irrigationcontrollers, pressure regulators and submetering. No major changes are proposed to the outdoor rebate

Board of DirectorsPlanning Committee Minutes of December 11, 2012January 3, 2013Page 2amounts; there will be a small reduction for submeters and a small increase for self-adjustingcontrollers. Under the new "bundled" program, customer may apply for one individual measure or acombination of measures up to a two-year maximum of $2,500 and $20,000 per residential and nonresidentialcustomer account respectively. Planned program modifications g.re scheduled to go intoeffect in early 2013 and remain in effect through June 30, 2013 or until FY L3 budgeted rebate funds areexpended.Mr. Harris also reported that the District is extending its service agreement with Pacific Gas andElectric for processing and marketing combined water and energy clotheswasher rebates as part of theBay Area program. The clothes washer rebate program administration agreement was scheduled forBoard consideration at the December 11, 2012 regular meeting.Adjournment. Chair Linney adjourned the meeting at 9:59 a.m.ARC/LML/slbW:\Minutes\Minutes 2012U21112_planning_minutes.doc

DEAST BAY MUNICIPAL UTILITY DISTRICTDATE: January 3, 2013MEMO TO: Board of DirectorsTHROUGH: Alexander R. Coate, General Manager/M^FROM:Lynelle M. Lewis, Secretary of the DistrictSUBJECT: Legislative/Human Resources Committee Minutes - December 11, 2012Chair Lesa R. Mclntosh called to order the Legislative/Human Resources Committee at 10:15 a.m. inthe Training Resource Center. Directors Andy Katz and Frank Mellon were present at roll call. Staffpresent included: General Manager Alexander R. Coate, General Counsel .Tylana Collins, Director ofEngineering and Construction Xavier J. Irias, Special Assistants to the General Manager Marlaigne K.Dumaine and Cheryl A. Fair, and Secretary of the District Lynelle M. Lewis.Public Comment. None.Project Labor Agreements, Director of Engineering and Construction Xiivier J. Irias provided astatus update on the staff review of District construction projects that could benefit from using aProject Labor Agreement (PLA). He reported that the potential benefits of a PLA may accrue forrelatively large, complex projects, often involving multiple trades, and with schedules that areunforgiving of labor disruptions. He said the staff analysis confirmed that $25 million is a thresholdthat avoids excessive administrative overhead while still providing the opportunity to capture thepotential benefits that a PLA could offer. As a result, staff recommended that the Board adopt apolicy establishing a $25 million threshold for considering the use of PLAs on a case-by-case basisand presented a draft policy to the committee for its review.The Committee provided suggestions and staff will return with final draft language for the newpolicy, incorporating clarifications that staff will make a recommendation to the Board afterdetermining whether analysis should be performed for a PLA and including language regardingquality assurance, coordinating with master labor agreements, and endeavoring to consider thebenefits of local hiring. There was discussion of considering a lower threshold but afterdiscussion there was consensus to retain the staff-recommended $25 million level.Legislative Report. The Committee recommended that Special Assistant i:o the General ManagerMarlaigne K. Dumaine provide the legislative update to the full Board at its afternoon meeting.Adjournment. Director Mclntosh adjourned the meeting at 10:38 a.m.ARC/LML/slbW:\Minutes\Minutes2012\121112 Ihr minutes.doc