ladwpbnds2011a\Presentation Feb 2011\Rating Agency Deck (Both) v9 Part I.pptx CALIFORNIA MUNICIPAL RATES GROUP 2016 Spring Conference April 28-29, 2016

ladwpbnds2011a\Presentation Feb 2011\Rating Agency Deck (Both) v9 Part I.pptx LADWP’s Transformation 1 Replace aging infrastructure Protect from drought, transform supplies & meet mandates Improve customer service & keep rates competitive Power = $720 million Water = $330 million

ladwpbnds2011a\Presentation Feb 2011\Rating Agency Deck (Both) v9 Part I.pptx Community Support of Multi-Year Rate Increase rates presentations across Los Angeles since July million s to stakeholders 384,386 video views 236,886 website views Environmental and Community Groups Sierra Club NRDC Business and Trade Associations Los Angeles Chamber of Commerce Latino Chamber of Commerce Central City Association Los Angeles Business Council Valley Industry & Commerce Association (VICA) Solar City Building Owners and Managers Association of Greater Los Angeles (BOMA)

ladwpbnds2011a\Presentation Feb 2011\Rating Agency Deck (Both) v9 Part I.pptx Power Revenues Mandates 80% Rate Increase Breakdown Water Revenues Infrastructure 78% 3

ladwpbnds2011a\Presentation Feb 2011\Rating Agency Deck (Both) v9 Part I.pptx 4 Half of residential customers will realize a combined Water and Power Average Annual Increase of 3% or less. 5-Year Rate Changes for Residential Customers

ladwpbnds2011a\Presentation Feb 2011\Rating Agency Deck (Both) v9 Part I.pptx 5 Proposed 5-Year Water and Power Rate Change Small Commercial (1,000 kWh/Month 15 HCF/Month) Medium Commercial (12,250 kWh/Month 80 HCF/Month) Large Commercial (100,000 kWh/Month 500 HCF/Month) Current Monthly Bill $235.32$2,320.19$17, Year Avg. Annual Power Rate Change $4.32 (2.5%)$76.46 (3.7%)$ (3.7%) 5-Year Avg. Annual Water Rate Change $3.01 (3.8%)$10.14 (2.5%)$60.10 (2.3%) Total 5-Year Avg. Annual Rate Change $7.33 (2.94%)$86.60 (3.5%)$ (3.5%) Average Monthly Bill Increase At End of 5 Years $36.65$433.00$3, Average New Monthly Bill At End of 5 Years $271.97$2,753.21$20, Year Rate Changes for Commercial Customers

ladwpbnds2011a\Presentation Feb 2011\Rating Agency Deck (Both) v9 Part I.pptx Reliability “pass-through” factor for Water & Power aligns revenues with spending on projects Uncapped pass-through factors that require reporting of more than 50 key performance metrics Restructuring residential water rates into 4 tiers to encourage conservation while maintaining appropriate revenues Power access charge based on how much energy a customer consumes Implement decoupling of Water & Power revenues, consistent with industry best practices, that enables conservation while covering the fixed costs of providing reliable water and power services Water System was upgraded from AA to AA+ by Standard and Poors 6 Summary of Changes in Water & Power Rate Design

ladwpbnds2011a\Presentation Feb 2011\Rating Agency Deck (Both) v9 Part I.pptx What is “Decoupling?” Annual Sales Target Year-end Revenues ABOVE Sales Target Year-End Revenues BELOW Sales Target Collect $ Return $ It is an industry best practice that is used within rates and enables power and water conservation WHILE covering a utility’s fixed costs of providing reliable water and electricity services. Revenues ABOVE sales target are returned to customers. Revenues BELOW sales target are recovered through charges over the next calendar year. 7

ladwpbnds2011a\Presentation Feb 2011\Rating Agency Deck (Both) v9 Part I.pptx Revenue Composition Under New Rate Structure 8 Power System 49% Pass-through Water System 63% Pass-Through * Decoupled Base Revenue ** Pass-through costs

9 POWER SYSTEM

ladwpbnds2011a\Presentation Feb 2011\Rating Agency Deck (Both) v9 Part I.pptx The Power System’s Revenue Requirement 10 The Power System’s revenue requirement is defined by the expenditures sufficient to operate and maintain the Power System and service debt  The revenue requirement is developed from the Power System’s approved budget and is comprised of: O&M Labor O&M Materials and Other Expenses Purchased Power Fuel Cash Funding of Capital Programs Principal Interest City Transfer** Power System FY Revenue Requirement Components* *All Power System financial data in this presentation is based on Power Financial Case 143 ** Based on 8% of previous fiscal year’s gross operating revenue

ladwpbnds2011a\Presentation Feb 2011\Rating Agency Deck (Both) v9 Part I.pptx Rate Structure Encourages Conservation and Maintains Financial Stability 11 The overall proposed rate structure is designed to: - Adjust incremental reliability charge to be a full pass-through with over/under collection. - Set incremental base rate revenue target for five years and collect up to the target. - Adjust pass-through factors periodically.

ladwpbnds2011a\Presentation Feb 2011\Rating Agency Deck (Both) v9 Part I.pptx 12 Three tier structure kWh thresholds are the same as energy usage Access charge and energy (kWh) rates are designed in sync to manage conservation incentives and customer bill impacts Fixed rate monthly charge will be reset every October based on highest monthly amount of energy received in the past year A Power Access charge tied to the highest level of consumption over the last year. This would provide customers with an opportunity to adjust their usage patterns to minimize the use of the Power Infrastructure and their bills. Major elements of this access charge include: Proposed kWh threshold by temperature zone Power Access Charge Zone 1 Monthly Usage (kWh) Zone 2 Monthly Usage (kWh) Tier 1First 350First 500 Tier Tier 3Over 1050Over 1500

ladwpbnds2011a\Presentation Feb 2011\Rating Agency Deck (Both) v9 Part I.pptx 13 Proposed Residential Monthly Power Access Charge In addition to recovery of costs, the proposed access charge will: Minimize the bill impact on low usage customers Promote conservation Ensure equitable costs for solar and other distributed generation Power Access Charge

ladwpbnds2011a\Presentation Feb 2011\Rating Agency Deck (Both) v9 Part I.pptx Meeting mandates and reducing CO 2 emissions 60% by 2026 to create clean energy for our customers. 14 CO 2 emissions: (metric tons = mt) 14.9 mt (17% reduction) 10.4 mt (42% reduction) 5.9 mt (67% reduction) CO 2 emissions in 1990 (reference point): 17.9 mt Power Supply Transformation and Mandates

ladwpbnds2011a\Presentation Feb 2011\Rating Agency Deck (Both) v9 Part I.pptx Power System Financial Performance 15 Debt Service Coverage (Min 2.25x) Days Cash on Hand* (Min 170 days) Debt to Capitalization Ratio (Max 68%) Full Obligation Coverage (Min 1.7) * Prior to FY 2016, the Board Approved Financial Metric for Minimum Cash on Hand was $300 million Source: Projected results from 2016 through 2020 are based on the Power System’s Financial Plan

16 Water System

ladwpbnds2011a\Presentation Feb 2011\Rating Agency Deck (Both) v9 Part I.pptx 17 Water System The Los Angeles Aqueduct Delta Los Angeles Aqueduct Colorado River Aqueduct State Water Project Sierra Nevada Mountains Local Groundwater, Water Recycling, and Conservation 17

ladwpbnds2011a\Presentation Feb 2011\Rating Agency Deck (Both) v9 Part I.pptx 18 Effect of Conservation Water Use and Population Short- term California State of Emergency and Conservation Goal –State –wide 25% –Los Angeles 16% Long- term Mayor's Executive Directive 5 –104 GPCD by 2017 –LA has achieved this level of conservation through incentive rebates (including turf removal), Public Outreach and Education, ongoing prohibited uses (including outdoor watering restrictions;) and Shortage- year rates.

ladwpbnds2011a\Presentation Feb 2011\Rating Agency Deck (Both) v9 Part I.pptx The Water System Revenue Requirement The revenue requirement is developed from the Water System’s approved budget and is comprised of: Purchased Water Cash Funding of the Capital Program Principal Interest O&M Labor O&M Materials *All Water System financial data in this presentation is based on Water Financial Case 94 FY Revenue Requirement Components*

ladwpbnds2011a\Presentation Feb 2011\Rating Agency Deck (Both) v9 Part I.pptx Cut purchased water in half while increasing local water supply FY Average FY Target 20 Water Conservation & Expanding Local Supply

ladwpbnds2011a\Presentation Feb 2011\Rating Agency Deck (Both) v9 Part I.pptx *Tier 2 and 3 allotments will also vary based on temperature zone and lot size. 21 New Water Rate Ordinance Tiered Pricing Tiered pricing structured to deliver a right balance among meeting regulatory requirements providing reliable service planning for a sustainable and secure water supply maintaining affordable rates New rate structure facilitates conservation goals with minimal bill impacts for low usage customers $9.11 $7.66 $6.73 $4.97 $4.96 $5.90 FY FY

ladwpbnds2011a\Presentation Feb 2011\Rating Agency Deck (Both) v9 Part I.pptx Financial Overview Proposed Securitization 22 Securitization would provide a means of leveraging the revenues in an efficient and low cost manner Profile and Outlook AB850 – Approved by the Governor on October 8, 2013 Allows a JPA to issue rate reduction bonds Proceeds of which would primarily be utilized to finance Local Water Supply Programs (including groundwater clean-up) and mandated programs (including safe drinking water program) Securitization provides an average reduction of revenue requirement of approximately $9 million annually starting FY 2016 or 0.58% rate reduction equivalent. That amounts to approximately $45 million by FY 2020 or 2.9% rate reduction equivalent March 2015 – Board authorized the formation of JPA pending City Council approval

ladwpbnds2011a\Presentation Feb 2011\Rating Agency Deck (Both) v9 Part I.pptx Water System Financial Performance 23 Debt Service Coverage (Min 1.7x) Days Cash on Hand* (Min 150 days) Debt to Capitalization Ratio (Max 65%) * Prior to FY2016 the Board Approved Financial Metric for Minimum cash balance was $200 million Source: Projected results from 2016 through 2020 are based on the Water System’s Financial Plan

ladwpbnds2011a\Presentation Feb 2011\Rating Agency Deck (Both) v9 Part I.pptx 24 Questions?

ladwpbnds2011a\Presentation Feb 2011\Rating Agency Deck (Both) v9 Part I.pptx 25 Appendix

ladwpbnds2011a\Presentation Feb 2011\Rating Agency Deck (Both) v9 Part I.pptx 26 Rates Remain Competitive Residential Customers Sources: books/rates-pricing-choices; tariffs/current-and-effective-tariffs; rates-and-charges; books/rates-pricing-choices tariffs/current-and-effective-tariffs rates-and-charges water-and-power/rateshttp:// water-and-power/rates; Rates at other utilities subject to change Sources: and-power/rates; and-power/rates R.pdf Rates at other utilities subject to change Power System Water System

ladwpbnds2011a\Presentation Feb 2011\Rating Agency Deck (Both) v9 Part I.pptx Tiers and Temperature Zones The LADWP service area is divided into three temperature zones using zip codes as a means of granularity.

ladwpbnds2011a\Presentation Feb 2011\Rating Agency Deck (Both) v9 Part I.pptx Tiers and Temperature Zones The LADWP service area is divided into three temperature zones using zip codes as a means of granularity.

ladwpbnds2011a\Presentation Feb 2011\Rating Agency Deck (Both) v9 Part I.pptx 29 Tier 1 ($4.97) Tier 2 ($6.73) Tier 4 ($9.11) Tier 3 ($7.66) Base Rate Pass-Through Factors* Water Supply *These Adjustments Include: Water Quality Improvement, Owens Valley Regulatory Low Income Subsidy, Water Infrastructure Reliability, Water Expense Stabilization 4/1/20167/1/20167/1/20177/1/20187/1/2019 Tier 1 $5.55$5.06$5.04$4.97$5.11 Tier 2 $6.77$6.73$6.70$6.73$6.84 Tier 3 $7.52$7.50$7.70$7.66$8.18 Tier 4 $7.52$7.67$7.70$9.11$10.14 Peak Pumping and Storage component of base rates Proposed Four-Tier Single-Dwelling Residential Rate Structure