ML072920399

Supplement to Licensee Guarantee of Payment of Deferred Premium

ML072920399
Person / Time
Site:	Palo Verde
Issue date:	10/09/2007
From:	Weber T Arizona Public Service Co
To:	Document Control Desk, Office of Nuclear Reactor Regulation
References
102-05754-TNW/CJJ
Download: ML072920399 (79)

Text

LAM Thomas N. Weber 10 CFR 140.21(e)

Mail Station 7636 Palo Verde Nuclear Department Leader Tel. 623-393-5764 PO Box 52034 Generating Station Regulatory Affairs Fax 623-393-5442 Phoenix, Arizona 85072-2034 102-05754-TNW/CJJ October 09, 2007 ATTN: Document Control Desk U.S. Nuclear Regulatory Commission Washington, DC 20555-0001

Subject:

Supplement to Licensee Guarantee of Payment of Deferred Premium By letter number 102-05735, dated August 13, 2007, Arizona Public Service Company (APS) submitted to the NRC the Licensee Guarantee of Payment of deferred Premium for the owners of the Palo Verde Nuclear Generating Station, as required by 10 CFR 140.21(e). The NRC subsequently notified APS that a compact disk (CD) provided with the Southern California Public Power Authority (SCPPA) financial report included as an enclosure to APS's August 13, 2007, submittal contained an Adobe Acrobat PDF file that was not acceptable to the NRC because it was password protected and the fonts were not embedded, contrary to the NRC electronic submittal guidelines.

APS has been unable to obtain a revised PDF file that corrects the unacceptable attributes identified by the NRC. Instead, APS is submitting the enclosed paper copy of the information from the PDF file on the CD. Please use this information for the SCPPA financial report instead of the SCPPA CD that was in APS's letter number 102-05735, dated August 13, 2007, and discard that CD.

No commitments are being made to the NRC in this letter. If you have any questions, please contact Glenn A. Michael at (623) 393-5750.

Sincerely, TNW/GAM/CJJ/gat Enclosure cc: E. E. Collins Jr. (all w/o enclosure)

M. T. Markley G. G. Warnick

ENCLOSURE Southern California Public Power Authority Independent Auditor's Report and Combined Financial Statements

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY INDEPENDENT AUDITOR'S REPORT AND COMBINED FINANCIAL STATEMENTS JUNE 30, 2006 AND 2005

CONTENTS Pages MANAGEMENT'S DISCUSSION AND ANALYSIS 1-22 INDEPENDENT AUDITOR'S REPORT 23 FINANCIAL STATEMENTS Combined Financial Statements 24-35 Notes to Combined Financial Statements 36-65 SUPPLEMENTAL INFORMATION Supplemental Schedule of Receipts and Disbursemerts in Funds Required by the Bond Indenture for the Year Ended June 30, 2006:

Palo Verde Project 66 Southern Transmission System Project 67 Hoover Uprating Project 68 Mead-Phoenix Project 69 Mead-Adelanto Project 70 Multiple Project Fund 71 San Juan Project 72 Magnolia Power Project 73 Natural Gas Project 74

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2006 The following discussion and analysis of the financial performance of Southern California Public Power Authority (the "Authority" or "SCPPA"), provides an overview of the Authority's financial activities for the fiscal years ended June 30, 2006 and 2005. Please read this discussion and analysis in conjunction with the Authority's Combined Financial Statements, which begin on page 24. .Description and other details pertaining to the Authority are included in the Notes to Combined Financial Statements.

The Authority is a joint powers authority whose primary purpose has been to provide joint financing for its member agencies that consist of eleven municipal electric utilities and one irrigation district in California. On a combined basis, these entities provide electricity to more than 2 million retail electric customers. A Board of Dirzctors (the "Board") governs the Authority, which consists of one representative from each member agency.

The Authority has interests in the following projects:

PALO VERDE PROJECT On August 14, 1981, the Authority purchased a 5.9 1% interest in the Palo Verde Nuclear Generating Station ("PVNGS"), a 3,810 megawatt nuclear-fueled generatirng station near Phoenix, Arizona, a 5.56%

ownership interest in the Arizona Nuclear Power Project High Voltage Switchyard, and a 6.55% share of the right to use certain portions of the Arizona Nuclear Power Project Valley Transmission System (collectively, the "Palo Verde Project"). Units 1, 2 an-ad 3 of the Palo Verde Project began commercial operations in January 1986, September 1986, and January 1988, respectively.

SOUTHERN TRANSMISSION SYSTEM PROJECT On May 1, 1983, the Authority entered into an agreement with the Intermountain Power Agency

("IPA") to defray all the costs of acquisition and construction of the Southern Transmission System Project ("STS"), which provides for the transmission of energy from the Intermountain Generating Station in Utah to Southern California. STS commenced commercial operations in July 1986. The Department of Water and Power of the City of Los Angeles ("LADWP"), a member of the Authority, serves as project manager and operating agent of the Intermountain Power Project ("IPP").

HOOVER UPRATING PROJECT As of March 1, 1986, the Authority and six participants entered into an agreement pursuant to which each participant assigned its entitlement to capacity and associated firm energy to the Authority in return for the Authority's agreement to make advance payments to the United States Bureau of Reclamation

("USBR") on behalf of such participants. The Authority has an 18.68% interest in the contingent capacity of the Hoover Uprating Project ("HU").

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SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2006 MEAD-PHOENIX AND MEAD-ADELANTO PROJECTS As of August 4, 1992, the Authority entered into an agreement to acquire an interest in the Mead-Phoenix Project ("Mead-Phoenix"), a transmission line extending between the Westwing substation in Arizona and the Marketplace substation in Nevada. The agreement provides the Authority with an 18.31% interest in the Westwing-Mead project component, a 17.76% interest in the Mead Substation project component and a 22.4 1% interest in the Mead-Marketplace project component.

As of August 4, 1992, the Authority also entered into an agreement to acquire a 67.92% interest in the Mead-Adelanto Project ("Mead-Adelanto"), a transmission line extending between the Adelanto substation in Southern California and the Marketplace substation in Nevada. Funding for these projects was provided by a transfer of funds from the Multiple Project Fund and commercial operations commenced in April 1996. LADWP serves as the operations manager of Mead-Adelanto.

MULTIPLE PROJECT FUND During fiscal year 1990, the Authority issued Multiple Project Revenue Bonds for net proceeds of approximately $600 million to provide funds to finance costs of construction and acquisition of ownership interests or capacity rights in one or more, then unspecified, projects for the generation or transmission of electric energy. Certain of these funds were used to finance the Authority's interests in Mead-Phoenix and Mead-Adelanto.

SAN JUAN PROJECT Effective July 1, 1993, the Authority purchased a 41.80% interest in Unit 3 and related common facilities of the San Juan Generating Station ("SJGS") from Century Power Corporation. Unit 3, a 497-megawatt unit, is one unit of the four-unit coal-fired power generating station in New Mexico.

MAGNOLIA POWER PROJECT In March 2003, the Authority received approval from the California Energy Commission for construction of the Magnolia Power Project. The Project consists of a combined cycle natural gas-fired generating plant with a nominally rated net base capacity of 242 megawatts and was built on a site in the City of Burbank, California. The plant is the first that is wholly owned by the Authority and entitlements to 100% of the capacity and energy of the Project have been sold to six of its members. The City of Burbank, a Project participant, managed its construction and also serves as the Operating Agent for the Project. Commercial operations began September 22, 2005.

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SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2006 NATURAL GAS PROJECT On July 1, 2005, the Authority, together with LADWP and Turlock Irrigation District, acquired 42.5%

of an undivided working interest in three natural gas leases located in the Pinedale Anticline region of the State of Wyoming. The Authority's individual share in these interests equals 14.9%. The purchase includes 38 operating oil and gas wells and associated lateral pipelines, equipment, permits, rights of way, and easements used in production. The natural gas field production is expected to increase for several more years as additional capital is invested on drilling new wells and then decline over a life expectancy greater than 30 years. This purchase, along with similar future purchases, will provide a secure source of gas for the participants, and hedge against volatile prices in the market.

ORMAT GEOTHERMAL PROJECT The Authority entered into long-term Power Purchase Agreements in December 2005 with divisions of Ormat Technologies, Inc. for 20 megawatts ("MW") of electric generation from geothermal energy facilities located in Heber, California. The Project started delivery of 10 MW in January 2006 and is expected to receive additional deliveries in December 2007. The City of Anaheim acts as the Scheduling Coordinator on behalf of the Project Participants.

PROJECTS' STABILIZATION FUND In fiscal year 1997, the Authority authorized the creation of a Projects' Stabilization Fund. Deposits may be made into the fund from budget under-runs, after authorization of individual participants, and by direct contributions from the participants. Participants have discretion over the use of their deposits.

This fund is not a project-related fund; therefore, it is not governed by any project Indenture of Trust.

The members participate in the Projects' Stabilization Fund by making deposits to the fund at their discretion.

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SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2006 PARTICIPANT OWNERSHIP INTERESTS The Authority's participants may elect to participate in the projects. As of June 30, 2006, the members have the following participation percentages in the Authority's operating projects:

Magnolia Ormat Geo-Hoover Mead- Mead- Power Natural Gas thermal Participants Palo Verde STS Uprating Phoenix Adelanto San Juno Project Project Project City of Los Angeles 67.0% 59.5% 24.8% 35.7% - - -

City of Anaheim - 17.6% 42.6% 24.2% 13.5% 38.0% 35.7% 60.0%

City of Riverside 5.4% 10.2% 31.9% 4.00% 13.5% - - - -

Imperial Irrigation District 6.5% - - - - 51.0%

City of Vernon 4.9% - - -

City of Azusa 1.0% 4.2% 1.0% 2.2% 14.7% -

City of Banning 1.0% 2.1% 1.0% 1.3% 9.8% - - 10.0%

City of Colton 1.0% - 3.2% 1.0% 2.6% 14.7% 4.2% 7.1% -

City of Burbank 4.4% 4.5% 16.0% 15.4% 11.5% - 31.0%- 14.3% -

City of Glendale 4.4% 2.3% - 14.8% 11.1% 9.8% 16.5% 28.6% 15.0%

City of Cerritos - - - - - 4.2% -

City of Pasadena 4.4% 5.c%  !-3.8% 8.6% -. 1% 143% 15.0%

10O.0% .0% 0G 100.0% 100.0% i00.0% 100.0% 100.0% i0O.0% 100.0%

The Authority has e,-Aered into power sale's, natural gas sales, and transmission service agreements with the above project participants. Under 1he terms of the contracts, the participants are entitled to power output, natural gas or transmission service, as applicable. The participants are obligated to make payments on a "take or pay", basis for thbir proportionate share of operating and maintenance expenses and debt service. The contracts cannot be terminated or amended in any manner that will impair or adversely affect the rights of the bondhciders as lon.g as any bornds issued by the specific project remain outstanding.

The contracts expire as follows:

Palo Verde Project 2030 Southern Transmission System Project 2027 Hoover Uprating Project 2018 Mead-Phoenix Project 2030 Mead-Adelanto Project 2030 San Juan Project 2030 Magnolia Power Project 2036 Natural Gas Project 2030 Ormat Geothermal Project 2031 4

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2006 CRITICAL ACCOUNTING POLICIES Net Assets - The Authority's billing amounts to the participants are determined by its Board of Directors and are subject to review and approval by the participants. Biliings to participants are designed to recover "costs" as defined by the power sales, natural gas sales, and transmission service agreements.

The billings are structured to systematically provide for debt service requirements, operating funds, and reserves in accordance with these agreements. The accumulated difference between billings and the Authority's expenses calculated in accordance with generally accepted accounting principles are presented as net assets (deficit). It is intended that this differelace will be recovered in the future through billings for repayment of principal on the related bonds.

Investment Policy and Controls - The Authority's investment function operates within a legal framework established by Sections 6509.5 and 53600 et. seq. of the California Government Code, Indentures of Trust, instruments governing financial arrangements entered into by the Authority to finance and operate Projects, and the Authority's Investment Policy. The Indentures of Trust authorize the establishment of specific Project funds and accounts, specify how monies are to be applied, and name third party Trustees.

Funds available for investment include proceeds from bonds and notes sales, payments from the participants, maturities of previous investments, earnings, exchanges of securities and interest from swap agreements. Funds are managed and invested separately and principal and earnings are credited and allocated to designated funds or accounts as outlined in each Project's Indenture of Trust, or in the Projects' Stabilization Fund which was established by a Board Resolution.

The three fundamental criteria in the investment program, ranked in accordance of importance, are:

safety of principal, liquidity, and return. An exception to the preceding criteria is made for the Palo Verde Nuclear Decommissioning Trust Funds, as liquidity will not be a factor until 2023. The investment criteria for the Decommissioning Trust Funds, in order of importance, are as follows: safety, return, and liquidity.

Debt Management Program - The Authority's financing goal is to obtain the lowest prudent rates of interest on debt issues and to issue debt in the most cost-effective manner. In addition, the Authority will continue to utilize debt management strategies that reduce the overall cost of borrowing for its members. In general, the Authority issues new money debt and refunding debt on either a negotiated or competitive basis as determined by the Board. A minimum net present value savings of 5%, as a percent of the refunded par amount, is the general target when determining the potential to refund existing Authority debt. The Authority may also use interest rate swaps or other derivative products to help meet important financial objectives.

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SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2006 CRITICAL ACCOUNTING POLICIES (Continued)

Jointly Owned Utility Plant - The Authority owns interests in several generating stations, transmission systems, and gas reserve leases. Under these arrangements, a participating member has an undivided interest in a utility plant and is responsible for its propoitionate share of the costs of construction and operation and is entitled to its proportionate share of the energy produced. All utility plant of the Authority, with the exception of the Magnolia Power Project, is jointly owned. The related cost and accumulated depreciation for these jointly-owned projects has been reflected in each project's financial statements in utility plant. Additionally, the Authority's share of expenses for each project is included in the statements of revenues, expenses, and changes in net assets (deficit) as part of operations and maintenance expenses.

USING THIS FINANCIAL REPORT This annual financial report consists of a series of financial statements and reflects the self-supporting activities of the Authority that are funded primarily through the sale of energy, natural gas, and transmission services to member agencies under project specific "take or pay" contracts that require each member agency to pay its proportionate share of operating and maintenance expenses and debt service with respect to such projects.

Combined Financial Statements - The Combined Financial Statements, using an accrual basis of accounting, provide an indication of the Authority's financial hcalth. The Combined Statements of Net Assets (Deficit) include all of the Authority's assets and liabiliti-s, as well as an indication about which assets can be utilized for general purposes and which assets are restricted as a result of bond covenants and other commitments. The Combined Statements of Revenues, Expenses and Changes in Net Assets (Deficit) report all of the revenues and expenses during the time periods indicated. The Combined Statements of Cash Flows report the cash provided and used by operating activities, as well as other cash sources such as investment income, cash payments for bond principal payments, and capital additions and betterments.

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SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2006 Combined Financial Statements (Continued)

Combined Summary of Financial Condition and Changes in Net Assets (Deficit)

(In Thousands)

JUNE 30, 2006 2005 2004 Assets Net utility plant $ 995,599 $ 986,292 $ 958,180 Investments 558,497 689,286 1,218,723 Cash and cash equivalents 80,778 108,240 229,983 Other 112,223 88,015 88,285 Total assets $ 1,747,097 $1,871,833 $2,495,17i Liabilities and Net Assets (Deficit)

Noncurrent liabilities $ 1,806,660 $ 1,96!,741 $2,381,299 Current liabilities 186,969 143,123 239,003 Total liabilities i,993:629 2,104,%'64 2,620,302 Net assets (deficit)

Invested in cap-tal assets, net of re!ated debt (715,204) (657,908) (1,251,017)

Restricted net assets 361,732 332,426 1,100,972 Unrestricted net assets 1C6,940 92,451 24,914 Total net deficit (246,532) (233,02,1) (125,131)

Total liabilities and net assets (deficit) $ 1,747,097 $ 1,871,833 $2,495,171 Revenues, Expenses and Changes "n Net Assets (Def-cit)

Operating revenues $ 330,987 $ 220,813 $ 320,022 Operating expenses (248,507) (171,926) (165,969)

Operating income 82,480 48,887 154,053 Investment income 18ý932 36,631 38,423 Debt expense (106,198) (106,083) (145,340)

Loss on e'*t.nguismrent of debt a (85,827) (508)

Change "n net deficit (4,786) (106,392) 46,628 Net deficit - beginning of year (233,031) (125,131) (126,414)

Release of over billings from prior years -, (22,503)

Net contributions/withdrawals by participants (8,715) 20,995 (45,345)

Net deficit - end of year $ (246,532) $ (233,03 1) $ (125,131) 7

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2006 Combined Financial Statements (Continued)

Net Deficit -

During fiscal year 2006, the Authority's net deficit increased by $14 million, mainly due to the decrease in assets of $125 million and the decrease in liabilities of $111 million.

The decrease in the Authority's assets is due to the following:

• Utility Plant - increased by $9 million.

This increase is the net effect of the acquisition of natural gas reserves, capital expenditures in the Natural Gas Project, and construztion in the Magnolia Power Proj'ct offset by scheduled depreciation in other projects.

• Investments - decreased by $131 million.

This decrease is primarily due to the use of funds for the redemption of $162.1 million in Multiple Project revenue bonds on July 1, 2005; a principal payment of $11.3 million for the Palo Verde Project on June 7, 2006; a $4.3 million draw down from the FSA investment agreement in the Palo Verde Project, which provides for withdrawals of guaranteed investment coupons through June 2017 to pay for notes owed to the participants; and capital expenditures for the Magnolia Power Project.

These decreases were offset by an increase of $14 million in participant billings for the Mead Phoenix and Mead Adelanto Projects for debt service payments in 2007; an $18 million increase in the purchase of investments with longer maturity yields over short-term maturities to set aside funds for debt service payments for STS; and $8 million of San Juan over billings for fiscal years 2005 and 2006, which have been authorized to be accumulated for anticipated environmental upgrades in 2008.

Cash and cash equivalents - decreased by $27 million.

This decrease is primarily due to the use of the funds from the Project Stabilization Fund to acquire the natural gas reserve leases on July 1, 2005 (Glendale and Pasadena deposited $13 million and $6.5 million, respectively, on June 30, 2005); the reallocation of investments from short term to long term in STS; and $12 million of short term securities purchased in the newly acquired Ormat and Natural Gas Projects.

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SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2006 Combined Financial Statements (Continued)

Other Assets - increased by $24 million.

This increase is primarily due to the $9.9 million recognition of spare parts inventory in the Magnolia Power Project. In addition, increases in accounts receivable were recognized in Palo Verde, Magnolia Power, and Natural Gas Projects. Increase in Palo Verde's billings of $6.5 million mainly due to higher maintenance expense and lower interest earnings allocated to debt service this fiscal year. Accounts receivable in Magnolia Power Project increased by $2.0 million for outstanding fuel billings, and Natural Gas recorded accounts receivable of $4.4 million for outstanding capital billings, gas, and oil sales to Coral Energy and Ultra Resources.

The decrease in the Authority's liabilities of $111 million is primarily the net effect of the redemption of the Multiple Project revenue bonds; an increase in the Authority's liabilities for the financing of the Natural Gas reserve acquisition on behalf of Project A participants (Anaheim, Burbank, and Colton);

and an increase in the advances due to the Participants of the Magnolia Power and Natural Gas Projects.

D uring fiscal year 2005, a significant amount of the Palo Verde bonds were legally defeased on July 1, 2004 as part of the Authority's completion of the Restructuring Plan (See Note 5). As a result of the completion of this plan, long-term investments decreased by $529 million, cash and cash equivalents and other decreased by $122 million, and liabilities decreased by $515 million. In addition, because of the net effect of the continued construction of the Magnolia Power Plant and the accumulated depreciation of other projects, the utility plant increased by $28 million.

Net Operating Income -

During fiscal year 2006, the net increase in operating income of $34 million is due to the following:

" Increase of $14 million in participant billings in Mead-Adelanto and Mead-Phoenix projects for debt service payments during the year ended June 30, 2006. Mead-Adelanto and Mead-Phoenix are scheduled to pay principal of $10.8 million and $3.2 million, respectively, relating to the 2004 Series A bonds.

" Recognition of net operating income of $1.5 million this fiscal year relating to the start-up of the natural gas reserve leases.

" Net operating income of $6.5 million recognized since the Magnolia Power Plant began commercial operation on September 22, 2005.

• Increase of $8.4 million in participant billings recorded in the Palo Verde Project as of June 30, 2006, mainly as the result of higher maintenance expense due to the replacement of steam generators in Palo Verde Unit 1 and lower interest earnings allocated to debt service.

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SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2006 Combined Financial Statements (Continued)

During fiscal year 2005, operating income decreased by $105 million primarily due to lower debt service requirements because of the completion of the Palo Verde Restructuring Plan Investment Income -

During fiscal year 2006, investment income decreased by $18 million due to the following:

" Use of $162.1 million in funds on July 1, 2005 to redeem the callable Multiple Project revenue bonds.

" Market value of Palo Verde Project's Decommissioning funds decreased by $3.5 million due to interest rate increases over th.,e past twelve months resulting in the decline of the market value of securities purchased before that period.

Debt Expense -

During fiscal year 2005, the decrease in debt expenses of $39 million was largely due to the decrease in interest expense, amortization of bond discounts and loss on refunding related to the defeasance of the 1987A, 1989A, and the 1997B Palo Verde bonds on July 1, 2004.

Loss on Extinguishment of Debt -

The $85 million Loss on Extinguishment of Debt resulted from the defeasance of the remaining 1987A, 1989A, and 1997B Palo Verde bonds on July 1, 2004. This consists of the write-off of the remaining unamortized debt expenses relating to those issues as of the date of extinguishment and the adjustments made to market value of the related investments which were reccrded as of June 30, 2004.

Supplementary Information -

During fiscal year 2005, $22 million of Palo Verde accumulated over billings from prior years was reclassified from cost recoverable to notes payable. The Board of Directors authorized these funds to be released to the participants to pay a portion of the operating and maintenance expenses of the Palo Verde Project.

During fiscal year 2005, cities of Glendale and Pasadena contributed a combined total of $20 million in cash for their portion of the purchase of the Natural Gas leases which were acquired on July 1, 2005.

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SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2006 Combined Financial Statements (Continued)

Long-Term Debt - The Authority has financed the acquisition of most of its Projects through the issuance of revenue bonds. The exception is the Natural Gas Project wherein some of the natural gas participants used cash for their percentage of the acquisition. Capital additions to all of these Projects are financed through revenues received from the Participants.

In May 2005, the Authority issued new refunding bonds for San Juan as follows:

Par Amount of Par Amount of Bond Ratings Refunded Refunding iUeb Service Net Present by Description of Bonds Bonds Issue Szvings Valu2 Savings S&P/Moody's San Juan Project Revenue Bonds 2005 Refunding Series A $ 71,850,000 $ 71,880,000 $ 10,026,571 $ 6,669,244 AAA/Aaa The following graphs for each of the Authority's Projects provide an indication of the principal and interest payments on the bonds that are due each year following June 30, 2006 until the bonds mature.

Interest is reflected on an accrul.1 basis.

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SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2006 PALO VERDE PROJECT Debt Service Requirements Fiscal Year Ending June 30, 2006 ($ in thousands) 14,000 12,000 10,000 8,000 6,000 4,000 2,000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

[ Principal U Interest]

Interest payments on the remaining bonds are payable on the first Wednesday of each month. Principal maturity of $11.3 million was paid on June 7, 2006. The bonds mature in the fiscal year ended June 30, 2017.

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SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2006 SOUTHERN TRANSMISSION SYSTEM PROJECT Debt Service Requirements Fiscal Year Ending June 30, 2006 ($ in thousands) 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 IS Principal 0 Interest Fixed interest on the bonds is paid semi-annually on July 1 and January 1 of each year. Variable interest is paid monthly, except for the 2003A bonds, which is paid weekly. Principal maturities of $31.5 million were paid on July 1, 2005. The bonds mature in the fiscal year ended June 30, 2024.

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SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2006 HOOVER UPRATING PROJECT Debt Service Requirements Fiscal Year Ending June 30, 2006 ($ in thousands) 2,500 2,000 1,500 1,000 500 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 UIPrincipal U Interest Interest payments on the bonds are payable semi-annually on October 1 and April 1 of each year.

Principal maturities of $1.3 million were paid on October 1, 2005. The bonds mature in the fiscal year ended June 30, 2018.

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SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2006 MEAD-PHOENIX PROJECT Debt Service Requirements Fiscal Year Ending June 30, 2006 ($ in thousands) 7,000 6,000 5,000 4,000 3,000 2,000 1,000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 IN Principal U Interest]

Fixed interest on the bonds is paid semi-annually on July 1 and January 1 of each year. Variable interest is paid weekly. There were no principal maturities for the year ended June 30, 2006. The bonds mature in the fiscal year ended June 30, 2021.

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SOUTHERN CALIFORNIA PUBLIC POWEk AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2006 MEAD-ADELANTO PROJECT Debt Service Requirements Fiscal Year Ending June 30, 2006 ($ in thousands) 25,000 20,000 15,000 10,000 5,000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 IN Principal U Interest]

Fixed interest on the bonds is paid semi-annually on July 1 and January 1 of each year. Variable interest is paid Tuesdays, Wednesdays, and Thursdays of every week. There were no principal maturities for the year ended June 30, 2006. The bonds mature in the fiscal year ended June 30, 2021.

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SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2006 MULTIPLE PROJECT FUND Debt Service Requirements Fiscal Year Ending June 30, 2006 ($ in thousands) 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 2007 2008 2009 2010 2011 2012 2013 2014 IN Principal E Interest]

Interest payments on the bonds are payable semi-annually on July 1 and January 1 of each year. Par value of bonds that matured and were redeemed on July 1, 2005 was $170.2 million. A total of $50.2 million of the outstanding Multiple Project Revenue Bonds are not subject to redemption prior to maturity. The bonds mature in the fiscal year ended June 30, 2014.

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SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2006 SAN JUAN PROJECT Debt Service Requirements Fiscal Year Ending June 30, 2006 ($ in thousands) 30,000 25,000 20,000 15,000 10,000 5,000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 I Principal U Interest Interest payments on the bonds are payable semi-a.-.nual1y on July 1 and January 1 of each year.

Principal maturities of $9.2 million werenaid on January 1, 2006. The bonds mature in the fiscal year ended June 30, 2020.

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SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2006 MAGNOLIA POWER PROJECT Debt Service Requirements Fiscal Year Ending June 30, 2006 ($ in thousands) 60,000 50,000 40,000 30,000 20,000 10,000 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 I Principal U Interest Interest payments on the bonds are payable semi-annually on July 1 and January 1 of each year. There were no principal maturities for the year ended June 30, 2006. The bonds mature in the fiscal year ended June 30, 2037.

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SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2006 NATURAL GAS PROJECT Debt Service Requirements Fiscal Year Ending June 30, 2006 ($ in thousands) 30,000 25,000 20,000 15,000 10,000 5,000 2007 2008 IU Principal U Interest Interest payments on the outstanding amount of the bonds is payable monthly. A portion of the principal totaling $1.7 million was paid on June 1, 2006. The bonds mature in the fiscal year ended June 30, 2008 unless the maturity is extended with the consent of the owners.

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SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2006 Financial Outlook - The Authority's credit strength is based on:

" The collective credit strengths of each project participant;

• The absence of concentration risk as evidenced by the lack of substantial reliance by one participant on the resources financed;

• The low cost power the Projects provide the participants; and,

" Strong legal provisions.

The Authority has take-or-pay power sales, natural gas sales and transmission service contracts which unconditionally require the Participants to pay for the cost of operating and maintaining the Projects, including debt service, whether or not the Projects are operating or operable. Although the contracts have not been court-tested, a municipal utility's authority to enter into such contracts is rooted in the State's constitutional provisions for municipal electric utilities.

Through the collaborative efforts of its members, the Authority has developed a comprehensive and dynamic strategic plan that provides a common vision for its members and a platform for joint action.

SCPPA continues its involvement in legislative and regulatory affairs at both the state and federal levels to protect represented customers, by assuring resource adequacy, excellent reliability, and environmental stewardship. Backed by one of the strongest financial ratings in the utility industry, SCPPA maintains its traditional role of providing financing for its members' natural gas, generation and transmission projects. In addition to the conventional areas of power, investments are also being made to provide customers with more renewable generation and energy efficiency. Renewable energy will continue to play an important role for the future. Investment by SCPPA members in renewable programs, have totaled nearly $70 million over the past five years.

Natural Gas Reserve Acquisition Project- Several SCPPA members, the cities of Anaheim, Burbank, Colton, Glendale, and Pasadena, in addition to LADWP and Turlock Irrigation District, realized one of their goals in acquiring natural gas reserves for their own generating facilities.

On July 1, 2005, the acquisition of natural gas reserves and other real property from Anschutz Corporation in Pinedale, Wyoming was successfully completed. The transaction totaled in excess of

$300 million. SCPPA financed approximately $26 million on behalf of Anaheim, Burbank, and Colton.

Gas began to flow to the participants at 12:01 a.m. on July 1, 2005.

This is a unique project and is believed to be the largest natural gas field owned by public power utilities and should assure the participants a secure long-term and stable supply of natural gas to fuel the various power plants. All of the participants, as well as LADWP and the Turlock Irrigation District, have agreed to pool the operations under an agreement with SCPPA to assure close coordination and operation efficiencies.

21

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2006 Renewable Projects - SCPPA members are committed to the use of renewable energy resources in the future.

Energy from the High Winds Energy Center in Solano County, California, is now a part of the participating members' resource portfolios. SCPPA members, including the cities of Anaheim, Azusa, Colton, Glendale, and Pasadena, contracted with PPM Energy (a division of Pacificorp Holdings) for 30 megawatts (MW) of the 150 MW wind facility. PPM also provided a firming service, which guaranteed SCPPA members firm delivery of energy, at predetermined rates, regardless of the wind conditions at the site. Although the purchase contracts under the project were between the individual members and PPM, SCPPA played a key role in bringing this project to a reality through the issuance of the Renewable RFP and coordinating contract negotiations.

SCPPA has entered into a Power Purchase Agreement with Ameresco Chiquita Energy LLC for 100%

of the electric generation from a landfill gas to energy facility to be located at the landfill site in Valencia, California (Ameresco Landfill Gas to Energy Project). The SCPPA participants in this project include the cities of Anaheim, Burbank, Glendale, and Pasadena, with their respective shares listed below. This project, which is expected to go on-line December 31, 2007, will initially be for 8 Megawatts with an option to increase the output by an additional 8 Megawatts in the future when additional gas becomes available.

Participants Contract Share City of Anaheim 33.3333%

City of Burbark 16.6667%

City of Glendale 33.3333%

City of Pasadena 16.6667%

Summary The management of the Authority is responsible for preparing the information in this management discussion and analysis, combined financial statements and notes to combined financial statements. We prepared the financial statements according to accounting principles generally accepted in the United States of America, and they fairly portray the Authority's financial position and operating results. The notes to the financial statements are an integral part of the basic financial statements and provide additional financial information.

22

MOSS-ADAMSLLP CIFRTIFI I D PUBLIC ACCO0UNT ANTS INDEPENDENT AUDITOR'S REPORT To the Board of Directors and Participants of Southern California Public Power Authority We have audited the accompanying combined statements of net assets (deficit) of Southern California Public Power Authority (the Authority) as of June 30, 2006 and 2005 and the related combined statements of revenues, expenses and change, in net assets (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Authority's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accented in th, United States of America. Those standards require that we plan aad perform ti-ý -.udits to obtain rLasonable assurance about whether the financial statements ar- free of material rnisstatN-nient. An audit iacludes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Southern California Public Power Authority as of June 30, 2006 and 2005 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The management's discussion and analysis preceding the combined financial statements is not a required part of the basic financial statements but is supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of. management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it.

The additional supplemental information following the combined financial statements and notes to combined financial statements is also not a required part of the basic financial statements but is supplementary information provided for purposes of additional analysis. We did not audit or perform any other procedures on this information and express no opinion on it.

0s Ac--\GVAM Vancouver, Washington September 1, 2006 A m'ernml 'r Mwj(ves RowlInd hlorma~ional an nssoclaia:on ot indepecndenit Accourl ti+ng fitnis thtrUt.tghout thie Wvord

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINED STATEMENTS OF NET ASSETS (DEFICIT)

JUNE 30, 2006 (AMOUNTS IN THOUSANDS)

Southern Transmission System Hoover Uprating Mead- Phoenix Mead- Adelanto Multiple Project Palo Verde Project Project Project Project Project Fund ASSETS Noncurrent assets Utility plant Production $ 647,672 - $ - $ - S Transmission 14,076 674,606 50,770 172,319 General 2,770 18,911 .21 2,640 473 Natural gas reserves 664,518 693,517 21 53,410 172,792 Less - accumulated depreciation 560,670 390,618 21 14,834 46,260 103,848 302,899 38,576 126,532 Construction work in progress 12,401 80 -

Nuclear fuel, at amortized cost 15,830 -

Net utility plant 132,079 302,899 38,656 126,532 Special funds Restricted investments Escrow accounts - 6,535 -

Decommissioning funds 133,489 - -

Other funds 23,629 64,669 2,813 11,394 33,939 65,395 Total restricted investments 157,113 71,204 2,813 11,39C 33,939 65,395 Unrestricted investments Other funds 82,788 560 -

Total special funds 239,906 71,204 3,373 11-9433,939 65,395 Other noncurrent assets Advance to IPA - restricted - 11,550 - -

Advances for capacity and energy, net - restricted 16,405 Deferred debit Unamortized debt expenses 794 6,642 2,673 Other assets Total other noncurren: assets 784 18,192 16,674 807 2,673 Total noncurrent assets 372,769 392,295 20,047 50,857 163,144 65,395 Current assets Special funds Cash and cash equivalents - restricted 1,824 15,497 18 1,883 3,567 Cash and cash equivalents - unrestricted 3,776 1,109 776 291 976 Interest receivable 1,414 28 29 300 848 2,130 Accounts receivable 6,934 1,090 Due from other project - restricted 5,013 13,787 Materials and supplies 6,711 Prepaid and other assets 37 -

total current assets 20,696 17,72-'4. 823 7,487 19,178 2,130 Total assets $ 393,465 S 410,019 S 20,870 $ 58,344 S 182,322 $ 67,525 LIABILITIES Noncurrent liabilities Long-term debt 98,215 S 755,702 $ 16,821 $ 63,154 $ 202,596 $ 41,279 Notes payable 55,736 Advances from participants Total noncurrent liabilities 153,951 755,702 16,821 63,154 202,596 41,279 Current liabilities Debt due within one year 11,545 34,230 1,315 3,250 10,850 Notes payable due within one year 4,526 Advances from participants die within one year Accrued interest 360 9,402 233 960 2,824 1,694 Accounts payable and accruals 11,039 1,596 106 531 1,050 Accrued property tax 1,830 Due to other projects S - - - 18,800 Total current liabilities 29,300 45,228 1,654 4,741 14,724 20,494 Total liabilities 183,251 800,930 18,475 67,895 217,320 61,773 NETASSETS (DEFICT Invested in capital assets, net of related debt and advances from participants 23,103 (480,390) - (26,941) (84,242) -

Restricted net assets (deficit) 99,600 88,876 1,163 17,630 49,317 5,752 Unrestricted net assets (deficit) 87,511 603 1,232 (240) (73)

Total net assets (deficit) 210,214 (390,911) 2,395 (9,551) (34,998) 5,752 Total liabilties and net assets (deficit) 393,465 S 410,019 S 20,870 S 58,344 $ 182,322 $ 67,525 24 See accompanVing notes.

24 See accompanying notes.

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINED STATEMENTS OF NET ASSETS (DEFICIT)

JUNE 30, 2006 (AMOUNTS IN THOUSANDS)

Magnolia Power Ormat Geothermal Projects' Stabilization San Juan Project Project Natural Gas Project Project Fund Total Eliminations Total Combined S 173,713 $ 277,109 S 592 $ $ $ 1,099,086 S $ 1,099,086

- 15,079 - 926,850 926,850 7,443 14,761 693 47,712 47,712 44,747 44,747 44,747 181,156 306,949 46,032 2,118,395 2,118,395 137,888 8,492 2,646 1,161,429 1,161,429 43,268 298,457 43,386 956,966 956,966 6,570 3,752 22,803 22,803 15,830 15,830 49,838 298,457 47,138 995,599 995,599

-- 6,535 6,535

- - 133,489 133,489 38,589 26,241 3,705 1,733 63,018 335,125 - 335,125 38,589 26,241 3,705 1,733 63,618 475,149 475,149

- - 83,348 83,348 38,589 26,241 3,705 1,733 63,018 558,497 558,497

- - - 11,550 11,550

- - 16,405 16,405 23,853 - - 23,853 23,853 1,653 5,038 108 17,974 17,974 70 - - 70 70 25,576 5,C38 198 69,852 69,852 114,003 329,736 50,551 1,733 63,018 1,623,948 ... 1,623,948 5,081 11,278 3,685 611 3,075 46,519 46,519 6,113 14,876 6,342 - - 34,259 34,259 129 375 6 7 500 5,766 5,766 835 2,154 4,429 - 15,442 15,442

- - 18,800 (18,800) 3,427 9,877 - 20,015 20,015 343 216 552 . . 1,148 . .1,148 15,928 38,776 15,014 618 3,575 141,949 (18,800) 123,149

$ 129,931 $ 368,512 $ 65,965 $ 2,351 S 66,593 S 1,755,897 $ (18,800) $ 1,747,097 S 171,715 S 316,740 $ 28,200 $ - S 1,694,422 $ S 1,694,422

- 3,965

• 59,701 59,701 32,000 1,510 19,027 52,537 52,537 203,715 322,215 47,227 1,806,660 1,806,660.

9,570 3,735 - 74,495 74,495 1,182 - 5,708 5,708

- 26,652 6,643 33,295 33,295 4,624 7,662 145 - 27,904 27,904 3,510 11,507 7,087 2,344 38,770 38,770 219 - 4,748 6,797 6,797

- - - 18,800 (8,800) 17,923 50,738 18,623 2,344 205,769 (18,800) 186,969 221,638 372,953 65,850 2,344 2,012,429 (18,800) 1,993,629 (129,794) (15,332) (1,608) - (715,204) (715,204) 31,027 (996) 2,769 66,594 361,732 361,732 7,060 11,887 (1,046) 7 106,940 106,940 (91,707) (4,441) 115 7 66,593 (246,532) (246,532)

$ 129,931 $ 368,512 $ 65,965 $ 2,351 $ 66,593 S 1,765,897 S (18,800) $ 1,747,097 See accompanying notes. 25

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINED STATEMENTS OF NET ASSETS (DEFICIT)

JUNE 30, 2005 (AMOUNTS IN THOUSANDS)

Southern Transmission Hoover Uprating Mead- Adelanto Palo Verde Project System Project Project Mead- Phoenix Project Project ASSETS Noncurrent assets Utility plant Production $ 636,588 S$ - $ -

Transmission 14,057 674,606 50,770 172,319 General 2,668 18,911 21 2,640 473 653,313 693,517 21 53,410 172,792 Less -accumulated depreciation 539,190 370,989 21 13,431 41,760 114,123 322,528 39,979 131,032 Construction work in progress 16,650 - 77 -

Nuclear fuel, at amortized cost 14,652 - -

Net utility plant 145,425 322,52. 40,056 131,032 Special funds Restricted investments Escrow accounts - 10,545 Decommissioning funds 131,991 -

Other funds 32,038 42,591 2,654 8,765 24,130 Total restricted investments 164,029 53,136 2,654 8,765 24,130 Unrestricted investments Other funds 86,592 560 - -

Total special funds 250,621 53,136 3,214 8,765 24,130 Other noncurrent assets Advance to IPA - restricted - 11,550 - -

Advances for capacity and energy, net - restricted S- 17,710 Deferred debit Unamortized debt expenses 1,136 7,367 330 931 3,088 Total other noncurrent assets 1,136 18,917 18,040 931 3,088 Total noncurrent assets 397,182 394,581 21,254 49,752 158,250 Current assets Special funds Cash and cash equivalents - restricted 5,247 36,160 179 1,181 3,007 Cash and cash equivalents - unrestricted 1,832 652 829 262 724 Interest receivable 1,426 28 26 323 888 Accounts receivable 3,390 44 30 (7)

Dve from other project - restricted 4,656 12,803 Materials and supplies 6,649 - -

Total current assets 18,544 36,884 1,034 6,452 "17,415 Total assets 415,726 $ 431,465 $ 22,288 $ 56,204 $ 175,665 LIABILITIES Noncurrent liabilities Long-termndebt 107,707 $ 777,888 S 17,716 $ 65,934 $ 212,155 Notes payable 59.869 Advances from participants due within one year Total noncurrent liabilities 167,576 777,888 17,716 65,934 212,155 Current liabilities Debt due within one year 11,300 31,470 1,275 Notes payable due within one year 4,307 Accrued interest 1,419 8,214 244 1,013 2,946 Accounts payable and accruals 14,105 2,435 120 310 869 Accrued property tax 1,800 Due to other projects Total current liabilities 32,931 42,119 1,639 1,323 3,815 Total liabilities 200,507 820,007 19,355 67,257 215,970 NET ASSETS (DEFICIT)

Invested in capital assets, net of related debt and advances from participants 27,418 (479,463) (24,946) (78,036)

Restricted net assets (deficit) 100,084 92,660 1,660 .13,911 37,882 Unrestricted net assets (deficit) 87,717 (1,739) 1,273 (18) (151)

Total net assets (deficit) 215,219 (388,542) 2,933 (11,053) (40,305)

Total liabilties and net assets (deficit) 415,726 $ 431,465 $ 22,288 S 56,204 175,665 26 See accompanying notes.

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINED STATEMENTS OF NET ASSETS (DEFICIT)

JUNE 30, 2005 (AMOUNTS IN THOUSANDS)

Magnolia Power Projects' Stabilization Multiple Project Fund San Juan Project Project Fund Total Eliminations Total Combined

$ $ 173,592 $ $ S 810,180 $ $ 810,180

- 911,752 911,752 7,422 32,135 32,135 181,014 1,754,067 1,754,067 124,378 1,089,769 1,089,769 56,636 664,298 664,298 1,339 289,276 307,342 307,342

- . 14,652 14,652 57,975 289,276 _985,292 986,292

- - 10,545 10,545

- - 131,991 131,991 233,873 31,351 35,080 49,116 459,593 459,598 233,873 31,351 35,080 49,116 632,134 602,134

-87,152 87,152 233,873 31,351 35,080 49,116 689,286 689,286 11,550 11,550

- 17,710 17,710 13,000 - 13,000 13,000 2,009 5,397 20,258

• 20,258 15,009 5,397 - 62,518 62,518 233,873 104,335 329,753 49,116 1,738,096 1,738,096

- 4,766 19,169 24,480 94,189 94,189

- 9,752 - 14,051 14,051 8,322 44 333 517 11,907 11,907

- 120 28 3,605 3,605

- - 17,459 (17,459) -

- 3,336 - - 9,985 9,985 8,322 18,018 19,530 24,997_ 151,196 (17,459) 133,737 S 242,195 $ 122,353. $ 349,283 S 74,113 $ 1,889,292 $ (17,459) $ 1,871,833 S 202,104 $ 181,459 $ 320,909 $ 1,885,872 S $ 1,885,872 I ..-59,869 59,869 16,000 - 16,060 - 16,000 202,104 197,459 320,909 1,961,741 1,961,741 8,100 9,160 - 61,305 61,305

- - . 4,307 4,307 6,932 3,632 7,585 31,985 31,985

- 4,834 20,789 43,462 43,462

- 264 - 2,064 2,064 17,459 - 17,459 (17,459) -

32,491 17,890 28,374 160,582 (17,459) 143,123 234,595 215,349 349,283 2,122,323 (17,459) 2,104,864

- (130,894) 28,013 - (657,908) (657,908) 7,600 32,529 (28,013) 74,113 332,426 332,426

- 5,369 - 92,451 92,451 7,600 (92,996) 74,113 233,031 ) 1233,031) 242,195 $ 122,353 S 349,283 S 74,113 $ 1,889,292 $ (17,459) $ 1,871,833 See accompanying notes. 27

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINED STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)

FOR THE YEAR ENDED JUNE 30, 2006 (AMOUNTS IN THOUSANDS)

Southern Palo Verde Transmission Hoover Uprating Mead- Phoenix Mead- Adelanto Project System Project Project Project Project Operating revenues Sales of electric energy $ 68,739 $ - $ 2,359 $ 70 $

Sales of transmission services 84,061 - 7,017 20,722 Sales of natural gas Total operating revenues 68,739 84,061 2,359 7,017 20,722 Operating expenses Operations and maintenance 32,714 17,300 2,575 1,119 1,417 Depreciation, depletion and amortization 18,274 19,629 - 1,403 4,500 Amortization of nuclear fuel 6,860 - - -

Decommissioning 10,156 - - -

Total operating expenses 69,004 36,929 2,575 2,522 5,917 Operating income (loss) (265) 47,132 (216) 4,495 14,805 Non operating revenues (expenses)

Investment income 2,533 4,802 97 742 2,082 Debt expense (7,273) (54,303) (419) (3,735) (11,580)

Loss on extinguishment of debt Net non operating revenues (expenses) (4,740) (49,501) (322) (2,993) (9,498)

Change in net assets (deficit) (5,005) (2,369) (538) 1,502 5,307 Net assets (deficit) - beginning of year 215,219 (388,542) 2,933 (11,053) (40,305)

Net withdrawal by participants Net assets (deficit) - end of year $ 210,214 $ (390,911) $ 2,395 $ (9,551) $ (34,998) 28 See accompanying notes.

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINED STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)

FOR THE YEAR ENDED JUNE 30, 2006 (AMOUNTS IN THOUSANDS)

Ormat Projects' Multiple Project Magnolia Power Natural Gas Geothermal Stabilization Fund San Juan Project Project Project Project Fund Total Combined

$ $ 69,123 $ 69,837 $ $ 886 $ $ 210,944 S- - - 111,800

- - 8,243 - 8,243 69,123 69,837 8,243 886 330,987 46,883 54,873 4,150 914 162,945 10,489 8,492 2,646 - 65,433 S- - - - 6,860 3,113 - - 13,269 60,485 63,365 6,796 914 248,507 8,638 6,472 1,447 (28) 82,480 4,245 2,112 988 101 35 1,195 18,932 (6,093) (9,451) (]..,901) (1,433) - - (106,198)

(1,848) (7,349) (10,913) (1,332) 35 1,195 (87,266)

(1,848) 1,289 (4,441) 115 7 1,195 (4,786) 7,600 (92,996) - 74,113 (233,031)

- - (8,715) (8,715)

$ 5,752 $ (91,707) $ (4,441) $ 115 $ 7 $ 66,593 $ (246,532)

See accompanyingnotes. 29 29 See accompanyin,~ notes.

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINED STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)

FOR THE YEAR ENDED JUNE 30, 2005 (AMOUNTS IN THOUSANDS)

Southern Palo Verde Transmission Hoover Uprating Mead- Phoenix Mead- Adelanto Project System Project Project Project Project Operating revenues Sales of electric energy $ 60,341 $ $ 2,344 $ - $ -

Sales of transmission services - 83,7 f 3 - 3,854 10,237 Total operating revenues 60,341 83,715 2,344 3,854 10,237 Operating expenses Operations and maintenance 29,229 1lC,553 2,461 1,127 1,713 Depreciation, depletion and amortization 18,086 ý!,?629 - 1,403 4,500 Amortization of nuclear fuel 8,241 - -

Decommissioning 10,900 - - -

Total operating expenses 66,456 38,182 2,461 2,530 6,213 Operating income (loss) (6,115) 45,533 (117) 1,324 4,024 Non operating revenues (expenses)

Investment income 10,511 3,732 119 663 1,814 Debt expense (8,793) (56,131) (516) (3,628) (11,230)

Loss on extinguishment of debt (85,827) -

Net non operating revenues (expenses) (84,109) (52,399) (397) (2,965) (9,416)

Change in net assets (deficit) (90,224) (6,866) (514) (1,641) (5,392)

Net assets (deficit) -beginning of year 327,946 (381,676) 3,447 (9,412) (34,913)

Release of over billings from prior years (22,503)

Net contribution by participants Net assets (deficit) - end of year $ 215,219 $ (388,542) $ 2,933 $ (11,053) $ (40,305) 30 See accompanying notes.

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINED STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (DEFICIT)

FOR THE YEAR ENDED JUNE 30, 2005 (AMOUNTS IN THOUSANDS)

Projects' Multiple Project Magnolia Power Stabilization Fund San Juan Project Project Fund Total Combined

$ - $ 60,322 $ $ $ 123,007 S- 97,806 60,322 220,813 42,755 95,838 10,216 53,834 S- -8,241 3,113 14,0i3 56,084 171,926 4,238 48,827 16,582 1,547 1,663 36,631 (16,089) (9,696) - (106,083)

- - (85,827) 493 (8,149) 1,663 (155,279) 493 (3,911) - 1,663 (106,392) 7,107 (89,085) 51,455 (125,131)

S- - (22,503)

- 20,995 20,995

$ 7,600 $ (92,996) $ $ 74,113 $ (233,031)

See accompanying notes. 31 See accompanying notes. 31

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2006 (AMOUNTS IN THOUSANDS)

Southern Transmission Hoover Uprating Mead- Phoenix Mead- Adelanto Palo Verde Project System Project Project Project Project Cash flows from operating activities Receipts from participants $ 49,275 $ 84,135 $ 2,351 $ 7,083 $ 20,666 Receipts from sale ofoil and gas Payments to operating managers (30,082) (18,371) (271) (1,046) (1,508)

Other disbursements and receipts 7,633 - - -

Net cash flows from operating activities 26,826 65,764 2,080 6,037 19,158 Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant, net (20,809) (3)

Debt interest payments (5,133) (41,230) (954) (3,436) (10,653)

Proceeds from notes Proceeds from sale of bonds Transfer of funds from escrow 4,200 Principal payments on debt (11,300) (31,470) (1,275)

Transfer of funds to escrow Payment for bond issue costs Net cash used for capital and related financing activities (37,242) (68,500) (2,229) (3,439) (10,653)

Cash flows from investing activities Interest received on investmenZs 1,604 3,239 118 683 1,884 Purchases of investments (14,254) (36,500) (1,774) (4,537) (13,430)

Proceeds from sale/maturity of investments 21,587 15,791 1,591 1,987 3,853 Net cash-provided by (used for) investing activities 8,937 (17,470) (65) (1,867) (7,693)

Net increase (decrease) in cash and cash equivalents (1,479) (20,206) (214) 731 812 Cash and cash equivalents, beginning of year 7,079 36,812 1,008 1,443 3,731 Cash and cash equivalents, end of year $ 5,600 $ 16,606 $ 794 $ 2,174 $ 4,543 Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss) (265) S 47,132 $ (216) $ 4,495 $ 14,805 Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation 18,274 19,629 1,403 4,500 Decommissioning 10,156 Advances for capacity and energy 2,310 Amortization of nuclear fuel 6,860 Changes in assets and liabilities Accounts receivable (3,544) (1,046) - 30 (7)

Accounts payable and accruals (4,695) 49 (14) 106 (145)

Other 40 - 3 5 Net cash provided by operating activities $ 26 ,826 $ 65,764 $ 2,080 $ 6,037 $ 19,158 Cash and cash equivalents as stated in the Combined Statements of Net Assets (Deficit)

Cash and cash equivalents -restricted $ 1,824 $ 15,497 $ 18 $ 1,883 $ 3,567 Cash and cash equivalents -unrestricted 3 ,776 1,109 776 291 976

,600 $ 16,606 $ 794 $ 2,174 $ 4,543 32 See accompanying 32 See accompanying notes. notes.

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2006 (AMOUNTS IN THOUSANDS)

Multiple Project Magnolia Power Ormat Geothermal Projects' Fund San Juan Project Project Natural Gas Project Energy Project Stabilization Fund Total Combined

$ 70,039 $ 78,649 $ 14,228 $ 3,031 $ $ 329,457

- - 16,620 16,620 (45,013) (52,528) (18,920) (715) (168,454)

- 4 4 - 7,641 25,026 26,125 11,932 2,316 185,264

- 6,512 43,860 (8,715) 41,657 (5,421) (25,531) (69,165) (120,929)

(8,626) (8,461) (15,959) (1,186) (95,638) 6,109 - 6,109

- 29,900 29,900 S- 4,200 (170,200) (9,160) (1,012) (1,700) (226,117)

(89) - (89)

- (97) (214) (311)

(178,915) (23,139) (36,393) (42,365) - - (402,875) 10,437 1,868 1,471 297 28 1,825 23,454 (418) (28,558) (41,284) (3,697) (1,733) (17,070) (163,255) 168,896 21,479 50,554 2,555. 288,293 178,915 (5,211) 10,741 (3,400) (1,705). (12,690) 148,492

-. (3,324) 6,985 10,027 611 (21,405) (27,462)

- 14,518 19,169 - - 24,480 108,240

$ $ 11,194 $ 26,154 S 10,027 $ 611 $ 3,075 $ 80,778

$ $ 8,638 $ 6,472 S 1,447 $ (28) $ S 82,480 10,489 8,492 2,646 65,433 3,113 - - 13,269

--. 2,310 S- 6,860 (785) (12,196) (2,058) (19,606) 3,745 23,298 9,992 2,344 34,680 (174) 59 (95) (162)

$ $ 25,026 $ 26,125 $ 11,932 $ 2,316 $ $ 185,264

$ $ 5,081 $ 11,278 $ 3,685 $ 611 $ 3,075 $ 46,519 6,113 14,876 6,342 - - 34,259

$ $ 11,194 $ 26,154 $ 10,027 $ 611 $ 3,075 $ 80,778 See accompanying notes. 33

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2005 (AMOUNTS IN THOUSANDS)

Southem Transmission Hoover Uprating Mead- Phoenix Mead- Adelanto Palo Verde Project System Project Project Project Project Cash flows from operating activities Receipts from participants $ 49,438 $ 71,742 $ 2,401 $ 3,707 $ 10,649 Payments to operating managers (29,415) (14,761) (226) (1,304) (1,881)

Other receipts 3,533 - - 116 Net cash flows from operating activities 23,556 56,981 2,175 2,519 8,768 Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Cash flows from capital financing activities Additions to plant, net (20,189) (65)

Debt interest payments (6,686) (3 ,;515) (998) (3,349) (10,469)

Proceeds from sale of bonds Payment for defeasance of revenue bonds Principal payments on debt (63,680) (28,535) (1,230)

Transfer of fands to escrow Payment for bond issue costs -(49) (128)

Net cash used for capital and related financing activities (134,382) (68,150) (2,228) (3463) (10,597)

Cash flows from investing activities Interest received on investments 1,648 3,157 95 666 1,804 Purchases of investments (90,071) (29,245) (1,010) (1,047) (2,190)

Proceeds from sale/maturity of investments 45,873 33,035 735 1,000 1,970 Net cash provided by (used for) investing activities (42,550) 61947 (180) 619 1,584 Net increase (decrease) in cash and cash equivalents (153,376) (4,222) (233) (325) (245)

Cash and cash equivalents, beginning of year 160,455 41,034 1,241 1,768 3,976 Cash and cash equivalents, end of year $ 7,079 $ 36,812 $ 1,008 $ 1,443 $ 3,731 Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss) $ (6,115) $ 45,533 $ (117) $ 1,324 $ 4,024 Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation 18,086 19,629 1,403 4,500 Decommissioning 10,900 Advances for capacity and energy 2,220 Amortization ofnuclear fuel 8,241 Changes in assets and liabilities Accounts receivable (2,518) 3,763 (30) 7 Accounts payable and accruals (5,153) (11,950) 69 (181) 234 Other 115 6 3 3 3 Net cash provided by operating activities $ 23,556 $ 56,981 $ 2,175 $ 2,519 $ 8,768 Cash and cash equivalents as stated in the Combined Statements ofNet Assets (Deficit)

Cash and cash equivalents - restricted $ 5,247 $ 36,160 $ 179 $ 1,181 $ 3,007 Cash and cash equivalents - unrestricted 1,832 652 829 262 724

$ 7,079 $ 36,812 $ 1,008 $ 1,443 $ 3,731 34 See accompanying notes.

34 See accompanying notes.

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2005 (AMOUNTS IN THOUSANDS)

Multiple Project Magnolia Power Projects' Fund San Juan Project Project Stabilization Fund Total Combined

$ 67,626 $ $ $ 205,563 (41,240) (88,827)

S- 3,649 26,386 - 120,385

- 9,631 20,996 30,627 (1,394) (78,397) (i.20,045)

(14,130) (10,189) (15,170) (XC0,6C;6) 78,084 78,C24 (78,454) (7i,,454)

(7,600) (8,805) (109,G50)

(43,827)

(924) 1,101)

(21,730) (21,682) (93,567) -(255,9:

16,763 1,487 1,814 1,624 29,018 (1,340) (27,790) (92ý) (5,500) (159,122) 6,307 23,486 94,337 6,405 213,148 21,730 (2,857)_ 95,222 2.529 _ 83,04_.

- 1,847 11,286 23,525 (121,7,3) 12,671 7,883 955 229,983

$ $ 14,518 $ 19,16? $ 24,480 $ 10F,240

$ $ 4,238 $ $ $ 48,887 10,216 53,834 3,113 14,013 S- 2,220 S- 8,241 4,678 5,900 4,212 (12,769)

(71) - 59

$ $ 26,386 $ $ $ 120,385

$ $ 4,766 $ 19,169 $ 24,480 $ 94,189 9,752 14,051

$ $ 14,518 $ 19,169 $ 24,480 $ 108,240 See accompanying notes. 35 See accompanying notes. 35

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS (In Thousands)

Note 1 - Organization and Purpose The Southern California Public Power Authority (the "Authority"), a public entity organized under the laws of the State of California, was formed by a Joint Powers Agreement dated as of November 1, 1980 pursuant to the Joint Exercise of Powers Act of the State of California. The Authority's participants consist of eleven Southern California cities and one public district of the State of California. The Authority was formed for the purpose of planning, financing, developing, acquiring, constructing, operating and maintaining projects for the generation and ';Tansmission of electric energy and production of natural gas for sale to its participants. The Joint Powers Agreement has a termi of fifty years.

The Authcrity has interests in the following projects:

Palo Verde Project - On August 14, 1981, the Authority purchased a 5.9 1% interest in the Palo Verde Nuclear Generating Station ("PVNGS"), a 3,810 megawatt nuclear-fueled generating station near Phoenix, Arizona, a 5.56% ownership interest in the Arizona Nuclear Power Project High Voltage Switchyard, and a 6.55% share of the right to use certain portions of the Arizona Nuclear Power Project Valley Transmission System (collectively, the "Palo Verde Project"). Units 1, 2 and 3 of the Palo Verde Project began commercial operations in January 1986, September 1986, and January 1988, respectively.

Southern Transmission System Project - On May 1, 1983, the Authority entered into an agreement with the Intermountain Power Agency ("IPA"), to defray all the costs of acquisition and construction of the Southern Transmission System Project ("STS"), which provides for the transmission of energy from the Intermountain Generating Station in Utah to Southern California. STS commenced commercial operations in July 1986. The Department of Water and Power of the City of Los Angeles ("LADWP"),

a member of the Authority, serves as project manager and operating agent of the Intermountain Power Project ("IPP").

Hoover Uprating Project - As of March 1, 1986, the Authority and six participants entered into an agreement pursuant to which each participant assigned its entitlement to capacity and associated firm energy to the Authority in return for the Authority's agreement to make advance payments to the United States Bureau of Reclamation ("USBR") on behalf of such participants. The Authority has an 18.68%

interest in the contingent capacity of the Hoover Uprating Project ("HU").

36

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS (In Thousands)

Note 1 - Organization and Purpose (Continued)

Mead-Phoenix and Mead-Adelanto Projects - As of August 4, 1992, the Authority entered into an agreement to acquire an interest in the Mead-Phoenix Project ("Mead-Phoenix"), a transmission line extending between the Westwing substaticn in Arizona and the Marketplace substation in Nevada. The agreement provides the Authority with an 18.3 1% interest in the Westwing-Mead project component, a 17.76% interest in the Mead Substation project component and a 22.41% interest -n the Mead-Marketplace project component.

As of August 4, 1992, the Authority also entered into an agre¢,i: :1nt to acquire a 67.92% interest in the Mead-Adelanto Project ("Mead-Adelanto"), a transmissicn lb>.:,.., extending between the Adelanto substation in Southern California erd the Mark.tplaz- sub jtatiln in Nevada. Funding fo; these projects was provided by a transfe- of funds from the Multiple Project Fund and commercial operations commenced in April 1996. LADWP serves as the operations manager of Mead-Adelanto.

Multiple Project Fund - During fiscal year 1990, the Authority issued Multiple Project Revenue Bonds for net proceeds of approximately $600 million to provide funds to finance costs of construction and acquisition of ownership interests or capacity rights in one or more, thenunspecified, projects for the generation or transmission of electric energy. Certain of these funds were used to finance the Authority's interests in Mead-Phoenix and Mead-Adelanto. On July 1, 2005, $162.1 million of the Multiple Project Revenue Bonds were redeemed.

San Juan Project - Effective July 1, 1993, the Authority purchased a 41.80% interest in Unit 3 and related common facilities of the San Juan Generating Station ("SJGS") from Century Power Corporation. Unit 3, a 497-megawatt unit, is one unit of a four-unit coal-fired power generating station in New Mexico.

Magnolia Power Project - In March 2003, the Authority received approval from the California Energy Commission for construction of the Magnolia Power Project. The Project consists of a combined cycle natural gas-fired generating plant with a nominally rated net base capacity of 242 megawatts and was built on a site in the City of Burbank, California. The plant is the first that is wholly owned by the Authority and entitlements to 100% of the capacity and energy of the Project have been sold to six of its members. The City of Burbank, a Project participant, managed its construction and also serves as the Operating Agent for the Project. Commercial operations began September 22, 2005.

37

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS (In Thousands)

Note 1 - Organization and Purpose (Continued)

Natural Gas Project (NGP) - On July 1, 2005, the Authority, together with LADWP and Turlock Irrigation District, acquired 42.5% of an undivided working imerest in three natural gas leases located in the Pinedale Anticline region of the State of Wyoming. The Authority's individual share in these interests equals 14.9%. The purchase includes 38 operating oil and gas wells and associated lateral pipelines, equipment, permits, rights of way, and easements used in production. The natural gas field production is expected to increase for several more years as additional capital is invested on drilling new wells and then decline over a life expectancy greater than 30 years.

Ormat Geothermal Project - The Authority entered into long term Power Purchase Agreements in December 2005 with divisions of Ormat Technologies, Inc. for 20 megawatts ("MW") of electric generation from geothermal energy facilities located in Heber, California. The Project started delivery of 10 MW in January 2006 and is expected to receive additional deliveries in December 2007. The City of Anaheim acts as the Scheduling Coordinator on behalf of the Project Participants.

Projects' Stabilization Fund - In fiscal year 1997, the Authority authorized the creation of a Projects' Stabilization Fund. Deposits may be made into the fund from budget under-runs, after authorization of individual participants, and by direct contributions from the participants. Participants have discretion over the use of their deposits within SCPPA project purposes. This fund is noý. a project-related fund; therefore, it is not governed by any project Indenture of Trust. The members participate in the Projects' Stabilization Fund by making deposits to the fund at their discretion.

Participant Ownership Interests - The Authority's participints may elect to participate in the projects.

As of June 30, 2006, the members have the following rparticip.tion percentages in the Authority's operating projects:

Magnolia Ornat Geo-Hoover Mead- Mead- Power Natural Gas thermal Particiuants Palo Verde STS Uorstin2 Phoenix Adelanto San Juan Project Project Project City of Los Angeles 67.0% 59.5% - 24.8% 35.7% - -

City of Anaheim 17.6% 42.6% 24.2% 13.5% 38.0% 35.7% 60.0%

City of Riverside 5.4% 10.2% 31.9% 4.0% 13.5% - - -

Imperial Irrigation District 6.5% - - 51.0%

City of Vernon 4.9% - -

City of Azusa 1.0% 4.2% 1.0% 2.2% 14.7% -

City of Banning 1.0% 2.1% 1.0% 1.3% 9.8% - - 10.0%

City of Colton 1.0% - 3.2% 1.0% 2.6% 14.7% 4.2% 7.1% -

City of Burbank 4.4% 4.5% 16.0% 15.4% 11.5% - 31.0% 14.3% -

City of Glendale 4.4% 2.3% 14.8% 11.1% 9.8% 16.5% 28.6% 15.0%

City of Cerritos - - - - -4.2% -

City of Pasadena 4.4% 5.9% - 13.8% 8.6% - 6.1% 14.3% 15.0%

100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

38

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS (In Thousands)

Note 1 - Organization and Purpose (Continued)

The Authority has entered into power sales, natural gas sales, and transmission service agreements with the above project participants. Under the terms of the contracts, the participants are entitled to power output, natural gas or transmission service, as applicable. The participants are obligated to make payments on a "take or pay" basis for their proportionate share of operating and maintenance expenses and debt service. The contracts cannot be terminated or amended in any manner that will impair or adversely affect the rights of the bondholders as long as any bonds issued by the specific project remain outstanding.

The contracts expire as. follows:

Palo Verde Project 2030 Southern Transmission System Project 2027 Hoover Uprating Project 2018 Mead-Phoenix Project 2030 Mead-Adelanto Project 2030 San Juan Project 2030 Magnolia Power Project 2036 Natural Gas Project 2030 Ormat Geothermal Project 2031 The Authority's interests in natural gas, generation, and transmission projects are jointly owned with other utilities, except for the Magnolia Power Project, which is wholly owned by the Authority. Under these arrangements, a participating member has an undivided interest in a utility plant and is responsible for its proportionate share of the costs of construction and operation and is entitled to its proportionate share of the energy or natural gas produced. Each joint plant participant, including the Authority, is responsible for financing its share of construction and operating costs. The financial statements reflect the Authority's interest in each jointly owned project as well as the project that it owns. Additionally, the Authority's share of expenses for each project is included in the statements of revenues, expenses, and changes in net assets (deficit) as part of operations and maintenance expenses.

39

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS (In Thousands)

Note 2 - Summary of Significant Accounting Policies Basis of Presentation - The combined financial statements of the Authority are prepared under the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America issued by the Governmental Accounting Standards Board (GASB) applicable to governmental entities that use proprietary fund accounting and the Financial Accounting Standards Board (FASB) issued prior to November 30, 1989 that do noL conflict with rules issued by the GASB.

Revenues are recognized when earned and expenses are recognized when incurred. The format of the Statement of Net Assets (Deficit) follows the inverted appit'.zh which is consistent with the Federal Energy Regulatory Commission (FERC).

• Invested in capital assets, net ef related debt, and advances from participants - This component of net assets consists of (a) capital assets, (b) net of accumulated depreciation, and (c) unamortized debt expenses, reduced by the outstanding balances of any bonds, other borrowings, and advances from participants that are attributable to the acquisition, construction, or improvement of those assets. If there are significant unspent related debt proceeds at year-end, the portion of the debt attributable to the unspent proceeds is not included in the calculation of invested in capital assets, net of related debt. Rather, that portion of the debt is included in the same net assets component as the unspent proceeds.

• Restricted - This component consists of net assets on which constraints are placed as to their use.

Constraints include those imposed by creditors (such as through debt covenants), contributors, or laws or regulation of other governments or constraints imposed by law through constitutional provisions or through enabling legislation.

• Unrestricted - This component of net assets consists of net assets that do not meet the definition of "restricted" or "invested in capital assets, net of related debt and advances from participants."

Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

40

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS (In Thousands)

Note 2 - Summary of Significant Accounting Policies (Continued)

Utility Plant - The Authority's share of construction and betterment costs, natural gas reserves, intangibles, and nuclear fuel associated with PVNGS, STS, Mead-Phoenix, Mead-Adelanto, SJGS, Magnolia Power Project and the Natural Gas Project are included as utility plant and recorded at cost.

Costs include labor, materials, capitalized interest costs on funds used in construction, and allocated indirect charges such as engineering, supervision, transportation and construction equipment, retirement plan contributions, health care costs, and certain administrative and general expenses. The costs of routine maintenance, repairs, and minor replacements incurred to maintain the plant in operating condition are charged to the appropriate operations and maintenance expense accounts in the period incurred. The original cost of property retired, net of removal and salvage costs, is charged to accumulated depreciation.

Depreciation expense is computed using the straight-line method based on the estimated service lives, principally thirty-five years for PVNGS, STS, Mead-Phoenix and Mead-Adelanto, thirty years for Magnolia and twenty-one years for SJGS.

Natural Gas Reserve Depletion - Depletion expense for the Natural Gas Project is computed using the unit of production method based on the future production of the proved developed producing wells, estimated at 30 years. For fiscal year 2006, the depletion rate was $2.13/MMbtu and the estimated total net revenue volume is 20,605,103 MMbtu to the period ending 2034.

41

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS (In Thousands)

Note 2 - Summary of Significant Accounting Policies (Continued)

A summary of changes in Utility Plant follows (amounts in thousands):

Balance July 1, Balance June 30, 2005 Additions Disposals Transfers 2006 Nondepreciable utility plant Land $ 42,472 $ - $ $ - $ 42,472 Construction work in progress 307,342 37,1?i (325,482) 19,051 Contruction work in progress - gas - 2,752 3,752 Nuclear fuel* 14,652 - 5,30 (5,152) 15,830 Total nondepreciab!e utility plant 364,466 47,273 (5,152) (225,482) 81,105 Depreciable utility plant Production Nuclear generation (Palo Verde Project) 535,852 18,16i2 (7,076) 646,936 Coal-fired plant (San 6uan Unit 2 Project) .73,591 2-3 (92) - 173,712 Gas-fired plant (Magnolia Power Pio.iect) - 277,109 277,109 Transmission 87G,017 18 - 15,080 885,115 General 32,135. 141 (18) 24,761 47,019 Acquisition of gas reserves 44,747 - - 44,747 Intagibles 592 592 Well equipment and production facilities 5,-3 693 Total depreciable utility plant 1T"1,595 67,564 (7,186) 2C,5,956 2,075,923 Less accumulated depreciation (1,C89,769' (8,7J2) 7,042 (1,161,429)

Total utility plant, net $ 986,292 $ 33,135 $ (5,296) $ (18,532) $ 995,599

• Nuclearfuel disposalsrepresent amortization.

Interest expense capitalized to construction work in progress net of capitalized interest income for the Magnolia Power Project was $3,064 and $13,467 for the years ended June 30, 2006 and 2005, respectively.

Nuclear Fuel - Nuclear fuel is amortized and charged to expense on the basis of actual thermal energy produced relative to total thermal energy expected to be produced over the life of the fuel. Under the provisions of the Nuclear Waste Policy Act of 1982, the federal government assesses each entity with nuclear operations, including the participants in PVNGS, $1 per megawatt hour of nuclear generation.

The Authority records this charge as a current year expense. See Note 8 for information about spent nuclear fuel disposal.

42

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS (In Thousands)

Note 2 - Summary of Significant Accounting Policies (Continued)

Nuclear Decommissioning - Decommissioning of PVNGS is expected to commence subsequent to the year 2026. The total cost to decommission the Authority's interest in PVNGS is estimated to be $125.6 million in 2005 dollars ($339.5 million in 2022 dollars, assuming a 6% estimated annual inflation rate).

This estimate is based on an updated site specific study prepared by an independent consultant in 2004.

The Authority is providing for its share of the estimated future decommissioning costs over the remaining life of the nuclear power plant through annual charges to expense, which amounted to $10.2 million and $10.9 million in fiscal years 2006 and 2005, respectively. The decommissioning liability is included as a component of accumulated depreciation and was $202.7 and $192.6 million at June 30, 2006 and 2005, respectively.

The Authority contributes to external trusts set up in accordance with the Arizona Nuclear Power Plant participation agreement and Nuclear Regulatory Commission requirements. As of June 30, 2006, decommissioning funds totaled approximately $134.6 million, including approximately $1.1 million of interest receivable.

Demolition and Site Reclamation - Demolition and site reclamation of SJGS, which involves restoring the site to a "green" condition, is projected to commence subsequent to the year 2014. Based upon the study performed by an independent engineering firm, the Authority's share of the estimated demolition and site reclamation costs is $30.8 million in 2003 dollars. The Authority is providing for its share of the estimated future demolition costs over the remaining life of the power plant through annual charges to expense of $3.1 million. The demolition liability is included as a component of accumulated depreciation and totaled $40.5 million and $37.3 million at June 30, 2006 and 2005, respectively.

As of June 30, 2006, the Authority has not billed participants for the cost of demolition nor has, it established a demolition fund.

Investments - Investments include United States government and governmental agency securities, guaranteed investment contracts, medium term notes and money market accounts. These investments are reported at fair value and changes in unrealized gains and losses are recorded in the statement of revenues, expenses and changes in net assets (deficit) with the exception of the guaranteed investment contracts which are recorded at amortized cost. Gains and losses realized on the sale of investments are generally determined using the specific identification method.

The Bond Indentures for the eight Projects and the Multiple Project Fund require the use of trust funds to account for the Authority's receipts and disbursements. Cash and investments held in these funds are restricted to specific purposes as stipulated in the Bond Indentures.

43

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS (In Thousands)

Note 2 - Summary of Significant Accounting Policies (Continued)

Advances for Capacity and Energy - Advance payments to the United States Bureau of Reclamation for the uprating of the 17 generators at the Hoover Power Plant are included in advances for capacity and energy. These advances are being reduced by the principal portion of the cfedits on billings to the Authority for energy and capacity.

Advance to IPA - Advance to IPA consists of cash transferred to IPA for reserve and contingency and self insurance funding.

Unamortized Debt Expenses - Debt premiums, discounts, and issue expenses afe deferred and amortized to expense over the lives of the related dett issues. Losses on refunding related to bonds redeemed by refunding bonds are amortized over the shorter of the life of the refunding bonds, or the remaining term of bonds refunded. Losses on early extinguishment of debt are recognized immediately.

Unamortized issue costs are recorded as a non current asset. All other unamortized debt expenses are recorded as an offset or addition to long-term debt.

Cash and Cash Equivalents - Cask and cash equivalents include cash and investments with original maturities of 90 days or less.

The Bond Indentures for the eight Projects and the Multiple Project Fund require the use of trust funds to account for the Authority's receipts and disbursements. Cash and investments held in these funds are restricted to specific purposes as stipulated in the Bond Indentures.

Materials and Supplies - Materials and supplies consist prima:aily of items for construction and maintenance of plant assets and are stated at the lower of ccst or market.

Arbitrage Rebate and Yield Restrictions - The unused proceeds from the issuance of tax-exempt debt have been invested in taxable financial instruments. The excess of earnings on investments, if any, over the amount that would have been earned if the investments had a yield equal to the bond yield or yield restricted rate, is payable to the IRS within five years of the date of the bond offering and each consecutive five years thereafter until final maturity of the related bonds.

The recorded liability of the Multiple Project Fund of $18.8 million ($5.0 million payable to the Mead-Phoenix Project and $13.8 million payable to the Mead-Adelanto Project) is a result of the cumulative savings from the 1994 refunding of the 1989 Multiple Project Bonds. The partial refunding within five years of the original issuance triggered a recalculation of the arbitrage yield, reducing the Multiple Project Fund's rebate liability.

44

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS (In Thousands)

Note 2 - Summary of Significant Accounting Policies (Continued)

Arbitrage Rebate and Yield Restrictions (Continued)

During the fiscal year ended June 30, 2006, the Authority made rebate payments to the IRS of $1.47 million for the STS bonds and $0.87 million for Palo Verde bonds.

Recorded arbitrage rebate and yield restriction liabilities as of June 30, 2006, were $0.038 million for Palo Verde, $0.3 million for STS, $0.3 million for Mead-Ph,*enix, and $0.8 million for Mead-Adelanto.

Revenues - Revenues consist of billings to participants ýci- e sales of electric enefgy, na:-aral gas. and transmission service in accordance with the pardcipatizn eg,:eements. Generally, ;evenues are fixed at a level to recover all operating and debt service x-sts over the commercial life of the property.

In September 1998, the Palo Verde participants approved a resolution authorizing the Authority to bill the participants an additional $65 million annually through June 30, 2004 to pay for increased debt service costs as a result of a refunding completed in October 1997. In addition, the participants resolved to transfer any over billings, renewal and replacement excess funds or surplus amounts through June 30, 2004 into the Palo Verde reserve account. On November 20, 2003, the Authority adopted a resolution to utilize the amounts on deposit in the reserve accounts to pay a portion of the operating and maintenance expenses of the Palo Verde Project starting July 1, 2004. Funds held in the reserve account as a result of this resolution totaled $64.5 million and $68.8 million as of June 30, 2006 and 2005, respectively.

In Kind Contribution - Each participant of the Magnolia Power Plant is responsible for their own share of natural gas. They may elect to bring fuel to the plant or purchase fuel from Occidental Energy Marketing, Inc. (OEMI). OEMI computes the daily imbalances of fuel volume per participant using the daily consumption data that the Operating Manager provides. Monthly, actual fuel burnt is reported together with the daily imbalances, participants' in kind contribution, and fuel purchases from OEMI.

In kind contributions are valued at fair market value and recorded as participant revenue and fuel expense to the Magnolia Power Project. SCPPA values the participants' fuel contribution using monthly average pricing from the Project's OEMI fuel purchases. During the fiscal year ended June 30, 2006 the participants' contribution in kind was approximately 2.8 million MMBtu and was valued at approximately $25.0 million.

Reclassification - Certain 2005 balances have been reclassified to conform to 2006 presentation.

45

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS (In Thousands)

Note 3 - Investments The Authority's investment function operates within a legal framework established by Sections 6509.5 and 53600 et. seq. of the California Government Code, Indentures of Trust, instruments governing financial arrangements entered into by the Authority to finance and operate Projects and the Authority's Investment Policy.

Guaranteed investment contracts ("GICs") are contracts that guarantee the owner principal repayment and a specified interest rate for a predetermined period of time. GICs are typically issued by insurance companies and marketed to institutions that qualify for favorable tax status under federal laws. These types of securities provide institutions with guaranteed returns. GICs are negotiated on a case-by-case basis.

Based on SCPPA's Investment Policy, certain vehicles such as GICs, flexible repurchase agreements or forward debt service agreements, may be entered into only upon approval of the SCPPA Board. In addition, eligible securities and general limitations are derived from each Project's Indenture of Trust, the Government Code apd SCPPA's evolving investment practices.

The operative Indentures of Trust in which securities are authorized for investment purposes relate to the Palo Verde Project Bonds, the Southern Transmission System Project Bonds, the Hoover Uprating Project Bonds, the Mead-Phoenix Project Bonds, the Mead-Adelanto Project Bonds, the Multiple Project Fund Bonds, the San Juan Project Bonds, the Magnolia Power Project Bonds, and the Natural Gas Project Bonds. Authorized investments for the Projects' Stabilization Fund are set forth in a resolution approved by the Board in 1996.

Eligible securities include:

" United States Treasury Securities, which are bonds or other obligations secured by the full faith and credit of the United States of America;

, Federal Agency Obligations, which have the full financial backing of the U.S. Government;

• Government Sponsored Enterprise Obligations, which are created by acts of Congress to provide liquidity for selected lending programs targeted by Congress;

• Repurchase Agreements, which are collateralized loan contracts where the seller includes a written agreement to repurchase the securities at a later date for a specified amount;

" Negotiable Certificates of Deposit, which are deposit liabilities issued by a nationally or state-chartered bank, a savings or a federal association or by a state-licensed branch of a foreign bank which has a short-term ratings of at least "A-I" by S&P and at least "P-I" by Moody's; o Banker's Acceptances, a short term draft or bill of exchange guaranteed for payment at face value to the holder of the instrument on its maturity date, which has a short-term rating of at least "A-I" by S&P and at least "P-I" by Moody's; 46

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS (In Thousands)

Note 3 - Investments (Continued)

• Commercial Paper, a short-term unsecured promissory note issued by non-financial or financial firms with a rating of at least "A-I" by S&P and at least "P-I" by Moody's;

" Medium Term Notes rated "A" or better and only those issued by corporations organized and operating within the United States, or by depository institutions licensed by the United States or any state and operating within the United States;

" Equity-Linked Notes, which are categorized as medium-term corporate notes and are subject to the constraints set forth in the Government code and the Authority's Investment Policy.

Investments at June 30, 2006 and 2005 are as foilows:

Southem Hoove- Mead. Memd- Omut Projects Palo Verde Trans-mission Uprating Phoenin Adelanto Multiple Sm.Joan Magnolia Natural .as Geotheal Stabilieztion project System Project Project Project Penject Peoject Fund Ptnjwec Power Project Project Project Fund Total U.S.Agencie S 167,590 995 $ 2,152 $ S - $ $S 14,641 S 19,423 S $ 1,780 S 63,018 S 269,599 AgencyDiscount Notes 6,580 40,326 1,964 5,162 14,64T 12,047 29,877 10,721 - 1,088 122,412 Treasry Coupon 477 - - - 7,435 - - 7,912 Guaranteedinvestmentcontracts 64,584 37,180 8,095 22,990 57,960 21,323 212,132 Negotiable CD's - 60 60 Conmse.-cislPaper Equity LinkNotes 4,452 - - 4,452 MoneyMatketFunds 1,823 9,309 51 311 845 1,772 3,095 2,951 564 1,987 22,708 Totat 245,506 S 87,810 S 4,167 S 3,568 S 38,482 $ 65,395 49,783 S 52,395 S 13,732 $ 2,344 S 66,093 S 639,275 Restrictedinvestments $ 157,118 S 71;204 S 2,813 S 11,394 S 33,939 $ 65,395 S 38,589 $ 26,241 S 3,705 S 1,733 S 63,018 $ 475,149 Utneetuictedinvestments 82,788 - 560 - - 8-3,348 Cashandcash equivilents 5,600 16,606 794 2,174 4,543 1:¶,194 26,154 10,027 611 3,075 80,778 Totd S 245,506 $ 87,810 S 4,167 S 13,569 S 38,482 S 65,395 S 49,783 S 52,395 S 13,732 $ 2,344 S 66,093 S 639,275 June 30, 2005 Southern Hoover Mead- Mel- Projects' Palo Verde Transmtssion Uprating Phoenix Adelanto Multiple San Juan Magnolia Natural Gas Stabilieation Project System Project Project Projeot Project Projea Fund Project PowerProject Project Demos Fund Total Federal agencies 5 183,212 S 41,468 S 4,025 S 996 S 3,374 S - S 23,679 S 50,315 S S - S 53,225 S 360,294 US Goeernment securities 10,544 7,435 - 17,979 Guaranteedinvestmentcontracts 68,890 36,507 - 8,765 24,130 226,438 21,323 3,696 389,749 Moneymarketteinvestmentaccounts 1,058 1,391 181 435 346 845 224 538 .4,538 Medium Ieron ate 4,452 - - - - - 4,452 Cash 88 38 16 12 1I - 22 14 20,313 20,514 Toedl $ 257,700 $ 89,948 $ 4,222 S 10,208 S 27,861 S 233,873 S 45,869 _ 54,249 S S S 73,596 S 797,526 Restrictedinvestments S 164,029 S 53,136 $ 2,654 S 8,765 S 24,130 S 233,873 S 31,351 S 35,080 S - $ 49,116 S 602,t34 Unrestricted investments .86,592 560 - - - 87,132 Cashand cash equivalents 7,079 36,812 1,008 1,443 3,731 - 14,518 19,169 24,480 108,240 Total S 257,700 S 89,948 S 4,222 5 10,208 S 27,861 S 233,873 S 45,869 S 54,249 S $ $ 73,596 S 797,526 47

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS (In Thousands)

Note 3 - Investments (Continued)

Interest Rate Risk The Authority's investment policy limits the maturity of its investments to a maximum of 5 years for investments in the United States Treasury, Federal Agency, and Government Sponsored Enterprise securities, excluding: investments held in Project Debt Service Reserve; long-term commitments or agreements approved by the Authority's Board; 5 years for medium term corporate notes; 270 days for commercial paper; 180 days for banker's acceptances; and one year for negotiable certificates of deposits.

Credit Risk Under its investment policy and the Stawle of Californ,-a Wv*nenc Code, the Authority is subject to the prudent investor standard of care in managing all aspects of its portfolios. As an investment standard, each investments shall be made with "judgment and care under circumstances then prevailing, which a person of prudence, discretion and intelligence would exercise in the management of his/her affairs, not in regard for speculation, but in regard to the permanent disposition of funds, considering the probable income as well as the probable safety of the capital to be invested." The Authority's investment policy does not preclude active management of the portfolio to address market opportunities. All transactions shall be undertaken in the best interest of the Authority and its participants.

The Authority's investment policy specifies that all project funds may be invested in shares of beneficial interest for temporary periods, pending disbursement or reinvestment as allowed under the state of California Government Code ("Code"). The Code requires that the fund must have either 1) attained the highest ranking or highest letter and numerical rating provided by not less than two nationally recognized statistical rating organizations ("NRSRO") or 2) retained an investment advisor registered or exempt from registration with the Securities and Exchange Commission with not less than five years experience managing money market mutual funds with assets under management in excess of five hundred million dollars. As of June 30, 2006 and June 30, 2005, each of the money market funds in the portfolio have attained the highest possible ratings by three NRSRO's, specifically AAAm by Standard and Poor's, Aaa by Moody's Investors Service, and AAA by Fitch Ratings.

The U.S. government agency securities in the portfolio consist of securities issued by government-sponsored enterprises, which are not explicitly guaranteed by the U.S. government. As of June 30, 2006 and June 30, 2005, the U.S. government agency securities in the portfolio carried the highest possible credit ratings by the NRSRO's that rated them.

The Equity Link Notes (Medium Term Notes) in the portfolio consists of securities issued by corporations and carry a rating of AA by Standard and Poor's, Aa by Moody's Investor Service and AA by Fitch Rating.

48

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS (In Thousands)

Note 3 - Investments (Continued)

The Guaranteed Investment Contracts in the portfolio with AIG consist of securities issued by corporations and carry a rating of AA by Standard and Poor's, Aa by Moody's Investor Service and AA by Fitch Rating. The Guaranteed Investment Contracts in the portfolio with PNC carry a rating of A by Standard and Poor's, Aaa by Moody's Investor Service, and A by Fitch Rating.

The Investment Agreement Contract in the portfolio with FSA consists of securities issued by corporations and carries a rating of AAA by Standard and Poor's, Aaa by Moody's investor Service, and AAA by Fitch Rating.

Concentration of Cred't Risk The Authority's investment policy specifies a 50% to 100% limitation on the amount that can be invested in U.S. government agency securities, except in certain issues of other A-ithority projects, such as the Southern Transmission System 1991 Series and the Mead-Adelanto and Mead-Phoenix projects.

Of the Authority's total investments as of June 30, 2006, $203,651,400 (33%), was invested in securities issued by the Federal Home Loan Bank; $87,416,445 (13%) was invested in securities issued by the Federal National Mortgage Association; $67,905,700 (11%) was invested in securities issued by the Federal Home Loan Mortgage Corporation; $64,583,699 (10%) was invested in an investment agreement with Financial Security Assurance (FSA); $89,045,847 (14%) was irv'ested in a Guaranteed Investment Contract (GIC) with PNC Financial Securities Group; and $62,953,499 (10%) was invested in a GIC with American International Group (AIG).

Of the Authority's total investments as of June 30, 2005, $224,678,700 (29%), was invested. in securities issued by the Federal Home Loan Bank; $55,653,843 (7%) was invested in securities issued by the Federal National Mortgage Association; $62,097,939 (8%) was invested in securities issued by the Federal Home Loan Mortgage Corporation; $68,890,578 (9%) was invested in an investment agreement with FSA; $259,333,654 (34%) was invested in a GIC with PNC Financial Securities Group; and

$65,977,462 (9%) was invested in a GIC with AIG.

Note 4 - Derivative Instruments Objective of the swaps - In order to protect against the potential of rising interest rates, the Authority has entered into six separate pay-fixed, receive-variable interest rate swaps and one fixed spread basis swap at a cost that is expected to be less over the life of the transaction than what the Authority would have paid to issue fixed-rate debt.

49

5.5..

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS (In Thousands)

Note 4 - Derivative Instruments (Continued)

Terms, fair values, and credit risk - The terms, including the fair values and credit ratings of the counterparties under the outstanding swaps as of June 30, 2006, are included below. In most cases, the notional amount of any swap matches the principal amount of the associated debt. Except as discussed under the rollover risk, the Authority's swap agreements contrin scheduled reductions to outstanding notional amounts that are expected to approximately follow scheduled or anticipated reductions in the associated "bonds payable" category.

Notional Fixed Rate Swap Tennination Countetparty Credit Amount Effective Date Paid Variable Rate Received Fair Values Date Rating MP 2004 Revenue Series A Bonds S 28,700 5/27/2004 3.894% 6,5%of LIBOR $ (501) 7/1/2020 AA+/Aa2/AA+

MA 2004 Revenue Series A Bonds 96,025 5/27/2004 3.830% 65% ofLIBOR (1,641) 7/1/2020 AA+/Aa2/AA+

STS 2004 Fixed Rate Basis Swap 100,000 12/1/2004 BMA 65% of LIBOR plus 0.664% 743 7/1/2023 AA-/Aa2/A+

STS 2003 Subordinate Refunding Series A Bonds 50,950 4/24/7003 3.266% 65% of LIBOR 2,1*J 7/1/2022 AA-/Aal/AA+

STS 2001 Subordinate Refunding Series A Bonds 79,795 6/14/2001 4.240% BMA le*s 40 basis points (6,312) 7/1/2021 AA+/Aa2/AA+

SfS Swaption/Swap 125,000 2/6/2001 4.250% 60% of LIBOR (12,427) 7/1/2022 AA-/Aal/AA+

STS 1991 Revenue Bonds Series A 281,500 4/17/1991 6.380%/6 Bond variable coupon rate (50,994) 6/30/2019 AA+/Aa2/-

$ 761,970 $ (68,957)

• STS 2004 Swap - In November 2004, the Audhority entered into a floating-to-floating Fixed-Spread basis swap. Under the swap agreement, the Authority will pay a variable rate equal to the BMA index, and in exchange will receive 65% of LIBOR plus a fixed margin or spread of 66.4 basis points. The basis swap is expected to produce nft positive cash flow for the Authority given the historical positive difference between the floating rate received and the floating rate paid. The fixed margin of 66.4 basis points represents the fair maicket or breakeven spread differential prevailing at the time the trade was executed. The swap expires on July 1, 2023.

• MP 2004 Swap - In connection with the issuance of the 2004 Mead-Phoenix Project Revenue Bonds Series A auction-rate security in May 2004, the Authority entered into an interest rate swap on March 3, 2004. The floating-to-fixed rate swap created synthetic fixed-rate debt for the Authority.

Under the Swap Agreement, the Authority pays the counterparty a fixed rate of 3.894% and in exchange the Authority receives a floating rate index equal to 65% of one-month LIBOR. The swap agreement expires July 1, 2020. The Authority received approximately $1.8 million in an upfront payment in connection with the execution of the swap, which has been deferred and is being amortized as an interest yield adjustment over the life of the option. Approximately $13.5 million in Mead-Phoenix 2004 Project Revenue Bonds Series A are not swapped and remain floating-rate bonds. The floating rate on the related bonds as of June 30, 2006 was 3.80%.

50

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS (In Thousands)

Note 4 - Derivative Instruments (Continued)

MA 2004 Swap - In connection with the issuance of the 2004 Mead-Adelanto Revenue Bonds Series A auction-rate security in May 2004, the Authority entered into an interest rate swap on March 3, 2004. The floating-to-fixed rate swap created synthetic fixed-rate debt for the Authority. Under the Swap Agreement, the Authority pays the counterparty a fixed rate of 3.89% for the swap and in exchange the Authority receives a floating rate index equal to 65% of one-month LIBOR. The swap agreement expires July 1, 2020. The Authority received approximately $5.9 milhion in an upfront payment in connection with the execution of the swap, which has been deferred and is being amortized as an interest yield adjustment over the life of the swap. Approximately $45.1 million in Mead-Adelanto 2004 Project Revenue Bonds Series A are not swapped and remain floating-rate bonds. The average floating rate on the related bonds as of June 30, 2006 was 3.80%.

" STS 2003 Swap - In April 2003, the Authority entered into an Interest Rate Swap agreement with a third party for the purpose of hedging against interest rate variations arising from the issuance of the 2003 Subordinate Refunding Series A Southern Transmission Project Revenue Bonds. The notional amount of the Swap Agreement is equal to the par value of the bonds. The Swap Agreement provides for the Authority to make payments to the counterparty on a fixed rate basis of 3.266%, and for the counterparty to make reciprocal payments based on a floating rate of 65% of one-month LIBOR. The floating rate or, the related bonds at June 30, 2006 and 2005 was 3.70% and 2.00%,

respectively. The agreement expires on July 1, 2022.

• STS Swaption/Swap - In February 200!, the Authority entered. into a transaction whereby it sold an option (the "Swaption") on a floating-to-fixed interest rate swap. The Swaption was exercised on April 1, 2002. The floating rate on the swap paid by the counterparty is 60% of one-month LIBOR; the annual fixed rate on the swap paid by the Authority is 4.25%. In exchange for the right to exercise the Swaption, the counterparty paid the Authority a one-time up front option premium amount of $7.9 million which has been deferred and is being amortized as an interest yield adjustment over the life of the option. The swap expires on July 1, 2022.

51

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS (In Thousands)

Note 4 - Derivative Instruments (Continued)

" STS 2001 Swap - In June 2001, the Authority entered into an interest rate swap agreement with a counterparty for the purpose of hedging against interest rate variations arising from the issuance of the 2001 Subordinate Refunding Series A Southern Transmission Project Revenue Bonds. The notional amount of the Swap Agreement is equal to the par value of the bonds. The Swap Agreement provides for the Authority to make payments to the counterparty at a fixed rate of 4.24%,

and for the counterparty to make reciprocal payments basWd on a variable rate. The reset dates of the variable rate occur weekly and the rate for a reset date w'i!1 be the rate deterinir ed by the Bend Market Association Municipal Swap Index ("BMA") r:iinv3 40 basis poini:s. The counterparty has the option to cancel the agreement on July 5, 2006 an. oa,,'very Fixed Rate Fayer Payment Date, thereafter, should the BMA index average irwo-e than "7;%cover a consecutivN- 1'30-day period. The floating rates on the bonds wer*; 3.92% and 2.20% at Jwtiiý 30, 2006 and 200-, -!spectively. The swap expires on July 1, 2021.

" STS 1991 Swap - in fiscal year 1991, the Authority entered into an interest rate swap Agreement with a counterparty for the purpose of hedging against interest rate fluctuations arising from the issuance of the 1991 Subordinate Refunding Series Southern Transmission Project Revenue Bonds.

The notional amount of the Swap Agreement is equal to the par value of the bonds. Under the Swap Agreement, the Authority pays the counterparty a fixed rate of 6.38%; in exchange, the Authority receives payments mirroring the bond variable coupon rate (3.87% and 2.21% at June 30, 2006 and 2005, respectively). The swap expires on June 30, 2019.

Fair value - Except for the STS 2004 and the STS 2003 swaps, all swaps had a negative fair value as of June 30, 2006. These fair values take into consideration the prevailing interest rate environment, the specific terms and conditions of a given transaction and any upfront payments that were received. All fair values were estimated using the zero-coupon discounting method. This method calculates the future payments required by the swap, assuming that the current forward rates implied by the yield curve are the market's best estimate of future spot interest rates. These payments are then discounted using the spot rates implied by the current yield curve for a hypothetical zero-coupon rate bond due on the date of each future net settlement on the swaps. While some of SCPPA's current mark to market values are negative, this valuation would be realized only if the swaps were terminated at the valuation date and only SCPPA retains the right to optionally terminate most of the transactions.

52

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS (In Thousands)

Note 4 - Derivative Instruments (Continued)

Credit risk - For each counterparty, except for the STS 2004 and the STS 2003 swaps, the net fair values of the Authority's applicable swaps as of June 30, 2006 were negative. However, should interest rates change and the fair values of the swaps become positive, the Authority may be exposed to credit risk in the amount of the derivatives' fair value.

The swap agreements contain varying collateral agreements with the counterparties. The swaps require full collateralization of the fair value of the swap should the cc-nterparty's (or guarantors of the*

counterparty, as applicable) credit rating fall below AA- as issued by Standard & Poor's or Aa3 as issued by Moody's Investors Ser/ice for the 1991 Swap; A+/Al for the 2004 Fixed Spread Basis Swap; A-/A3 for the 2001, the 2003 and the 2004 Swaps; and Baal/BBB+ for the Swaption/Swap. Collateral on all swaps is to be in the form of U.S. government securities held by a third-party custodian.

The swap agreements provide that when the Authority has more than one derivative transaction with a given counterparty involving the same Authority project (and having the same swap/bond insurer),

should one party become insolvent or otherwise default on its obligations, close-out netting provisions permit the non-defaulting party to accelerate and terminate all such related transactions and net the transactions' fair values so that a single sum will be owed by, or owed to, the non-defaulting party.

Basis risk - Basis risk is the risk that the interest rate paid by the Authority on underlying variable rate bonds to bondholders exceeds the variable swap rate received from a counterparty. With the exception of the 1991 Swap, the Authority bears basis risk on each of its swaps. The 1991 Swap is perfectly hedged since the counterparty pays the Authority its actual variable bond rate on the 1991 bonds. All the other Swaps have a basis risk since under each of those swaps the Authority received a percentage of LIBOR (or BMA less 40 basis points) to offset the actual variable bond rate the Authority pays on any related bonds. The Authority is exposed to basis risk should the floating rate that it receives on a swap be less than the actual variable rate the Authority pays on any related bonds or in the case of the floating-to-floating fixed-spread basis swap, less than the variable rate paid to the swap counterparty.

Depending on the magnitude and duration of any basis risk shortfall, the expected cost savings from a swap may not be fully realized. The 2001 swap is based on BMA rate minus 40 basis points; similar to the LIBOR-based swaps, BMA minus 40 bps may not exactly hedge the underlying variable rate. As of June 30, 2006, the BMA rate, minus 40 bps, was 3.398%, whereas 60% of LIBOR was 3.065%, and 65% of LIBOR was 3.321%.

53

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS (In Thousands)

Note 4 - Derivative Instruments (Continued)

The following is a summary of interest rates paid to and received from the counterparties as of June 30, 2006:

Type of Derivative Swaption/ MP 2004 MA 2004 1991 Swap Swap 2001 Swap 2003 Swap 2004 Swap Swap Swap Payments to counterparty 6.380% 4.250% 4.240% 3.265% 3.679% 3.894% 3.890%

Less, variable payments from counterparty 3.870% 3.065% 3.398% 3.335% 3.321% 3.321% 3.321%

Net interest rate swap payments 2.510% 1.185% 0.842% -0.069% 0.358% 0.573% 0.569%

Add, variable-rate bond coupon payments 3.870% N/A 3.920% 3.700% N/A 3.809% 3.800A Synthetic interest rate on bonds 6.380% 1.185% 4.762%A 3.631% 0.358% 4.373% 4.369%

Termination risk - The Authority or the comnterparty may terminate any of the swaps if the other party fails to perform under the terms of the contract, In addition, the 2001 Swap provides the counterparty with an option to cancel the swap agreement if the consecutive 180-day averaged rate of the BMA index exceeds 7.0%. However, the cancellation option has a 5-year lockout preventing the swap's termination prior to July 5, 2006. 'ifany of the swaps were terminated, any associated variable rate bonds would no longer be hedged to a fi:'ed rate. If at the time of termination the swap has a negative fair value, the Authority would be liable to the ccrmtermarty for a payment equal to the swap's fair value.

Rollover risk - Rcl!over risk is the risk -hat the swap contract is not co-terminus with the related bonds.

The Authority is exposed to rollover risk on the 2001 swap bf,:cause the counterparty has the option to terminate the agreement prior to the maturity of the associatee *:.ebt. In the event that this swap terminates, the Authority would be exposed to variable interest rates on the underlying bonds. The following debt is exposed to rollover risk:

Associated Debt Issua~nce Debt Maturity Date Swap Termination Date STS 2001 Subordinate Refunding Series A July 1, 2021 July 1, 2021 54

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS (In Thousands)

Note 4 - Derivative Instruments (Continued)

Swap payments and associated debt - Using rates as of June 30, 2006, debt service requirements of the Authority's outstanding variable rate debt and net swap payments are as follows. As rates vary, variable rate bond interest payments and net swap payments will vary.

Variable-Rate Bonds Interest Rate Fiscal Year Ending June 30, Principal Interest Swaps, Net Total 2007 1,950 25,362 9,857 35,219 2008 14,850 24,788 9,496 34,284 2009 15,775 24,178 9,112 33,290 2010 17,275 235510 8,698 32,208 2011 -2015 221,8 0 95,0 62 32, 7"0 128,C32 2016-2020 325,105 3'1,140 1,29 47,369 2021 - 2023 (5,215 2,-42 _____,_ _ 2,004

$ 661,973 $ 232,082 $ 30,3'A:4 $ 312,406 Note 5 - Long-Term Debt Long-term debt outsiand-L-g at Jkwe 30, 29C6 co.asisted otfn"*- money" bonds, refi_-ding bonds and subordinate refunding bonds due in varying annual amounts through 2036. The nw mcney bonds were issued to finance the purchase and construction or acquisition of the Authority's interest in each of the Projects. The subordinate refunding bonds were issued to refund specified new money bonds.

In accordance with the bond indentures, the new money bonds and refunding bonds are special, limited obligations of the Authority. With the exception cf the Magnolia Power Project B, Lease Revenue Bonds (City of Cerritos, Califernia) 2003-1 ("Project B Bonds"), the bonds issued by each project are payable solely from and secured solely by interests in that project as follows:

o Proceeds from the sale of bonds;

" All revenues, incomes, rents and receipts attributable to that project and interest earned on securities held under the bond indenture or indentures; and

" All funds established by the indenture or indentures.

55

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS (In Thousands)

Note 5 - Long-Term Debt (Continued)

The Authority has agreed to certain covenants with respect to bonded indebtedness, including the requirement to enforce the natural gas, power and transmission sales agreements with the participants.

At the option of the Authority, all outstanding new money bonds and refunding bonds are subject to redemption prior to maturity, except for the 1996 Subordinate Refunding Series A Bonds, the 2002 Subordinate Refunding Series B Bonds, and portions of the 1988A Refunding and 1992 Subordinate Refunding Bonds issued for the Southern Transmission System; the 2002A San Juan Revenue Bonds; and a total of $125.5 million of the Multiple Project Revenue Bonds.

Variable rate debt includes Auction Rate Certificates ("ARCs"), which bear interest at the applicable auction rate as determined by an Auction Agent, as well as debt with rates based on daily, weekly and long term rates as determined by a Remarketing Agent.

A summary of changes in long-term debt follows:

(AntenasainT'hoaud)

Soo0*r R Hoove Mead-Palo Verde Traranosion Upramung Mead-Phoenix Adelanto Multiple SanJuan Magnolia NaturalGas ProiJt Syt-m P"o-It P" -Io Proiot Pooiot PrloectFood P"o-i P. Projit Pow.oo r t Total To.a: 1ong-tendebt at Jron30, 2005 S 107.707 S 777.888 S 17316 S 65.934 S 212.155 S 202,104 $ 11.459 S 320.909 $ S 1.885,872 Tomadobtdoe withinone 0 orone30, 2005 at 11,300 31,470 1.275 8.100 9.160 61.305 To.: debtorInon30. 2005 119.007 8690358 18.991 65.934 212,155 210,204 190,619 320,909 1,947,177 Principalpayrrrsa (11,300) (31,470) (1,275) (170,200) (9,160) - (1,700) (225,105)

Roveun bond,isoaod 29.900 29,900 Doer. ina rorarod debt-rolotedcosts, art 2,053 12.044 420 470 1,291 1,275 (174) (434) 16,945 Tota debt at Juner30, 2006 109.760 769.932 18,136 66,404 213,446 41,279 181.285 320,475 28,200 1.768.917 Total dobtduowithinone ypeor at " 30.2006 (11,45! (34.230) (1,315) (3,250) (10.850) - (9,570) (3,735) - (74,495)

Total long-tern debt at Jrne 30, 2006 $$9213 755,702 S 16.821 $ 63,154 7 202.596 S 41,279 S 171,71L $ 316,740 $ 22,206 S 1,694,422 Palo Verde Project - Debt consists of subordinate refunding series bonds with variable interest rates and final maturities between 2009 and 2017.

Bonds Redeemed - In 1997, the Authority began taking steps designed to accelerate the payment schedule of all fixed rate subordinate bonds relating to the Palo Verde Nuclear Generating Station (PVNGS) so that they would be paid off by July 1, 2004 (the "Restructuring Plan"). Certain outstanding bonds were refunded for savings and the project participants accelerated payments on the bonds issued by the Authority for PVNGS. Accelerated payments were approximately $65 million per year from 1997 until final payment on July 1, 2004. The Plan resulted in substantial savings to the PVNGS project participants once the principal and interest on these fixed rate subordinate bonds were paid in full. As part of the Restructuring Plan, $512 million of debt was placed into legal defeasance as of July 1, 2004.

Southern Transmission System Project - Debt consists of refunding and subordinate refunding series bonds with fixed and variable interest rates. Fixed interest rates range from 3% to 6.125% and final maturities occur between 2006 and 2023.

56

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS (In Thousands)

Note 5 - Long-Term Debt (Continued)

Hoover Uprating Project - Debt consists of refunding series bonds with fixed interest rates between 3.5% and 5.25% and a final maturity during 2017.

Mead Phoenix Project - Debt consists of revenue and refunding series bonds with variable interest rates and a 5.15% fixed interest rate. Final maturity occurs during 2020.

Mead Adelanto Project - Debt consists of revenue and refunding series bonds with variable interest rates and a 5.15% fixed interest rate. Final maturity occurs during 2020.

Multiple Project Fund - Debt consists of revenue bonds wifa fixed interest iates ranging between 6.75% and 7.0% and final matarity during 2013.

Bonds Redeemed - On January 4, 1990, the Authority issued its Multiple Project Revenue Bonds, 1989 Series. Most of the proceeds of the Bonds were used to fund Authority projects, specifically the Mead-Phoenix and the Mead-Adelanto Transmission Projects. In April 2005, the Board detenrined that a portion of the remaining available proceeds should be used to redeem the callable bonds. In May 2005, the Authority's Board of Directors approved the redemption of $162.1 million of Multiple Projects Revenue Bonds, 1989 Series, representing all of the callable bonds. The bonds were redeemed on July 1, 2005.

San Juan Project - Debt consists of refunding series bonds with fixed interest rates between 4.5% and 5.5% and final maturities during 2014 and 2020.

San Juan Unit 3 ProjectRefunding - In April 2005, the Authority issued $71.88 mill-.on par value SJ 2005 Refunding Series A Bonds to refund all of the outstanding $71.85 million SJ 2002 Refunding Series B Bonds (the "refunded bonds"). This transaction resulted in a net loss for accounting purposes of

$4.4 million, consisting primarily of the write-off of unamortized debt expenses and the premium associated with t'oe refunded bonds. The loss on refunding of bonds was deferred and will be amortized in accordance with GASB 23 over the remaining life of the old debt or the life of the new debt, whichever is shorter.

San Juan completed the advanced refunding to reduce its total debt service payments over the refunding term by $9.9 million and to obtain an economic gain, measured as the difference between the present values of the old and new debt service payment requirements of $6.6 million.

57

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS (In Thousands)

Note 5 - Long-Term Debt (Continued)

Magnolia Power Project - Debt consists of revenue bonds with fixed interest rates between 2.00% and 5.25% with final maturities occurring in 2036.

Of the outstanding bonds, $14.1 million of "Project B Bonds" are secured by lease rental payments to be made by the City of Cerritos (the "City") in connection with the lease of certain facilities and premises owned by the City to the Authority and the leaseback of such facilities and premises to the City. The Base Rental Payments will be equal to the principal and interest on the Project B Bonds. In accordance with the Assignment Agreement between the Authority and, `.e TTrastee, the Authority will assign certain of its rights under the Lease, including its right to receive the Base Rental Payments, to the Trustee for the benefit of the Owners of the Project B Bonds.

The City has covenanted to budget and appropriate sufficient %`ndsto make ail juayments required to be made under the Lease. The Lease has a term, of 35 years.

Natural Gas Project -. On July J, 2005, the Authority issued taxable Natural Gas 0?o*ect Revenue Bonds, Draw Down Se,!ies 2005A ("the Draw Down. Bonds") at an interest ra*te of the one month LIBOR rate plus fifry basis points. Tae maximum amount that may be drawn andcutstanding on the Draw Down Bonds is $190,000,0N) and the in.itial draw was 't26,300,100. The bonds were issued on behalf of Anaheim, B&6ank and Colton to finance ,heir share of the project. Additional draws may be used to increase the amount of natural gas to which the Natu.ai Gas Project participants are entitled. As of June 30, 2006, the outstanding aggregate principal of the Draw Down Bonds was $28,200,100.

Debt Related Costs - Unamortized debt-;elated costs, net are as follows as of June 2", 2006 (amounts in thousands):

Loss on (Premium)

Unamortized debt-related costs, net Refunding Discount Total Palo Verde Project $ 15,500 $ - $ 15,500 Southern Transmission System Project 97,397 21,021 118,418 Hoover Uprating Project 2,221 (272) 1,949 Mead-Phoenix Project 5,864 (363) 5,501 Mead-Adelanto Project 17,439 (1,716) 15,723 Multiple Project Fund 8,922 8,922 San Juan Project 6,879 (10,679) (3,800)

Magnolia Power Project - 6,395) (6,395)

$ 145,300 $ 10,518 $ 155,818 58

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS (In Thousands)

Note 5 - Long-Term Debt (Continued)

Debt Service - The scheduled debt service payments for future years ending June 30 are included in the table below. The variable rates used for the PV 1996 Subordinate Refunding Series B and C, and the STS 1996 Subordinate Refunding Series B were the rates at June 30, 2006 of 3.87% and 3.92%,

respectively. The variable rates are set by the bond-remarketing agent on a weekly basis based on economic conditions and bond ratings. The variable rate used for the SJ 2002 Revenue Refunding Series B was assumed at 4% per annum starting in January 1, 2012.

Southern Transmission ' Hoover Mead- Mead-Palo Verde System Uprating Phoenix Adelanto Multiple San Juan Magnolia Natural Gas Project Project Project Projec¶ Project Project Fsnd Project Power Project Project Total 2007 Principal 11,545 34,230 1,315 3,250 10,850 9,570 3,735 74,495 2007 Interest 4,438 39,935 893 3,224 10,019 3,389 9,008 15,096 1,700 87,703 2008 Principal 11,895 30,950 1,370 3,35 11,150 10,050 4,520 .28,200 101,485 2008 Interest 4,017 38,325 838 3,141 9,730 3,389 8,517 15,005 82,962 2009 Principal 12,250 31,550 1,425 3,425 11,400 10,550 4,610 75,210 2009 Interest 3,585 36,566 782 3,055 9,445 7,982 14,896 79,700 2010 Principal 10,073 30,880 1,480 3,500 11,725 11,115 4,723 73,495 2010 Interest 3,206 34,824 723 2,967 9,152 3,389 7,400 14,735 76.396 2011 Principal 10,375 33,115 1,540 4,560 12,540 I ;,400 11,715 4,880 90,125 2011 Interest 2,842 32,925 662 2,660 8,305 2,619 6,787 14,517 71,317 2012 - 2016 Principal 56,730 239,050 8.790 25.120 75,480 38,801 79,660 27,'185 551,416 2012 - 2016 Interest 8,392 134,450 2,13( 8,423 27,617 2,734 21,786 68,997 274,535 2017 - 2021 Principal 12,390 295,740 4,165 28,700 96,024 44,825 35,395 517,239 2017 - 2021 Interest 440 72,802 167 2,321 7,765 3,957 60,861 148,313 2022 - 2026 Principal 212,835 45,280 258,115 2022 - 2026 Interest 7,486 50,531 58,017 2027 - 2031 Principal 57,775 57,775 2027 - 2031 Interest 37,404 37,404 2032 - 2036 Principal 73,730 73,730 2032 - 2036 Interest 20,646 20,646 2037 Principal 51,650 51,650 2037 Interest Principal $ 125,260 $ 908,350 S 20,085 $ 71,905 $ 229,169 S 50,201 $ 177,485 S 314,080 S 28,200 S 1,924,735 Interest $ 26,920 $ 397,314 S 6,201 S 25,791 S 32,C33 $ 18,909 $ 65,437 $ 312,688 S 1,700 5 936,993 Fair Value - The fair value of the Authority's long-term debt (including the current portion) is approximately $2.0 billion and $2.2 billion at June 30, 2006 and 2005, respectively. Management has estimated fair value based on the quoted market prices for the same or similar issues or on the current average rates offered to the Authority for debt of approximately the same remaining maturities, excluding the effect of a related interest rate swap agreement.

Advance Refundings - The Authority has established irrevocable escrow trusts with the proceeds from issuance of subordinate refunding bonds. These investments will be used to pay specified revenue bonds called at scheduled redemption dates.

59

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS (In Thousands)

Note 5 - Long-Term Debt (Continued)

Defeasance of Debt - The Authority has defeased specified revenue bonds by placing the proceeds from the issuance of subordinate refunding bonds in irrevocable trusts to provide for all future debt service payments on the refunded bonds. The trust investments .and related liability for bonds that are considered legally defeased are not included in the Authority's financial statements. At June 30, 2006 and 2005, $702.5 million and $728.3 million, respectively, of revenue bonds outstanding are considered legally defeased.

The refunded bonds constitute a contingent liability of the A yihcriy oniy to the extent that cash and investments presently in the control of the refunding trWStes are not sufficien,':o meet debt service requirements, and are therefore exciuded from the combined 1:nancia! statements because the likelihood of additional funding requirements is considered 2'emcte.

Note 6 - Notes Payable Notes payable consist mamnly of Palo Verde Participants' cver billings from prior periods and a note secured from GE Capital Puolic Fi!_Vance, Inc., to !ease purchased spare parts inventory for the Magnolia Power Project. The nxotes payabe Ai the Palo Verde Projeci. are to be paid through June 2017. These notes are unsecured, bear an interest rate of 4.97%, and are die in monthly payments of $636,000. At June 30, 2006, the remaining balance is $60 million. The ncte payable in the Magrolia Power Project has a coupon rate of 4.1%, with principal payments due mcnthly through July 2010. At June 30, 2006, the remaining principal balance is $5.1 million.

Note 7 - Net Assets (Deficit)

The Authority's billing amounts to the participants are detem;nined by its Board of Directors and are subject to review and. approval by the participants. Billings to participants are designed to recover "costs" as defined by the power sales, natural gas sales, and transmission service agreements. The billings are structured to systematically provide for debt service requirements, operating funds and reserves in accordance with these agreements. The accumulated difference between billings and the Authority's expenses calculated in accordance with accounting principles generally accepted in the United States of America are presented as net assets (deficit). It is intended that this difference will be recovered in the future through billings for repayment of principal on the related bonds.

60

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS (In Thousands)

Note 7 - Net Assets (Deficit) (Continued)

Net assets (deficit) are comprised of the following (in thousands):

Fiscal Year Fiscal Year June 30, 2004 2G05 Activity June 30, 2005 2006 Activity June 30, 2006 GAAP items not included in billings to participants Depreciation of plant $ (868,073) $ (53,834) $ (921,907) $ (65,433) $ (987,340)

Nuclear fuel amortization (19,548) (19,548) (19,548)

Decommissioning expense (137,264) (14,013) (151,277) (13,269) (164,546)

Amortization of bond discount, debt issue costs, and loss on refundings (615,750) (19,578) (635,328) (17,877) (653,205)

Interest expense (69,648) (1,428) (71,076) 5,479 (65,597)

Loss on defeasance of bonds (85,827) (85,827) (85,827)

Bond requirements included in billings to participants Operations and maintenance, net ofinvestment income 284,132 9,007 293,139 2,202 295,341 Costs of acquisition cf capacity 18,698 (1,264) 17,434 (1,305) 16,129 Billings to amortize costs recoverabe 382,050 382,050 382,050 Reduction in debt service billings due to tiansfer of excess funds (90,020) - (90,020) - (90,020)

Principal repayments 862,52: 49,397 911,918 70,212 982,130 Other 69,209_ 3,511) 55,698 15,858 71,556 (183,693) (131,051) (314,744) (4,133) (318,877)

Multiple Project Fund net assets 7,107 493 7,600 (-,848) 5,752 Projects' Stabilization Fund net assets 51,455 22,658 74,113 .7, 66,593 (125,131) $ý (107,900) $ (233,031) $ ý]3,501) $ (246,532)

Note 8 - Commitments and Contingencies Industry Restructuring - Since the passage of Assembly Bill 1890 (the "Bill") in September 1996, the electric industry in California continues to remain uncertain. The deregulation experiment has, for the most part, been abandoned and the IOU situationis inlmproving. The public power systems in the Authority were not required to comply with the Bihl's provisions. They continued to plan for the needs of their customers and avoided customers choosing direct access and leaving the system. Most of the Authority's members have made investments in new gas-fired peaking or base-load generation located in Southern California. The members continue to collect the public benefit charge, and to date, have instituted in excess of $900 million of programs to benefit their customers. The decisions on how these funds are allocated are made by the local governing authority, in most cases this is the city council.

Funds (approximately 2.95% of gross revenues) have been spent on renewable resources, conservation, research and development, and low income rate subsidies. The Authority cannot predict the impact of any future direct access or deregulation programs on energy markets or its participants.

61

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS (In Thousands)

Note 8 - Commitments and Contingencies (Continued)

Nuclear Spent Fuel and Waste Disposal - Under the Nuclear Waste Policy Act, the Department of Energy ("DOE") was to develop the facilities necessary for the storage and disposal of spent fuel and to have the first such facility in operation by 1998. That facility was to be a permanent repository, but the DOE has announced that such a repository could not be completed before 2010. There is ongoing litigation with respect to the DOE's ability to accept spent nuclear fuel and no permanent resolution has been reached to date.

In July 2002, a measure was signed into law designating the Yucca Mountain in the state of Nevada as the nation's high-level nuclear waste repository. This mea'i. that the DOE could then file a construction and operation plan for Yjcca Mountain with the Nuciear Rzgulatory Commissioi. ("NRC"). The DOE expected that the Yucca Mountain site would be open by 2010. However, the State of Nevada and its congressional delegation are stili determined to halt the proj.ect through the NRC process or through legal challenges.

Also a feud over funding of the repositcry ensued. The Administration and Congressional leaders pushed for full and adequa*e fnidg, in order for the DOE to, meet the application deadline of 2004.

Meanwhile, the Nevada deiegation worked diligently to delay the DOE's work on the license application for the Yucca site, in hopes of haltin.g the transfer of nuclear waste to the Nevada facility. As of today, the submission of the construction application to the NRC is still delayed because of an investigation related to the allegation of scientific misconduct during the feasibility study of Yucca Meuntain. as a permanent disposal facility for nuclear waste. In addition, the original regulatory standard of safe keeping nuclear waste at the disposal facility for 10,000 years was challenged by the National Academy of Sciences, and it is now agreed that the nuclear waste's storage period should increase to 100,000 years. Further engineering studies are being conducted to increase the subsistence of the facility for a longer period of time.

The spent fuel storage in the wet pool at PVNGS exhausted 11s capacity in 2003. A Dry Cask Storage Facility kthe "Facility"), also called the Independent Spent Fuel Storage Facility, was built and completed in 2003 at a total. cost of $33.9 million (about $2 million for the Authority). In addition to the Facility, the costs also account for heavy lift equipment inside the units and at the yard, railroad track, tractors, transporter, transport canister, and surveillance equipment. The Facility has the capacity to store all the spent fuel generated by the PVNGS plant until 2026. To date, over 43 casks, each containing 24 spent fuel assemblies were placed in the Facility. The current plan calls for the removal of between 240 and 288 fuel assemblies from the units to the Facility every year. The costs incurred by the procurement, packing, preparation and transportation of the casks are included as part of the fuel expenses, and will cost approximately $13 million a year (about $760,000 for the Authority). If the permanent repository in Yucca Mountain is opened as scheduled in 2010, the spent fuel from PVNGS will be shipped to the repository starting in 2031. No provision has been included in the accompanying financial statements.

62

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS (In Thousands)

Note 8 - Commitments and Contingencies (Continued)

Nuclear Insurance - The Price-Anderson Act (the "Act") requires ihat all utilities with nuclear generating facilities share in payment for claims resulting from a nuclear incident. The Act limits liability from third-party claims to approximately $10.8 billion per incident. Participants in the Palo Verde Nuclear Generating Station currently insure potential claims and liability through commercial insurance with a $300 million limit; the remainder of the potential liability is covered by the industry-wide retrospective assessment program provided under the Act. This program limits assessments to

$101 million per reactor for each licensee for each nuclear incident occurring at any nuclear reactor in the United States; payments under the program are limited to $15 million per reactor, per incident, per year to be indexed for inflation every 5 years. Based on the Aut1.or'ty's 5.91% interest in Palo Verde, the Authority would be responsible for a maximum asses,,rtent of $17.8 million, limited to payments of

$2.7 million per incident, per year.

Other Legal Matters., With respect to the Sap, Juan Genera:irg Station (includ1,:ag the Authority's ownership interest in Unit 3 thereof), Lhe Sierra Club and the Grand Canyon Trust have filed suit against Public Service Company of New Mexico ("PNM") in federal court alleging violations of the Clean Air Act and of the condhitious of tho '".an Juan Generating Station's operating permit. ,-M is a co-owner of the San Juan Generating Station and is the operating agent of the station. The lawsuit sought penalties as well as injunctive and declaratory reliLA.

During 2005, the Dar'ies achieved a settiernen, of the substantA-ive elements of the fase which has been approved by the United States Distric.t Court.. A number of environmental upgrades are being made to the San Juan Generating Station that is expected to mitigate a.number of environmental consequences which might otherwise occur in the operation of the plant. The additional costs associated with these environmental upgrades will be shared by the San Juan Generation Station participants. The.

environmental upgrades affecting Unit 3 and the SCPPA Sau. Juan participants are not anticipated to be added until approximately 2008. A current estimate which would be borne by the SCPPA San Juan Generating Station partidipants totals $32 million. SCPPA has already budgeted for the portion of the added costs of these upgrades which the SCPPA participants will bear. The upgrade expenditures of Unit 3 are net anticipated to occur until Spring 2008, and SCPPA is currently incorporating these costs into current and future budget projects. A liability has been established for $32 million and is presented as a deferred credit. The corresponding asset has been recorded as a deferred debit less cash already received from the participants.

63

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS (In Thousands)

Note 8 - Commitments and Contingencies (Continued)

Claims and a lawsuit for damages have been filed with the Authority, Intermountain Power Authority (the "IPA") and the LADWP seeking $100 million in special damages and a like amount in general damages. The claimants allege, among other things, that due to improper grounding of the transmission line of STS, their dairy herds were damaged and the value of their land was diminished. The claimants also seek injunctive relief. The Authority believed these claims were substantially without merit as to itself because the Authority has no ownership or operational control over the subject transmission lines, and merely acted as a financing agency with respect to STS. In July 2003, the Authority, IPA, and LADWP filed a motion to dismiss, or in the alternative, a nirc~tion to stay based upon forum non conveniens, in which the defendants argued that the case had lidhe connection with California and should be heard in Utah. The Los Angeles Superior Couit granted the motion,d in a 2004 unpublished opinion the California Court of Appeal affirmed this matter on appeal. A Petitkcnt foa Review was subsequently denied by the California Supremne Court.

In February 2005, the rernainiing Utah plaintiffs filed a complaint in the Third Jndicial District Court in and for Salt Lake Couny,, Utah, which *ileged facts sin ilar `o thAose alleged in C.ifornia. SCPPA has moved the Utah court to &drinisSthe action as to SCPPA; however, the motion has not yet come on for hearing before the Court. The motion to dismiss is cur;ently stayed pending the dotemrnination for the Utah trial court whether to transeor the. action from Salt Lake County to the District CouIt in Millard County Utah, where the Intenmountain Power Project is located. No provision has been included in the accompanying financial statements.

The Authority is also involved in various other legal actions. !n The opinion of management, the outcome of such litigation or claims will not have a material effect on the financial position or the results of operations of the Authority or the respective separate Projects.

Note 9 - Subsequent Events Magnolia Power Pro'Ject Revenue Bonds - In July 2006, the Authority issued $37.73 million par value Magnolia Power Project A, Revenue Bonds, Series 2006-1. The bonds, issued at a premium, generated

$38.63 million of new money proceeds and received a True Interest Cost of 4.13% ,and a weighted average life of 5.797 years. The bonds were issued primarily for the purpose of completing the construction of the Magnolia Power Project.

64

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS (In Thousands)

Note 9 - Subsequent Events (Continued)

Interest Rate Amendment - In July 2006, the Authority executed an amendment to the Southern Transmission System Project $100 million, floating-to-floating Fixed-Spread basis swap entered into in 2004. Under the amended swap, SCPPA will continue to pay the swap counterparty the Bond Market Association ("BMA") index but will receive 58.99% of the 10-Year London Interbank Offered Rate

("LIBOR") plus 66.4 basis points, instead of 65% of 1-month LIBOR plus 66.4 basis points. The amended swap terms will become effective on August 1, 2007.

65

SUPPLEMENTAL INFORMATION SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY PALO VERDE PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2006 (AMOUNTS IN THOUSANDS)

D -cor Depesk General Drbt Saine DaetSeiee tssiwning Deposi R er Rara Opatatir4 R.eren &

Fend R. R T nalne leareee EscrreAll. t Arme lase AW.one A-cco-t Conting-y Kr Fend Torta Ba StIe 30. 2605 $ 4,sW3 S 24 $ 133,094 S 7 S (3) 428,391 S S &,978 S 90,5S4 $ 24,906 $ $ 688,041 Addlioen Invmen6rer0rsnmgs 60 4,M25 7 82 3,960 684 9 9,627 DIanneo,ron ivuen~e* peehaers 42 16,459 292 93 51 5 16,942 Distriutin of eutnentneerga (60) (7) 3 1,443 (7) (374) (727) (735) 1,095 1,431 Renen fron powoersanes 49,277 49,277 Distributinofnne (4,962) (24) 9,017 34,212 12,043 (51,186)

T Irafrm escrew fundfor p .rinia1and 60mBes payneenl 3,209 (S4,255) 51,046 Other (853) ( _ 46)

L867 7 3 36353 60,063 37,538 12,043 77,277 Dedenrior Ceoatucinenrnpediter 12,722 12,722 Opetnaegepeeditures 2 30,093 30805 Rnemarkmgeetngtco nr for 371 371 8,0&8 4,O90 Paynentof pericipad 11,300 11,300 In raepaidsl. *m 3,894 866 4,762 premium and intereat paid enientranentpurhases (59) (81) !21 68 49 Paymentof perinciplsand interes rail escrew 3,209 51,046 _ _54,255 Tora 3,150 (39) 66,613 39,158 12,79% 121,632 Balaeeeat Jor 36,2O66 $ $ $ 1,040 - $ $ 392,945 S 2,428 S 06934 $ 24,239 $$ 643,606 This schedule summarizes the receipts and disbursements in funds required under tIf.e Bond Indenture and have been prepared from the trust statements. These balances do not includce accrued interest receivable, unrealized gain (loss) on -nvestments and $78 and $88 held in the revolving fund at june 30, 2006 and 2005, respectivel.y.

66

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY SOUTHERN TRANSMISSION SYSTEM PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2006 (AMOUNTS IN THOUSANDS)

Debt Service Fund Escrow Fund Issue Fund Operating Fund Revenue Fund Total Balanso asJune30,2005 $ 4,655 $ 9,919 $ 73,496 $ 614 $ - $ 88,684 Additi.o Invostme earnings 4 - 2,866 4 12 2,886 Discount oninvestmenl purchases 30 3,156 400 53 23 3,662 Distibuaion iof nvestment arnings (34) - (3,266) (57) 3,357 R evenue fromn trasmissionsales - - - 84,135 84,135 Distribution of rvnue 2,320 64,940 20,267 (87,527)

Transferfrom escrow fund required by refunding bonds issua 4,200 (6,540) 2,340 -

Other tras fers Total 6,520 (3,384) 67,280 20,267 90,683 Deductions Operating xpens - - 19,807 19,807 Paynenat of prinoipal 4,555 22,615 - 27,270 Interest andarbitrage paid - 39,794 39,794 Principal sadinterest paid on es-oo bonds 4,200 2,340 6,540 Total 8,855 64,749 19,807 93,411 Balance ssJunn30,2006 $ 2,320 $ 6,535 $ 76,027 $ 1,074 $ $ 85,956 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the trust statements. These balances do not include accrued interest receivable, unrealized gain (loss) on investments and $34 and $38 held in the revoiving fund at June 30, 2006 and 2005, respectively.

67

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY HOOVER UPRATING PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2006 (AMOUNTS IN THOUSANDS)

Advance Payment Debt ServiceFund General Reserve Fund Fund Opeatung Fund R-ennun Fund Totna Balancea June 30, 2005 S 1,171 S 1,700 S 3 S 1,372 S $ 4,246 Additions Invesrnl earnings 6 51 21 2 80 Disceunt on investmentpurchases 26 29 55 Distibutlionofinvouestment earnings (32) (51) (50) 133 -

Rnvenue from powerales - 2,351 2,351 Distrilution of revenue 2,271 215 (2,486)

Other 3 (3) --

Toea 2,271 3 (3) 215 2,486 Deductions Opeentingexpenses 271 271 paymenl oefprincipal 1,275 1,275 Interest paid 954 . 954 Total 2,229 *.271 2,500 Balanceat June 30, 2006 $ 1,213 S 1,703 $ S 1,316 $ $ 4,232 This schedule summarizes the receipts and disbursements in funds required under the Bond Indenture and have been prepared from the irust statements. The balances in the funds consist of cash and investments at original cost. These balances do not include accrued interest receiw-ble, unrealized gain (loss) on investments and $16 heid in the revolving fiind at both June 30, 2006 and 2005.

68

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MEAD-PHOENIX PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2006 (AMOUNTS IN THOUSANDS)

Resertv &

Debt Service Debt Service Contingency Cost of Issuansce Revenue Fund Account Reserve Aecount OperatingFund Fund Surplus Food Fund Etsrow Account Total Batan.e at June 30, 2005 - $ 2,489 S 5,915 S 250 S 1,231 S 310 $ $ $ 10,195 Additions Invesetent eaenings 2 120 435 6 90 3 656 Discount on investmentearnings 16 - 3 17 36 Distribution of investmentearnings 68 468 (435) (4) (90) (7)

Traterndisionrevenue 7,082 7,082 Distribution of revenues (7,336) 5,277 1.254 16 789 Payments from Western Anr Power Admoinistration 154 154 Other transfers 30 30 Total - 5,981 1,259 16 802 7,958 Deductions Construction ependitures 3 Operatingexpels 1,230 1,230 Principal payenrt Premiues cd interest paid on defesoed bonds Debt issuae costs Interestpaid 3,436 - 3,436 Total _3436

,__ 1,230 3 4,669 Balance atJune 30, 2006 S S 4,934 $ 5,915 $ 279 S 1,244 S 1,112 S S 13,484 This schedule summarizes ,he receipts and disbursements in finds required under the Bond Indenture and have been prepared from the trust statements. Thle balaLes in the funds consist, of cash and investments at original.cost. These balances do not incluCe accrued interest receiwb!le, unrealized gain (loss) on investments, and $12 held in the revolving fund at both June 30, 2006 and. 2G05.

69

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MEAD-ADELANTO PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2006 (AMOUNTS IN THOUSANDS)

Debt Sei'un Debt Service Resere & Costof Issuance Acuount Resteve Fund OpetseingFund Contingency Revenue Fund SurplusFund Escrow Account Fund Total Bl*aIm stJune 30, 2005 S 3,814 S 16,267 S 713 S 6,383 S S 672 S S S 27,949 Additions lnvestmnt earnings 115 1,196 8 469 5 1 1,794 Discount on investmentearnings 44 - 22 45 111 Distribution of investment earnings 1,411 (1,196) (12) (469) 284 (18)

Trnsemissionrevenue 20,669 - 20,669 Distibution of revenues 17,909 1,743 (20,955) 1,303 Payment from Western Ares Powsr Administration 27 27 Other tranfers (30) 30_

Total 1,761 - 1,331 22,571 Dnductioms Principolpay Int -

Interest paid 10,653 10,653 Debt issuancecosts Op-rsting8enpnte- 1,509 - 1,508 Total 106. 1,508 12,161 B ee at Ju-e 30, 2006 $ . 12,640 L 16,267 $ 966 S 6,3803 S 2,M S $ 38,259 This schedule summarizes the receipts and disbursements in funds required undez the Bond Indenture and have been prepared from the trust statements. The balances in the funds conm_.ist of cash and investments at originai cost. These balances do not include accrued interest receivwble, unrealized gain (loss) on investments and $10 held in the revolving fimd at both June 30, 2006 a-nd 2005.

70

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MULTIPLE PROJECT FUND SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2006 (AMOUNTS IN THOUSANDS)

Cost of Redemption ProceedsAcoonu Debt ServiceAccount Account Total Balanceat Ju.- 30, 2005 S 232,533 S 1,340 S $ 233,873 Additions Investmentearnings 10,387 50 $ 10,437 Transfer of investtmennt earningsto earnings account (10,387) 10,387 -

Transfer to debt service account (168,896) 168,896 Transfer from debt secmicemc.ount 1,340 (1,429) 89 Totol (167,556) _77,904 89 10,437 Deductions Interestpaid 8,626 8,626 Paymentof prinoipal 8,100 8,100 Redemptionof bonds 162,100 162.100 Cost of redemption 89 89 Totl 178,26 89 173,915 Balanceat June 30, 2006 S 64,977 S 1 S S 65,395 This schedule summari-es tbh receipts and disbursements i1n fands required untaer he Bond Indenture and have been prepared from fhe tiust statements. The baiawices in the funds cor.is- of cash and investments at origina! cost. These balances do not include aczrued interest rec-'i-vable.

71

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY SAN JUAN PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2006 (AMOUNTS IN THOUSANDS)

Debt Service Res.e- & General Cost of Acquisition Rese-ve Revenue Opemting Contingency Reserve Issuance Eturow Account A-count Fund Fund Fund Fund Fund Account Total Balanceat Juno 30, 2005 S 3,296 $ 21,323 S S 9,712 S 11,386 S S 127 S 78,454 0 124,298 Additions Investmentearnings 3 1,104 8 6 336 2 2,017 3,476 Discount on investments 131 - 12 240 240 - 643 Distribution of investmentearnings (154) (1,104) 2.002 (246) (576) (2)

Revenue from power sales 70.039 70,039 Distribution of revenues 18,950 (72,141) 41,363 11,828 -

Bond proceeds Transter to escrow funds required by refunding bondissuance Transferfrom escrow fund for pricipal and interest payments 3,772 - (3,772)

Other - 31_(31)~

Total 22,722 41,363 '1,828 31 (31) (1,75) 74,158 Deductions Operatingexpenses 45,013 45,013 Construction expenses S5,421 5,421 Paymentofprinciplal and interest- escrow 3,772 - . 3,772 Premniumand interest on irvemtmentpurchases -1 -11 Paymentof principal 9,160 - 9,160 Debt insuece costs - *97 97 Interestpaid - non-escrow 8438*451 8,461 Total 21393 45,013 5,432 97 71,935 Bslaneuat June 30, 2006 $ 4,623 S 21,323 $ S 6,062 $ 17,782 $ 31 $ I 71,61S f S 126,521 This schedule summaj'izes the receipts and disbursements in funds required under ;7he Bond Indenture and have been prepared from tine trust statements. The bala.nces in the funds consi.t of cash-and investments at original cost. These balances do not include ac-.rued interest receivable, unrealized gain (loss) on investments, and $22 held in the revolving fund at both June 30, 2006 and 2005.

72

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY MAGNOLIA POWER PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2006 I

(AMOUNTS IN THOUSANDS)

Debt Service Debt Servce Reserve OperatingReserve Reserveand Account Account Project Fund Fund Contingency OperatingFund Revenue Fund Total Balanceat June 30, 2005 $ 6,478 S 20,013 S 13,180 S 4,993 S 9,793 S $ 69 S 54,526 Additions Investtent earnings 8 471 34 7 7 11 538 Discount on investnent purchases 92 2 89 210 84 757 10 1,244 Distribution of investmentearnings (98) (278) (1) (147) (724) 1,248 Transferof funds for debt service paysrent 1,211 (1,211)

Receipt from participants - . . 83,941 83,941 Distribution of revenues 18.801 I 3,096 9 63,372 (85,279)

Transfer to project fund (586) 11,986 (74) (9,779) (1,547)

MPC Traesfer Other 4 .- 4 Total 20,014 (390) 13,997 0 (9.695) 61,865 (69) 85,727 Deductions Construction expenditures 25,531 25,531 Operating expenses 42.300 47,000 Prenium and interest on investmentpurchases 4 83 98 185 Interest paid - non-escrow 15,17_ 15,170 Total 15,170 4 25,531 83 98 47,000 87,886 Balance at June 30. 2006 11,322 $ 19,619 S 1,646 $ 4,915 S S 14,955 $ S 52,367 This schedule summarizes the receipts and disbursements in fands required under the Bond Indenture and have been prepared frem the trust statements. The balances in the funds ccnslist of cash and investments at original cost. These balances do not include accrued interest receivable, unrealized gain (loss) on investments and $14 heid in the revolving fund at both June 30, 2006 and 2005.

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SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NATURAL GAS PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR ENDED JUNE 30, 2006 (AMOUNTS IN THOUSANDS)

Revenue Fund Operating Fund Fond General Re-erve Fund Project Fund Capital Fund Depository Fund Total Balance at June 30, 2005 S S S S - S S $ $

Additions Investmentearnings 21 4 7 9 47 Discount on investmentpurchases 156 30 20 9 6 221 Distribution of investment earnings 2 (5)

Bond proceeds 2005A 29,900 29,900 Receipt front participants 5,763 24,342 - - 19,128 49,233 Distributionofrevnues (5,765) 2,676 3,360 (2,147) 1,985 (109)

Other 1,537 * - 205 23,738 25,480 Total 28,735 3,394 27,777 21,336 23,639 104,881 Deductions Acquisition of gas reserves 25,963 23,245 49,208 Developmentand completion costs 21 19,727 209 19,957 Operatingenpearnes 18,735 185 18,920 Payment of principal 1,700 1,700 Interes paid 1.186 1,186 Debt issuancecosts 214 - 214 Total 18,735 2,886 26,198 19,727 23,639 91,185 Balanceat June 30, 2006 B $5 10,000 $ 0 S $ 1,379 5 1,609 $ S 13,696 This schedule summarizes the receipts and disbu:rsements in funds required under t*_e Bond Indenture and have been prepared frorn the trust statements. The balances in the funds cc ,jstj of cash and investments at originai cost. These balances do not include accrued interest receivble, unrealized gain (loss) on investments, and $14 hield in the revolving fund eat both June 30, 2006.

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