Resolution No. 2011-185 (6)the City to reduction by the electorate. The City believes that even if the electric rates of the City are subject to the
initiative power, under Article XIIIC or otherwise, the electorate of the City would be precluded from reducing
electric rates and charges in a manner adversely affecting the payment of the 2012 Bonds by virtue of the
"impairment of contracts clause" of the United States and California Constitutions.
Proposition 26 was approved by the voters of the State on November 2, 2010. Proposition 26 amended
Articles XIIIA and XIIIC of [Ire California Constitution to impose a two-thirds voter approval requirement for the
imposition of certain fees and charges by the State. It also imposes a majority voter approval requirement on local
governments with respect to fees and charges for general purposes, and a two-thirds voter approval requirement with
respect to fees and charges for special purposes. The initiative, according to its supporters, is intended to prevent the
circumvention of tax limitations imposed by the voters pursuant to Proportion 13, approved in 1978, and other
measures, such as Proposition 218, through the use of non -tax fees and charges. Proposition 26 expressly excludes
from its scope "a charge imposed for a specific government service or product provided directly to the payor that is
not provided to those not charged, and which does not exceed the reasonable costs to the local government of
providing the service or product." The City believes that the initiative is not intended to and would not apply to
Electric System rates so long as such rates do not exceed the reasonable costs to the City of providing electric
service; however, the City is unable to predict how Proposition 26 will be interpreted by the courts to apply to the
provision of utility services by local governments such as the electric service provided by the Electric System.
Future Initiatives
Articles XIIIC and XIIID provided limits on the ability of governmental agencies to increase certain fees
and charges. Such articles were adopted pursuant to measures qualified for the ballot pursuant to California's
constitutional initiative process. While the City believes Articles XIBC and XIIID do not affect the Electric
System's rates and charges so long as the rates do not exceed the reasonable costs to the City of providing the utility
services, from time to time other initiative measures could be adopted by California voters. The adoption of any
such initiatives might place limitations on the ability of the City and its Electric System to increase revenues.
LITIGATION
There is no controversy or litigation of any nature now pending or threatened restraining or enjoining the
issuance of the 2012 Bonds or in anyway contesting or affecting the validity of the 2012 Bonds or any proceedings
of the City taken with respect to the issuance or sale thereof In addition, there is no litigation pending against the
City which, in the opinion of the City, would materially adversely affect the operations or financial condition of the
Electric System or the sources of payment for the 2012 Bonds. A number of lawsuits and claims have been filed
and are pending against the City that arise in the normal course of operations. None of these lawsuits are expected
to materially adversely affect the operations or financial condition of the Electric System or the sources of payment
for the 2012 Bonds.
TAX MATTERS
2012 Series A Bonds
In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the City ("Bond Counsel"), based
on an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the
accuracy of certain representations and compliance with certain covenants, interest on the 2012 Series A Bonds is
excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of
1986, as amended (the "Code"), Bond Counsel is of the further opinion that interest on the 2012 Series A Bonds is
not a specific preference item, for purposes of the federal individual or corporate alternative minimum taxes,
although Bond Counsel observes that such interest is included in adjusted current earnings when calculating
corporate alternative minimum taxable income. Bond Counsel is also of the opinion that interest on the 2012 Series
A Bonds is exempt from State of California personal income taxes. A complete copy of the proposed form of
opinion of Bond Counsel is set forth in APPENDIX D hereto.
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To the extent the issue price of any maturity of the 2012 Series A Bonds is less than the amount to be paid
at maturity of such 2012 Series A Bonds (excluding amounts stated to be interest and payable at least annually over
the term of such 2012 Series A Bonds), the difference constitutes "original issue discount," the accrual of which, to
the extent properly allocable to each Beneficial Owner thereof, is treated as interest on the 2012 Series A Bonds
which is excluded from gross income for federal income tax purposes and State of California personal income taxes.
For this purpose, the issue price of a particular maturity of the 2012 Series A Bonds is the first price at which a
substantial amount of such maturity of the 2012 Series A Bonds is sold to the public (excluding bond houses,
brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers).
The original issue discount with respect to any maturity of the 2012 Series A Bonds accrues daily over the term to
maturity of such 2012 Series A Bonds on the basis of a constant interest rate compounded semiannually (with
straight-line interpolations between compounding dates). The accruing original issue discount is added to the
adjusted basis of such 2012 Series A Bonds to determine taxable gain or loss upon disposition (including sale,
redemption, or payment on maturity) of such 2012 Series A Bonds. Beneficial Owners of the 2012 Series A Bonds
should consult their own tax advisors with respect to the tax consequences of ownership of 2012 Series A Bonds
with original issue discount, including the treatment of Beneficial Owners who do not purchase such 2012 Series A
Bonds in the original offering to the public at the first price at which a substantial amount of such 2012 Series A
Bonds is sold to the public.
2012 Series A Bonds purchased, whether at original issuance or otherwise, for an amount higher than their
principal amount payable at maturity (or, in some cases, at their earlier call date) ("Premium Bonds") will be treated
as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of
bonds, like the Premium Bonds, the interest on which is excluded from gross income for federal income tax
purposes. However, the amount of tax-exempt interest received, and a Beneficial Owner's basis in a Premium
Bond, will be reduced by the amount of amortizable bond premiun properly allocable to such Beneficial Owner.
Beneficial Owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of
amortizable bond premium in their particular circumstances.
The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross
income for federal income tax purposes of interest on obligations such as the 2012 Series A Bonds. The City has
made certain representations and covenanted to comply with certain restrictions, conditions and requirements
designed to ensure that interest on the 2012 Series A Bonds will not be included in federal gross income. Inaccuracy
of these representations or failure to comply with these covenants may result in interest on the 2012 Series A Bonds
being included in gross income for federal income tax purposes, possibly from the date of original issuance of the
2012 Series A Bonds. The opinion of Bond Counsel assumes the accuracy of these representations and compliance
with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions
taken (or not taken), or events occurring (or not occurring), or any other matters coming to Bond Counsel's attention
after the date of issuance of the 2012 Series A Bonds may adversely affect the value of, or the tax status of interest
on, the 2012 Series A Bonds. Accordingly, the opinion of Bond Counsel is not intended to, and may not, be relied
upon in connection with any such actions, events or matters.
Although Bond Counsel is of the opinion that interest on the 2012 Series A Bonds is excluded from gross
income for federal income tax purposes and is exempt from State of California personal income taxes, the ownership
or disposition of, or the accrual or receipt of interest on, the 2012 Series A Bonds may otherwise affect a Beneficial
Owner's federal, state or local tax liability. The nature and extent of these other tax consequences depend upon the
particular tax status of the Beneficial Owner or the Beneficial Owner's other items of income or deduction. Bond
Counsel expresses no opinion regarding any such other tax consequences.
Current and future legislative proposals, if enacted into law, clarification of the Code or court decisions
may cause interest on the 2012 Series A Bonds to be subject, directly or indirectly, to federal income taxation or to
be subject to or exempted from state income taxation, or otherwise prevent Beneficial Owners from realizing the fall
current benefit of the tax status of such interest. As one example, the Obama Administration recently announced a
legislative proposal which, for tax years beginning on or after January 1, 2013, generally would limit the exclusion
from gross income of interest on obligations like the 2012 Series A Bonds to some extent for taxpayers who are
individuals and whose income is subject to higher marginal income tax rates. Other proposals have been made that
could significantly reduce the benefit of, or otherwise affect, the exclusion from gross income of interest on
obligations like the 2012 Series A Bonds. The introduction or enactment of any such legislative proposals,
63
clarification of the Code or court decisions may also affect, perhaps significantly, the market price for, or
marketability of, the 2012 Series A Bonds. Prospective purchasers of the 2012 Series A Bonds should consult their
own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation, and
regarding the impact of future legislation, regulations or litigation, as to which Bond Counsel expresses no opinion.
The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly
addressed by such authorities, and represents Bond Counsel's judgment as to the proper treatment of the 2012 Series
A Bonds for federal income tax purposes. It is not binding on the IRS or the courts. Furthermore, Bond Counsel
cannot give and has not given any opinion or assurance about the future activities of the City, or about the effect of
future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the
IRS. The City has covenanted, however, to comply with the requirements of the Code.
Bond Counsel's engagement with respect to both the 2012 Series A Bonds and the 2012 Series B Bonds
ends with the issuance of such Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the
City or the Beneficial Owners regarding the tax-exempt status of the 2012 Series A Bonds in the event of an audit
examination by the IRS. Under current procedures, parties other than the City and their appointed counsel,
including the Beneficial Owners, would have little, if any, right to participate in the audit examination process.
Moreover, because achieving judicial review in connection with an audit examination of tax-exempt bonds is
difficult, obtaining an independent review of IRS positions with which the City legitimately disagrees, may not be
practicable. Any action of the IRS, including but not limited to selection of the 2012 Series A Bonds for audit, or
the course or result of such audit, or an audit of bonds presenting similar tax issues may affect the market price for,
or the marketability of, the 2012 Series A Bonds, and may cause the City or the Beneficial Owners to incur
significant expense.
2012 Series B Bonds
The following discussion summarizes certain U.S. federal tax considerations generally applicable to
holders of the 2012 Series B Bonds that acquire their 2012 Series B Bonds in the initial offering. The discussion
below is based on laws, regulations, rulings, and decisions in effect and available on the date hereof, all of which are
subject to change, possibly with retroactive effect. Prospective investors should note that no rulings have been or
are expected to be sought from the IRS with respect to any of the U.S. federal income tax consequences discussed
below, and no assurance can be given that the IRS will not take contrary positions. Further, the following discussion
does not deal with all U.S. federal income tax consequences applicable to any given investor, nor does it address the
U.S. federal income tax considerations applicable to categories of investors some of which may be subject to special
taxing rules (regardless of whether or not such persons constitute U.S. Holders), such as certain U.S. expatriates,
banks, REITs, RICs, insurance companies, tax-exempt organizations, dealers or traders in securities or currencies,
partnerships, S corporations, estates and trusts, investors that hold their 2012 Series B Bonds as part of a hedge,
straddle or an integratedor conversion transaction, or investors whose "functional currency" is not the U.S. dollar.
Furthermore, it does not address (i) alternative minimum tax consequences or (ii) the indirect effects on persons who
hold equity interests in a holder. In addition, this summary generally is limited to investors that acquire their 2012
Series B Bonds pursuant to this offering for the issue price that is applicable to such 2012 Series B Bonds (i.e., the
price at which a substantial amount of the 2012 Series B Bonds are sold to the public) and who will hold their 2012
Series B Bonds as "capital assets" within the meaning of Section 1221 of the Code.
As used herein, "U.S. Holder" means a beneficial owner of a 2012 Series B Bond that for United States of
America ("U.S.") federal income tax purposes is an individual citizen or resident of the United States, a corporation
or other entity taxable as a corporation created or organized in or under the laws of the United States or any state
thereof (including the District of Columbia), an estate the income of which is subject to U.S. federal income taxation
regardless of its source or a trust where a court within the United States is able to exercise primary supervision over
the administration of the trust and one or more United States persons (as defined in the Code) have the authority to
control all substantial decisions of the hest (or a trust that has made a valid election trader U.S. Treasury Regulations
to be treated as a domestic trust). As used herein, "Non-U.S. Holder" generally means a beneficial owner of a 2012
Series B Bond (other than a partnership) that is not a U.S. Holder. If a partnership holds 2012 Series B Bonds, the
tax treatment of such partnership or a partner in such partnership generally will depend upon the status of the partner
and upon the activities of the partnership. Partnerships holding 2012 Series B Bonds, and partners in such
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partnerships, should consult their own tax advisors regarding the tax consequences of an investment in the 2012
Series B Bonds (including their status as U.S. Holders or Non-U.S. Holders).
For U.S. Holders
In the opinion of Bond Counsel, based on an analysis of existing laws, regulations, rulings and court
decisions and assuming compliance with certain covenants, interest on the 2012 Series B Bonds is exempt from
State of California personal income taxes. Interest on the 2012 Series B Bonds is not excluded from gross income
for federal income tax purposes under Section 103 of the Code. Bond Counsel expresses no opinion regarding any
other tax consequences related to the ownership or disposition of, or accrual or receipt of interest on, the 2012 Series
B Bonds,
The 2012 Series B Bonds are not expected to be treated as issued with original issue discount ("OID") for
U.S. federal income tax purposes because the stated redemption price at maturity of the 2012 Series B Bonds is not
expected to exceed their issue price, or because any such excess is expected to only be a de minimis amount (as
determined for tax purposes).
Prospective investors that are not individuals or regular C corporations who are U.S. persons purchasing the
2012 Series B Bonds for investment should consult their own tax advisors as to any tax consequences to them from
the purchase, ownership and disposition of the 2012 Series B Bonds.
Disposition of the 20I2 Series B Bonds. Unless a nonrecognition provision of the Code applies, the sale,
exchange, redemption, defeasance, retirement (including pursuant to an offer by the City) or other disposition of a
2012 Series B Bond will be a taxable event for U.S. federal income tax purposes. In such event, in general, a U.S.
Holder of a 2012 Series B Bond will recognize gain or loss equal to the difference between (i) the amount of cash
plus the fair market value of property received (except to the extent attributable to accrued but unpaid interest on the
2012 Series B Bond which will be taxed in the manner described above) and (ii) the U.S. Holder's adjusted tax basis
in the 2012 Series B Bond (generally, the purchase price paid by the U.S. Holder for the 2012 Series B Bond. Any
such gain or loss generally will be capital gain or loss. In the case of a noncorporate U.S. Holder of the 2012 Series
B Bonds, the maximum marginal U.S. federal income tax rate applicable to any such gain will be lower than the
maximum marginal U.S. federal income tax rate applicable to ordinary income if such U.S. Holder's holding period
for the 2012 Series B Bonds exceeds one year. The deductibility of capital losses is subject to limitations.
For Non-U.S. Holders
Interest. Subject to the discussion below under the heading "Information Reporting and Backup
Withholding," payments of principal of, and interest on, any 2012 Series B Bond to a Non-U.S. Holder, other than
(1) a controlled foreign corporation, as such tern is defined in the Code, which is related to the City through stock
ownership and (2) a bank which acquires such 2012 Series B Bond in consideration of an extension of credit made
pursuant to a loan agreement entered into in the ordinary course of business, will not be subject to any U.S.
withholding tax provided that the Beneficial Owner of the 2012 Series B Bond provides a certification completed in
compliance with applicable statutory and regulatory requirements, which requirements are discussed below under
the heading "Information Reporting and Backup Withholding," or an exemption is otherwise established.
Disposition of the 20I2 Series B Bonds. Subject to the discussion below under the heading "Information
Reporting and Backup Withholding," any gain realized by a Non-U.S. Holder upon the sale, exchange, redemption,
retirement (including pursuant to an offer by the City) or other disposition of a 2012 Series B Bond generally will
not be subject to U.S. federal income tax, unless (i) such gain is effectively connected with the conduct by such
Non-U.S. Holder of a trade or business within the United States; or (ii) in the case of any gain realized by an
individual Non-U.S. Holder, such holder is present in the United States for 183 days or more in the taxable year of
such sale, exchange, redemption, retirement (including pursuant to an offer by the City) or other disposition and
certain otter conditions are met.
U.S. Federal Estate Tax. A 2012 Series B Bond that is held by an individual who at the time of death is not
a citizen or resident of the United States will not be subject to U.S. federal estate tax as a result of such individual's
death, provided that at the time of such individual's death, payments of interest with respect to such 2012 Series B
65
Bond would not have been effectively connected with the conduct by such individual of a trade or business within
the United States.
Information Reporting and Backup Withholding. U.S. information reporting and "backup withholding"
requirements apply to certain payments of principal of, and interest on the 2012 Series B Bonds, and to proceeds of
the sale, exchange, redemption, retirement (including pursuant to an offer by the City) or other disposition of a 2012
Series B Bond, to certain noncorporate holders of 2012 Series B Bonds that are U.S. persons. Under current U.S.
Treasury Regulations, payments of principal and interest on any 2012 Series B Bonds to a holder that is not a U.S.
person will not be subject to any backup withholding tax requirements if the Beneficial Owner of the 2012 Series B
Bond or a financial institution holding the 2012 Series B Bond on behalf of the Beneficial Owner in the ordinary
course of its trade or business provides an appropriate certification to the payer and the payer does not have actual
knowledge that the certification is false. If a Beneficial Owner provides the certification, the certification must give
the name and address of such owner, state that such Beneficial Owner is not a U.S. person, or, in the case of an
individual, that such Beneficial Owner is neither a citizen nor a resident of the U.S., and the Beneficial Owner must
sign the certificate under penalties of perjury. If a financial institution, other than a financial institution that is a
qualified intermediary, provides the certification, the certification must state that the financial institution has
received from the Beneficial Owner the certification set forth in the preceding sentence, set forth the information
contained in such certification, and include a copy of such certification, and an authorized representative of the
financial institution roust sign the certificate under penalties of perjury. A financial institution generally will not be
required to furnish to the IRS the names of the Beneficial Owners of the 2012 Series B Bonds that are not U.S.
persons and copies of such Beneficial Owners' certifications where the financial institution is a qualified
intermediary that has entered into a withholding agreement with the IRS pursuant to applicable U.S. Treasury
Regulations.
In the case of payments to a foreign partnership, foreign simple trust or foreign grantor hest, other than
payments to a foreign partnership, foreign simple trust or foreign grantor trust that qualifies as a withholding foreign
partnership or a withholding foreign trust within the meaning of applicable U.S. Treasury Regulations and payments
to a foreign partnership, foreign simple trust or foreign grantor trust that are effectively connected with the conduct
of a trade or business within the United States, the partners of the foreign partnership, the beneficiaries of the foreign
simple trust or the persons treated as the owners of the foreign grantor trust, as the case may be, will be required to
provide the certification discussed above in order to establish an exemption from withholding and backup
withholding tax requirements. The current backup withholding tax rate is 28% (subject to future adjustment).
In addition, if the foreign office of a foreign "broker," as defined in applicable U.S. Treasury Regulations
pays the proceeds of the sale of a 2012 Series B Bond to the seller of the 2012 Series B Bond, backup withholding
and information reporting requirements will not apply to such payment provided that such broker derives less than
50% of its gross income for certain specified periods from the conduct of a made or business within the U.S., is not a
controlled foreign corporation, as such term is defined in the Code, and is not a foreign partnership (1) one or more
of the partners of which, at any time during its tax year, are U.S. persons (as defined in U.S. Treasury Regulations
Section 1.1441-1(c)(2)) who, in the aggregate hold more than 50% of the income or capital interest in the
partnership or (2) which, at any time during its tax year, is engaged in the conduct of a trade or business within the
U.S. Moreover, the payment by a foreign office of other brokers of the proceeds of the sale of a 2012 Series B Bond
will not be subject to back -tip withholding unless the payer has actual knowledge that the payee is a U.S. person.
Principal and interest so paid by the U.S. office of a custodian, nominee or agent, or the payment by the U.S. office
of a broker of the proceeds of a sale of a 2012 Series B Bond, is subject to backup withholding requirements unless
the Beneficial Owner provides the nominee, custodian, agent or broker with an appropriate certification as to its
non-U.S. status under penalties of perjury or otherwise establishes an exemption.
Circular 230
Under 31 C.F.R. part 10, the regulations governing practice before the IRS (Circular 230), the City and
their tax advisors are (or may be) required to inform prospective investors that:
• Any advice contained herein is not intended or written to be used, and cannot be used, by any
taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer;
66
• Any such advice is written to support the promotion or marketing of the 2012 Series B Bonds and
the transactions described herein; and
• Each taxpayer should seek advice based on the taxpayer's particular circumstances from an
independent tax advisor.
APPROVAL OF LEGALITY
The issuance of the 2012 Bonds is subject to the approval of legality by Orrick, Herrington & Sutcliffe
LLP, Los Angeles, California, Bond Counsel to the City, substantially in the form set forth as APPENDIX D.
Certain legal matters will be passed upon for the City by the office of the City Attorney and for the Underwriter by
Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California.
RATINGS
Moody's Investors Service, Inc. and Standard & Poor's Ratings Group have assigned the 2012 Bonds the
ratings of "Baal" and "A-," respectively. The ratings reflect only the respective views of the rating agencies and
any explanation of the significance of such ratings may be obtained only from such rating agencies as follows:
Moody's Investors Service, 7 World Trade Center at 250 Greenwich Street, New York, New York 10007; and
Standard & Poor's, 55 Water Street, New York, New York 10041. There is no assurance that either rating will
remain in effect for any given period of time or that a rating will not be revised downward or withdrawn entirely by
the rating agency assigning such rating, if, in its judgment, circumstances so warrant. Any downward revision or
withdrawal of any rating may have an adverse effect on. the market price of the 2012 Bonds.
UNDERWRITING
E. J. De La Rosa & Co., Inc., as underwriter (the "Underwriter") has agreed, subject to certain conditions,
to purchase the 2012 Bonds at a price of $71,062,390,04 (representing the $72,740,000.00 aggregate principal
amount of the 2012 Bonds less $1,132,494.40 net original issue discount and less $545,115.56 Underwriter's
discount). The purchase contract provides that the Underwriter will purchase all the 2012 Bonds if any are
purchased. The 2012 Bonds may be offered and sold by the Underwriter to certain dealers and others at prices lower
than or yields higher than the public offering prices or yields stated on the inside cover page of this Official
Statement, and such public offering prices or yields may be changed, from time to time, by the Underwriter.
VERIFICATION REPORT
Upon delivery of the 2012 Bonds, Grant Thomton LLP, independent certified public accountants, will
deliver a report stating that the firm has verified the mathematical accuracy of certain computations relating to the
adequacy of the maturing principal of and interest on the investments in the Escrow Fund and the other moneys in
the Escrow Fund to pay, when due, the principal and interest on the Refunded 2009 Bonds. See "PLAN OF
FINANCE" herein.
FINANCIAL STATEMENTS
The audited financial statements of the Electric System, as of June 30, 2011 and June 30, 2010, are
included in APPENDIX A to this Official Statement, The financial statements have been audited by Macias, Gini &
O'Connell LLP, Los Angeles, California, independent accountants (the "Independent Accountants") as stated in
their reports appearing in APPENDIX A. The City has not requested nor did the City obtain permission from the
Independent Accountants to include the audited financial statements of the Electric System for the Fiscal Years
ended June 30, 2011 and June 30, 2010 as an appendix to this Official Statement. The Independent Accountants
have not been engaged to perform and have not performed, since the dates of its reports included in the Annual
Financial Reports for the Fiscal Years ended June 30, 2011 and June 30, 2010, respectively, any procedures on the
financial statements addressed in such reports. The Independent Accountants also have not performed any
procedures relating to this Official Statement.
M.
CONTINUING DISCLOSURE
The City has covenanted for the benefit of the Owners and Beneficial Owners of the 2012 Bonds, pursuant
to a Continuing Disclosure Agreement with the Trustee, to provide the Municipal Securities Rulemaking Board
through its Electronic Municipal Market Access System a copy of its annual audited financial statements, as well as
certain operating data and financial information relating to the Electric System (collectively, the "Annual Report").
Such audited financial statements are required to be prepared in accordance with generally accepted accounting
principles. The City will provide to the MSRB through the EMMA System such Electric System information and its
financial statements (unaudited, if audited financial statements are not available) within 180 days after the end of its
Fiscal Year (which Fiscal Year ends on June 30), commencing with the Annual Report for Fiscal Year 2012. If
unaudited financial statements are provided, audited financial statements will be provided as soon as available. In
addition, the City has agreed to give timely notice to the MSRB of the occurrence of certain enumerated events.
These agreements have been made in order to assist the Underwriter in complying with Securities and Exchange
Commission Rule 15c2-12(b)(5) (the "Rule"). For the last five years, the City has complied in all material respects
with any previous undertakings with regard to the provision of annual reports or notices of material events as
required by the Rule. See APPENDIX E — "FORM OF CONTINUING DISCLOSURE AGREEMENT" hereto.
MISCELLANEOUS
The covenants and agreements of the City for the benefit of the Owners of the 2012 Bonds are set forth in
the Indenture, and reference is made to the Indenture for a statement of the rights of the Owners of the 2012 Bonds
and the covenants and obligations of the City. All references to the 2012 Bonds are qualified in their entirety to the
definitive form thereof and the information with respect thereto included in the Indenture.
This Official Statement is not a contract with the Owners of any of the 2012 Bonds.
Any statements in this Official Statement involving matters of opinion and all estimates, whether or not
expressly so stated, are intended as such and not as representations of facts and are not to be construed as
representations that they will be realized.
The execution and delivery of this Official Statement has been duly authorized by the City.
CITY OF VERNON,CCALIFOR
By: Isl Mark C Whitworth
Mark C. Whitworth,
City Administrator
68
APPENDIX A
AUDITED FINANCIAL STATEMENTS OF THE ELECTRIC SYSTEM
FOR THE FISCAL YEARS ENDED JUNE 30, 2011 AND JUNE 30, 2010
A-1
[THIS PAGE INTENTIONALLY LEFT BLANK]
LIGHT AND POWER DEPARTMENT FUND
(AN ENTERPRISE FUND OF THE CITY OF
VERNON, CALIFORNIA)
Annual Financial Report
For the Fiscal Year Ended June 30, 2011
y Certified Public Accountants.
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
For the Fiscal Year Ended June 30, 2011
Table of' Contents
Pa e s
IndependentAuditor's Report....................................................................................................................... 1
Management's Discussion and Analysis (Required Supplementary Information -Unaudited) ..................... 3
Basic Financial Statements:
Statement of Fund Net Assets........................................................................................................
10
Statement of Revenues, Expenses, and Changes in Fund Net Assets ............................................
11
Statementof Cash Flows...............................................................................................................
12
Notes to the Basic Financial Statements........................................................................................
13
Certified Public Accountants.
S.aramento Wal..t Ueak • Oakland • Las AaOeles/Canmry City • Nevrporl lieach • San. Dt.Oo
INDEPENDENT AUDITOR'S REPORT
To the City Council
City of Vernon, California
mgocpa.com.
We have audited the accompanying basic financial statements of the Light and Power Department Fund,
an Enterprise Fund of the City of Vernon, California (City), as of and for the fiscal year ended June 30,
2011, as listed in the table of contents. These financial statements are the responsibility of the City's
management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City's
internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audit provides a reasonable
basis for our opinion.
As discussed in Note I to the financial statements, the financial statements present only the Light and
Power Department Fund and do not purport to, and do not, present fairly the financial position of the City
as of June 30, 2011, and the changes in its financial position, or, where applicable, its cash flows for the
fiscal year then ended in conformity with accounting principles generally accepted in the United States of
America.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of the Light and Power Department Fund of the City of Vernon, California, as of June
30, 2011, and the changes in its financial position and its cash flows for the fiscal year then ended in
conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 12 to the financial statements, there are various matters that result in uncertainties of
the Light and Power Department Fund and the City.
Accounting principles generally accepted in the United States of America require that the management's
discussion and analysis on pages 3 through 9 be presented to supplement the basic financial statements.
Such information, although not a part of the basic financial statements, is required by the Governmental
Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the
basic financial statements in an appropriate operational, economic, or historical context. We have applied
certain limited procedures to the required supplementary information in accordance with auditing
standards generally accepted in the United States of America, which consisted of inquiries of
30M S St.. 2121 N. Calik, is Md, 505 14th Street 2029 Cc.tury Park East 4675 Mar rlhur Ct. 225 oroad.i,
Suite 100 Suite, 750 Sth Flu, Salt. 500 Solto 600 Soite 1750
Sacrament. walnut Ge.k Oakland Los Angclas Newport 0.ad San Dlogo
CA95016 CA 9,1596 CA 94612 CA 9M67 CA 92660 CA 92101
management about the methods of preparing the information and comparing the information for
consistency with management's responses to our inquiries, the basic financial statements, and other
knowledge we obtained during our audit of the basic financial statements. We do not express an opinion
or provide any assurance on the information because the limited procedures do not provide us with
sufficient evidence to express an opinion or provide any assurance.
i � � D '&VWt'O'd
Los Angeles, California
December 15, 2011
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Management's Discussion and Analysis
For the Fiscal Year Ended June 30, 2011
(Unaudited)
The management of the Light and Power Department Fund ("L&P"), a department of the City of Vernon
("the City"), offers the following overview and analysis of the basic financial statements of L&P for the
fiscal year ended June 30, 2011, Management encourages readers to utilize information in the
Management's Discussion and Analysis (MD&A) in conjunction with the accompanying basic financial
statements.
OVERVIEW OF BASIC FINANCIAL STATEMENTS
The MD&A is intended to serve as an introduction to L&P's basic financial statements. Included as part
of the financial statements are three separate statements.
The statement offund net assets presents information on L&P's asset and liabilities, with the difference
between the two reported as net assets.
The statement of revenues, expenses and changes in find net assets presents information showing how
L&P's net assets changed during the most recent fiscal year. Financial results are recorded using the
accrual basis of accounting. Under this method, all changes in net assets are reported as soon as the
underlying events occur, regardless of the timing of cash flows. Thus, revenues and expenses reported in
this statement for some items may affect cash flows in a future fiscal period (examples include billed but
uncollected revenues and employee earned but unused vacation leave).
The statement of cash flows reports cash receipts, cash payments, and net changes in cash and cash
equivalents from operations, noncapital financing, capital and related financing, and investing activities.
The notes to the basic financial statements provide additional information that is essential to fully
understand the data provided in the financial statements.
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Management's Discussion and Analysis (Continued)
For the Fiscal Year Ended June 30, 2011
(Unaudited)
FINANCIAL HIGHLIGHTS
Net Assets
The table below summarizes L&P's net assets as of the current fiscal year ended June 30, 2011 and prior
fiscal year ended June 30, 2010. The details of the current year's summary can be found on page 9 of this
report.
Fund Net Assets
June 30, 2011 and 2010
2011
2010
Change
Assets:
Current and other assets
$ 409,400,281 $
477,272,645 $
(67,872,364)
Restricted assets
55,875,012
56,274,028
(399,016)
Capital assets
158,026,213
128,987,587
29,038,626
Total assets
623,301,506
662,534,260
(39,232,754)
Liabilities
Current liabilities 74,418,326 85,321,117 (10,902,791)
Long-term liabilities 436,858,844 467,417,744 (30,558,900)
Total liabilities 511,277,170 552,738,861 (41,461,691)
Net Assets:
Invested in capital
assets, net of related debt 114,529,968 85,226,509 29,303,459
Restricted* - 6,996,471 (6,996,471)
Unrestricted (deficit) (2,505,632) 17,572,419 (20,078,051)
Total net assets $ 112,024,336 $ 109,795,399 $ 2,228,937
* The 2010 amount for restricted net assets for debt service was offset by an equivalent
amount of outstanding bonds payable to conform with the current year's presentation.
The assets of L&P exceeded its liabilities at the close of the most recent fiscal year by $112,024,336 (net
assets).
The category of L&P's net assets with the largest balance totaling $114,529,968 (102%) represents
resources that are invested in capital assets, net of related debt.
The remaining category of net assets, totaling $(2,505,632) (-2%) represents a deficit in unrestricted net
assets that is expected to be recovered from L&P's firture revenues.
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Management's Discussion and Analysis (Continued)
For the Fiscal Year Ended June 30, 2011
(Unaudited)
Activities, net assets:
• Current and other assets decreased $67,872,364 from the prior year due primarily to a
$17,117,637 decrease in cash and investments, now restricted for debt service, a $20,145,886
decrease in advance to City, to account for environmental emission credits, a $28,578,342
decrease in prepaid natural gas, as a result of amortization during the year, and a $3,921,843
decrease in deposits and prepaid expenses due to collateral transactions on investment
derivatives.
• Capital assets increased $29,038,626 from the prior year due primarily to a $7,420,200 addition to
non -depreciable capital assets, a $1,798,047 addition to depreciable capital assets net of
accumulated depreciation, and an increase in intangible capital assets of $20,145, 886, in the form
of environmental emission credits that L&P received from the City as repayment of advances
(See Notes 4 and 5).
• Current liabilities decreased $10,902,791 from the prior year due primarily to a $5,557,219
decrease in the fair value of derivative liabilities and a $5,738,399 decrease in deferred gain from
sale of generation assets, due to the annual amortization of the gain (See Notes 7 and 10).
• Long-term liabilities decreased $30,558,900 from the prior year due primarily to a $3,985,174
decrease in the deferred gain from the sale of generation assets due to a reclassification to current
and a $26,5945810 decrease in long-term bonds payable, net, due to animal principal payments.
• Unrestricted net assets (deficit) decreased $20,078,051 from the prior year due primarily to a
$29,303,459 increase in investment in capital assets, net of related debt, offset by an increase in
net assets from current year's activities of $2,228,937. In addition, restricted net assets decreased
from the prior year because the restriction on amounts set aside for capacity payments expired in
the current year.
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Management's Discussion and Analysis (Continued)
For the Fiscal Year Ended June 30, 2011
(Unaudited)
Changes in Net Assets
The table below summarizes L&P's changes in net assets over the current and prior fiscal years. The
details of the current year's changes in net assets can be found on page 10 of this report.
City of Vernon
Light and Power Department Fund
Changes in Fund Net Assets
For the Fiscal Years Ended June 30, 2011 and 2010
Operating revenues:
Charges for services
Operating expenses:
Cost of sales
Depreciation and amortization
Total operating expenses
Operating income
Nonoperating revenues (expenses):
Investment loss
Net increase (decrease) in fair value of investments
Interest expense
Other e>pens e
Total nonoperating revenues (expenses), net
Income (loss) before special item
Special item:
Gain on sale of land
Change in net assets
Net assets- beginning of year
Net assets- end of year
2011 2010
$ 118,186,124 $ 118,589,706 $ (403,582)
88,451,994 84,727,883 3,724,101
4,579,467 4,364,408 215,059
93,031,451 89,092,291 3,939,160
25,154,673 29,497,415 (4,342,742)
(4,404,954)
(10,281,703)
5,876,749
5,064,029
(9,966,275)
15,030,304
(20,435,035)
(21,340,935)
905,900
(3,149,776)
(13,730,038)
10,580,262
(22,925,736)
(55,318,951)
32,393,215
2,228,937 (25,821,536) 28,050,473
6,892,938 (6,892,938)
2,228,937 (18,928,598) 21,157,535
109,795,399 128,723,997 (18,928,598)
$ 112,024,336 $ 109,795,399 $ 2,228,937
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Management's Discussion and Analysis (Continued)
For the Fiscal Year Ended June 30, 2011
(Unaudited)
L&P's activities increased net assets by $2,228,937. The key reasons for this increase in change in net
assets are as follows:
• L&P's operating expenses were $93,041,451 for the current year, which is $3,939,160 higher
than the previous year. This increase was mainly due to an increase in capacity cost offset by a
decrease in natural gas price used to generate energy during the year.
• Investment loss was $4,404,954 for the current year, which is $5,876,749.lower than the previous
year. This decrease was mainly due to termination of interest rate swaps during 2010. (See Note
7 for additional information on derivative instruments).
• Net increase in fair value of investments was $5,064,029 for the current year, which is
$15,030,304 higher than the previous year. This increase was caused by an increase in long-term
interest rates during the year, which decreased the derivatives liability. (See Note 7 for additional
information on derivative instruments).
• Other expense was $3,149,776 for the current year, which is $10,580,262 lower than the previous
year. The decrease resulted from a reduction in transfers to the City General and Gas Fund. (See
Note 4 for additional information on related party transactions).
Operating Revenues and Expenses
For the Fiscal Years Ended June 30, 2011 and 2010
$140,000,000
-
�
$120,000,000
$100,000,000
i
$80,000,000
t
1 102011
$60,000,000
^ 02010
$40,000,000
"
$20,000.000
$0
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L&P's unrestricted net assets at the end of the year amounted to a deficit of $2,505,632 after the increase
in net assets of $2,228,937 in the current year. L&P expects to eliminate this deficit balance through
future rate increases, cost reduction, and revenues from renewable energy projects,
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Management's Discussion and Analysis (Continued)
For the Fiscal Year Ended June 30, 2011
(Unaudited)
CAPITAL ASSET AND DEBT ADMINISTRATION
Capital assets.
L&P's investment in capital assets as of June 30, 2011 amounted to $158,026,213 (net of accumulated
depreciation). This investment in capital assets includes land, intangible assets, constriction in progress,
building, utilities system improvements, and machinery and equipment. The total increase in L&P's
investment in capital assets for the current fiscal year was $29,038,626, due primarily to increases in
L&P's intangible assets of $20,145,886 related to the City's contribution of environmental emission
credits, construction in progress for renewable energy and an addition to its distribution plant (See Note
5).
Additional information on the L&P's capital assets can be found in Note 5 on page 22 of this report
Outstanding debt
During the fiscal year 2009, a total of $463,165,000 in long-term obligations were issued and as of June
30, 2011, $431,615,000 remained outstanding consisting of the following (See Note 6 for additional
information on long-term obligations):
• $43,500,000 City of Vernon Electric System Revenue Bonds, 2008 Taxable Series A
• $388,115,000 City of Vernon Electric System Revenue Bonds, 2009 Series A
The City of Vernon Electric System Revenue Bonds, 2008 Taxable Series A were issued to provide Rinds
to (i) finance the cost of certain capital improvements to the City's Electric System, (ii) fund a deposit to
the Debt Service Reserve Fund, and (iii) to pay costs of issuance of the 2008 Bonds.
The City of Vernon Electric System Revenue Bonds, 2009 Series A were issued to provide funds to (i)
refinance certain obligations payable from the City's Electric System Revenues, (ii) fund a deposit to the
Debt Service Reserve Fund, and (iii) to pay costs of issuance of the 2009 Bonds.
As of June 30, 2011, all bonds issued by L&P had a rating of A- by S&P and A3 by Moody's and have
not changed from the prior year.
On December 9, 2010, Moody's Investors Service put on a Watchlist for a possible downgrade, the A3
ratings on the City of Vemon's, Electric System Revenue Bonds, 2008 Taxable Series A and Electric
System Revenue Bonds 2009 Series A.
On March 21, 2011, Moody's Investors Service affirmed the A3 ratings with negative outlook.
On December 2, 2011, Moody's Investors Service downgraded the A3 ratings to Baal.
The change in outstanding debt for the year ended June 30, 2011 was due to the principal payments of
$26,550,000 on the Electric System Revenue Bonds.
Additional information on the City's long-term debt can be found in Note 6 on pages 23-25 of this report
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Management's Discussion and Analysis (Continued)
For the Fiscal Year Ended June 30, 2011
(Unaudited)
ECONOMIC FACTORS AND NEW YEAR'S BUDGET AND RATES
These factors were considered in preparing L&P's budget for the 2012 fiscal year.
• The City is strictly industrial and does not maintain an unemployment rate study of its small
population. However, the unemployment rate of adjacent communities is currently 11.6%. This
compares favorably to the state's average unemployment rate of 11.8% but unfavorably to the
national average unemployment rate of 9.2%.
• The occupancy rate of the City's central business district has remained at 96.7% for the current
year.
• Inflationary trends in the region compare favorably to national indices.
REQUESTS FOR INFORMATION
This financial report is designed to provide a general overview of L&P's finances for all those with an
interest in L&P's finances. Questions concerning any of the information provided in this report or
requests for additional financial information should be addressed to the Director of Finance, City of
Vernon, 4305 Santa Fe Avenue, Vernon, California, 90058.
CITY OF VERNON, CALIFORNIA
Light and Power Department Fund
Statement of Fund Net Assets
June 30, 2011
ASSETS:
Current assets:
Cash and investments
$ 50,848,937
Accounts receivable, net of allowances of $50,000
1,873,918
Accrued unbilled revenue
7,477,754
Accrued interest receivable
267,520
Bond issuance costs
246,533
Due from City
17,236,990
Inventories
10,564,158
Prepaid natural gas
28,631,088
Note receivable
200,060
Deposits and prepaid expenses
6,929,812
Total current assets
124,276,770
Noncurrent assets:
Restricted cash and investments
55,875,012
Advances to City
25,144,192
Prepaid natural gas
254,359,472
Note receivable
2,418,748
Bond issuance costs
3,201,099
Capital assets:
Nondepreciable
64,720,406
Depreciable, net
93,305,907
Total noncurrent assets
499,024,736
Total assets 623,301,506
LIABILITIES
Accounts payable
7,156,542
Customer deposits
440,375
Derivative liabilities
25,677,872
Bond interest
10,374,076
Long-term liabilities:
Due within one year:
Deferred gain from sale of generation assets
3,945,235
Bonds payable, net
26,594,810
Compensated absences
229,416
Total current liabilities
74,418,326
Due in more than one year:
Deferred gain from sale of generation assets
43,043,813
Bonds payable, net
393,356,199
Compensated absences
458,832
Total noncurrent liabilities
436,858,844
Total liabilities
511,277,170
NET ASSETS:
Invested in capital assets, net of related debt
114,529,968
Unrestricted (deficit)
(2,505,632)
Total net assets
$ 112,024,336
See accompanying notes to the basic financial statements
U
CITY OF VERNON, CALIFORNIA
Light and Power Department Fund
Statement of Revenues, Expenses and Changes in Fund Net Assets
For the Fiscal Year Ended June 30, 2011
OPERATING REVENUES:
Charges for services
Total operating revenues
OPERATING EXPENSES:
Cost of sales
Depreciation and amortization
Total operating expenses
Operating income
NONOPERATING REVENUES (EXPENSES):
Investment loss
Net increase in fair value of investments
Interest expense
In -lieu taxes to City
Total nonopetating (expenses)
Change in net assets
Net assets, beginning of the, year
Net assets, end of the year
See accompanying notes to the basic financial statements.
11
$ 118,186,124
118,186,124
88,451,984
4,579,467
93,031,451
25,154,673
(4,404,954)
5,064,029
(20,435,035)
(3,149,776)
(22,925,736)
2,228,937
109,795,399
$ 112,024,336
CITY OF VERNON, CALIFORNIA
Light and Power Department Fund
Statement of Cash Flows
For the Fiscal Year Ended June 30, 2011
Cash flows from operating activities:
Cash received from m¢mnrers and City
S 116,140,460
Cash paid to suppliers for goods and services
(59,032,764)
Cash paid ao City for i dministralive rand overhead ...,as
(2,872,661)
Cash paid la employees for services
(3,923,869)
Net provided by operating activities
50,311.1"
Cash flows from noncapital fi.wncingacnivltics:
Transfer orimlin. taxes to City
(3,149,776)
Collection of mate receivable
334,236
Net cash used in noncapiwl financing activities
(2,815,540)
Cash flows from capital and related fimnnciny activities:
Repaymcm of bonds
(26,550,000)
Brand interest paid
(23,466.355)
Acquisition and consimetian of capital assets
(10,196,836)
Net cosh used in capitol said relined financing activities
(60,213,191)
Cash flows from investing activities:
Purchases and sales of iavestntrnts, net
(873,554)
Investment loss net of interest one swap payments on investment derivatives
(4,344,629)
Net cash used in investing activities
(5,218,183)
Net decrease in cash and cash equivalents
(17,935.748)
Cash and cash equivalent, beginning of year
77,693,031
Cash and cash cgnividents, end of year
$ 59,757,283
Reconciliation of operating income to net cash
provided by operating activities:
oPemling income
$
25,154,673
Adjustments to reconcile opemting income
to net cash used in operating activities:
Depreciation and amonimtion
4.579,467
Changes in operating assets and liabilities:
Decrease (increase) in.
Account receivable and line fmm City
(1,374,630)
Accrued unbilled revenue
(671,034)
Invenlol'iea
(186,774)
Prepaid expenxs and depasias
3,921,843
Prepaid natural gas
28,578,342
Inc se(decrease)in:
Accounts payable
180,222
Accrued wages rand benefits
(126,736)
Customer deposits
(52,260)
Cmnpensared absences
31,626
UeRmed in fmm sole of generation assets
(9,723,573)
Net cosh pmvidcd by opemting activities
$
50,311,166
f eeoncilimioo of cash and cosh eq.w.1clas an
Statement of Net A.ese¢
Cash and investments
S
50,848,937
Noncurrent restricted cash and investments
55,875,012
Tmal
106,723,949
Less: Investment wills moturinies of nmre ihun 90 days
(46,966,666)
Total cash and cash equivalent
$
59.757,293
Noneash Capitol, investing and Financing Activities
Acquisition ofcopind assets in acca nails payable
S
480,237
lncrease in fair value of investments
5,064,029
Alnortieation of deferred gain from sale of gawmrian asset
2.728,773
Advance Frain City
20,145,896
See accompanying notes to the basic financial statements.
12
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2011
NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Light and Power Department Fund (L&P), an Enterprise Fund, have been
prepared in conformity with U.S. generally accepted accounting principles (GAAP). The Governmental
Accounting Standards Board (GASB) is the accepted standard -setting body for establishing governmental
accounting and financial reporting principles. The more significant of the L&P's accounting policies are
described below.
Reporting Entity
The City of Vernon (the City) was incorporated on September 16, 1905 as a General Law City. Effective
July 1, 1988, the City became a Charter City. The City operates under a Council -City Administrator form
of government.
The City's L&P exists as a separate department of the City under and by virtue of the City Charter
enacted in 1988. L&P was established, as a separate department by Section 2.64 of the City Code to be
used for the collection of revenues and the payment of expenses for the City's electric utility plant.
As required by generally accepted accounting principles, the accompanying basic financial statements
present the L&P and its component unit, an entity for which the City is considered to be financially
accountable. In accordance with GASB Statement No. 14, the City's component unit is considered a
blended component unit in the L&P fund. Although a legally separate entity, it is, in substance, part of
L&P's operations, and therefore, data from this unit is combined with data of L&P.
Blended Component Unit
Vernon Natural Gas Financing Authori
On April 1, 2006, the City and the Vernon Redevelopment Agency (RDA) created the Vernon Natural
Gas Financing Authority (Authority) pursuant to the Joint Powers Agreement, for the express purpose of
undertaking projects and programs that promote economic development within the City. Such projects
and programs include assisting the City in procuring natural gas for use as fuel for electric generating
units that are part of the City's Electric System, which is accounted for in the City's L&P. During the
year ended June 30, 2006, the Authority issued $430,845,000 in variable rate bonds and subsequently
purchased natural gas in accordance with the Natural Gas Agreement between the Authority and the City.
The Authority bonds were refunded in fiscal year 2009 and replaced with fixed rate Electric System
bonds. As a result of this financing arrangement, the debt and related asset (prepaid natural gas)
associated with the Authority have been blended with L&P for financial reporting purposes.
Basis of Presentation
L&P accounts for the maintenance and operations of the City's electric utility plant. Revenue for L&P is
primarily from charges for services.
L&P's financial statements are reported using the economic resources measurement focus and the accrual
basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities
are incurred, regardless of when the related cash flows take place.
13
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2011
NOTE 1— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
L&P distinguishes operating revenues and expenses from nonoperating items. Operating revenues, such
as charges for services, result from exchange transactions associated with the sale of electricity.
Exchange transactions are those in which each party receives and gives up essentially equal values.
Nonoperating revenues, such as subsidies and investment earnings, result from nonexchange transactions
or ancillary activities. Operating expenses include the cost of sales and services, administrative expenses
and depreciation on capital assets. All expenses not meeting this definition are reported as nonoperating
expenses.
For the L&P financial statements, under GASB Statement No. 20, Accounting and Financial Reporting
for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting, L&P
applies all applicable GASB pronouncements as well as any applicable pronouncements of the Financial
Accounting Standards Board, the Accounting Principles Board or any Accounting Research Bulletins
issued on or before November 30, 1989 unless those pronouncements conflict with or contradict GASB
pronouncements. L&P has elected to not apply private -sector accounting standards issued after
November 30, 1989.
L&P's policy regarding whether to first apply restricted or unrestricted resources when an expense is
incurred for purposes for which both restricted and unrestricted net assets are available is to use restricted
resources first.
Cash Deuosits and Investments
For purposes of the statement of cash flows, L&.P considers amounts on deposit in the L&P's cash and
investment pool and all highly liquid investments (including restricted cash and investments) with an
original maturity of three months or less when purchased to be cash equivalents. Investment transactions
are recorded on the trade date. Investments in nonparticipating interest -taming investment contracts are
reported at cost and all other investments are reported at fair value. Fair value is defined as the amount
that the L&P could reasonably expect to receive for an investment in a current sale between a willing
buyer and a seller and is generally measured by quoted market prices.
Receivables
Short-term receivables from the City are classified as "due from City" on the statement of fund net assets.
Long-term receivables from the City are classified as "advances to City," on the statement of fund net
assets.
Trade receivables are shown net of an allowance for uncollectible accounts. Allowances for
uncollectibles were $50,000 as of June 30, 2011. Utility customers are billed monthly. The estimated
value of services provided, but unbilled at year-end has been included in the accompanying financial
statements.
Inventories
All inventories are valued at cost using the first-in/first-out (FIFO) method. Inventory costs are recorded
as an expense when used.
14
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2011
NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Capital Assets
Capital assets (including infrastructure) are recorded at historical cost or at estimated historical cost if
actual historical cost is not available. Contributed capital assets are valued at their estimated fair value on
the date contributed. Capital assets include land, intangible assets, construction in progress, and plant
assets including building, improvements, and machinery and equipment. The capitalization threshold for
all capital assets is $5,000. Capital assets used in operations are depreciated using the straight-line
method over their estimated useful lives. Intangible assets with an indefinite useful life are not amortized
but are evaluated annually for any impairment.
The estimated useful lives are as follows:
Utility plant and buildings
Improvements
Machinery and equipment
25 to 50 years
10 to 20 years
3 to 35 years
Maintenance and repairs are charged to operations when incurred. Betterments and major improvements,
which significantly increase values, change capacities or extend useful lives, are capitalized. Upon sale or
retirement of capital assets, the cost and related accumulated depreciation are removed from the
respective accounts and any resulting gain or loss is included in the changes in financial position. Interest
expense associated with construction of capital assets is capitalized during the construction phase up until
the capital asset is substantially complete and ready for its intended use for both taxable and tax-exempt
securities. For tax-exempt securities, interest income on unspent bond proceeds is also capitalized during
the construction phase.
Compensated Absences
Accumulated vacation is accrued when incurred. Upon termination of employment, the City will pay the
employee all accumulated vacation leave at 100% of the employee's base hourly rate.
Lone -term Obligations
Bond issuance costs, discounts and premiums and deferred amounts on refunding are amortized over the
life of the bonds using the straight-line method.
Net Assets
L&P financial statements utilize a net assets presentation. Net assets are categorized as invested in capital
assets (net of related debt), restricted and unrestricted.
Invested In Capital Assets, Net of Related Debt — This category groups all capital assets into one
component of net assets. Accumulated depreciation and the outstanding balances of debt that are
attributable to the acquisition, construction or improvement of these assets reduce the balance in
this category.
Restricted Net Assets — This category presents external restrictions imposed by creditors,
grantors, contributors or laws or regulations of other governments and restrictions imposed by
law through constitutional provisions or enabling legislation.
15
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2011
NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Unrestricted Net Assets — This category represents net assets of L&P not restricted for any project
or other purpose.
Use of Estimates
The preparation of basic financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.
NOTE 2 — CASH AND INVESTMENTS
Cash and Investments
Cash and investments as of June 30, 2011 are classified in the accompanying statement of fund net assets
as follows:
Statement of fund net assets:
Cash and investments $ 50,848,937
Restricted cash and investments 55,875,012
Total cash and investments $ 106,723,949
Cash and investments as of June 30, 2011 consist of the following:
Deposits with financial institutions $ 29,133,101
Investments 77,590,848
Total cash and investments $ 106,723,949
The City's Investment Poiicv
The City's Investment Policy sets forth the investment guidelines for all funds of the City. The Investment
Policy conforms to the California Government Code Section 53600 et. seq. The authority to manage the
City's investment program is derived from the City Council. Pursuant to Section 53607 of the California
Government Code, the City Council annually appoints the City Treasurer and approves the City's
investment policy. The Treasurer is authorized to delegate this authority as deemed appropriate. No
person may engage in investment transactions except as provided under the terms of the Investment
Policy and the procedures established by the Treasurer.
This Policy requires that the investments be made with the prudent person standard, that is, when
investing, reinvesting, purchasing, acquiring, exchanging, selling or managing public funds, the trustee
(Treasurer and staff) will act with care, skill, prudence, and diligence under the circumstances then
prevailing, including but not limited to, the general economic conditions and the anticipated needs of the
City.
16
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial- Statements
June 30, 2011
NOTE 2 — CASH AND INVESTMENTS (CONTINUED)
The Investment Policy also requires that when following the investing actions cited above, the primary
objective of the trustee be to safeguard the principal, secondarily meet the liquidity needs of depositors,
and then achieve a return on the funds under the trustee's control, Further, the intent of the Investment
Policy is to minimize risk of loss on the City's held investments from:
A.
Credit risk
B.
Custodial credit risk
C.
Concentration of credit risk
D.
Interest rate risk
Investments Authorized by the California Government Code and the City's Investment Policy
The table below identifies the investment types that are authorized for the City by the California
Government Code and the City's Investment Policy. The table also identifies certain provisions of the
California Government Code that address interest rate risk, credit risk, and concentration of credit risk.
This table does not address investment of debt proceeds held by bond trustee that are governed by the
provisions of debt agreements of the City, rather than the general provisions of the California Government
Code or the City's Investment Policy.
Maximum Maximum
Authorized Maximum Percentage Investment Minimmn
Investment Type Maturity of *Portfolio in One Issuer Rating
Securities of the U.S. Government, or it agencies
Certain Asset -Backed Securities
Certificates of Deposit
Bankers' Acceptances
Commercial Paper
Repurchase Agreements
Reverse Repurchase Agreements
Medium -Term Notes
Mutual Funds investing in eligible securities
Money Market Mutual Funds
Mortgage Pass -Through Securities
State Administered Pool Investment
5 years
None
None
None
5 years
None
None
AA
5 years
30%
None
None
180days
40%
30%
None
270 days
25%
10%
P-1
I year
None
None
None
92 days
20%
None
None
5 years
30%
None
A
N/A
20%
10%
AAA
N/A
20%
10%
AAA
5 years
20%
None
AA
N/A
None
None
None
* Excluding amounts held by bond trustee that are not subject to Califoria Government Code restrictions.
17
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2011
NOTE 2 — CASH AND INVESTMENTS (CONTINUED)
Investments Authorized by Debt Agreements
Investments of debt proceeds held by bond trustee are governed by provisions of the debt agreements,
rather than the general provisions of the California Government Code or the City's Investment Policy.
The table below identifies the investment types that are authorized for investments held by bond trustee.
The table also identifies certain provisions of these debt agreements that address interest rate risk, credit
risk, and concentration of credit risk.
Maximum Maximum
Authorized Maximum Percentage Investment Minimum
Investment Type Maturity of Portfolio in One Issuer Rating
Securities of the U.S. Government, or it agencies
Certain Asset -Backed Securities
Certificates of Deposit
Bankers' Acceptances
Commercial Paper
Money Market Mutual Funds
State Administered Pool Investment
Investment Contracts
Disclosure Relating to Interest Rate Risk
None
None
None
None
None
None
None
AA
None
None
None
None
1 year
None
None
None
None
None
None
P-1
N/A
None
None
AAA
N/A
None
None
None
None
Norte
None
None
Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an
investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value
to changes in market interest rates. One of the ways that the City manages its exposure to interest rate
risk is by purchasing a combination of shorter term and longer term investments and by timing cash flows
from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time
as necessary to provide the cash flow and liquidity needed for operations. The City has no specific
limitations with respect to this metric.
Investment Maturities
Fair (in Months)
Value as of Less Than 13 to 25 to 37 to 49 to %of
Investment Type June 30, 2011 12 Months 24 Months 36 Months 48 Months 60 Months Total
Federal Rome Loan $ 9,140,388 $ - $ 9,140,388 $
11.78%
Federal National
Mortgage Association
4,473,987
- 4,473,987 - -
- 5.77%
Local Agency Investment Fund
536,296
536,296 - - -
- 0.69%
Money Market Mutual Fand
30.087,886
30,087,886 - - -
- 38.78%
United States Treasury Notes
33,352,291
2,169,953 20,142,887 11,039,451
- 42.98%
Total investments
$ 77,590,848 $
32,794,135 $ 33,757,262 $ 11,039,451 $ - $
t00.00%
18
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2011
NOTE 2 — CASH AND INVESTMENTS (CONTINUED)
Disclosures Relatine to Credit Risk
Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder
of the investment. This is measured by the assignment of a rating by a nationally recognized statistical
rating organization. Presented below is the minimum rating required by the California Government Code,
the City's Investment Policy, or debt agreements, and the actual rating as of the year end for each
investment type.
Minimum
Required Actual Fair %
Rating Credit Rating Value as of of
Moody's / S&P Moody's / S&P June 30, 2011 Total
In custody of Treasurer:
Investments held by Treasurer:
Local Agency Investment Fund Not Rated Not Rated $ 536,296 0.69%
Money Market Mutual Fund Aaa/AAA Aaa/AAA 41,433 0.05%
Total in custody of Treasurer 577,729 0.74%
In custody of Trustee:
Investments held by Trustee:
Money Market Mutual Fund
Aaa / AAA
Aaa / AAA
$ 30,046,453
38.73%
Federal Home Loan Bank
Aaa / AAA
Aaa / AAA
9,140,388
1 1.78%
Federal National Mortgage Association -
Aaa / AAA
Aaa / AAA
4,473,987
5.77%
United States Treasury Notes
Aaa / AAA
Aaa / AAA
33,352,291
42.98%
Total in custody of Trustee
77,013,119
99.26%
Total investments $ 77,590,848 100.00%
19
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2011
NOTE 2 — CASH AND INVESTMENTS (CONTINUED)
Concentration of Credit Risk
The City's Investment Policy places no limit on the amount the City may invest in any one issuer
excluding a 10% limitation on commercial paper, mutual funds, and money market mutual funds and a
30% limitation on bankers acceptances. The City's Investment Policy also places no limit on the amount
of debt proceeds held by bond trustee that the trustee may invest in one issuer that are governed by the
provisions of debt agreements of the City, rather than the general provisions of the California Government
Code or the City's Investment Policy. As of June 30, 2011, the L&P's investments in any one issuer
exceeding 5% were as follows:
In
Fair
%
Custody
Value as of
of
Issuer of
June 30, 2011
Total
Federal National Mortgage Association FNMA Trustee
$ 4,473,987
5.77%
Federal Home Loan FHLB Trustee
9,140,388
11.78%
Custodial Credit Risk
Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial
institution, a government will not be able to recover its deposits or will not be able to recover collateral
securities that are in the possession of an outside party. The custodial credit risk for investments is the
risk that, in the event of the failure of the counterparty to a transaction, a government will not be able to
recover- the value of its investment or collateral securities that are in the possession of another party. The
California Government Code and the City's Investment Policy do not contain legal or policy requirements
that would limit the exposure to custodial credit risk for deposits or investments. Under the California
Government Code, a financial institution is required to secure deposits in excess of FDIC insurance of
$250,000 made by state or local governmental units by pledging government securities held in the form of
an undivided collateral pool. The market value of the pledged securities in the collateral pool must equal
at least 110% of the total amount deposited by the public agencies. California law also allows financial
institutions to secure City deposits by pledging first trust deed mortgage notes having a value of 150% of
the secured public deposits. Such collateral is held by the pledging financial institution's host department
or agent in the City's name.
At year-end, the carrying amount of the L&P's deposits was $29,133,101 and the bank balance was
$29,278,483. The difference between the bank balance and the carrying amount represents outstanding
checks and deposits in transit. As of June 30, 2011, none of L&P's deposits with financial institutions in
excess of federal depository insurance limit were held in uncollaterized accounts. $28,778,483 was
collateralized by the pledging financial institution as required by Section 53652 of the California
Government Code.
20
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2011
NOTE 2 — CASH AND INVESTMENTS (CONTINUED)
Local Arencv Investment Fund (LAIF)
L&P also maintained cash balances with the State of California Local Agency Investment Fund (LAIF)
amounting to $536,296 at June 30, 2011. LAIF is an external investment pool sponsored by the State of
California. These pooled funds approximate fair value. The administration of LAIF is provided by the
California State Treasurer and regulatory oversight is provided by the Pooled Money Investment Board
and the Local Investment Advisory Board. The value of the pool shares in LAIF, which may be
withdrawn, is determined on an amortized cost basis, which is different than the fair value of the L&P's
position in the pool.
The total amount invested by all public agencies in LAIF at June 30, 2011 was $23,983,771,875. LAIF is
part of the State of California Pooled Money Investment Account (PMIA) whose balance was
$66,352,783,817 at June 30, 2011. Of this amount, 5.01% was invested in structured notes and asset -
backed securities. PMIA is not SEC -registered, but is required to invest according to California State
Code. The average maturity of PMIA investments was 0.65 years as of June 30, 2011. LAIF does not
maintain a credit rating.
NOTE 3 — ACCOUNTS RECEIVABLES
The L&P's accounts receivables at June 30, 2011 are as follows:
Accounts
Allowances
Total receivables
$ 1,923,918
(50,000)
$ 1,873,918
NOTE 4 — RELATED PARTY TRANSACTIONS
Transactions between L&P and the City commonly occur in the normal course of business for services
received or famished (accounting, management, engineering, and legal services).
The following table summarizes L&P's short-term balances and transactions at June 30, 2011:
Due To/From City
Due from City, July 1, 2010
$ 16,129,388
Amounts paid on behalf of City
1,107,602
Due from City, June 30, 2011
$ 17,236,990
21
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2011
NOTE 4 — RELATED PARTY TRANSACTIONS (CONTINUED)
Transactions between L&P and the City occur occasionally to fund capital projects on behalf of one
another such as the City's natural gas system and the development of the City's base load electric
generating station.
The following table summarizes L&P's long-term loan balances and transactions at June 30, 2011:
Advances to City
Advance to City, July 1, 2010 $ 45,290,078
Loan repayment from City (20,145,886)
Advance to City, June 30, 2011 $ 25,144,192
The loan between the City and L&P does not accrue interest due to the nature of capital projects funded
by L&P that benefit both. During the current year, the City repaid L&P $20,145,886 in the form of
environmental emission credits. The environmental emission credits are reported as part of capital assets
under the intangible assets -environmental credits category.
Overatine Expenses
The City allocates certain administrative and overhead costs to L&P which L&P financial statements
include as part of cost of sales. These costs for the year ended June 30, 2011 were as follows:
City Administration
$ 288,393
City Garage
183,936
City Warehouse
221,075
Police
238,601
Fire
192,770
Finance
452,768
Treasurer
216,748
Purchasing
249,312
Risk Management/Insurance
829,058
Total
$ 2,872,661
Nonoperating Expenses
L&P's electric retail rates are established by the City Council and are not subject to regulation by the
California Public Utility Commission or any other state agency. The retail rates include a 3% surcharge
for payments in lieu of franchise tax to the City's General Fund. For the current year, L&P paid the
City's General Fund $3,149,776 for in lieu of franchise tax.
22
CITY OF VERNON, CALIFORNIA
LIGIIT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2011
NOTE 5 — CAPITAL ASSETS
Capital asset activity of L&P for the fiscal year ended June 30, 2011 was as follows:
Balance
Transfers &
Balance
June 30, 2010
Additions Deletions Adjustments
June 30, 2011
Cepta( assets, not being depreciated.
Land
$ 9,276,596
$ - $ - $ -
$ 9,276,596
Intangibles - Environmental credits
-
- - 20,145,886
20,145,886
Construction in progress
27,959,849
7,420,200 (82,125)
35,297,924
Total capital assets, notbeing depreciated
37,236,445
7,420,200 20,003,761
64,720,406
Copiral assets, being depreciated
Production plant
Transmission plant
Distribution plant
General plant
Total capital assets, being depreciated
Less accumulated depreciation for:
Production plant
Transmission plant
Distribution plant
General plant
Total accumulated depreciation
Total capital assets, being depreciated, net
Production plant
Transmission plant
Distribution plant
General plant
Total
Business -type activities capital assets, net
14,765,324
-
-
19,033
14,784,357
4,817,929
70,184
-
-
4,888,113
117,055,045
6,060,797
(328,330)
64,186
122,851,698
8,087,826
(1,086)
8,086,740
144,726,124
6,130,981
(328,330)
82,133
150,610,908
(5,852,638)
(421,395)
-
(344)
(6,274,377)
(2,372,128)
(96,472)
-
-
(2,468,600)
(43,219,234)
(3,339,767)
2,815
127
(46,556,059)
(1,530,982)
(475,300)
217
(2,006,065)
(52,974,982)
(4,332,934)
2,815
(57,305,101)
8,912,686
(421,395)
-
18,689
8,509,980
2,445,801
(26,288)
-
-
2,419,513
73,835,811
2,721,030
(325,515)
64,313
76,295,639
6,556,844
(475,300)
(869)
6,080,675
91,751,142
1,798,047
(325,515)
82,133
93,305,807
$ 128,987,587
$ 9,218,247
$ (325,515)
$ 20,145,894 $
158,026,213
During the current year, the City repaid $20,145,886 of advances from L&P in the form of environmental
emission credits.
Depreciation
L&P's total depreciation expense for the year was $4,332,934.
23
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2011
NOTE 6 — LONG-TERM OBLIGATIONS
During the fiscal year 2009, a total of $463,165,000 in long-term obligations were issued and as of June
30, 2011, $431,615,000 remained outstanding consisting of the following:
• $43,500,000 City of Vernon Electric System Revenue Bonds, 2008 Taxable Series A
• $388,115,000 City of Vernon Electric System Revenue Bonds, 2009 Series A
The 2008 Electric System Revenue Bonds are special obligations of the City, which are secured by an
irrevocable pledge of electric revenues payable to bondholders. The debt service remaining on the bonds
is $116,576,409, payable through 2038. For the current year, debt service and total electric revenues were
$3,975,755 and $118,186,124, respectively. Under the Indenture of Trust dated September 1, 2008,
interest and principal on the bonds are payable from Net Revenues (or Revenues less Operation and
Maintenance Expenses) and/or amounts in the L&P (as those terms are defined in the Indenture of Trust).
The City of Vernon Electric System Revenue Bonds, 2008 Taxable Series A were issued to provide funds
to (i) finance the cost of certain capital improvements to the City's Electric System, (d) fund a deposit to
the Debt Service Reserve Fund, and (iii) to pay costs of issuance of the 2008 Bonds.
The 2009 Electric System Revenue Bonds are special obligations of the City, which are secured by an
irrevocable pledge of electric revenues payable to bondholders. The debt service remaining on the bonds
is $506,476,046, payable through 2022. For the current year, debt service and total electric revenues were
$46,040,600 and $118,186,124, respectively. Under the Indenture of Trust dated September 1, 2008,
interest and principal on the bonds are payable from Net Revenues (or Revenues less Operation and
Maintenance Expenses) and/or amounts in the L&P (as those terms are defined in the Indenture of Trust).
The City of Vernon Electric System Revenue Bonds, 2009 Series A were issued to provide funds to (i)
refinance certain obligations payable from the City's Electric System Revenues, (ii) fund a deposit to the
Debt Service Reserve Fund, and (iii) to pay costs of issuance of the 2009 Bonds.
24
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2011
NOTE 6 — LONG-TERM OBLIGATIONS (CONTINUED)
A summary of bonds payable for L&P is as follows:
Fixed
Interest
Bonds
Maturity Rates
City of Vernon
07/01/38 7.400%
Electric System Revenue Bonds,
8.590%
2008 Taxable Series A
City of Vernon
Electric System Revenue Bonds,
2009 Series A
Discounts
Deferred amount on refunding
Total Revenue Bonds
08/01/21 3.000%-
5.125%
Annual
Principal Original Issue Outstanding at
Installments Amount June 30, 2011
To begin 07/01110: $ 43,765,000 $ 43,500,000
$265,000 -
$4,065,000
To begin 08/01109: 4[9,400,000 388,115,000
$5,000,000
$44,895,000
(3,467,906)
(8,196,085)
$ 463,165,000 $ 419,951,009
As of June 30, 2011, annual debt service requirements of L&P to maturity are as follows:
Fiscal year ending June 30:
2012
2013
2014
2015
2016
2017-2021
2022-2026
2027-2031
2032-2036
2037-2039
Total requirements
Electric System Revenue Bonds
2008 Taxable Series A
Principal
Interest*
$ 285,000
$ 3,690,405
305,000
3,668,575
330,000
3,645,080
355,000
3,619,735
385,000
3,592,355
3,000,000
17,408,711
5,640,000
15,553,486
8,670,000
12,525,082
13,315,000
7,872,520
11,215,000
1,500,458
$ 43,500,000 $ 73,076,409
*As of June 30, 2011, debt service for 2008 Series A, was calculated based upon fixed coupon rates of
7.40% and 8.59%.
25
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2011
NOTE 6 — LONG-TERM OBLIGATIONS (CONTINUED)
Electric System Revenue Bonds
2009 Series A
Fiscal year ending June 30:
Principal Interest*
2012
$ 27,370,000 $ 18,674,350
2013
28,680,000 17,363,100
2014
29,930,000 16,110,638
2015
31,295,000 14,748,957
2016
32,970,000 13,071,088
2017-2021
192,975,000 37,242,479
2022
44,895,000 1,150,434
Total requirements
$ 388,115,000 $ 118,361,046
*As of June 30, 2011, debt service was calculated based upon the fixed coupon rates of the bonds ranging
from 3.000% to 5.125%.
Chanties in lonr-term liabilities
The following is a summary of long-term liabilities transactions for the fiscal year ended June 30, 2011:
Balance
Balance
Due Within
July 1, 2010
Additions Reductions
June 30, 2011
One Year
Bonds payable
$ 458,165,000
$ - $ (26,550,000)
$ 431,615,000
$ 27,655,000
Bond discount
(3,782,997)
- 315,091
(3,467,906)
(315,091)
Deferred amount on refunding
(8,941,184)
- 745,099
(8,196,085)
(745,099)
Compensated absences
656,622
250,500 (218,874)
688,248
229,416
$ 446,097,441
$ 250,500 $ (25,708,684)
$ 420,639,257
$ 26,824,226
26
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2011
NOTE 7 — DERIVATIVE INSTRUMENTS
In prior years, the City acquired derivative instruments to reduce its overall exposure to interest rate and
commodity priced risk and to achieve a lower cost of capital and comfodity. As of June 30, 2011, all
derivative instruments have been classified as investment derivative instruments under GASB 53,
Accounting and Financial Reporting for Derivative Instruments, with the following instruments
outstanding:
Notional Effective Maturity Fair
Item Type Objective Amount Date Dale Tenn Value
A Variable to
Reduce overall exposure $ 90,150,000
December
April
Fixed Swap
to interest rate risk and
2004
2037
achieve lower cost of
capital for the 2004
Series A Bonds
B Variable to
Reduce overall exposure 93,575,000
December
April
Fixed Swap
to interest rate risk and
2004
2029
achieve lower cost of
capital for the 2004
Series B Bonds
27
Receive 62.87%of $ (14,504,270)
LIBOR one -month
index plus 0.119%, pay
3.607%
Receive 62.87%of (11,173,602)
LIBOR one -month
index plus 0.119%, pay
3.542%
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2011
NOTE 7—DERIVATIVE INSTRUMENTS (CONTINUED)
A - Variable to Fixed Swan — 2004 Series A Bonds
Objective of the interest rate swap: As a means to reducing its overall exposure to interest rate risk and
achieving a lower cost of capital relative to long term fixed rate bonds, the City elected to issue its
$90,150,000 2004 Series A Electric System revenue bonds (the "2004 Series A Bonds") in a variable rate
mode and enter to a fixed payer swap to achieve synthetic fixed rate debt.
Terms: In December 2004, the City entered into a pay -fixed, receive -variable interest rate swap for the
term of the 2004 Series A Bonds. The notional amount of the swap is $90,150,000. Under the original
terms of the swap, the City pays the counterparty a fixed rate of 3,637% and receives from the
counterparty variable -rate payments equal to 62.87% of the London Interbank Offered Rate (LIBOR)
one -month index plus 0.119%. On March 16, 2006, the City amended its fixed payment to 3.607% to the
counterparty. In April 2008, the City redeemed its 2004 Series A Bonds.
Fair value: As of June 30, 2011, the swap had a negative fair value of $14,504,270. The fair value was
estimated using the zero -coupon method. This method calculates the future net settlement payments
required by the swap, assuming that the current forward rates implied by the yield curve correctly
anticipate future spot interest rates. These payments are then discounted using the spot rates implied by
the current yield curve for hypothetical zero -coupon bonds due on the date of each future net settlement
on the swap.
Credit risk: As the swap's fair value as of June 30, 2011 is negative, the City does not have credit
exposure to the counterparty. Should the City's fair value become positive, the City would have credit
exposure to the counterparty equal to the fair value amount. As of June 30, 2011, the swap counterparty,
Morgan Stanley was rated A by Standard & Poor's and A2 by Moody's Investors Service. To mitigate
the potential for credit risk, if the counterparty's credit quality falls below (BBB/Baal), the fair value of
the swap will be fully collateralized by the counterparty with U.S. government securities. Collateral
would be posted with a third -party custodian. The City is obligated to post collateral to Morgan Stanley if
the City's negative fair value in the aggregate exceeds $20,000,000. At June 30, 2011, the City posted
collateral of $5,677,872 on the 2004 Series A Bonds and the 2004 Series B Bonds as the aggregate
negative fair value of $25,677,872 exceeded $20,000,000.
Interest rate risk: The swap increases the City's exposure to interest rate risk. As LIBOR decreases, the
City's net payments in the swap increases.
Termination risk: The City or the counterparty may terminate the swap if the other party fails to perform
under the terns of the contract. In addition, the City may optionally terminate the agreement on any date.
If at the time of termination the swap has a negative fair value, the City would be liable to the
counterparty for an amount equal to the negative fair value.
Swap payments and associated debt: The debt associated with the swap, the 2004 Series A Bonds, has
been redeemed.
28
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2011
NOTE 7 — DERIVATIVE INSTRUMENTS (CONTINUED)
B - Variable to Fixed Swao — 2004 Series B Bonds
Objective of the interest rate swap: As a means to reducing its overall exposure to interest rate risk and
achieving a lower cost of capital relative to long term fixed rate bonds, the City elected to issue its
$83,575,000 2004 Series B Electric System revenue bonds (the "2004 Series B Bonds") in a variable rate
mode and enter to a fixed payer swap to achieve synthetic fixed rate debt.
Terms: In December 2004, the City entered into a pay -fixed, receive -variable interest rate swap for the
term of its 2004 Series B Bonds. The notional amount of the swap is $83,575,000. Under the original
terms of the swap, the City pays a fixed rate of 3.572% and receives variable -rate payments equal to
62.87% of the London Interbank Offered Rate (LIBOR) one -month index plus 0.119%. On March 16,
2006, the City revised its fixed payment to 3.542% to the counterparty. In April 2008, the City redeemed
its 2004 Series B Bonds.
Fair value: As of June 30, 2011, the swap had a negative fair value of $11,173,602. The fair value was
estimated using the zero -coupon method. This method calculates the future net settlement payments
required by the swap, assuming that the current forward rates implied by the yield curve correctly
anticipate future spot interest rates. These payments are then discounted using the spot rates implied by
the current yield curve for hypothetical zero -coupon bonds due on the date of each future net settlement
on the swap.
Credit risk: As the swap's fair value as of June 30, 2011 is negative, the City does not have credit
exposure to the counterparty. Should the City's fair value become positive, the City would have credit
exposure to the counterparty equal to the fair value amount. As of June 30, 2011, the swap counterparty,
Morgan Stanley was rated A by Standard & Poor's and A2 by Moody's Investors Service. To mitigate
the potential for credit risk, if the counterparty's credit quality falls below (BBB/Baal), the fair value of
the swap will be fully collateralized by the counterparty with U.S. government securities. Collateral
would be posted with a third -party custodian. The City is obligated to post collateral to Morgan Stanley if
the City's negative fair value in the aggregate exceeds $20,000,000. At June 30, 2011, the City posted
collateral of $5,677,872 on the 2004 Series A Bonds and the 2004 Series B Bonds as the aggregate
negative fair value of $25,677,872 exceeded $20,000,000,
Interest rate risk: The swap increases the City's exposure to interest rate risk. As LIBOR decreases, the
City's net payments in the swap increases.
Termination risk: The City or the counterparty may terminate the swap if the other party fails to perform
under the terns of the contract. In addition, the City may optionally terminate the agreement on any date.
If at the time of termination the swap has a negative fair value, the City would be liable to the
counterparty for an amount equal to the negative fair value.
Swap payments and associated debt: The debt associated with the swap, the 2004 Series B Bonds, has
been redeemed.
29
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2011
NOTE 7 — DERIVATIVE INSTRUMENTS (CONTINUED)
C - Chanee in Fair Value of Derivative Instruments
The fair value balance and notional amount of the derivative instrument outstanding at June 30, 2011,
classified by type, and the change in fair value of such derivative instrument for the year then ended as
reported in the current year financial statements are as follows:
Change in Fair Value
Fair Value at June 30, 2011
Classification Amount
Classification
Amount Notional
Investment derivative instruments
Variable to Fixed Swaps
2004 Series A Bonds
Increase in fair value $ 3,555,423
Derivative liability $
(14,504,270) $ 90,150,000
2004 Series B Bonds
Increase in fair value 2,001,796
Derivative liability
(11,173,602) 83,575,000
The net increase in fair value of investments on the 2004 A and 2004 B swaps during the year was
$5,557,219. The change in fair value subsequent to June 30, 2011 is discussed in Note 13.
30
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2011
NOTE 8 — RISK MANAGEMENT
L&P is in the City's self-insurance program as part of its policy to self -insure certain levels of risk within
separate lines of coverage to maximize cost savings.
The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets;
errors and omissions; injuries to employees; natural disasters; unemployment coverage, and providing
health benefits to employees and retirees. The City is self -insured for its general liability, workers'
compensation, and property liability. The City has chosen to establish risk financing in the General Fund
at the beginning of this fiscal year, whereby assets are set aside for claim settlements associated with the
above risks of loss up to certain limits.
The City has obtained various insurance policies that provide coverage for "Special Form Perils" against
direct physical loss or damage, and flood, to all real and personal property of the City, including
equipment, business and revenue interruption, errors and omissions, boiler and machinery and pollution
legal liability. In the most recent "Statement of Values" for the City, real and personal property total
insured values equaled $315,559,969. Property & Boiler & Machinery Coverage is written through
Travelers Insurance Company.
Crime, which includes Employee Theft, Forgery Alteration, Computer Fraud, etc., coverage is also in
force with a limit of $1,000,000 for each line of coverage with a deductible of $25,000. Crime coverage is
written through Chartis Insurance.
Excess liability coverage is provided by a stand-alone policy purchased by the City. Excess coverage is
provided by the Everest National Insurance Company. Excess workers' compensation coverage is
provided by a stand-alone policy purchased through New York Marine and General Insurance Company.
The City is self -insured for the first $1,000,000 of workers' compensation claims and for the first
$2,000,000 of its general liability coverage. Athens Administrators, which was formally known as York
Insurance Services Group, Inc., is the Third Party Administrator for the City's workers' compensation
claims. The City self -administers its general liability claims. Workers' compensation and general
liability loss run reports are prepared by Athens Administrators.
The City is insured for pollution conditions that arise at city owned property with a limit of $1,000,000
with a deductible of $25,000.
31
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2011
NOTE 8 — RISK MANAGEMENT (CONTINUED)
The insurance limits are as follows:
Sel&Insured Retention
General Liability
$2,000,000
$20,000,000
Everest National Insurance Co
Excess Workers'
New York Marine & General
Compensation
$1,000,000
$50,000,000
Insurance Cc
Property:
$ I00,000 deductible
$100,000,000
Travelers Insurance Co
Blanket Building & Contents
Included
Travelers Insurance Co
Flood Sublimit—Annual
$25,000,000
Travelers Insurance Co
Electronic Data Processing
Equipment:
Included
Travelers Insurance Co
Newly Constructed or
Acquired
$5,000,000 Sublimit with a
120 days reporting
requirement
Travelers Insurance Co
Machinery Breakdown
$50,000,000
Travelers Insurance Co
Pollution (City owned
Chubb Insurance (pollution legal
property)
$25,000 deductible
$1,000,000
liability and clean up)
Pollution (Waste Haulers and
Landfills)
$5,000,000
Great American
Crimes
$25,000 deductible
$1,000,000
Chartis Insurance
32
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2011
NOTE 8 — RISK MANAGEMENT (CONTINUED)
The City is self insured or pays the deductible stated above for general liability, workers' compensation,
or property losses. There have been no significant reductions of coverage from the prior year. There have
been no settlements exceeding insurance coverage for each of the past three fiscal years.
The City charges L&P a premium based upon the proportional payroll cost. For the current fiscal year,
L&P's proportional premium cost was $829,058.
Further information regarding the City's self-insurance program may be found in the City's Annual
Financial Report.
NOTE 9 — PENSION PLAN
L&P employees participate with other City employees in the California Public Employees' Retirement
System (PEAS), an agent multiple -employer retirement system that acts as a common investment and
administrative agent for participating public entities within the State of California.
All full-time safety (police and fire personnel) and miscellaneous personnel and temporary or part-time
employees who have worked 1,000 hours in a fiscal year are eligible to participate in the PERS. Benefits
vest after five years of service. Employees who retire at age 50 with five years of credited service are
entitled to retirement benefits. Monthly retirement benefits are based on all employee's average
compensation for his or her single highest year of compensation for each year of credited service.
Miscellaneous members with five years of credited service may retire at age 55 with full benefits based
on a benefit factor derived from the "2.7% at 55 Miscellaneous Factor" benefit factor table and between
age 50 and 54 with reduced retirement benefits. Safety members may retire at age 50 with full benefits
based on a benefit factor derived from the "3% at 50 Safety Factor" for Police Department employees and
"3% at 50 Safety Factor" for Fire Department employees benefit factor table with five years of credited
service. The PERS also provides death and disability benefits. These benefit provisions and all other
requirements are established by State statute and City ordinance.
The City's plan does not issue a stand-alone financial report but is included in the PERS report, which can
be obtained from PERS at Lincoln Plaza, 400 P Street, Sacramento, California 95814.
The State -required City employee salary contributions are 8% for miscellaneous employees and 9% for
safety employees. In prior years, employee contributions were subsidized by the City, however, effective
April 8, 2010 contributions were made by the employees. The City is required to contribute the
remaining amounts necessary to fund the benefits for its members, using the actuarial basis adopted by
the PERS Board of Administration.
The City and employees contribution to the PERS for the fiscal year ended Julie 30, 2011 was $5,794,058
and $1,864,275, respectively, of which L&P's employer and employees portions were $499,547 and
$297,561, respectively. City contribution rates as a percentage of covered payroll were 13.475% for
miscellaneous plan members and 25.372% for safety plan members.
33
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2011
NOTE 9 — PENSION PLAN (CONTINUED)
The City's contribution was made in accordance with actuarially determined requirements based on an
actuarial valuation performed as of June 30, 2008.
The PERS uses the entry age normal actuarial cost method, which is a projected benefit cost method that
takes into account those benefits expected to be earned in the future as well as those already accrued.
According to this cost method, the normal cost for an employee is the level amount that would fund the
projected benefit if it were paid amorally from the date of employment until retirement. The PERS uses a
modification of the entry age normal cost method whereby the employer's total normal cost is expressed
as a level percentage of payroll. Unfunded liabilities are amortized over a closed, 20-year period.
Significant actuarial assumptions used in the valuation included (a) a rate of return on the investment of
present and future assets of 7.75% a year, compounded annually; (b) overall payroll growth of 3.25%,
compounded annually; and (c) a merit scale varying by duration of employment coupled with an assumed
annual inflation growth of 3,00% and an annual production growth of 0.25%.
The actuarial value of assets was determined using techniques that smooth the effects of short-term
volatility in the market value of investments over a 15 year period.
Trend information for the current and two preceding fiscal years is as follows:
Percentage
Fiscal Year
Annual
of
Ended
Pension
Amount
APC Net Pension
June 30
Cost (APC)
Contributed
Contributed Obligation
2011
$ 5,794,058
$ 5,794,058
100%
2010
7,405,652
7,405,652
100%
2009
7,477,878
7,477,878
100%
The following schedules present the funded status as of June 30, 2010 based on actuarial assumptions
consistent with the June 30, 2008 valuation described above (dollar amounts in millions).
Safety Plan Schedule of Funding Progress
Actuarial
UAAL
Accrued
Actuarial
Annual
as a % of
Liability
Value of
Unfunded
Covered
Covered
Valuation
(AAL)
Assets
AAL
Funded Ratio
Payroll
Payroll
Date
a
b
a—
/ a
c
a— b- / c
6/30/2010
$170,104,557
$142,251,795
$27,852,762
83.6%
$14,221,759
195.8%
34
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2011
NOTE 9 — PENSION PLAN (CONTINUED)
Miscellaneous Plan Schedule of Funding Progress
Actuarial
UAAL
Accrued
Actuarial
Annual
as a % of
Liability
Value of
Unfunded
Covered
Covered
Valuation
(AAL)
Assets
AAL
Funded Ratio
Payroll
Payroll
Date
a
b
(a—b
b/a
c
a—b /c
6/30/2010
$107,971,777
$92,640,731
$15,331,046
85.8%
$12,685,952
120.9%
Further information regarding the City's pension plan may be found in the City's Annual Financial
Report.
NOTE 10 — LIGHT AND POWER OPERATIONS AND COMMITMENTS
Asset Sale
On December 13, 2007, the City entered into an Amended and Restated Purchase and Sale Agreement
(the "Bicent Agreement"), with Bicent (California) Power LLC ("Bicent"), which is an affiliate of Bicent
Holdings and Natural Gas Partners, to sell to Bicent the Malburg Generating Station ("MGS") and the
economic burdens and benefits of the City's interests in 22 MW from the Hoover Dam Uprating Project
for $287,500,000. This transaction closed on April 10, 2008.
Bicent has agreed to sell the capacity and the energy of the MGS to the City on the terms set forth in a
Power Purchase Tolling Agreement, by and between the City and Bicent, dated as of April 10, 2008 (the
"PPTA"). In addition, Bicent has acquired the benefits and burdens of the City's interest in the Hoover
Uprating Project (described below) on the terms set forth in the Hoover Contract for Differences
("CFD"), between .Bicent (California) Hoover LLC, a Delaware limited liability company (`BCH") and
the City, dated as of April 10, 2008 (the "Hoover Differences Contract"). Pursuant to the Bicent
Agreement, Bicent has assigned its rights and obligations with respect to the MGS to its affiliate, Bicent
(California) Malburg LLC, a Delaware limited liability company (`BCM"). Pursuant to the Bicent
Agreement, Bicent has assigned its rights and obligations with respect to the economic benefits and
burdens of the Hoover Uprating Project to its affiliate, BCH, The City treated the PPTA as an asset lease-
back transaction due to a 30 year ground lease between the City and BCM by deferring most of the gain
from the sale of MGS to be amortized over the 15 year life of the PPTA. The City also deferred the gain
from the CFD to be amortized over the 10 year life of the CFD. As of June 30, 2011, a deferred gain of
$46,989,048 remains to be amortized over the life of the PPTA and CFD which will be amortized in
proportion to the capacity payments the City will be making under the PPTA and CFD (See Note 12 for
disclosure on uncertainties).
35
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2011
NOTE 10 — LIGHT AND POWER OPERATIONS AND COMMITMENTS (CONTINUED)
Project Commitments
A. Southern California Public Power Authority
In 1980, the City entered into a joint powers agreement with nine (9) Southern California cities
and an irrigation district to form the Southern California Public Power Authority (the
"Authority"). The Authority's propose is the planning, financing, acquiring, constructing and
operating of projects that generate or hansmit electric energy.
The Authority purchased a 5.91% interest in the Palo Verde Nuclear Generating Station (the
"Station"), a nuclear -fired generating station near Phoenix, Arizona, from the Salt River Project
Agricultural Improvement and Power District, and a 6.55% share of the right to use certain
portions of the Arizona Nuclear Power Project Valley Transmission System. The City has a 4.9%
entitlement share of the Authority's interest in the station,
Between 1983 and 2008, the Authority issued $3.266 billion in debt of Power Project Revenue
Bonds for the Station to finance the bonds and the purchase of the Authority's share of the Station
and related transmission rights. The bonds are not obligations of any member of the Authority or
public agency other than the Authority. Under a power sales contract with the Authority, the City
is obligated on a "take or pay" basis for its proportionate share of power generated, as well as to
make payments for its proportionate share of the operating and maintenance expenses of the
Station, debt service on the bonds and any other debt, whether or not the project or any part
thereof or its output is suspended, reduced or terminated. The City took its proportionate share of
the power generated and its proportionate share of costs during fiscal year 2011 was $3,470,345.
The City expects no significant increases in costs related to its nuclear resources.
B. Hoover Dam Power Plant Upgrade Program
In January 1987, the City entered into a contract with the Federal Bureau of Reclamation to fund
part of an upgrading program of the Hoover Dam power plant to increase the plant's generating
capacity. In exchange, the City will receive its pro rata share of the additional power produced.
Total program costs are estimated to be $155 million.
As of June 30, 2011, the City's total advances were $6,690,998 for the upgrading program. At
June 30, 2011, the outstanding note receivable was $2,618,807. The City has no obligation to
advance funds in the future. The note is being repaid with interest over a period of 30 years. The
City must also make payments for its pro rata share of operating and maintenance costs not
recovered by the plant through revenues. The amount paid during the current year for purchased
power was reduced by principal and interest amounts totaling $334,236 due the City on the
outstanding note receivable. The contract expires in September 2017.
36
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2011
NOTE 10 — LIGHT AND POWER OPERATIONS AND COMMITMENTS (CONTINUED)
Power Purchase Commitments
As of June 30, 2011 under the Bicent Agreements, the City had the following long-term commitments to
purchase power subject to certain conditions:
Fiscal Year
2012
2013
2014
2015
2016
2017-2021
2022-2023
*Commitments under the PPTA and CFD net of amortization of deferred gain.
Amount*
$ 21,470,765
21,470,765
21,470,765
21,470,765
21,470,765
175,887,158
62,041,921
$ 345,282,904
NOTE 11 — POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS (OPEB)
The postemployment benefit described in the following paragraphs relate to the City in which L&P is a
department. Information relating to the City applies to L&P because the pension and postemployment
benefits are maintained by the City for all employees of the City which includes those of the departments.
Resolution 2010-193 provided the payment of medical and dental insurance premiums for certain
categories of retired employees during the 2010-2011 fiscal year. Resolution 2010-193 goes on to state
that the City will provide a single -employer postemployment benefit plan consisting of medical and
dental benefits to employees who attain age 60 with 20 years of service. The City plan subsidizes the full
cost of the premium for qualified employees beginning at age 60. Alternatively, an employee can retire
with 30 years of service, before age 60, but must pay the full cost until age 60 when the City begins to
subsidize the payments. These benefits are not vested rights and expire at the conclusion of the fiscal
year. However, the City's plan is considered a substantive OPEB plan and the City recognizes costs in
accordance with GASB Statement No. 45. In the future, the City may terminate its unvested OPEB.
Sworn safety personnel eligibility requirements are a minimum of 20 years service and a minimum of 10
years of service with the City.
Due to the insignificant amount of postemployment benefits as it relates to the L&P in comparison to the
City as a whole, no postemployment benefits obligation has been allocated to L&P by the City at June 30,
2011.
Further information regarding the City's participation in OPEB may be found in the City's Annual
Financial Report.
37
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2011
NOTE 12 — CONTINGENCIES
During the course of normal operations L&P is subjected to various claims. In the opinion of
management and legal counsel, the disposition on all litigation pending will not have a material effect on
the L&P's financial statements.
Uncertainties
The financial and operational effects of the 2008 sale of generation and transmission assets, while
reducing the electric system's debt burden and providing liquidity, puts the utility at some risks in terms
of increased fixed -charge obligations and long-term power resource uncertainty.
In 2010, AB 46, an act to disincorporate the City and make it part of the unincorporated territory of Los
Angeles County, was introduced into the State Assembly. AB 46 states it was motivated by a desire to
eliminate corrupt practices by City officials, including misuse of public funds and excessive salaries.
None of the persons accused of wrongdoing continue as City officials or employees and City salaries have
been adjusted to more closely reflect salaries for comparable positions in other California cities. A
companion bill, AB 781 was also introduced which, among other things, would have transferred the
Electric System to a special district governed by the Board of Supervisors of Los Angeles County. The
enactment of AB 781 was dependent on the enactment of AB 46. The City noted to the State Legislators
that it believed AB 46 violated the provisions of the California Constitution providing that a vote of the
City electorate was necessary to repeal a California city charter.
Both bills were opposed by residents and businesses within the City as well as labor unions representing
workers within the City. Both bills were passed by the State Assembly. In the Senate, Senator De Leon,
who represents the City and was an original sponsor of AB 46, developed a list of reforms (described
below) which the City could commit to undertake to avoid disincorporation. The City Council agreed to
the reforms and neither AB 46 nor AB 781 was approved by the Senate. As a result, neither bill became
law. The City Council placed before the electorate in November 2011 a series of Charter amendments to
implement the reform program all of which were approved by the voters. The Charter amendments are
now in effect and the City is in the process of implementing the reforms. The City cannot make any
guarantees that there will not be any additional attempts to disincorporate the City or to require additional
reforms in the future.
The City has recently been the subject of several investigation and audits by overseeing public bodies.
The City has fully cooperated with such reviews of the City's policies and practices, and the City plans to
continue cooperating with the ongoing investigations and audits or any other related or similar reviews of
the City. The recent and/or ongoing audits and investigations include;
• Attorney GeneraiAudit: On September 15, 2010, the Office of the Attorney General for the State
of California began an investigation of the compensation paid from the City to various
individuals, including those who may have acted in the capacity of officials, officers and/or
employees of the City. The City fidly cooperated with the Office of the Attorney General and has
not received subsequent communications.
38
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2011
NOTE 12 — CONTINGENCIES (CONTINUED)
IRS Audit of 2009 Bonds: On August 23, 2011, the City published a material event notice
regarding an audit by the IRS of the 2009 Bonds. The notice stated in relevant part: `By letter
dated August 10, 2011, the City was notified by the Internal Revenue Service (the "IRS") that the
2009 Bonds have been selected for an examination to determine compliance with Federal tax
requirements. According to the IRS letter, the 2009 Bonds were selected for examination because
of information IRS received from external sources or developed internally that causes a concern
that the debt issuance may fail one or more provisions of section 103, 141-150 of the Internal
Revenue Code. The City believes that the 2009 Bonds complied with all applicable provisions of
the Internal Revenue Code and the City will cooperate with the IRS in its examination of the
2009 Bonds. The audit is ongoing.
• State Legislature Audit: In September 2011, the California State Legislature directed the State
Auditor to conduct a performance audit of the City and its Light and Power Department. The
audit will include, but is not limited to, a review of revenues and expenditures, contracting
practices, city governance, and governance reform measures over the past five years, as well as a
review of bond issuance and expenditures over the past seven years. The audit is ongoing.
The impact or outcome of these matters on the City and any potential implications cannot presently be
determined.
NOTE 13 — SUBSEQUENT EVENTS
Chance in Fair Value of Derivative Instruments
The fair value balance and notional amount of the derivative instruments outstanding at November 30,
2011, classified by type, and the change in fair value of such derivative instruments since June 30, 2011
are as follows:
Change in Fair Value Fair Value al November 30, 2011
Classification Amount Classification Amount Notional
Invesonent derivative instruments
Variable to Fixed Swaps
2004 Series A Bonds Decrease in fair value S (14,124,712) Derivative liability S (28,628,982) S 90,150,000
2004 Series B Bonds Decrease in fair value (6,832,001) Derivative liability (18,005,603) 83,575,000
Credit Ratincs
On December 2, 2011, Moody's Investors Service downgraded the A3 ratings to Baal on the City of
Vernon's, Electric System Revenue Bonds, 2008 Taxable Series A and Electric System Revenue Bonds
2009 Series A.
M
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2011
NOTE 13 — SUBSEQUENT EVENTS (CONTINUED)
Interest Rate Swap Transactions
In September 2011, Morgan Stanley transferred its rights and obligations under the interest rate swap
transaction in connection with the City's Electric System Revenue Bonds, 2004 Series B to Deutsche
Bank AG. To evidence such transfer, the City and Deutsche Bank AG entered into a novation
confirmation which incorporates, by reference, the temis and conditions of the ISDA Master Agreement,
Schedule and Collateral Support Annex of the original interest rate swap transaction with Morgan Stanley
in connection with the City's Electric System Revenue Bonds, 2004 Series B, with certain modifications
including an option by Deutsche Bank to terminate the Deutsche Bank Swap Transaction in 2016, The
transfer of rights and obligations by Morgan Stanley to Deutsche Bank AG had no impact to L&P other
than the change in the requirement of posting collateral. Prior to September 2011, the City was obligated
to post collateral to Morgan Stanley if the City's negative fair value in the aggregate exceeded
$20,000,000 (See Note 7). Subsequent to September 2011, the City is obligated to post collateral to
Morgan Stanley if the City's negative fair value of the 2004 A swap exceeds $20,000,000 and to
Deutsche Bank AG if the City's negative fair value of the 2004 B swap exceeds $20,000,000. At
November 30, 2011, the City posted collateral of $8,628,982 to Morgan Stanley on the 2004 Series A
Bonds as the negative fair value of $28,628,982 exceeded $20,000,000.
Utility Fund Presentation and Repayment of Interfund Receivables
On December 15, 2011, City Council adopted a resolution that in fiscal year 2012, the City will merge
two of its enterprise funds, the Light and Power fund and the Gas fund for accounting and financial
reporting purposes. Both are utility funds that provide power and gas utilities to the residents and
businesses of the City. Over the course of time, these funds have accumulated both short-term and long-
term interf uid receivable and payable balances, by virtue of the impact of daily operations and the
development of the Gas enterprise. The City's plan to merge these funds will result in the elimination of
both short-term and long-term interfund receivables and payables.
The December 15, 2011 City Council resolution also adopted a 15-month repayment plw for all amounts
owed L&P by the City's General Fund and Water Enterprise Fund.
40
LIGHT AND POWER DEPARTMENT FUND
(AN ENTERPRISE FUND OF THE CITY OF
VERNON, CALIFORNIA)
Annual Financial Report
Fiscal Year Ended June 30, 2010
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
For the Fiscal Year Ended June 30, 2010
Table of Contents
FINANCIAL SECTION:
Pa e s
IndependentAuditor's Report... .................................... - ....... ............................................. ........ ............... I
Management's Discussion and Analysis (Required Supplementary Information -Unaudited) ..................... 2
Basic Financial Statements:
Statement of Fund Net Assets.......................................................................................................... 9
Statement of Revenues, Expenses, and Changes in Fund Net Assets ............................................ 10 .
Statementof Cash Flows............................................................................................................... 11
Notes to the Basic Financial Statements...................................................................................12-38
ra Certified Public Accountants.
Sucrarnxnto • Walnut Ceek • Oakland • Los Anyelxs/Cenlary City • Nuv�purt Beaeh • San Dm9n mgoepa.com
INDEPENDENT AUDITOR'S REPORT
To the City Council
City of Vernon, California
We have audited the accompanying basic financial statements of the Light and Power Department Fund,
an Enterprise Fund of the City of Vernon, California (City), as of and for the fiscal year ended June 30,
2010, as listed in the table of contents. These financial statements are the responsibility of the City's
management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City's
internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audit provides a reasonable
basis for our opinion.
As discussed in Note I to the financial statements, the financial statements present only the Light and
Power Department Fund and do not purport to, and do not, present fairly the financial position of the City
as of June 30, 2010, and the changes in its financial position, or, where applicable, its cash flows for the
fiscal year then ended in conformity with accounting principles generally accepted in the United States of
America.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of the Light and Power Department Fund of the City of Vernon, California, as of June
30, 2010, and the changes in its financial position and its cash flows for the fiscal year then ended in
conformity with accounting principles generally accepted in the United States of America.
As discussed in Notes 12 and 13 to the financial statements, there are various matters and subsequent
events that result in uncertainties of the Light and Power Department Fund and the City.
The management's discussion and analysis, on pages 2 through 8, is not a required part of the basic
financial statements but is supplementary information required by accounting principles generally
accepted in the United States of America. 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.
Los Angeles, California
December 27, 2010, except for Note 13 as to
which the date is June 24, 2011
2000 S St,Lot 2121 N. Calif.,Aw Blvd 505141h Su,,& 20n Cenury Pak East 4675 MaWthur Ct. 225 Broadway
Sui10 :00 S.4n750 511, Flnor Suite SW Suite 601) Sude 1750
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CA 115816 CA 9.1996 CA 9,1612 CAW 7 CA 926450 CA 92101
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Management's Discussion and Analysis
For the Fiscal Year Ended June 30, 2010
(Unaudited)
The management of the Light and Power Department Fund ("L&P"), a department of the City of Vernon
("the City"), offers the following overview and analysis of the basic financial statements of L&P for the
fiscal year ended June 30, 2010. Management encourages readers to utilize information in the
Management's Discussion and Analysis (MD&A) in conjunction with the accompanying basic financial
statements.
OVERVIEW OF BASIC FINANCIAL STATEMENTS
The MD&A is intended to serve as an introduction to L&P's basic financial statements. Included as part
of the financial statements are three separate statements.
The statement of. fund net assets presents information on L&P's asset and liabilities, with the difference
between the two reported as net assets.
The statement of revenues, expenses and changes in fund net assets presents information showing how
L&P's net assets changed during the most recent fiscal year. Financial results are recorded using the
accrual basis of accounting. Under this method, all changes in net assets are reported as soon as the
underlying events occur, regardless of the timing of cash flows. Thus, revenues and expenses reported in
this statement for some items may affect cash flows in a future fiscal period (examples include billed but
uncollected revenues and employee earned but unused vacation leave).
The statement of cash flows reports cash receipts, cash payments, and net changes in cash and cash
equivalents from operations, noncapital financing, capital and related financing, and investing activities.
The notes to the basic financial statements provide additional information that is essential to fully
understand the data provided in the financial statements.
FINANCIAL HIGHLIGHTS
Net Assets
The table below summarizes L&P's net assets as of the current fiscal year ended June 30, 2010 and prior
fiscal year ended June 30, 2009. The details of the current year's summary can be found on page 9 of this
report.
City of Vernon
Light and Power Department Fund
Fund Net Assets
June 30, 2010 and 2009
2010
2009
Change
Assets:
Current and other assets
$ 477,272,645 $
476,108,936 $
1,163,709
Restricted assets
56,274,028
95,404,594
(39,130,566)
Capital assets
128,987,587
157,973,609
(28,986,022)
Total assets
662,534,260
729,487,139
(66,952,879)
Liabilities
Current liabilities 85,321,117 98,226,528 (12,905,411)
Long-term liabilities 467,417,744 502,536,614 (35,118,870)
Total liabilities 552,738,861 600,763,142 (48,024,281)
Net Assets:
Invested in capital
assets, net of related debt
85,22.6,509
114,212,700
(28,986,191)
Restricted
45,522,784
59,932,410
(14,4095626)
Unrestricted (deficit)
(20,953,894)
(45,421,113)
24,467,219
Total net assets
$ 109,795,399 $
128,723,997 $
(18,928,598)
The assets of L&P exceeded its liabilities at the close of the most recent fiscal year by $109,795,399 (net
assets).
The category of L&P's net assets with the largest balance totaling $85,226,509 (78%) represents
resources that are invested in capital assets, net of related debt.
The second largest category of net assets, totaling $45,522,784 (41%) represents L&P's restricted assets,
which is restricted for special purposes and payment of long-term debt.
The last remaining category of net assets, totaling ($20,953,894) (19%) represents a deficit in unrestricted
net assets that is expected to be recovered from L&P's future revenues.
Activities, net assets:
• Current and other assets increased $1,163,709 from the prior year due primarily to a $9,140,228
increase in cash and investments, $14,514,586 increase in due from City, $9,256,938 increase in
inventories, and a $2,956,202 increase in deposits and prepaid expenses, offset by a $1,259,442
decrease in accounts receivable, $28,578,343 decrease in prepaid natural gas, and a $4,100,197
decrease in derivative investments.
• Restricted assets decreased $39,130,566 from the prior year due primarily to debt service
payments and termination of interest rate swaps (See Note 6 for additional information on long-
term obligations and Note 7 for additional information on derivative instruments).
• Capital assets decreased $28,986,022 from the prior year due primarily to a partial sale of land
with an estimated cost of $33,107,062 offset by current year's additions to capital assets net of
depreciation (See Note 5).
• Current liabilities decreased $12,905,411 from the prior year due primarily to a $3,736,275
decrease in accounts payable, $3,910,342 decrease in deferred gain from sale of generation assets,
and a $31,047,629 decrease in derivative liabilities offset by a $4,522,158 increase in bond
interest payable and a $21,285,000 increase in bond principal payable (See Notes 6 and 7).
• Long-term liabilities decreased $35,118,870 from the prior year due primarily to a $10,331,807
decrease in deferred gain from sale of generation assets and a $25,224,811 decrease in long-term
bonds payable, net.
• Unrestricted net assets increased $24,467,219 from the prior year due primarily to a $28,986,191
decrease in investment in capital assets, net of related debt, $2,415,617 decrease in net assets
restricted for debt service, and a $11,994,009 decrease in net assets restricted for capacity
payments offset by a decrease in net assets from cmrent year's activities of $18,928,598.
Changes in Net Assets
The table below summarizes L&P's changes in net assets over the current and prior fiscal years. The
details of the current year's changes in net assets can be found on page 10 of this report.
City of Vernon
Light and Power Department Fund
Changes in Fund Net Assets
For the Fiscal Years Ended June 30, 2010 and 2009
2010 2009 Change
Operating revenues:
Charges for services $ 118,589,706 $ 132,861,886 $ (14,272,180)
Operating expenses:
Cost of sales
Depreciation and amortization
Total operating expenses
Operating income
Nonoperating revenue (expenses):
Investment income (loss)
Net decrease in fair value of investments
Interest expense
Other expense
Total nonoperating revenue (expenses), net
Loss before special item
Special item:
Gain on sale of land
Change in net assets
Ne t as s e ts- be ginning of ye ar
Net assets- end of year
84,727,883 106,545,147 (21,817,264)
4,364,408 4,357,980 6,428
89,092,291 110,903,127 (21,810,836)
29,497,415 21,958,759 7,538,656
(10,281,703)
2,332,369
(12,614,072)
(9,966,275)
(27,661,959)
17,695,684
(21,340,935)
(42,074,132)
20,733,197
(13,730,038)
(3,130,010)
(10,600,028)
(55,318,951)
(70,533,732)
15,214,781
(25,821,536) (48,574,973) 22,753,437
6,892,938 6,892,938
(18,928,598) (48,574,973) 29,646,375
128,723,997 177,298,970 (48,574,973)
$ 109,795,399 $ 128,723,997 $ (18,928,598)
L&P's activities decreased net assets by $18,928,598. The key reasons for this decrease in change in net
assets are as follows:
L&P's operating revenue was $118,589,706 for the current year which is $14,272,180 lower than
the previous year. This decrease was mainly due to a decrease in demand and due to a wholesale
energy netting contract L&P entered with the California ISO in which the sale of wholesale
energy were previously recorded at gross as charges for services and the purchase of wholesale
energy were previously recorded at gross as cost of sales but is now recorded net as cost of sales.
This decrease in revenue was also offset by an electric rate increase of 4.7% on December 1,
2009.
• L&P's operating expense was $89,092,291 for the current year which is $21,810,836 lower than
the previous year. This decrease was mainly due to a decrease in demand and due to a wholesale
energy netting contract L&P entered with the California ISO in which the sale of wholesale
energy were previously recorded at gross as charges for services and the purchase of wholesale
energy were previously recorded at gross as cost of sales but is now recorded net as cost of sales.
This decrease was also complemented by a favorable natural gas price used to generate energy
during the year.
• Investment loss was $10,281,703 for the current year, which is $12,614,072 lower than the
previous year. This decrease was mainly due to lower interest rate swaps expense offset by a
realized loss on the termination of investment derivative instruments during the year (See Note 7
for additional information on derivative instruments).
• Net decrease in fair value of investments was $9,966,275 for the current year, which is
$17,695,684 lower than the previous year. This decrease was caused by a more favorable market
condition resulting in less fluctuations in long -tern interest rates during the year (See Note 7 for
additional information on derivative instruments).
• Interest expense was $21,340,935 for the current year, which is $20,733,197 lower than the
previous year. This decrease was mainly due to the termination of investment derivative
instruments that were treated as hedging derivative instruments in the prior year (See Note 7 for
additional information on derivative instruments).
• Other expense was $13,730,038 for the current year, which is $10,600,028 higher than the
previous year. Other expense is primarily comprised of L&P's payments to the City for in lieu of
tax and franchise payments and operating transfers for general and gas activities (See Note 4 for
additional information on related party transactions).
Operating Revenues and Expenses
For the Fiscal Years Ended June 30, 2010 and 2009
$140,000,000
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$100,000,000
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$80,000,000
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$40,000,000
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L&P's unrestricted net assets at the end of the year amounted to a deficit of $20,953,894 after the
decrease in net assets of $18,928,598 in the current year. L&P expects to eliminate this deficit balance
through future rate increases, cost reduction, and revenues from renewable energy projects.
CAPITAL ASSET AND DEBT ADMINISTRATION
Capital assets.
L&P's investment in capital assets as of June 30, 2010 amounted to $128,987,587 (net of accumulated
depreciation). This investment in capital assets includes land, construction in progress, building, utilities
system improvements, and machinery and equipment. The total decrease in L&P's investment in capital
assets for the current fiscal year was $28,986,022, due primarily to increases in L&P's construction in
progress for renewable energy offset by a sale of land.
Major capital asset events during the current fiscal year included the following:
• In the current year, the L&P reclassified $9,856,303 of inventory previously recorded as capital
assets as a result of an independent third party's physical inventory taken over its capital assets.
• In the current year, the L&P sold part of land being developed for renewable energy for
$40,000,000 with cost basis of $33,107,062 for a net gain of $6,892,938.
Additional information on the L&P's capital assets can be found in Note 5 on page 23 of this report.
Outstanding debt
During the fiscal year 2009, a total of $463,165,000 in long-term obligations were issued and as of June
30, 2010, $458,165,000 remained outstanding consisting of the following (See Note 6 for additional
information on long-term obligations):
• $43,765,000 City of Vernon Electric System Revenue Bonds, 2008 Taxable Series A
• $414,400,000 City of Vernon Electric System Revenue Bonds, 2009 Series A
The City of Vernon Electric System Revenue Bonds, 2008 Taxable Series A were issued to provide funds
to (i) finance the cost of certain capital improvements to the City's Electric System, (ii) fund a deposit to
the Debt Service Reserve Fund, and (iii) to pay costs of issuance of the 2008 Bonds.
The City of Vernon Electric System Revenue Bonds, 2009 Series A were issued to provide funds to (i)
refinance certain obligations payable from the City's Electric System Revenues, (ii) fund a deposit to the
Debt Service Reserve Fund, and (iii) to pay costs of issuance of the 2009 Bonds.
As of June 30, 2010, all bonds issued by L&P had an insured rating of A- by S&P and A3 by Moody's
and have not changed from the prior year.
On December 9, 2010, Moody's Investors Service has put on a Watchlist for a possible downgrade, the
A3 ratings on the City of Vemon's, Electric System Revenue Bonds, 2008 Taxable Series A and Electric
System Revenue Bonds 2009 Series A. (See Currently Known Facts below).
The change in outstanding debt for the year ended June 30, 2010 was due to the principal payments of
$5,000,000 on the Electric System Revenue Bonds.
Additional information on the City's long-term debt can be found in Note 6 on pages 23-25 of this report.
ECONOMIC FACTORS AND NEW YEAR'S BUDGET AND RATES
These factors were considered in preparing L&P's budget for the 2011 fiscal year.
• The City is strictly industrial and does not maintain an unemployment rate study of its small
population. However, the unemployment rate of adjacent communities is currently 11.5%. This
compares favorably to the state's average unemployment rate of 12.3% but unfavorably to the
national average unemployment rate of 9.5%.
• The occupancy rate of the City's central business district has remained at 98% for the current
year.
• Inflationary trends in the region compare favorably to national indices.
CURRENTLY KNOWN FACTS
On December 9, 2010, Moody's Investors Service has put on a Watchlist for a possible downgrade, the
A3 ratings on the City of Vernon's, Electric System Revenue Bonds, 2008 Taxable Series A and Electric
System Revenue Bonds 2009 Series A.
This action is prompted by the introduction in the California Assembly of a bill, which, if adopted, could
dis-incorporate the City. However, the impact or outcome on the City and any potential credit
implications cannot presently be determined and therefore results in uncertainties at the City. (See Note
12 and Note 13 for additional information on contingencies and subsequent events).
On March 21, 2011, Moody's Investors Service affirmed the A3 ratings with negative outlook.
REQUESTS FOR INFORMATION
This financial report is designed to provide a general overview of L&P's finances for all those with an
interest in L&P's finances. Questions concerning any of the information provided in this report or
requests for additional financial information should be addressed to the Director of Finance, City of
Vernon, 4305 Santa Fe Avenue, Vernon, California, 90058.
CITY OF VERNON, CALIFORNIA
Light and Power Department Fund
Statement of Fund Net Assets
June 30,2010
ASSETS:
Current assets:
Cash and investments
-$ 67,966,574
Accounts receivable, net of allowances of $50,000
1,606,890
Accrued unbilled revenue
6,806,720
Accrued interest receivable
327,845
Bond issuance costs
246,533
Due from City
16,129,388
Inventories
10,377,384
Prepaid natural gas
28,578,343
Note receivable
333,599
Deposits and prepaid expenses
10,851,655
Total current assets
143,224,931
Noncurrent assets:
Restricted cash and investments
56,274,028
Advances to City
45,290,078
Prepaid natural gas
282,990,559
Note receivable
2,619,445
Bond issuance costs
3,147,632
Capital assets:
Nondepreciable
37,236,445
Depreciable, net
91,751,142
Total noncurrent assets
519,309,329
Total assets 662,534,260
LIABILITIES:
Accounts payable
7,323,093
Accrued wages and benefits
126,736
Customer deposits
492,635
Derivative liabilities
31,235,091
Bond interest
10,751,244
Long-term liabilities:
Due within one year:
Deferred gain from sale of generation assets
9,683,634
Bonds payable, net
25,489,810
,Compensated absences
218,874
Total current liabilities
85,321,117
Due in more than one year:
Deferred gain from sale of generation assets
47,028,987
Bonds payable, net
- 419,95 L009
Compensated absences
437,748
Total noncurrent liabilities
467,417,744
Total liabilities
552,738,861
NET ASSETS:
Invested in capital assets, net of related debt
85,226,509
Restricted for debt service
38,526,313
Restricted for capacity payments
6,996,471
Unrestricted (deficit)
(20,953,894)
Total net assets
$ 109,795,399
See accompanying notes to the basic financial statements
9-
CITY OF VERNON, CALIFORNIA
Light and Power Department Fund
Statement of Revenues, Expenses and Changes in Fund Net Assets
For the Fiscal Year Ended June 30, 2010
OPERATING REVENUES:
Charges for services S 118,589,706
Total operating revenues 1 118,589,706
OPERATING EXPENSES:
Cost of sales
84,727,883
Depreciation and amortization
4,364,408
Total operating expenses
89,092,291
Operating income -
29,497,415
NONOPERATING (EXPENSES)
Investment loss
(10,281,703)
Net decrease in fair value of investments
(9,966,275)
Interest expense
(21,340,935)
Other expense
(13,730,038)
Total nonoperating (expenses)
(55,318,951)
Loss before special item
(25,821,536)
SPECIAL ITEM:
Gain on sale of land
6,892,938
Change in net assets (18,928,598)
Net assets, beginning of the year 128,723,997
Net assets, end of the year $ 109,795,399
See accompanying notes to the basic financial statements.
CITY OF VERNON, CALIFORNIA
Light and Power Department Fund
Statement of Cash Flows
For the Fiscal Year Ended June 30, 2010
Cash Bows from operating activities:
Cash received train custamers/other fares
S 95,203,147
Cash paid to suppliers for goods and services
(95,756,289)
Cash paid to City ge iernl fund for services
(2,872,661)
Cash paid to employees for services
(3,657,932)
Net cash used in operating activities
(7,083,735)
Cash flows Irom nancapiial financing activities:
Tmnsfers (paid) to other City funds to fund operations
(11.730,038)
Collection of note receivable
315,449
Net cash used in noncapinal financing activities
(13,414,589)
Cash Bows from capital and related Bnaneing activities:
Repayment of bonds
(5,000,000)
Bond interest paid
(16,S18,777)
SnIs of land
40,000,000
Acquisition and construction ofcapital assets
(17.341,195)
Net cash provided by capital and related financing activities
840,028
Cash Bows from investing activities:
Purchases and sales of invostmcros, net
(46.067,219)
Investment loss (net interest rate swap payments)
(10,281.703)
Net cash used in investing activities
(56,348,921)
Net decrease in cash and cash equivalents
(76,007,217)
Cash and cash equivalents, beginning ofyenr
153,700,248
Cash and cash equivalents, and ofyen
S 77,693,031
Reconciliation ofopending income to net cash
Used in operating activities:
Operating income
$
29,497,415
Adjustments to reconcile operating income
to net cash used in operating activities:
Depreciation and amo'tization
4,364,408
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable
1,259,442
Other receivables
278.607
Inventories
(9,256,938)
Prepaid expenses and deposits
(2,956,202)
Prepaid naland gas
28,578,343
Other assets
(26,775,225)
Increase (decrease) in:
Accounts payable
(3,736,275)
Accrued wages and benefits
(23,252)
Due from the City
(14.514,586)
Customer deposits
16,900
Compensated absences
425,777
Deferred gain from sale ofgenemtion assets
(14,242.149)
Net cash used in operating activities
Reconciliation of cash and cash equivalents to
Statement of Net Assets
Cash and investments
$
67,966,574
Nonenrrenr awaricled cash and investments
56.274,028
Total
124,240,602
Less: Investments with ranter ties ofmore than 90 days
(46,547,571)
Total cash and cash equivalents
$
77,693,031
Noneas'h Capital, Investing and Financing Activities
Acquisition ofcapital assets in accounts payable
S
827,010
Decrease in fair value of investments
9,966,275
See accompanying notes to the basic financial statements.
- 11 -
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2010
NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Light and Power Department Fund, an Enterprise Fund, have been
prepared in conformity with U.S, generally accepted accounting principles (GAAP). The Governmental
Accounting Standards Board (GASB) is the accepted standard -setting body for establishing governmental
accounting and financial reporting principles. The more significant of the Light and Power Department
Fund's accounting policies are described below.
Reporting Entity
The City of Vernon (the City) was incorporated on September 16, 1905 as a General Law City. Effective
July 1, 1988, the City became a Charter City. The City operates under a Council -City Administrator form
of government.
The City's Light and Power Department Fund (L&P) exists as a separate department of the City under
and by virtue of the City Charter enacted in 1988. L&P was established, as a separate department by
Section 2.64 of the City Code to be used for the collection of revenues and the payment of expenses for
the City's electric utility plant.
As required by generally accepted accounting principles, the accompanying basic financial statements
present the L&P and its component unit, an entity for which the City is considered to be financially
accountable. In accordance with GASB Statement No. 14, the City's component unit is considered a
blended component unit in the L&P fund. Although a legally separate entity, it is, in substance, part of
L&P's operations, and therefore, data from this unit is combined with data of L&P.
Blended Component Unit
Vernon Natural Gas Financing Authori
On April 1, 2006, the City and the Vernon Redevelopment Agency (RDA) created the Vernon Natural
Gas Financing Authority (Authority) pursuant to the Joint Powers Agreement, for the express purpose of
undertaking projects and programs that promote economic development within the City. Such projects
and programs include assisting the City in procuring natural gas for use as fuel for electric generating
units that are part of the City's Electric System, which is accounted for in the City's L&P. During the
year ended June 30, 2006, the Authority issued $430,845,000 in variable rate bonds and subsequently
purchased natural gas in accordance with the Natural Gas Agreement between the Authority and the City.
The variable rate bonds were refunded in fiscal year 2009 and replaced with fixed rate bonds. As a result
of this financing arrangement, the debt and related asset (prepaid natural gas) associated with the
Authority have been blended with L&P for financial reporting purposes.
Basis of Presentation
L&P accounts for the maintenance and operations of the City's electric utility plant. Revenue for L&P is
primarily from charges for services.
L&P's financial statements are reported using the economic resources measurement focus and the accrual
basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities
are incurred, regardless of when the related cash flows take place.
12
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30,2010
NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
L&P distinguishes operating revenues and expenses from nonoperating items. Operating revenues, such
as charges for services, result from exchange transactions associated with the sale of electricity.
Exchange transactions are those in which each party receives and gives up essentially equal values.
Nonoperating revenues, such as subsidies and investment earnings, result from nonexchange transactions
or ancillary activities. Operating expenses include the cost of sales and services, administrative expenses
and depreciation on capital assets. All expenses not meeting this definition are reported as nonoperating
expenses.
For the L&P financial statements, under GASB Statement No. 20, Accounting and Financial Reporting
for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting, L&P
applies all applicable GASB pronouncements as well as any applicable pronouncements of the Financial
Accounting Standards Board, the Accounting Principles Board or any Accounting Research Bulletins
issued on or before November 30, 1989 unless those pronouncements conflict with or contradict GASB
pronouncements. L&P has elected to not apply private -sector accounting standards issued after
November 30, 1989.
L&P's policy regarding whether to first apply restricted or unrestricted resources when an expense is
incurred for purposes for which both restricted and unrestricted net assets are available is to use restricted
resources first.
Cash Deposits and Investments
For purposes of the statement of cash flows, L&P considers amounts on deposit in the L&P's cash and
investment pool and all highly liquid investments (including restricted cash and investments) with an
original maturity of three months or less when purchased to be cash equivalents. Investment transactions
are recorded on the trade date. Investments in nonparticipating interest -earning investment contracts are
reported at cost, and all other investments are reported at fair value. Fair value is defined as the amount
that the L&P could reasonably expect to receive for an investment in a current sale between a willing
buyer and a seller and is generally measured by quoted market prices.
Receivables from the City
Short-term receivables from the City are classified as "due from City" on the statement of fund net assets.
Long-term receivables from the City are classified as "advances to City," on the statement of fund net
assets.
Inventories
Inventories consist of consumable supplies and fuel stock, which are stated at cost on a first -in, first -out
basis. The cost of inventories is recorded as an expense when the items are used.
13
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2010
NOTE 1— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Capital Assets
Capital assets (including infrastructure) are recorded at historical cost or at estimated historical cost if
actual historical cost is not available. Contributed capital assets are valued at their estimated fair value on
the date contributed. Capital assets include land, construction in progress, and plant assets including
building, improvements, and machineryand equipment. The capitalization threshold for all capital assets
is $5,000. Capital assets used in operations are depreciated using the straight-line method over their
estimated useful lives.
The estimated useful lives are as follows:
Utility plant and buildings
Improvements
Machinery and equipment
25 to 50 years
10 to 20 years
3 to 35 years
Maintenance and repairs are charged to operations when incurred. Betterments and major improvements,
which significantly increase values, change capacities or extend useful lives, are capitalized. Upon sale or
retirement of capital assets, the cost and related accumulated depreciation are removed from the
respective accounts and any resulting gain or loss is included in the changes in financial position. Interest
expense associated with construction of capital assets is capitalized during the construction phase up until
the capital asset is substantially complete and ready for its intended use for both taxable and tax-exempt
securities. For tax-exempt securities, interest income on unspent bond proceeds is also capitalized during
the construction phase.
Comoensated Absences
Accumulated vacation is accrued when incurred. Upon termination of employment, the City will pay the
employee all accumulated vacation leave at 100% of the employee's base hourly rate.
Lon --term Obligations
Bond issuance costs, discounts and premiums and deferred amounts on refunding are amortized over the
life of the bonds using the straight-line method.
Net Assets
L&P financial statements utilize a net assets presentation. Net assets are categorized as invested in capital
assets (net of related debt), restricted and unrestricted.
Invested In Capital Assets, Net of Related Debt — This category groups all capital assets into one
component of net assets. Accumulated depreciation and the outstanding balances of debt that are
attributable to the acquisition, construction or improvement of these assets reduce the balance in
this category.
Restricted Net Assets — This category presents external restrictions imposed by creditors,
grantors, contributors or laws or regulations of other governments and restrictions imposed by
law through constitutional provisions or enabling legislation.
14
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2010
NOTE I — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
• Unrestricted Net Assets — This category represents net assets of L&P not restricted for any project
or other purpose.
Use of Estimates
The preparation of basic financial statements
estimates and assumptions that affect certain
results could differ from those estimates.
NOTE 2 — CASH AND INVESTMENTS
Cash and Investments
in conformity with GAAP requires management to make
reported amounts and disclosures. Accordingly, actual
Cash and investments as of June 30, 2010 are classified in the accompanying financial statements as
follows:
Statement of fund net assets:
Cash and investments
$ 67,966,574
Restricted cash and investments
56,274,028
Total cash and investments
$ 124,240,602
Cash and investments as of June 30, 2010 consist of the following:
Deposits with financial institutions $ 24,421,671
Investments 99,818,931
Total cash and investments $ 124,240,602
The City's Investment Policy
The City's Investment Policy sets forth the investment guidelines for all funds of the City. The Investment
Policy conforms to the California Government Code Section 53600 et, seq. The authority to manage the
City's investment program is derived from the City Council. Pursuant to Section 53607 of the California
Government Code, the City Council annually appoints the City Treasurer and approves the City's
investment policy. The Treasurer is authorized to delegate this authority as deemed appropriate. No
person may engage in investment transactions except as provided under the terms of the Investment
Policy and the procedures established by the Treasurer.
This Policy requires that the investments be made with the prudent person standard, that is, when
investing, reinvesting, purchasing, acquiring, exchanging, selling or managing public funds, the trustee
(Treasurer and staff) will act with care, skill, prudence, and diligence under the circumstances then
prevailing, including but not limited to, the general economic conditions and the anticipated needs of the
City.
15
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2010
NOTE 2 — CASH AND INVESTMENTS (CONTINUED)
The Investment Policy also requires that when following the investing actions cited above, the primary
objective of the trustee be to safeguard the principal, secondarily meet the liquidity needs of depositors,
and then achieve a return on the funds under the trustee's control. Further, the intent of the Investment
Policy is to minimize risk of loss on the City's held investments from:
A. Credit risk
B. Custodial credit risk
C. Concentration of credit risk
D. Interest rate risk
Investments Authorized by the California Government Code and the Citv's Investment Policy
The table below identifies the investment types that are authorized for the City by the California
Government Code and the City's Investment Policy. The table also identifies certain provisions of the
California Government Code that address interest rate risk, credit risk, and concentration of credit risk.
This table does not address investment of debt proceeds held by bond trustee that are governed by the
provisions of debt agreements of the City, rather than the general provisions of the California Government
Code or the City's Investment Policy,
Maximum Maximum
Authorized Maximum Percentage Investment Minimum
Investment Type Maturity of *Portfolio in One Issuer Rating
Securities of the U.S. Government, or it agencies
Certain Asset -Backed Securities
Certificates of Deposit
Bankers' Acceptances
Commercial Paper
Repurchase Agreements
Reverse Repurchase Agreements
Medium -Term Notes
Mutual Funds investing in eligible securities
Money Market Mutual Funds
Mortgage Pass -Through Securities
State Administered Pool Investment
5 years
None
None
None
5 years
None
None
AA
5 years
30%
None
None
180 days
40%
30%
None
270 days
25%
10%
P-1
I year
None
None
None
92 days
20%
None
None
5 years
30%
None
A
N/A
20%
10%
AAA
N/A
20%
10%
AAA
5 years
20%
None
AA
N/A
None
None
None
* Excluding amounts held by bond trustee that are not subject to California Government Code restrictions.
16
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2010
NOTE 2 — CASH AND INVESTMENTS (CONTINUED)
Investments Authorized by Debt APreernents
Investments of debt proceeds held by bond trustee are governed by provisions of the debt agreements,
rather than the general provisions of the California Government Code or the City's Investment Policy.
The table below identifies the investment types that are authorized for investments held by bond trustee.
The table also identifies certain provisions of these debt agreements that address interest rate risk, credit
risk, and concentration of credit risk.
Authorized
Investment Type
Maximum
Maturity
Maximum
Percentage
of Portfolio.
Maximum
Investment
in One Issuer
Minimum
Rating
Securities of the U.S. Government, or it agencies
None
None
None
None
Certain Asset -Backed Securities
None
None
None
AA
Certificates of Deposit
None
None
None
None
Bankers' Acceptances
1 year
None
None
None
Commercial Paper
None
None
None
P-1
Money Market Mutual Funds
N/A
None
None
AAA
State Administered Pool Investment
N/A
None
None
None
Investment Contracts
None
None
None
None
Disclosure Relatine to Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an
investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value
to changes in market interest rates. One of the ways that the City manages its exposure to interest rate
risk is by purchasing a combination of shorter tenn and longer term investments and by timing cash flows
from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time
as necessary to provide the cash flow and liquidity needed for operations. The City has no specific
limitations with respect to this metric.
Investment Maturities
Fair (in Months)
Value as of Less Than 13 to 60 % of
Investment Type June 30, 2010 12 Months Months Total
Federal Horne Loan
$ 13,615,508 $
2,247,722 $
11,367,786
13.64%
Federal National Mortgage Association
4,572,148
-
4,572,148
4.58%
Local Agency Investment Fund
533,617
533,617
-
0.53%
Money Market Mutual Fund
53,271,359
53,271,359
-
53.37%
United States Treasury Notes
27,826,299
6,677,222
21,149,077
27.88%
Total investments
$ 99,818,931 $
62,729,920 $
37,089,011
100.00%
17
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2010 .
NOTE 2 — CASH AND INVESTMENTS (CONTINUED)
Disclosures Relatine to Credit Risk
Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder
of the investment. This is measured by the assignment of a rating by a nationally recognized statistical
rating organization. Presented below is the minimum rating required by the California Government Code,
the City's Investment Policy, or debt agreements, and the actual. rating as of the year end for each
investment type.
Minimum
Required Actual Fair %
Rating Credit Rating Value as of of
Moody's / S&P Moody's / S&P June 30, 2010 Total
In custody of Treasurer:
Investments held by Treasurer:
Local Agency Investment Fund Not Rated Not Rated $ 533,617 0.53%
Money Market Mutual Fund Aaa/AAA Aaa/AAA 25,101 0.03%
Total in custody of Treasurer 558,718 0.56%
In custody of Trustee:
Investments held by Trustee:
Money Market Mutual Fund
Aaa / AAA
Aaa / AAA
$ 53,246,258
53.34%
Federal Home Loan Bank
Aaa / AAA
Aaa / AAA
13,615,508
13.64%
Federal National Mortgage Association
Aaa / AAA
Aaa / AAA
4,572,148
4.58%
United States Treasury Notes
Aaa / AAA
Aaa / AAA
27,826,299
27.88%
Total in custody of Trustee
99,260,213
99.44%
Total investments $ 99,818,931 100.00%
18
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2010
NOTE 2 — CASH AND INVESTMENTS (CONTINUED)
Concentration of Credit Risk
The City's Investment Policy places no limit on the amount the City may invest in any one issuer
excluding a 10% limitation on commercial paper, mutual funds, and money market mutual funds and a
30% limitation on bankers acceptances. The City's Investment Policy also places no limit on the amount
of debt proceeds held by bond trustee that the trustee may invest in one issuer that are governed by the
provisions of debt agreements of the City, rather than the general provisions of the California Government
Code or the City's Investment Policy. As of June 30, 2010, the L&P's investments in any one issuer
exceeding 5% were as follows:
Money Market Mutual Fund Various
Federal Home Loan FHLB
Treasury Notes U.S. Treasury
Custodial Credit Risk
In Fair %
Custody Value as of of
of June 30. 2010 Total
Trustee $ 53,271,359 53.37%
Trustee 13,615,508 13.64%
Trustee 27,826,299 27.88%
Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial
institution, a government will not be able to recover its deposits or will not be able to recover collateral
securities that are in the possession of an outside party. The custodial credit risk for investments is the
risk that, in the event of the failure of the counterparty, to a transaction, a government will not be able to
recover the value of its investment or collateral securities that are in the possession of another party. The
California Government Code and the City's Investment Policy do not contain legal or policy requirements
that would limit the exposure to custodial credit risk for deposits or investments. Under the California
Government Code, a financial institution is required to secure deposits in excess of FDIC insurance of
$250,000 made by state or local governmental units by pledging government securities held in the form of
an undivided collateral pool. The market value of the pledged securities in the collateral pool must equal
at least 110% of the total amount deposited by the public agencies. California law also allows financial
institutions to secure City deposits by pledging first trust deed mortgage notes having a value of 150% of
the secured public deposits. Such collateral is held by the pledging financial institution's host department
or agent in the City's name.
At year-end, the carrying amount of the L&P's deposits was $24,421,671 and the bank balance was
$24,381,981. The difference between the bank balance and the carrying amount represents outstanding
checks and deposits in transit. As of June 30, 2010, none of L&P's deposits with financial institutions in
excess of federal depository insurance limits were held in uncollaterized accounts. $23,921,280 was
collateralized by the pledging financial institution as required by Section 53652 of the California
Government Code.
19
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2010
NOTE 2 — CASH AND INVESTMENTS (CONTINUED)
Local Agency Investment Fund (LAIF)
L&P also maintained cash balances with the State of California Local Agency Investment Fund (LAIF)
amounting to $533,617 at June 30, 2010. LAIF is an external investment pool sponsored by the State of
California. These pooled funds approximate fair value. The administration of LAIF is provided by the
California State Treasurer and regulatory oversight is provided by the Pooled Money Investment Board
and the Local Investment Advisory Board. The value of the pool shares in LAIF, which may be
withdrawn, is determined on an amortized cost basis, which is different than the fair value of the L&P's
position in the pool.
The total amount invested by all public agencies in LAIF at June 30, 2010 was $23,263,615,099. LAIF is
part of the State of California Pooled Money Investment Account (PMIA) whose balance was
$69,385,966,558 at June 30, 2010. Of this amount, 5.42% was invested in structures notes and asset -
backed securities. PMIA is not SEC -registered, but is required to invest according to California State
Code. The average maturity of PMIA investments was 0.56 years as of June 30, 2010. LAIF does not
maintain a credit rating.
NOTE 3 - RECEIVABLES
The L&P's receivables at June 30, 2010 are as follows:
Accounts $ 1,656,890
Allowances (50,000)
Total receivables $ 1,606,890
NOTE 4 — RELATED PARTY TRANSACTIONS
Transactions between L&P and the City commonly occur in the normal course of business for services
received or furnished (accounting, management, engineering, and legal services). L&P also loans money
to the City's general fund for short-term cash flow purposes.
The following table summarizes L&P's short-term loan balances and transactions at June 30, 2010:
Due To/From Ci(v
Due from City, July 1, 2009
$ 1,614,802
Loan to City
14,514,586
Due from City, June 30, 2010
$ 16,129,388
20
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2010
NOTE 4 — RELATED PARTY TRANSACTIONS (CONTINUED)
Transactions between L&P and the City occur occasionally to fund capital projects on behalf of one
another such as the City's natural gas system and the development of the City's base load electric
generating station.
The following table summarizes L&P's long-term loan balances and transactions at June 30, 2010:
Advances to City
Advance to City, July 1, 2009 $ 45,290,078
Loan repayment from City -
Advance to City, June 30, 2010 $ 45,290,078
The loan between the City and L&P does not accrue interest due to the nature of the capital projects
funded by L&P and that benefit both L&P and the City.
Operating, Expenses
The City allocates certain administrative and overhead costs to L&P. These costs for the year ended June
30, 2010 were as follows:
City Administration
$ 288,393
City Garage
183,936
City Warehouse
221,075
Police
238,601
Fire
192,770
Finance
452,768
Treasurer
216,748
Purchasing
249,312
Risk Management/Insurance
829,058
Total
$ 2,872,661
Nonooerating, Expenses
L&P's electric retail rates are established by the City Council and are not subject to regulation by the
California Public Utility Commission or any other state agency. The retail rates include a 3% surcharge
for payments in lieu of franchise tax to the City's General Fund. For the current year, L&P paid the
City's General Fund $3,121,268 for in lieu of franchise tax.
For the current year, L&P made an operating transfer of $5,478,770 and $5,130,000 to the City's General
Fund and Gas Fund, respectively, to meet the operations of those funds.
21
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2010
NOTE 5 — CAPITAL ASSETS
Capital asset activity of L&P for the fiscal year ended June 30, 2010 was as follows:
Capital assets. not being depreciated.'
Land
Construction in progress
Total capital assets, not being depreciated
Capitol assets, being depreciated
Production plant
Transmission plant
Distribution plant
General plant
Total capital assets, being depreciated
Less accumulated depreciation for:
Production plant
Transmission plant
Distribution plant
General plant
Total accumulated depreciation
Total capital assets, being depreciated, net
Production plant
Transmission plant
Distribution plant
General plant
Total
Business -type activities capital assets, net
Balance Transfers & Balance
June 30, 2009 Additions Deletions Adjusmrents June 30, 2010
$ 9,277,332 $ - $ (736) $ - $ 9,276,596
49,893,510 11,173,401 (33,107,062) 27,959,849
59,170,842 11,173,401 (33,107,798) 37,236,445
14,765,324
- - -
14,765,324
6,500,463
- (27,341) (1,655,193)
4,817,929
117,627,312
6,792,267 (231,741) (7,132,793)
117,055,045
7,885,540
202,537 (251)
8,087,826
146,778,639
6,994,804 (259,333) (8,787,986)
144,726,124
(4,756,318)
(420,858)
-
(675,462)
(5,852,638)
(2,308,251)
(96,796)
17,357
15,562
(2,372,128)
(39,812,109)
(3,151,280)
168,526
(424,371)
(43,219,234)
(1,099,194)
(447,993)
251.
15,954
(1,530,982)
(47,975,872)
(4,116,927)
186,134
(1,068,317)
(52,974,982)
10,009,006 (420,858) - (675,462) 8,912,686
4,192,212 (96,796) (9,984) (1,639,631) 2,445,801
77,815,203 3,640,987 (63,215) (7,557,164) 73,835,811
6,786,346 (245,456) 15,954 6,556,844
98,802,767 2,877,877 (73,199) (9,856,303) 91,751,142
$ 157,973,609 $ 14,051,278 $ (33,180,997) $ (9,856,303) $ 128,987,587
In the current year, the L&P reclassified $9,856,303 of inventory previously recorded as capital assets as
a result of an independent third party's physical inventory taken over its capital assets.
In the current year, the L&P sold part of laird being developed for renewable energy for $40,000,000 with
cost basis of $33,107,062 for a net gain of $6,892,938.
Depreciation
L&P's total depreciation expense for the year was $4,116,927.
22
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2010
NOTE 6 - LONG-TERM OBLIGATIONS
During the fiscal year 2009, a total of $463,165,000 in long-term obligations were issued and as of June
30, 2010, $458,165,000 remained outstanding consisting of the following:
• $43,765,000 City of Vernon Electric System Revenue Bonds, 2008 Taxable Series A
• $414,400,000 City of Vernon Electric System Revenue Bonds, 2009 Series A
Outstanding at June 30, 2010 were $43,765,000 of City of Vernon Electric System Revenue Bonds, 2008
Taxable Series A. The 2008 Electric System Revenue Bonds are special obligations of the City, which
are secured by an irrevocable pledge of electric revenues payable to bondholders. The debt service
remaining on the bonds is $116,932,423, payable through 2038, For the current year, debt service and
total electric revenues were $3,720,560 and $118,589,706, respectively. Under the Indenture of Trust
dated September 1, 2008, interest and principal on the bonds are payable from Net Revenues
(or Revenues less Operation and Maintenance Expenses) and/or amounts in the Light and Power Fund (as
those terms are defined in the Indenture of Trust). The City of Vernon Electric System Revenue Bonds,
2008 Taxable Series A were issued to provide funds to (i) finance the, cost of certain capital
improvements to the City's Electric System, (ii) fund a deposit to the Debt Service Reserve Fund, and (iii)
to pay costs of issuance of the 2008 Bonds.
Outstanding at June 30, 2010 were $414,400,000 of City of Vernon Electric System Revenue Bonds,
2009 Series A. The 2009 Electric System Revenue Bonds are special obligations of the City, which are
secured by an irrevocable pledge of electric revenues payable to bondholders. The debt service remaining
on the bonds is $552,516,646, payable-through-2022 -For-the current -year; debtserviee-and-total-electric--
revenues were $19,513,783 and $118,589,706, respectively. Under the Indenture of Trust dated
September 1, 2008, interest and principal on the bonds are payable from Net Revenues (or Revenues less
Operation and Maintenance Expenses) and/or amounts in the Light and Power Fund (as those terms are
defined in the Indenture of Trust). The City of Vernon Electric System Revenue Bonds, 2009 Series A
were issued to provide funds to (i) refinance certain obligations payable from the City's Electric System
Revenues, (ii) fund a deposit to the Debt Service Reserve Fund, and (iii) to pay costs of issuance of the
2009 Bonds.
23
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2010
NOTE 6 — LONG-TERM OBLIGATIONS (CONTINUED)
A summary of bonds payable for L&P is as follows:
Fixed
Interest
Bonds Maturity Rates
City of Vernon 07/01/38 7.400%
Electric System Revenue Bonds, 8,590%
2008 Taxable Series A
City of Vernon
Electric System Revenue Bonds,
2009 Series A
Discounts
Deferred amount on refunding
Total Revenue Bonds
08/01/21 3.000%
5.125%
Annual
Principal Original Issue Outstanding at
Installments Amount June 30, 2010
To begin 07/01/10: $ 43,765,000 $ 43,765,000
$265,000 -
$4,065,000
To begin 08/01/09: 419,400,000 414,400,000
$5,000,000 -
$44,895,000
(3,782,997)
(8,941,184)
$ 463,165,000 $ 445,440,819
As of June 30, 2010, annual debt service requirements of L&P to maturity are as follows:
Electric System Revenue Bonds
2008 Taxable Series A
Fiscal year ending June 30,
Principal
Interest*
Toll
$ 265,000
$ 3,710,755
2012
285,000
3,690,405
2013
305,000
3,668,575
2014
330,000
3,645,080
2015
355,000
3,592,355
2016-2020
2,520,000
17,408,713
2021-2025
5,175,000
15,553,483
2026-2030
7,955,000
12,525,079
2031-2035
12,220,000
7,872,520
2036-2038
14,355,000
1,500,458
Total requirements
$ 43,765,000
$ 73,167,423
*As of June 30, 2010, debt service for 2008 Series A, was calculated based upon fixed coupon rates of
7.40% and 8.59% on principal balances of $3,265,000 and $40,500,000, respectively.
24
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2010
NOTE 6 — LONG-TERM OBLIGATIONS (CONTINUED)
Electric System
Revenue Bonds
2009 Series A
Fiscal year ending June 30:
Principal
Interest*
2011
$ 26,285,000
$ 19,755,600
2012
27,370,000
18,674,350
2013
28,680,000
17,363,100
2014
29,930,000
16,110,638
2015
31,295,000
14,748,957
2016-2020
183,295,000
46,919,792
2021-2022
87,545,000
4,544,209
Total requirements
$ 414,400,000
$ 138,116,646
*As of June 30, 2010, debt service was calculated based upon the fixed coupon rates of the bonds ranging
from 3.000% to 5.125%.
Changes in lone -term liabilities
The following is a summary of long-term liabilities transactions for the fiscal year ended June 30, 2010:
Balance
Balance
Due Within
July I, 2009
Additions Reductions
June 30, 2010
One Year
Bonds payable
$463,165,000
$ - $ (5,000,000)
$ 458,165,000
$26,550,000
Bond discount
(4,098,088)
- 315,091
(3,782,997)
(315,091)
Deferred amount on refunding
(9,686,282)
- 745,098
(8,941,184)
(745,099)
Compensated absences
230,845
656,622 (230,845)
656,622
218,874
$449,611,475
$ 656,622 $ (4,170,656)
$ 446,097,441
$25,708,684
F
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2010
NOTE 7 — DERIVATIVE INSTRUMENTS
In prior years, the City acquired derivative instruments to reduce its overall exposure to interest rate and
commodity priced risk and to achieve a lower cost of capital and commodity. As of June 30, 2010, all
derivative instruments have been classified as investment derivative instruments under GASB 53,
Accounting and Financial Reporting for Derivative Instruments, with the following instruments
outstanding:
Notional Effective Maturity Fair
Item Type Objective Amount Date Date Term Value
A Variable to Reduce overall exposure
Fixed Swap to interest rate risk and
achieve lower cost of
capital for the 2004
Series A Bonds
B Variable to Reduce overall exposure
Fixed Swap to interest rate risk and
achieve lower cost of
capital for the 2004
Series B Bonds
$ 90,150,000 December April
2004 2037
83,575,000 December April
2004 2029
26
Receive 62,87%of LIBOR one- $ (18,059,693)
month index plus 0.119"%, pay
3.607 %
Receive 62.87%of LIBOR one- (13,175,398)
month index plus 0.119%, pay
3.542 %
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2010
NOTE 7 — DERIVATIVE INSTRUMENTS (CONTINUED)
A - Variable to Fixed Swau — 2004 Series A Bonds
Objective of the interest rate swap: As a means to reducing its overall exposure to interest rate risk and
achieving a lower cost of capital relative to long term fixed rate bonds, the City elected to issue its
$90,150,000 2004 Series A Electric System revenue bonds (the "2004 Series A Bonds") in a variable rate
mode and enter to a fixed payer swap to achieve synthetic fixed rate debt.
Terms: In December 2004, the City entered into a pay -fixed, receive -variable interest rate swap for the
term of the 2004 Series A Bonds. The notional amount of the swap is $90,150,000. Under the original
terms of the swap, the City pays the counterparty a fixed rate of 3.637% and receives from the
counterparty variable -rate payments equal to 62.87% of the London Interbank Offered Rate (LIBOR)
one -month index plus 0.119%. On March 16, 2006, the City amended its fixed payment to 3.607% to the
counterparty. In April 2008, the City redeemed its 2004 Series A Bonds. The City expects to terminate
the swap prior to December 31, 2011.
Fair value: As of June 30, 2010, the swap had a negative fair value of $18,059,693. The fair value was
estimated using the zero -coupon method. This method calculates the future net settlement payments
required by the swap, assuming that the current forward rates implied by the yield curve correctly
anticipate future spot interest rates. These payments are then discounted using the spot rates implied by
the current yield curve for hypothetical zero -coupon bonds due on the date of each future net settlement
on the swap.
Credit risk: As the swap's fair value as of June 30, 2010 is negative, the City does not have credit
exposure to the counterparty. Should the City's fair value become positive, the City would have credit
exposure to the counterparty equal to the fair value amount. As of June 30, 2010, the swap counterparty,
Morgan Stanley was rated A by Standard & Poor's and A2 by Moody's Investors Service. To mitigate
the potential for credit risk, if the counterparty's credit quality falls below (BBB/Baal), the fair value of
the swap will be fully collateralized by the counterparty with U.S. government securities. Collateral
would be posted with a third -party custodian. The City is obligated to post collateral to Morgan Stanley if
the City's negative fair value in the aggregate exceeds $20,000,000.
Interest rate risk: The swap increases the City's exposure to interest rate risk. As LIBOR decreases, the
City's net payments in the swap increases.
Termination risk: The City or the counterparty may terminate the swap if the other party fails to perform
under the terms of the contract. In addition, the City may optionally terminate the agreement on any date.
If at the time of termination the swap has a negative fair value, the City would be liable to the
counterparty for an amount equal to the negative fair value.
Rollover risk. The City is not exposed to rollover risk on the swap since the term of the swap matched the
term of the 2004 Series A Bonds at the time of issuance and the 2004 Series A Bonds were redeemed in
April 2008,
Swap payments and associated debt: The debt associated with the swap, the 2004 Series A Bonds, has
been redeemed. The City expects to terminate the swap prior to December 31, 2011.
27
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2010
NOTE 7 — DERIVATIVE INSTRUMENTS (CONTINUED)
B - Variable to Fixed Swam — 2004 Series B Bonds
Objective of the interest rate swap: As a means to reducing its overall exposure to interest rate risk and
achieving a lower cost of capital relative to long term fixed rate bonds, the City elected to issue its
$83,575,000 2004 Series B Electric System revenue bonds (the "2004 Series B Bonds") in a variable rate
mode and enter to a fixed payer swap to achieve synthetic fixed rate debt.
Terms: In December 2004, the City entered into a pay -fixed, receive -variable interest rate swap for the
term of its 2004 Series B Bonds. The notional amount of the swap is $83,575,000. Under the original
terms of the swap, the City pays a fixed rate of 3.572% and receives variable -rate payments equal to
62.87% of the London Interbank Offered Rate (LIBOR) one -month index plus .119%. On March 16,
2006, the City revised its fixed payment to 3.542% to the counterparty. In April 2008, the City redeemed
its 2004 Series B Bonds. The City expects to terminate the swap prior to December 31, 2011,
Fair value: As of June 30, 2010, the swap had a negative fair value of $13,175,398. The fair value was
estimated using the zero -coupon method. This method calculates the future net settlement payments
required by the swap, assuming that the current forward rates implied by the yield curve correctly
anticipate future spot interest rates. These payments are then discounted using the spot rates implied by
the current yield curve for hypothetical zero -coupon bonds due on the date of each future net settlement
on the swap.
Credit risk: As the swap's fair value as of June 30, 2010 is negative, the City does not have credit
exposure to the counterparty. Should the City's fair value become positive, the City would have credit
exposure to the counterparty equal to the fair value amount. As of June 30, 2010, the swap counterparty,
Morgan Stanley was rated A by Standard & Poor's and A2 by Moody's Investors Service. To mitigate
the potential for credit risk, if the counterparty's credit quality falls below (BBB/Baa2), the fair value of
the swap will be fully collateralized by the counterparty with U.S. government securities. Collateral
would be posted with a third -party custodian. The City is obligated to post collateral to Morgan Stanley if
the City's negative fair value in the aggregate exceeds $20,000,000.
Interest rate risk: The swap increases the City's exposure to interest rate risk. As LIBOR decreases, the
City's net payments in the swap increases.
Termination risk: The City or the counterparty may terminate the swap if the other party fails to perform
under the terms of the contract. In addition, the City may optionally terminate the agreement on any date.
If at the time of termination the swap has a negative fair value, the City would be liable to the
counterparty for an amount equal to the negative fair value.
Rollover risk. The City is not exposed to rollover risk on the swap since the term of the swap matched the
term of the 2004 Series B Bonds at the time of issuance and the 2004 Series B Bonds were redeemed in
April 2008.
Swap payments and associated debt: The debt associated with the swap, the 2004 Series B Bonds, has
been redeemed. The City expects to terminate the swap prior to December 31, 2011.
28
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2010
NOTE 7—DERIVATIVE INSTRUMENTS (CONTINUED)
C_ Change in Fair Value of Derivative Instruments
In the current year, the City terminated its 2004 D and 2006 Series variable to fixed swaps and the natural
gas commodity swap. The fair value balance and notional amount of the derivative instrument
outstanding at June 30, 2010, classified by type, and the change in fair value of such derivative instrument
for the year then ended as reported in the current year financial statements are as follows:
Change in Fair Value
Fair Value at June 30, 2010
Classification
Amount
Classification
Amount Notional
Business -type activities
Investment derivative instruments
Variable to Fixed Swaps
2004 Series A Bands
Decrease in fair value
$ (5,382,625)
Derivative liability
S (18,059,693) $ 90,150,000
2004 Series B Bonds
Decrease in fair value
(4,228,105)
Derivative liability
(13,175,398) 83,575,000
2004 Series D Bonds
Increase in fair value
197,748
2006 Series A Gas Bonds
Increase in fair vnlue
1,270,748
2006 Series B and C Gas Bonds
Increase in fair value
1,083,863
Natural Gas Commodity Swap
Increase in fair value
548,224
Derivative Contracts /
Futures and Options
Decrease in fair value
(203,421)
The investment income realized from the termination of the 2004 D and 2006 Series variable to fixed
swaps and the natural gas commodity swap during the year was $3,100,583. The net decrease in fair
value of investments on the 2004 A and 2004 B swaps during the year was $9,610,730. The change in
fair value subsequent to June 30, 2010 is discussed in Note 13.
29
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2010
NOTE 8 — RISK MANAGEMENT
L&P is in the City's self-insurance program as part of its policy to self -insure certain levels of risk within
separate lines of coverage to maximize cost savings.
The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets;
errors and omissions; injuries to employees; natural disasters; unemployment coverage, and providing
health benefits to employees and retirees. The City is self -insured for its general liability, workers'
compensation, and property liability. The City has chosen to establish risk financing in the General Fund
at the beginning of this fiscal year, whereby assets are set aside for claim settlements associated with the
above risks of loss up to certain limits.
The City has obtained various insurance policies that provide coverage for "Special Form Perils" against
direct physical loss or damage, and flood, to all real and personal property of the City, including
equipment, business and revenue interruption, errors and omissions, boiler and machinery and pollution
legal liability. The flood portion of the policies have a 5% deductible of the total insurable values per
building, structure or covered item at the time and place of loss. In the most recent "Statement of Values"
for the City, real and personal property total insured values equaled $228,817,864. Property & Boiler &
Machinery Coverage is written through Travelers Insurance Company
Crime, which includes Employee Theft, Forgery Alteration, Computer Fraud, etc., coverage is also in
force with a limit of $1,000,000 for each line of coverage with a deductible of $25,000. Crime coverage is
written through Chartis Insurance.
Excess liability coverage is provided by a stand alone policy purchased by the City. Excess coverage is
provided by the Everest National Insurance Company. Excess workers' compensation coverage is
provided by a stand alone policy purchased through New York Marine and General Insurance Company.
The City is self insured for the first $1,000,000 of workers' compensation claims and for the first
$2,000,000 of its general liability coverage. York Insurance Services Group, Inc., which was formally
known as Southern California Risk Managers Association (SCRMA), is the Third Party Administrator for
the City's workers' compensation claims. The City self administers its general liability claims. Workers'
compensation and general liability loss run reports are prepared by York Insurance Services Group, Inc.
30
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2010
NOTE 8 — RISK MANAGEMENT (CONTINUED)
The insurance limits are as follows:
Type of Coverage Self -Insured
General Liability
Excess Workers
Compensation
Property:
Blanket Building &
Contents
Flood Sublimit — Annual
Electronic Data
Processing Equipment:
Newly Constructed or
Acquired
Machinery
Breakdown
$2,000,000
$1,000,000
$100,000
deductible
Excess
Limit Cagier
Everest National Insurance
$20,000,000 Cc
New York Marine &
$50,000,000 General Insurance Co
$100,000,000
Travelers Insurance
Co
Included
Travelers Insurance
Cc
$25,000,000
Travelers Insurance
Co
Included Travelers Insurance Cc
Included Travelers Insurance Co
$50,000,000 Travelers Insurance Cc
The City is self insured or pays the deductible stated above for general liability, workers' compensation,
or property losses. There have been no significant reductions of coverage from the prior year. There have
been no settlements exceeding insurance coverage for each of the past three fiscal years.
The City charges L&P a premium based upon the proportional payroll cost. For the current fiscal year,
L&P's proportional premium cost was $829,058.
Further information regarding the City's self-insurance program may be found in the City's Annual
Financial Report.
NOTE 9 — PENSION PLAN
L&P employees participate with other City employees in the California Public Employees' Retirement
System (PERS), an agent multiple -employer retirement system that acts as a common investment and
administrative agent for participating public entities within the State of California.
All full-time safety (police and fire personnel) and miscellaneous personnel and temporary or part-time
employees who have worked 1,000 hours in a fiscal year are eligible to participate in the PERS. Benefits
vest after five years of service. Employees who retire at age 50 with five years of credited service are
entitled to retirement benefits. Monthly retirement benefits are based on an employee's average
compensation for his or her single highest year of compensation for each year of credited service.
31
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2010
NOTE 9 — PENSION PLAN (CONTINUED)
Miscellaneous members with five years of credited service may retire at age 55 with full benefits based
on a benefit factor derived from the "2.7% at 55 Miscellaneous Factor" benefit factor table and between
age 50 and 54 with reduced retirement benefits. Safety members may retire at age 50 with full benefits
based on a benefit factor derived from the "3% at 50 Safety Factor" for Police Department employees and
"3% at 50 Safety Factor" for Fire Department employees benefit factor table with five years of credited
service. The PERS also provides death and disability benefits. "These benefit provisions and all other
requirements are established by State statute and City ordinance.
The City's plan does not issue a stand-alone financial report but is included in the PERS report, which can
be obtained from PERS at Lincoln Plaza, 400 P Street, Sacramento, California 95814.
The State -required City employee salary contributions are 8% for miscellaneous employees and 9% for
safety employees. In prior years, employee contributions were subsidized by the City, however, effective
April 8, 2010 contributions were made by the employees. The City is required to contribute the
remaining amounts necessary to fund the benefits for its members, using the actuarial basis adopted by
the PERS Board of Administration.
The City and employees contribution to the PERS for the fiscal year ended June 30, 2010 was $7,405,652
and $542,793, respectively, of which L&P's employer and employees portions were $500,054 and
$294,800, respectively. City contribution rates as a percentage of covered payroll were 13.475% for
miscellaneous plan members and 25.327% for safety plan members.
The City's contribution was made in accordance with actuarially determined requirements based on an
actuarial valuation performed as of June 30, 2008.
The PERS uses the entry age normal actuarial cost method, which is a projected benefit cost method that
takes into account those benefits expected to be earned in the future as well as those already accrued.
According to this cost method, the normal cost for an employee is the level amount that would fund the
projected benefit if it were paid annually from the date of employment until retirement. The PERS uses a
modification of the entry age normal cost method whereby the employer's total normal cost is expressed
as a level percentage of payroll. Unfunded liabilities are amortized over a closed, 20-year period.
Significant actuarial assumptions used in the valuation included (a) a rate of return on the investment of
present and future assets of 7.75% a year, compounded annually; (b) overall payroll growth of 3.25%,
compounded annually; and (c) a merit scale varying by duration of employment coupled with an assumed
annual inflation growth of 3.00% and an annual production growth of 0.25%.
The actuarial value of assets was determined using techniques that smooth the effects of short-term
volatility in the market value of investments over a 15 year period.
32
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2010
NOTE 9 — PENSION PLAN (CONTINUED)
Trend information for the current and two preceding fiscal years is as follows:
Percentage
Fiscal Year
Annual
of
Ended
Pension
Amount
APC
June 30
Cost (APC)
Contributed
Contributed
2010
$ 7,405,652
$ 7,405,652
100%
2009
7,477,878
7,477,878
100%
2008
6,007,916
6,007,916
100%
Net Pension
Obligation
The following schedules present the funded status as of June 30, 2009 based on actuarial assumptions
consistent with the June 30, 2008 valuation described above (dollar amounts in millions).
Safety Plan Schedule of Funding Progress
Actuarial
UAAL
Accrued
Actuarial
Annual
as a % of
Liability
Value of
Unfunded
Covered
Covered
Valuation
(AAL)
Assets
UAAL
Funded
Payroll
Payroll
Date
(a)
(b)
(a)—(b)
Ratio
(c)
[(a)—(b)]/(c)
b/a
6/30/2009
$164,255,449
$136,399,402
$27,856,047
83.0%
$15,011,719
185.6%
Miscellaneous Plan Schedule of Funding Progress
Actuarial
UAAL
Accrued
Actuarial
Annual
as a % of
Liability
Value of
Unfunded
Covered
Covered
Valuation
(AAL)
Assets
UAAL
Funded
Payroll
Payroll
Date
(a)
(b)
(a)—(b)
Ratio
(c)
[(a)—(b)]/(c)
/a
6/30/2009
$102,181,483
$88,085,414
$14,096,069
86.2%
$13,658,374
103.2%
Further information regarding the City's pension plan may be found in the City's Annual Financial
Report.
33
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2010
NOTE 10 — LIGHT AND POWER OPERATIONS AND COMMITMENTS
Asset Sale
On December 13, 2007, the City entered into an Amended and Restated Purchase and Sale Agreement
(the "Bicent Agreement"), with Bicent (California) Power LLC ("Bicent"), which is an affiliate of Bicent
Holdings and Natural Gas Partners, to sell to Bicent the Malburg Generating Station ("MGS") and the
economic burdens and benefits of the City's interests in 22 MW from the Hoover Dam Uprating Project
for $287,500,000. This transaction closed on April 10, 2008.
Bicent has agreed to sell the capacity and the energy of the MGS to the City on the terms set forth in a
Power Purchase Tolling Agreement, by and between the City and Bicent, dated as of April 10, 2008 (the
"PPTA"). In addition, Bicent has acquired the benefits and burdens of the City's interest in the Hoover
Uprating Project (described below) on the terms set forth in the Hoover Contract for Differences
("CFD"), between Bicent (California) Hoover LLC, a Delaware limited liability company (`BCH") and
the City, dated as of April 10, 2008 (the "Hoover Differences Contract"). Pursuant to the Bicent
Agreement, Bicent has assigned its rights and obligations with respect to the MGS to its affiliate, Bicent
(California) Malbu g LLC, a Delaware limited liability company ("BCM"). Pursuant to the Bicent
Agreement, Bicent has assigned its rights and obligations with respect to the economic benefits and
burdens of the Hoover Uprating Project to its affiliate, BCH. The City treated the PPTA as an asset lease-
back transaction due to a 30 year ground lease between the City and BCM by deferring most of the gain
from the sale of MGS to be amortized over the 15 year life of the PPTA. The City also deferred the gain
from the CFD to be amortized over the 10 year life of the CFD. As of June 30, 2010, a deferred gain of
$56,712,621 remains to be amortized over the life of the PPTA and CFD which will be amortized in
proportion to the capacity payments the City will be making under the PPTA and CFD. (See Note 12 for
disclosure on uncertainties)
34
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2010
NOTE 10 — LIGHT AND POWER OPERATIONS AND COMMITMENTS (CONTINUED)
Project Commilrnenis
A. Southern California Public Power Authority
In 1980, the City entered into a joint powers agreement with nine (9) Southern California cities
and an irrigation district to form the Southern California Public Power Authority (the
"Authority"). The Authority's purpose is the planning, financing, acquiring, constructing and
operating of projects that generate or transmit electric energy.
The Authority purchased a 5.91% interest in the Palo Verde Nuclear Generating Station (the
"Station"), a nuclear -fired generating station near Phoenix, Arizona, from the Salt River Project
Agricultural Improvement and Power District, and a 6.55% share of the right to use certain
portions of the Arizona Nuclear Power Project Valley Transmission System. The City has a 4.9%
entitlement share of the Authority's interest in the station.
Between 1983 and 2008, the Authority issued $3.266 billion in debt of Power Project Revenue
Bonds for the Station to finance the bonds and the purchase of the Authority's share of the Station
and related transmission rights. The bonds are not obligations of any member of the Authority or
public agency other than the Authority. Under a power sales contract with the Authority, the City
is obligated on a "take or pay" basis for its proportionate share of power generated, as well as to
make payments for its proportionate share of the operating and maintenance expenses of the
Station, debt service on the bonds and any other debt, whether or not the project or any part
thereof or its output is suspended, reduced or terminated. The City's proportionate share of costs
during fiscal year 2010 was $3,297,442.
B. Hoover Dam Power Plant Upgrade Program
In January 1987, the City entered into a contract with the Federal Bureau of Reclamation to fund
part of an upgrading program of the Hoover Dam power plant to increase the plant's generating
capacity. In exchange, the City will receive its pro rata share of the additional power produced.
Total program costs are estimated to be $155 million.
As of June 30, 2010, the City's total advances were $6,690,998 for the upgrading program. At
June 30, 2010, the outstanding note receivable was $2,953,044. The City has no obligation to
advance funds in the future. The note is being repaid with interest over a period of 30 years. The
City must also make payments for its pro rata share of operating and maintenance costs not
recovered by the plant through revenues. The amount paid during the current year for purchased
power was reduced by principal and interest amounts totaling $314,450 due the City on the
outstanding note receivable. The contract expires in September 2017,
35
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2010
NOTE 10 — LIGHT AND POWER OPERATIONS AND COMMITMENTS (CONTINUED)
Power Purchase Commitments
As of June 30, 2010, the City had the following long-term commitments to purchase power subject to
certain conditions:
Fiscal Year
Amount*
2011
17,206,166
2012
21,468,581
2013
21,468,581
2014
21,468,581
2015
21,468,581
2016-2020
162,442,189
2021-2023
96,931,266
$ 362,453,945
*Commitments under thePPTA and CFD net of amortization of deferred gain.
Electric Rate Increase
Effective December 1, 2009, the City increased its electric rates 4.7% charged for electrical energy
distributed and supplied by the City within its boundaries.
NOTE 11 -- POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS (OPEB)
The postemployment benefit described in the following paragraphs relate to the City in which L&P is a
department. Information relating to the City applies to L&P because the pension and postemployment
benefits are maintained by the City for all employees of the City which includes those of the departments.
Resolution 9782 provided the payment of medical and dental insurance premiums for certain categories of
retired employees during the 2008-2009 fiscal year. Resolution 9782 goes on to state that the City will
provide a single -employer postemployment benefit plan consisting of medical and dental benefits to
employees who attain age 60 with 20 years of service. The City plan subsidizes the full cost of the
premium for qualified employees beginning at age 60. Alternatively, an employee can retire with 30
years of service, before age 60, but must pay the full cost until age 60 when the City begins to subsidize
the payments. These benefits are not vested rights and expire at the conclusion of the fiscal year. In the
future, the City may terminate its unvested OPEB. Sworn safety personnel eligibility requirements are a
minimum of 20 years service and a minimum of 10 years of service with the City. As of June 30, 2010,
375 employees (286 active employees and 64 retired employees), participate in OPEB.
For the year ended June 30, 2010, no postemployment benefits obligation has been allocated to L&P by
the City.
Further information regarding the City's participation in OPEB may be found in the City's Annual
Financial Report.
36
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2010
NOTE 12 — CONTINGENCIES
During the course of normal operations L&P is subjected to various claims. In the opinion of
management and legal counsel, the disposition on all litigation pending will not have a material effect on
the L&P's financial statements.
Uncertainties
The financial and operational effects of the 2008 sale of generation and transmission assets, while
reducing the electric system's debt burden and providing liquidity, puts the utility at some risks in terms
of increased fixed -charge obligations and long-term power resource uncertainty.
On September 15, 2010, the Office of the Attorney General for the State of California began an
investigation of the compensation paid from the City to various individuals who, at various times, have
acted or had acted in the capacity of officials, officers and/or employees of the City. The City is
cooperating fully with this inquiry.
A bill has been introduced into the California Assembly, which, if adopted, could dis-incorporate the
City. See further disclosure in Note 13.
The impact or outcome of these matters on the City and any potential implications cannot presently be
determined and therefore results in uncertainties at the City.
NOTE 13 — SUBSEQUENT EVENTS
Uncertainties
As discussed in Note 12, Assembly Bill 46 was introduced into the California Assembly, which if
adopted, could dis-incorporate the City. On April 28, 2011, Assembly Bill 46 was approved in the
Assembly and ordered to the Senate. On June 23, 2011, the Senate Government and Finance Committee
approved the bill and ordered it to the full Senate. The outcome and potential impact of this matter on the
City cannot presently be determined.
Credit Ratines
On December 9, 2010, Moody's Investors Service has put on a Watchlist for a possible downgrade, the
A3 ratings on the City of Vernon's, Electric System Revenue Bonds, 2008 Taxable Series A and Electric
System Revenue Bonds 2009 Series A.
On March 21, 2011, Moody's Investors Service affirmed the A3 ratings with negative outlook
37
CITY OF VERNON, CALIFORNIA
LIGHT AND POWER DEPARTMENT FUND
Notes to Basic Financial Statements
June 30, 2010
Change in Fair Value of Derivative Instruments
The fair value balance and notional amount of the derivative instruments outstanding at June 16, 2011,
classified by type, and the change in fair value of such derivative instruments since June 30, 2010 are as
follows:
BnS111CSS-1ype activilies
Investment derivative instmmenls
Variable to Fixed Swaps
2004 Series A Bonds
2004 Series B Bonds
Change in Fair Value Fair Value at June 16, 2011
Classification Amount Classification Amount Notional
Increase in fair value $ 1,873,798 Derivative liability $ (16,185,995) $ 90,150,000
Increase in fair value 908,152 Derivative liability (12,267,246) 83,575,000
38
APPENDIX B
SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE
The following is a brief summary of certain provisions of the Indenture not previously discussed in this
Official Statement. Such summary is not intended to be definitive, and reference is made to the Indenture in its
entiretyfor the complete terms thereof. Capitalized terms used in this summary which are not otherwise defined in
this Official Statement have the meanings ascribed to such terms in the Indenture.
DEFINITIONS
"Accountant's Certificate" means a certificate signed by an Independent Certified Public Accountant
selected by the City.
"Accreted Value" means, with respect to any Capital Appreciation Obligation and as of any date, the Initial
Amount thereof plus the interest accrued thereon from its delivery date, compounded at the approximate interest rate
with respect to such Capital Appreciation Obligation specified in or pursuant to the issuing Instrument authorizing
the issuance of such Capital Appreciation Obligation on each date specified therein. The applicable Accreted Value
at any date shall be the amount set forth in the Accreted Value Table as of such date, if such date is a compounding
date, and if not, shall be determined by straight-line interpolation with reference to such Accreted Value Table.
"Accreted Value Table" means, with respect to Capital Appreciation Obligations, the table denominated as
such in, and to which reference is made in, the Issuing Instrument authorizing the issuance of such Capital
Appreciation Obligations.
"Additional Bonds" means Bonds issued in accordance with the terms and conditions of the Indenture for
the purposes set forth in the Indenture.
"Additional Parity Obligations" means Parity Obligations, including Additional Bonds, issued for the
purposes set forth in the Indenture and satisfying the conditions set forth in the Indenture.
"Adjusted Debt Service" means, for any period of time, the Debt Service for such period minus the sum of
the amount of such Debt Set -vice with respect to Outstanding Parity Obligations to be paid during such period from
the proceeds of Parity Obligations, Subordinate Obligations or other funds as set forth in a certificate of the City.
"Adjusted Net Revenues" means, with respect to a certificate to be delivered in connection with Additional
Parity Obligations pursuant to the Indenture, for any Calculation Period, as calculated by the City or an Independent
Engineer, the Adjusted Revenues for such Calculation Period less the Operation and Maintenance Expenses for such
Calculation Period, plus at the option of the City, any or all of the following: (i) an allowance for any estimated
increase in Revenues from any additions or improvements to or extensions of the Electric System, made but not in
service during the applicable Calculation Period or to be made with the proceeds of any Additional Parity
Obligations with respect to which such certificate relates, with the proceeds of other Obligations theretofore issued
by the City and available for such purpose or with other available funds of the City reserved by the City for such
purpose, such allowance to be in an amount equal to the estimated additional average annual Net Revenues to be
derived from such additions, improvements and extensions during the twelve month period after placing each such
addition, improvement or extension in service, all as shown by a certificate of the City or an Independent Engineer;
and (ii) an allowance for any increases in rates and charges for the Electric Service of the Electric System and which
have been approved by the City Council but which during all or any part of the applicable Calculation Period were
not in effect, such allowance to be in an amount equal to seventy-five percent (75%) of the amount by which the
Revenues for the applicable Calculation Period would have increased if such increase in rates and charges had been
in effect for that portion of such Calculation Period during which such increase was not in effect.
IM
"Adjusted Revenues" means, for any period of time, the Revenues for such period less the amount of such
Revenues which have been deposited in the Expense Stabilization Fund during such period plus the amount of
withdrawals daring such period from the Expense Stabilization Fund.
"Advance Refunded Municipal Securities" means any bonds or other obligations of any state of the United
States of America or of any agency, instrumentality or local government unit of any such state (a) which are rated
"AAA" by Standard and Poot's, "AAA" by Fitch or "Ana" by Moody's, (b) which are not callable prior to maturity
or as to which irrevocable instructions have been given to the trustee, fiscal agent or other fiduciary for such bonds
or other obligations by the obligor to give due notice of redemption and to call such bonds or other obligations for
redemption on the date or dates specified in such instructions, (c) which are secured as to principal and interest and
redemption premium, if any, by a fund consisting only of cash or bonds or other obligations of the character
described in clause (i) of the definition of Defeasance Securities which fund may be applied only to the payment of
such principal of and interest and redemption premium, if any, on such bonds or other obligations on the maturity
date or dates thereof or the redemption date or dates specified in the irrevocable instructions referred to in clause (b)
above, as appropriate, and (d) as to which the principal of and interest on the bonds and obligations of the character
described in clause (i) of the definition of Defeasance Securities which have been deposited in such fund, along with
any cash on deposit in such fund, have been verified by an Accountant's Certificate as being sufficient to pay
principal of and interest and redemption premium, if any, on such bonds or other obligations on the maturity date or
dates thereof or on the redemption date or dates specified in the irrevocable instructions referred to in clause (b)
above, as applicable.
"Applicable Parity Obligations" means, with respect to a certificate to be delivered in connection with
Additional Parity Obligations pursuant to the Indenture and as of the date of such certificate, all of the Parity
Obligations Outstanding on such date plus the Additional Parity Obligations proposed to be issued.
"Authorized Denominations" means, with respect to Bonds of any Series, the denomination or
denominations designated as such in the Supplemental Indenture authorizing such Bonds.
"Authorized City Representative" means the City Administrator of the City, and any other officer of the
City duly authorized to act as an Authorized City Representative for purposes of the Indenture by the City Council
or written authorization of the City Administrator of the City.
"Balloon Indebtedness" means, with respect to any Series of Obligations twenty-five percent (25%) or
more of the principal of which matures on the same date or within a 12-month period (with Sinking Fund
hnstallments on Term Obligations deemed to be payments of matured principal), that portion of such Series of
Obligations which matures on such date or within such 12-month period. For purposes of this definition, the
principal amount maturing on any date shall be reduced by the amount of such indebtedness which is required, by
the documents governing such indebtedness, to be amortized by prepayment or redemption prior to its stated
maturity date.
"Beneficial Owner" means, with respect any Book -Entry Bond, the beneficial owner of such Bond as
determined in accordance with the applicable rules of the Securities Depository for such Book -Entry Bonds.
"Bond" means any of the City of Vernon Electric System Revenue Bonds authorized pursuant to the
Indenture and a Supplemental Indenture.
"Bond Counsel" means Orrick, Herrington & Sutcliffe LLP or another attorney or firm of attorneys of
recognized national standing in the field of law relating to municipal securities and to exclusion of interest thereon
from income for federal income tax purposes selected by the City.
"Bond Debt Service" means, for any period of time, the sum of (a) the interest payable during such period
on all Outstanding Bonds, assuming that all Outstanding Bonds which are Serial Obligations are retired as scheduled
and that all Outstanding Bonds which are Tenn Obligations are redeemed or paid from Sinking Fund Installments as
scheduled, (b) that portion of the principal amount of all Outstanding Bonds which are Serial Obligations maturing
on each principal payment date during such period, including the Final Compounded Amount of any Bonds which
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are Capital Appreciation Obligations and Serial Obligations, (c) that portion of the principal amount of all
Outstanding Bonds which are Term Obligations required to be redeemed or paid from Sinking Fund Installments
during such period (together with the redemption premiums, if any, thereon).
"Bond Ordinance" means the City of Vernon Municipal Facilities Revenue Bond Law constituting Article
XI of the City Code of the City of Vernon.
"Bond Register" means the registration books for the ownership of Bonds maintained by the Trustee
pursuant to the Indenture.
"Bondowner" or "Owner" means, with respect to a Bond, the registered owner of such Bond as set forth in
the Bond Register.
"Book -Entry Bonds" means Bonds registered in the name of a nominee of DTC, or any successor
Securities Depository for the Bonds or a nominee thereof, as the registered owner thereof pursuant to the terms and
provisions of the Indenture,
`Budget' means, as of any date, the budget for the Electric System prepared by the City pursuant to the
Indenture in effect as of such date.
"Business Day" means, with respect to each Series of Bonds, unless otherwise provided with respect to a
Series of Bonds in the Supplemental Indenture authorizing the issuance of such Series, any day of the year other
than (i) a Saturday, (ii) a Sunday, (iii) any day which shall be in Los Angeles, California or New York, New York a
legal holiday or a. day on which banking institutions are authorized or required by law or other government action to
close, and (iv) any day on which the banks are authorized or required by law or other goverment action to close in
the State of New York or State of California or any city in which the Principal Office of any Paying Agent or any
Credit Provider for such Series of Bonds is located.
"Calculation Period" means, with respect to any certificate to be provided pursuant to the Indenture, any
twelve consecutive month period within the eighteen consecutive months ending immediately prior to the issuance
of the Additional Parity Obligations to which such certificate relates.
"Capital Appreciation Obligations" mean any Obligations the interest on which is compounded and not
scheduled to be paid until the maturity or prior redemption of such Obligations.
"Capital Improvement" means, to the extent chargeable to a capital account of the Electric System, or
otherwise eligible for amortization, under Generally Accepted Accounting Principles any land, improvement,
facility, equipment and other property of any nature whatsoever which is used in the Electric System including but
not limited to: (i) any addition, betterment, replacement, renewal, extension or improvement of or to the Electric
System, including, without limitation, capacity rights in electric generation resources, rights to the transmission
capability of electric transmission resources, acquisition of emission credits or other environmental assets for
facilities of the Electric System, land or any interests therein; and (ii) capital costs for the extension, reinforcement,
enlargement or other improvement of facilities or property, or the acquisition of interests therein, not included as
part of the Electric System, determined by the City to be necessary or convenient in connection with the utilization
of the Electric System.
"Charter" means the Charter of the City of Vernon.
"City" means the City of Vernon, California and its successors.
"City Administrative Code" means the Code of the City of Vernon.
"City Council" means the City Council of the City established pursuant to the Charter.
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"Code" means the Internal Revenue Code of 1986, as amended from time to time. Each reference to a
section of the Code in the indenture shall be deemed to include the applicable United States Treasury Regulations
thereunder and also includes all amendments and successor provisions unless the context clearly requires otherwise.
"Collateral Requirement" means, with respect to a Qualified Swap Agreement, that such Qualified Swap
Agreement includes provisions to the effect that: (i) if the counterparty's (or, if applicable, the counterparty's
guarantor's) ratings fall below "Aa" by Moody's or "AA" by S&P, or are suspended or withdrawn, the counterparty
shall provide collateral in the form of cash or Defeasance Securities, or a combination thereof; (ii) that the collateral
is to be held by the City or a third party custodian acceptable to the City; (iii) that the City shall have a perfected
security interest in the collateral; (iv) that the amount of the collateral shall be at least equal to one hundred percent
of the amount, if any, that the counterparty would be obligated to pay the City in the event of the early termination
of the transactions under the Qualified Swap Agreement; (v) that there may be deducted from the amount of the
collateral a threshold amount of not more than $1,000,000, except that if the counterparty's (or, if applicable, the
counterparty's guarantor's) ratings fall below "A" by Moody's or "A" by S&P, or are suspended or withdrawn, the
threshold amount shall be zero; and (vi) the amount of the required collateral and the value of the collateral posted
shall be valued no less frequently than monthly.
"Commercial Paper Program" means a program of short-term Obligations having the characteristics of
commercial paper in that such Obligations have a stated maturity not later than 270 days from their date of issue and
that maturing Obligations of such program may be paid with the proceeds of renewal short-term Obligations.
"Cost" means, with respect to any Capital Improvement, to the extent permitted tinder the Bond Ordinance,
all costs and expenses of planning, designing, acquiring, constructing, installing and financing such Capital
Improvement, placing such Capital Improvement in operation, disposal of such Capital Improvement, and obtaining
governmental approvals, certificates, permits and licenses with respect to the applicable Capital Improvement paid
or incurred by the City. Payment of Cost shall include the reimbursement to the City for any of the costs included in
this definition of Cost paid by the City and not previously reimbursed to the City and which are not to be reimbursed
from contributions in aid of construction. The term Cost shall include, but shall not be limited to: (a) costs of
preliminary investigation and development, the performance or acquisition of feasibility and planning studies, and
the securing of regulatory approvals, as well as costs for land and land rights,. engineering and contractors' fees,
labor, materials, equipment, utility services and supplies, legal fees and financing expenses; (b) working capital and
reserves therefor in such amounts as shall be determined by the City; (c) interest accruing in whole or in part on
Parity Obligations prior to and during the acquisition, construction and installation of a Capital Improvement, or any
portion thereof, and for such additional period as the City may determine; (d) the deposit or deposits from the
proceeds of the Bonds in any funds or accounts required by the Indenture or any Supplemental Indenture; (e) the
payment of principal, premium, if any, and interest when due (whether at the maturity of principal or at the due date
of interest or upon redemption or otherwise) of any note or other evidence of indebtedness the proceeds of which
were applied to any of the costs of the applicable Capital Improvement or Capital Asset described in this definition;
(f) Training and testing costs which are properly allocable to the acquisition, placing in operation, or construction of
a Capital Improvement; (g) All costs of insurance applicable to the period of acquisition of the Capital Asset and the
acquisition, construction, installation and placing the Capital Improvement in operation; (h) All costs relating to
injury and damage claims arising out of the acquisition, construction, installation and placing the Capital
Improvement in operation less proceeds of insurance; (i) legally required or permitted federal, state and local taxes
and payments in lieu of taxes applicable to the acquisition, construction, installation and placing the Capital
Improvement in operation, or any portions thereof; Q) amounts due the United States of America as rebate of
investment earnings with respect to the proceeds of Parity Obligations the proceeds of which were applied, in whole
or in part, to the Capital Improvement or as penalties in lieu thereof, (k) amounts payable with respect to capital
costs for the expansion, reinforcement, enlargement or other improvement of facilities, whether or not such facilities
constitute a part of the Electric System, determined by the City to be necessary in connection with the utilization of
the applicable Capital improvement and the costs associated with the removal from service or reductions in service
of any facilities as a result of the expansion, reinforcement, enlargement or other improvement of such facilities or
the acquisition, constriction, installation or placing in service of the Capital Improvement; (1) Costs of Issuance of
any Parity Obligations the proceeds of which were applied, in whole or in part, to the Capital Improvement; (m) fees
and expenses pursuant to any lending or credit facility or agreement applicable to the period of the acquisition,
construction, installation and placing in operation the Capital Improvement; and (n) To the extent chargeable to a
capital account of the Electric System tinder Generally Accepted Accounting Principles, all other costs incurred by
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the City, properly allocable to the acquisition, construction, or installation of the Capital Improvement, or any
portion thereof, or the placing of the Capital Improvement or any portion thereof in operation.
"Costs of Issuance" means, to the extent permitted by the Bond Ordinance, all items of expense directly or
indirectly payable by or reimbursable to the City and related to the original authorization, execution, sale and
delivery of Parity Obligations, including but not limited to advertising and printing costs, costs of preparation and
reproduction of documents, including disclosure documents and documents relating to the sale of such Parity
Obligations, initial fees and charges (including counsel fees) of any fiscal agent, any paying agent and any Credit
Provider, legal fees and charges, financial advisor fees and expenses, fees and expenses of other consultants and
professionals, rating agency fees, fees and charges for preparation, execution, transportation and safekeeping of
Parity Obligations and any other cost, charge or fee in connection with the authorization, issuance, sale or original
delivery of Parity Obligations.
"Credit Provider" means any municipal bond insurance company, bank or other financial institution or
organization which is performing in all material respects its obligations under any Credit Support Instrument for
some or all of the Parity Obligations.
"Credit Provider Bonds" means any Bonds paid as to principal, Redemption Price, Purchase Price and/or
interest with funds provided under a Credit Support Instrument for so long as such Bonds are held by or for the
account of, or are pledged to, the applicable Credit Provider or any assignee thereof in accordance with the
applicable Credit Support Agreement.
"Credit Provider Reimbursement Obligations" means obligations of the City to pay from the Net Revenues
and amounts in the Light and Power Fund (other than the Operating Reserve) amounts due under a Credit Support
Agreement, including without limitation amounts advanced by a Credit Provider pursuant to a Credit Support
Instrument as credit support or liquidity for Parity Obligations and the interest with respect thereto.
"Credit Support Agreement" means,. with respect to any Credit Support Instrument, the agreement or
agreements (which may be the Credit Support Instrument itself) between the City and the applicable Credit Provider,
as originally executed or as it may from time to time be replaced, supplemented or amended in accordance with the
provisions thereof, providing for the reimbursement to the Credit Provider for payments under such Credit Support
Instrument or for extensions of credit made to the City by the Credit Provider, and the interest thereon, and includes
any subsequent agreement pursuant to which a substitute Credit Support Instrument is provided, together with any
related pledge agreement, security agreement or other security document.
"Credit Support Instrument" means a policy of insurance, a letter of credit, a stand-by purchase agreement,
revolving credit agreement or other credit arrangement pursuant to which a Credit Provider provides credit and/or
liquidity support with respect to the payment of interest, principal, Redemption Price or Purchase Price of any Parity
Obligations but shall not include a Reserve Financial Guaranty.
"Debt Service Adjustments and Assumptions" means, for purposes of determining Aggregate Adjusted
Annual Debt Service and Maximum Adjusted Annual Debt Service, the following adjustments and assumptions to
be made with respect to Debt Service: (a) in determining the amount of Debt Service constituting principal due in
each Fiscal Year, principal payments with respect to Parity Obligations which are or upon issuance shall be, part of a
Commercial Paper Program, but which would not constitute Balloon Indebtedness, shall be treated as if such Parity
Obligations were to be amortized with substantially level annual Debt Service payments over a term of 40 years
commencing on the date the calculation of Aggregate Adjusted Annual Debt Service or Maximum Adjusted Annual
Debt Service is made; (b) if all or any portion or portions of the Parity Obligations constitute, or upon issuance
would constitute, Balloon Indebtedness, then, for purposes of determining Aggregate Adjusted Annual Debt Service
and Maximum Adjusted Annual Debt Service, each maturity which constitutes, or upon issuance would constitute,
Balloon Indebtedness shall be treated as if it were to be amortized with substantially level annual Debt Service
payments over a term of 40 years commencing on the date which is the first anniversary of the initial issuance of
such Parity Obligations; (c) if any Outstanding Parity Obligations constitute Tax:Exempt Variable Rate
Indebtedness (except to the extent paragraph (g) applies), the interest rate on such Parity Obligations for any period
as to which such interest rate has not been established shall be assumed to be the ten year historical average of the
SIFMA Index ending with the week preceding the date of calculation; (d) if any Outstanding Parity Obligations
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constitute Variable Rate Indebtedness which is not Tax -Exempt (except to the extent paragraph (g) applies), the
interest rate on such Parity Obligations for any period as to which such interest rate has not been established shall be
assumed to be the ten year historical average of the One Month USD LIBOR Rate ending with die month preceding
the date the calculation of Aggregate Adjusted Annual Debt Service or Maximum Adjusted Annual Debt Service is
made or if the One Month USD LIBOR Rate is not available for such period, another similar rate or index selected
by the City; (e) if the Parity Obligations proposed to be issued shall be Tax -Exempt Variable Rate Indebtedness
(except to the extent subsection (h) applies), then the interest rate on such Parity Obligations shall be assumed to be
the ten year historical average of the SIFMA Index ending with the week preceding the date the calculation of
Aggregate Adjusted Annual Debt Service or Maximum Adjusted Annual Debt Service is made; (f)if the Parity
Obligations proposed to be issued shall be Variable Rate Indebtedness which is not Tax -Exempt (except to the
extent subsection (h) applies) then the interest rate on such Parity Obligations shall be assumed to be the ten year
historical average of the One Month USD LIBOR Rate ending with the month preceding the date the calculation is
made, or if the One Month USD LIBOR Rate is not available for such period, another similar rate or index selected
by the City; (g) if a Qualified Swap Agreement has been entered into in connection with any Outstanding Parity
Obligations, the interest rate on such Outstanding Parity Obligations for each Fiscal Year or portion thereof during
which payments are to be exchanged by the parties under such Qualified Swap Agreement shall be determined for
purposes of calculating Aggregate Adjusted Annual Debt Service and Maximum Adjusted Annual Debt Service by
adding: (1) the amount of Debt Service paid or to be paid by the City as interest on the Outstanding Parity
Obligations during such Fiscal Year or portion thereof (determined as provided in paragraph (c) or (d), as applicable,
if such Outstanding Parity Obligations constitute Variable Rate Indebtedness) and (2) the net amount (which may be
a negative amount) paid or to be paid by the City under the Qualified Swap Agreement (after giving effect to
payments made and received, and to be made and received, by the City under the Qualified Swap Agreement)
during such Fiscal Year or portion thereof, and for this purpose any variable rate of interest agreed to be paid under
the Qualified Swap Agreement shall be deemed to be the rate at which the related Outstanding Parity Obligations
constituting Variable Rate Indebtedness is assumed to bear interest; (h) if a Qualified Swap Agreement has been
entered into, or upon issuance of such Parity Obligation will be entered into, by the City with respect to any Parity
Obligations proposed to be issued, the interest on such proposed Parity Obligations for each Fiscal Year or portion
thereof during which payments are to be exchanged under the Qualified Swap Agreement shall be determined for
purposes of calculating Aggregate Adjusted Annual Debt Service and Maximum Adjusted Annual Debt Service by
adding: (1) the amount of Debt Service to be paid by. the City as interest on such Parity Obligations during such
Fiscal Year or portion thereof (determined as provided in paragraph (e) or (f), as applicable, if such Parity
Obligations are to constitute Variable Rate Indebtedness) and (2) the net amount (which may be a negative amount)
to be paid by the City under the Qualified Swap Agreement (after giving effect to payments to be made and received
by the City under the Qualified Swap Agreement) during such Fiscal Year or portion thereof, and for this purpose
any variable rate of interest agreed to be paid under the Qualified Swap Agreement shall be deemed to be the rate at
which the related Parity Obligations which are to constitute Variable Rate Indebtedness shall be assumed to bear
interest; and (i)if any of the Parity Obligations are, or upon issuance shall be, Paired Obligations, the interest thereon
shall be the resulting linked rate or effective fixed rate to be paid with respect to such Paired Obligations.
"Debt Service Fund" means the City of Vernon Electric System Debt Service Fund established pursuant to
the Indenture.
"Debt Service Reserve Fund" means the City of Vernon Electric System Debt Service Reserve Fund
established pursuant to the Indenture.
"Debt Service Reserve Requirement" means, as of any date of calculation, an amount equal to the least of
(a) ten percent (10%) of the initial offering price to the public of the Bonds as determined under the Code, or (b) the
greatest amount of Bond Debt Service in any Fiscal Year during the period commencing with the Fiscal Year in
which the determination is being made and terminating with the last Fiscal Year in which any Bond is due, or (c)
one hundred twenty-five percent (125%) of the sum of the Bond Debt Service for all Fiscal Years during the period
commencing with the Fiscal Year in which such calculation is made (or if appropriate, the first full Fiscal Year
following the execution and delivery of any Bonds) and terminating with the last Fiscal Year in which any Bond
Debt Service is due, divided by the number of such Fiscal Years, all as computed and determined by the City and
specified in writing to the Trustee; provided, however that in determining Bond Debt Service with respect to any
Bonds that constitute Variable Rate Indebtedness, the interest rate on such Bonds for any period as to which such
interest rate has not been established shall be assumed to be (i) with respect to Bonds which are Tax -Exempt, the ten
year historical average of the SIFMA Index ending with the week preceding the date of calculation, and (ii) with
respect to Bonds which are not Tax -Exempt, the ten year historical average of the One Month USD LIBOR Rate
ending with the month preceding the date the calculation is made or if the One Month USD LIBOR Rate is not
available for such period, another similar rate or index selected by the City. _
"Debt Service Reserve Valuation Date" means the Business Day preceding each July 1, commencing July
1, 2009.
"Defeasance Securities" means any of the following securities, if and to the extent the same are at the time
legal investments for funds of the City: (i) any bonds or other obligations which as to principal and interest
constitute direct obligations of, or obligations unconditionally guaranteed by, the United States of America,
including obligations of any agency or corporation which has been or may hereafter be created pursuant to an Act of
Congress as an agency or instrumentality of the United States of America to the extent unconditionally guaranteed
by the United States of America; and (ii) Advance Refunded Municipal Securities.
"Electric Service" means the services, commodities and products furnished, made available or provided by
the Electric System.
"Electric System" means the electrical energy generation, transmission and distribution system of the City
established pursuant to Ordinance No. 1022 of the City (codified as Section 2.91 of the City Administrative Code)
and referred to in the City Administrative Code as the Vernon Electric System, comprising all electric generation,
transmission and distribution facilities and all general plant facilities related thereto now owned by the City and all
other facilities properties, strictures or works for the generation, transmission or distribution of electricity hereafter
acquired by the City, including all contractual rights for electricity or the transmission thereof, together with all
additions, betterments, extensions or improvements to such facilities, properties, structures or works or any part
thereof, and any additional contract rights for electricity or the transmission thereof, hereafter acquired.
"Event of Default" means an event described as such in the Indenture
"Electronic" means, with respect to notice, notice through telecopy, telegraph, telex, facsimile
transmission, intemet, e-mail, dedicated electronic link or other electronic means of communication capable of
producing a written record.
"Escrow Agent" means the Trustee or a bank or trust company organized under the laws of any state of the
United States, or a national banking association, appointed by the City to hold in trust moneys set aside for the
payment or redemption of, or interest installments on, a Bond or Bonds, or any portion thereof, deemed paid and
defeased pursuant to the Indenture.
"Expense Stabilization Fund" means the City of Vernon Electric System Expense Stabilization Fund
established pursuant to the Indenture.
"Event of Bankruptcy" means any of the following with respect to any Person: (a) the commencement by
such person of a voluntary case under the Federal Bankruptcy Code or any other applicable federal or state
bankruptcy, insolvency or similar laws; (b) failure by such Person to timely controvert the filing of a petition with a
court having jurisdiction over such Person to commence an involuntary case against such person under the Federal
Bankruptcy Code or any other applicable federal or state bankruptcy, insolvency or similar laws; (c) such Person
shall admit in writing its inability to pay its debts generally as they become due; (d) a receiver, trustee, custodian or
liquidator of such Person or such Person's assets shall be appointed in any proceeding brought against the Person or
such Person's assets; (e) assignment of assets by such person for the benefit of its creditors; or (f) the entry by such
Person into an agreement of composition with its creditors.
"Favorable Opinion of Bond Counsel" means, with respect to any action requiring such an opinion, an
Opinion of Bond Counsel to the effect that such action shall not, in and of itself, adversely affect the Tax -Exempt
status of interest on the Bonds or such portion thereof as shall be specified in the provisions of the Indenture or the
Supplemental Indenture requiring such an opinion.
"Federal Bankruptcy Code" means Title 11 of the United States Code entitled `Bankruptcy," as the same
may be amended and supplemented, and any successor statute.
"Fiduciary" means the Trustee and any Paying Agent for Bonds appointed as provided in the Indenture.
"Final Compounded Amount" means the Accreted Value of any Capital Appreciation Obligation on its
maturity date.
"First Supplemental Indenture" means the First Supplemental Indenture of Trust, dated as of September 1,
2008, between the City and the Trustee supplementing the Master Indenture, as the same may be amended and
supplemented in accordance with the provisions of the Master Indenture and relating to the Bonds.
"Fiscal Year" means the period beginning on July 1 of each year and ending on the next succeeding June
30, or any other twelve-month period selected and designated as the official Fiscal Year of the City.
"Franchise Payment" means the payment in lieu of franchise tax added to each Electric System customer
bill to be paid to the City's General Fund and any successor or replacement payment.
"Fund" means each of the funds established under the Indenture.
"Generally Accepted Accounting Principles" means generally accepted accounting principles applied on a
consistent basis set forth in the opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants applicable to a government -owned utility applying all statements and
interpretations issued by the Governmental Accounting Standards Board and statements and pronouncements of the
Financial Accounting Standards Board which are not in conflict with the statements and interpretations issued by the
Governmental Accounting Standards Board or in such other statements by such other entity as may be approved by
a significant segment of the accounting profession, that are applicable to the circumstances as of the date of
determination.
"Indenture" means, the Master Indenture, as supplemented and amended from time to time by
Supplemental Indentures.
"Independent Certified Public Accountant" means a Person who is: (i) a certified public accountant, or a
firm of certified public accountants; (ii) appointed by the City to perform acts, prepare certificates or otherwise carry
out the duties provided for an Independent Certified Public Accountant in this Master Indenture or any
Supplemental Indenture; (iii) which is independent pursuant to the Statement on Auditing Standards No. 1 of the
American Institute of Certified Public Accountants; (iv) which is of recognized standing with respect to accounting
matters for municipally -owned electric utilities; and (v) which is licensed to practice in the State of California.
"Independent Engineer" means a Person who is: (i) a consulting engineer, or a firm of consulting engineers;
(ii) appointed by the City to perform acts, prepare certificates or otherwise carry out the duties provided for an
Independent Engineer in this Master Indenture or any Supplemental Indenture; (iii) which is of national recognized
standing with respect to engineering matters for electric utilities; and (iv) which is licensed to practice in the State of
California.
"Initial Amount" means the Accreted Value of a Capital Appreciation Obligation on its date of issuance
and delivery to the original purchaser thereof.
"Interest Account" means the account by that name in the Debt Service Fund established pursuant to the
Indenture.
"Interest Payment Date" means, with respect to a Series of Bonds, each date on which interest on Bonds of
such Series is scheduled to be paid as set forth in, or determined in accordance with, the Supplemental Indenture
authorizing the issuance of such Series.
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"Issuing Instrument" means any, indenture, nest agreement or other instrument or agreement under which
Obligations are issued.
"Light and Power Fund" means the Light and Power Department Fund established pursuant to Ordinance
No. 950 of the City (codified as Section 2.65 of the City Administrative Code) and shall include any successor or
replacement ftmd established by the City for the collection of revenues and the payment of expenses of the Electric
System.
"Master Indenture" means the Indenture of Trust, dated as of September 1, 2008 between the City and the
Trustee, as the provisions thereof may be modified or amended from time to time in accordance with the Indenture.
"Maximum Adjusted Annual Debt Service" means, with respect to a certificate to be delivered in
connection with Additional Parity Obligations pursuant to the Indenture, as of any date and with respect to the
Applicable Parity Obligations, the maximum amount of Adjusted Debt Service becoming due on the Applicable
Parity Obligations in the then current or any future Fiscal Year, as adjusted as provided in this definition and
calculated by the City or by an Independent Engineer. For purposes of calculating Maximum Adjusted Annual Debt
Service, the determination of Debt Service on the Applicable Parity Obligations coming due in each Fiscal Year
shall be subject to the Debt Service Adjustments and Assumptions.
"Moody's" means Moody's Investors Service, Inc. and any successor entity rating Parity Obligations at the
request of the City.
"Net Payments" means with respect to a Qualified Swap Agreement, the amount payable by the City on
each scheduled payment date under such Qualified Swap Agreement net of the amounts payable by the counterparty
under such Qualified Swap Agreement on such scheduled payment date,
"Nominee" means the nominee of the Securities Depository for the Book -Entry Bonds in whose name such
Bonds are to be registered. The initial Nominee shall be Cede & Co., as the nominee of DTC.
"One Month USD LIBOR Rate" means the British Banker's Association average of interbank offered rates
in the London market for United States dollar deposits for a one month period as reported in the Wall Street Journal
or, if not reported in such newspaper, as reported in such other source as may be selected by the City.
"Opinion of Bond Counsel" means a written opinion signed by Bond Counsel.
"Outstanding" when used as of any particular time with respect to Obligations, means, except as otherwise
provided in the Tndenture, all Obligations theretofore or thereupon being issued or incurred by the City, except (a)
Obligations theretofore cancelled or surrendered for cancellation; (b) Obligations paid or deemed to be paid within
the meaning of any defeasance provisions of the Issuing Instrument pursuant such Obligations were issued; and (c)
Obligations in lieu of or in substitution for which replacement Obligations have been issued.
"Paired Obligations" shall mean any Series (or portion thereof) of Parity Obligations designated as Paired
Obligations in the Issuing Instrument authorizing the issuance thereof, which are simultaneously issued (a) the
principal of which is of equal amount maturing and to be redeemed (or cancelled after acquisition thereof) on the
same dates and in the same amounts, and (b) the interest rates which, taken together, result in an irrevocably fixed
interest rate obligation of the City for the terms of such Paired Obligations.
"Parity Obligations" means Bonds and any Obligations which are payable from the Net Revenues and
amounts in the Light and Power Fund other than the Operating Reserve on a parity with the payment of the Bonds
and which satisfy the applicable conditions of the Indenture, including without limitation Credit Provider
Reimbursement Obligations and, with respect to Qualified Swap Agreements, the Net Payments, but not the
Termination Payments and other payments, due thereunder.
"Participants" means, with respect to a Securities Depository for Book -Entry Bonds, those participants
listed in such Securities Depository's book -entry system as having an interest in such Bonds.
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"Paying Agent" means, with respect to a Series of Bonds, the Trustee and any banking corporation,
banking association or trust company designated as paying agent for such Series of Bonds pursuant to the indenture,
and its successor or successors appointed in the manner provided in the Indenture.
"Permitted Investments" means any of the following obligations if and to the extent that they are
permissible investments of funds of the City as stated in its current investment policy (the Trustee may rely on the
investment directions of the City that the investment is approved by the City's investment policy) and to the extent
then permitted by law:
(a) Direct obligations of the United States (including obligations issued or held in book -entry
form on the books of the Department of the Treasury, and CATS and TIGRS) or obligations the principal of and
interest on which are unconditionally guaranteed by the United States.
(b) Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any
of the following federal agencies and provided such obligations are backed by the full faith and credit of the United
States (stripped securities are only permitted if they have been stripped by the agency itself):
(i) Fanners Home Administration ("FmHA")
Certificates of beneficial ownership
(ii) Federal Housing Administration Debentures ("FHA")
(iii) General Services Administration
Participation certificates
(iv) Government National Mortgage Association ("GNMA")
GNMA - guaranteed mortgage -backed bonds
GNMA - guaranteed pass -through obligations (participation certificates)
(v) United States Maritime Administration
Guaranteed Title XI financing
(vi) United States Department of Housine and Urban Development
Project Notes
Local Authority Bonds
(c) Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any
of the following non -frill faith and credit United States government agencies (stripped securities are only permitted
if they have been stripped by the agency itself):
(i) Federal Home Loan Bank System
Senior debt obligations
(ii) Federal Home Loan Mortgage Corporation ("FHLMC")
Participation Certificates
Senior debt obligations
(iii) Federal National Mortgage Association ("FNMA")
Mortgage -backed securities and senior debt obligations (excluded are stripped
mortgage securities which are valued greater than par on the portion of unpaid
principal)
(iv) Student Loan Marketing Association
Senior debt obligations
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(v) Resolution Fumding Corporation obligations (only the interest component of
RBFCORP strips which have been stripped by request to the Federal Reserve
Bank of New York in book entry form are acceptable)
(vi) Farm Credit System
Consolidated system -wide bonds and notes
(d) Money market fiords registered under the Federal Investment Company Act of 1940,
whose shares are registered under the Federal Securities Act of 1933, and having a rating by S&P of "AAAm-G,"
"AAA-m" or "AA-m" and if rated by Moody's rated "Aaa," "Aal" or "Aa2," including funds for which the Trustee
or any of its affiliates (including any holding company, subsidiaries, or other affiliates) provides investment advisory
or other management services, provided such funds satisfy the criteria contained in the Indenture.
(e) Certificates of deposit secured at all times by collateral described in (a) and/or (b) above.
Such certificates must be issued by commercial banks (including affiliates of the Trustee), savings and loan
associations or mutual savings banks. The collateral must be held by a third party and the City or the Trustee must
have a perfected first security interest in the collateral.
(f) Certificates of deposit, savings accounts, deposit accounts or money market deposits
(including those of the Trustee and its affiliates) which are fully insured by FDIC, including BIF and SAIF.
(g) Investment agreements with, or guaranteed by, a domestic or foreign bank or corporation
(other than a life or property casualty insurance company) the long -tern debt of which is rated at least "AA" by
S&P and "Aa" by Moody's, and which agreements are acceptable to each Credit Provider whose acceptance is
required by a Supplemental Indenture or a Credit Support Agreement.
(h) Commercial paper rated, at the time of purchase, "Prime - I" by Moody's and "A-l" or
better by S&P.
(i) Bonds or notes issued by any state or municipality which are rated by Moody's and S&P
in one of the two highest rating categories assigned by such agencies.
Q) Federal funds or bankers acceptances with a maximum term of one year of any bank
(including those of the Trustee and its affiliates) which has an unsecured, uninsured and unguaranteed obligation
rating of "Prime - 1" or "A3" or better by Moody's and "A-l" or "A" or better by S&P.
(k) Repurchase Agreements for 30 days or less must satisfy the following criteria.
Repurchase Agreements which exceed 30 days must be acceptable to each Credit Provider whose acceptance is
required by a Supplemental Indenture or a Credit Support Agreement.
(i) Reourchase agreements must be between the City or the Trustee and a dealer
bank or securities firm
(1) Primary dealers on the Federal Reserve reporting dealer list mast be
rated "A" or better by S&P and Moody's, or
(2) Banks must be rated "A" or above by S&P and Moody's.
(ii) The written repurchase agreements contract must include the following:
(1) Securities which are acceptable for transfer are:
(a) Securities described in subsection (a) or (b) of this
definition, or
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(b) Securities of FNMA or FHLMC described in
subsection (c) of this definition
(2) The collateral must be delivered to the City, the Trustee (if Trustee is
not supplying the collateral) or third party acting as agent for the Trustee (if the
Trustee is supplying the collateral) before/simultaneously with payment.
(3) Valuation of Collateral
(a) The securities must be valued weekly, marked -to -
market at current market price plus accrued interest
(b) The value of collateral in the case of securities
described in subsections (a) or (b) of this definition
must be equal to 104% of the amount of cash
transferred by the City or the Trustee to the dealer
bank or security firm under the repurchase
agreements plus accrued interest. The value of
collateral in the case of securities of FNMA or
FHLMC described in subsection (c) of this definition
must be equal to 105% of the amount of cash
transferred by the City or the Trustee to the dealer
bank or security firm under the repurchase agreement
plus accrued interest. If the value of securities held
as collateral falls below the required percentage of
the value of the cash transferred, then additional cash
and/or acceptable securities must be transferred.
(iii) Legal Opinion An opinion of counsel selected by the City, which may be the
City Attorney or other counsel retained by the City, to the effect that the
repurchase agreement meets guidelines under state law for legal investment of -
public funds must be received by the City or the Trustee.
(1) Any state administered pool investment fund in which the City is statutorily permitted or
required to invest will be deemed a permitted investment, including, but not limited to the Local Agency Investment
Fund in the treasury of the State.
(m) Advance Refunded Municipal Securities.
"Person" means an individual, cotporation, firm, association, partnership, trust or other legal entity or
group of entities, including a governmental entity or any agency or political subdivision thereof.
"Principal Account" means the account by that name in the Debt Service Fund established pursuant to die
Indenture.
"Principal Office" means, with respect to: (i) the Trustee, the principal office of such Trustee in Los
Angeles, California; and (ii) a Paying Agent or a Credit Provider, the office designated as such in writing by such
party to the Trustee, except that with respect to presentation of Bonds for payment or for registration of transfer and
exchange such term shall mean the office or agency of the Trustee at which, at any particular time, its corporate trust
agency business shall be conducted.
"Prudent Utility Practice" means any of the practices, methods, and acts which, in the exercise of
reasonable judgment, in light of the facts, including but not limited to, the practices, methods, and acts engaged in or
approved by a significant portion of the electric utility industry prior thereto, known at the time the decision was
made, would have been expected to accomplish the desired result consistent with cost-effectiveness, reliability,
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safety, and expedition. It is recognized that Prudent Utility Practice is not intended to be limited to optimum
practice, method, or act to the exclusion of all others, but rather is a spectrum of possible practices, methods, or act
which could have been expected to accomplish the desired result at the lowest reasonable cost consistent with cost-
effectiveness, reliability, safety, and expedition.
"Purchase Price" means: (i) with respect to Bonds of any Series, the purchase price set forth or determined
pursuant to the Supplemental Indenture authorizing the Bonds of such Series to be paid to the Owners of such Bonds
when such Bonds are tendered for purchase or deemed tendered for purchase in accordance with the provisions of
such Supplemental Indenture; and (ii) with respect to other Parity Obligations, the purchase price set forth in the
Issuing Instrument authorizing such Parity Obligations to be paid to the owners of such Parity Obligations when
such Parity Obligations are tendered or deemed tendered for purchase in accordance with the provisions of such
Issuing Instruments.
"Qualified Swap Agreement" means a Public Finance Contract entered into by the City and satisfying the
conditions of the Indenture.
"Rating Agency" means, as of any time and to the extent it is then providing or maintaining a rating on
Parity Obligations at the request of the City, each of Moody's or Standard & Poor's, or in the event that neither
Moody's or Standard & Poor's then maintains a rating on Parity Obligations at the request of the City, any other
nationally recognized rating agency then providing or maintaining a rating on the Bonds at the request of the City.
"Rating Category" means (1) with respect to any long-term rating category, all ratings designated by a
particular letter or combination of letters, without regard to any numerical modifier, plus or minus sign or other
modifier and (2) with respect to any short,tenn or commercial paper rating category, all ratings designated by a
particular letter or combination of letters and taking into account any numerical modifier, but not any plus or minus
sign or other modifier.
"Rating Confirmation" means written evidence from each Rating Agency then rating Outstanding Parity
Obligations at the request of the City to the effect that, following the event which requires the Rating Confirmation,
the then current rating for each Outstanding Parity Obligation shall not be lowered or withdrawn solely as a result of
the occurrence of such event.
"Rebate Fund" means the City of Vernon Electric System Rebate Fund established pursuant to the
Indenture.
"Record Date" means, with respect to an Interest Payment Date for a Series of Bonds, the date or dates
specified as such in the Supplemental Indenture authorizing such Series of Bonds.
"Redemption Date" means, with respect to any Bonds to be redeemed in accordance with the Indenture and
the Supplemental Indenture authorizing such Bonds, the redemption date set forth in notice of redemption of such
Bonds given in accordance with the terms of the Indenture.
"Redemption Fund" means the City of Vernon Electric System Redemption Fund established pursuant to
the Indenture.
"Redemption Price" means, with respect to any redemption of a Bond prior to its maturity, the amount to
be paid upon such redemption of the Bond as set forth in, or determined in accordance with, the Supplemental
Indenture authorizing such Bond.
"Refunding Bonds" means Bonds issued in accordance with the terms and conditions of the Indenture for
the purposes, and satisfying the conditions of the Indenture.
"Refunding Parity Obligations" means Parity Obligations, including Refunding Bonds, issued for the
purposes set forth in the Indenture and satisfying the conditions set forth in the Indenture .
B-13
"Representation Letter" the letter or letters of representation from the City to, or other instrument or
agreement with, a Securities Depository for Book -Entry Bonds, in which the City, among other things, makes
certain representations to the Securities Depository with respect to the Book -Entry Bonds, the payment thereof and
delivery of notices with respect thereto.
"Reserve Financial Guaranty" means a policy of municipal bond insurance or surety bond issued by a
municipal bond insurer or a letter of credit issued by a bank or other institution if the obligations insured by such
insurer or issued by such bank or other institution, as the case may be, have ratings at the time of issuance of such
policy or surety bond or letter of credit in the highest rating category (without regard to qualifiers) by S&P and
Moody's and, if rated by A.M. Best &Company, also in the highest rating category (without regard to qualifiers) by
A.M. Best & Company.
"Reserve Financial Guaranty Provider" means an issuer of a Reserve Financial Guaranty.
"Rule 15c2-12" means Rule 15c2-12 of the Securities and Exchange Commission adopted pursuant to the
Securities Exchange Act of 1934, as amended, as the same may be amended and supplemented from time to time.
"Second Supplemental Indenture" means the Second Supplemental Indenture of Trust, dated as of May 1,
2009, between the City and the Trustee supplementing the Master Indenture, as the same may be amended and
supplemented in accordance with the provisions of the Master Indenture and relating to the Bonds.
"Securities Depository" means a trust company or other entity which provides a book -entry system for the
registration of ownership interests of Participants in securities and which is acting as security depository for Book -
Entry Bonds.
"Serial Obligations" means Obligations for which no Sinking Fund Installments are established.
"Serial Parity Obligations" means Serial Obligations which are Parity Obligations.
"Series" means Obligations issued at the same time or sharing some other common term or characteristic
and designated in the Issuing Instrument pursuant to which such Obligations were issued as a separate issue or series
of Obligations.
"SIFMA Index" means, as of any date, The Securities Industry and Financial Markets Association
Municipal Swap Index as of the most recent date for which such index was published or such other weekly, high-
grade index comprised of seven-day, Tax -Exempt variable rate demand notes produced by Municipal Market Data,
Inc., or its successor, or as otherwise designated by The Securities Industry and Financial Markets Association;
provided, however, that, if such index is no longer produced by Municipal Market Data, Inc. or its successors, then
"SIFMA Index" shall mean such other reasonably comparable index as may be selected by the City.
"Sinking Fund Account" means the account by that name in the Debt Service Fund established pursuant to
the indenture.
"Sinking Fund Installment" means, with respect to any Term Parity Obligations, each amount so designated
for such Term Parity Obligations in the Issuing Instrument authorizing the issuance of such Parity Obligations
requiring payments by the City from the Net Revenues to be applied to the retirement of such Parity Obligations on
and prior to the stated maturity date thereof.
"Standard & Poor's" means Standard & Poor's Rating Services and any successor entity rating Parity
Obligations at the request of the City.
"State" means the State of California.
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"Subordinate Obligation" means any Obligation which is expressly made subordinate and junior in right of
payment from the Net Revenues and amounts in the Light and Power Fund other than the Operating Reserve to the
payment of Parity Obligations and which complies with the provisions of the Indenture.
"Supplemental Indenture" means any supplemental indenture supplementing or amending the Indenture as
theretofore in effect, entered into by the City and the Trustee in accordance with the Indenture .
"Tax Certificate" means a certificate relating to the requirements of the Code signed on behalf of the City
and delivered in connection with the issuance of a Series of Bonds.
"Tax -Exempt" means, with respect to interest on any obligations of a state or local government, including
the Bonds, that such interest is excluded from the gross income of the holders thereof (other than any holder who is
a "substantial user" of facilities financed with such obligations or a "related person' within the meaning of
Section 147(a) of the Code) for federal income tax purposes, whether or not such interest is includable as an item of
tax preference or otherwise includable directly or indirectly for purposes of calculating other tax liabilities, including
any alternative minimum tax or environmental tax under the Code.
"Tax -Exempt Securities" means bonds, notes or other securities the interest on which is Tax -Exempt.
"Tender Indebtedness" means any Parity Obligations or portions of Parity Obligations, a feature of which is
an option or obligation, on the part of the owners thereof under the terms of such Parity Obligations, to tender all or
a portion of such Parity Obligations to the City, a fiscal agent, a paying agent, a tender agent or other agent for
purchase and requiring that such Parity Obligations or portions thereof be purchased at the applicable Purchase Price
if properly presented.
"Termination Payment" means with respect to a Qualified Swap Agreement, the amount payable by the
City as a result of the termination of such Qualified Swap Agreement prior to its scheduled expiration date.
"Term Obligations" means Obligations which are payable on or before their specified maturity dates from
Sinking Fund Installments established for that purpose and calculated to retire such Obligations on or before their
specified maturity dates.
"Term Parity Obligations" means Temt Obligations which are Parity Obligations.
"Trust Estate" means, subject to the provisions of the Indenture permitting the application thereof for the
purposes and on the terms and conditions set forth. therein (i) the Revenues; (ii) all amounts on deposit in the Light
and Power Fund, including the investments, if any, thereof; and (iii) all amounts on deposit in the Funds, other than
the Rebate Fund, held by the Trustee under the Indenture, including the investments, if any, thereof.
"Trustee" means, The Bank of New York Mellon Trust Company, N.A., as trustee for the Bonds under the
Indenture and any successor satisfying the requirements of the Indenture.
"Unrealized Item" means each item of revenue or expense of the Electric System recognized as a revenue
or expense of the Electric System in accordance with Generally Accepted Accounting Principles which are due to
unrealized gains or losses caused by marking assets or liabilities of the Electric System to market.
"Variable Rate Indebtedness" means any Obligation, other than Paired Obligations, the interest rate on
which to the maturity thereof is not established at a rate which is not subject to fluctuation or subsequent adjustment,
either at the time of issuance of such Obligation or some subsequent date.
B-15
THEINDENTURE
Authorization of Bonds
The Indenture provides certain terms and conditions upon which Bonds of the City to be designated as
"City of Vernon Electric System Revenue Bonds" may be issued from time to time as authorized by Supplemental
Indentures. The aggregate principal amount of Bonds which may be executed, authenticated and delivered under the
Indenture is not limited except as may be provided therein or as may be limited by law.
Indenture to Constitute Contract
In consideration of the purchase and acceptance of each Bond issued under the Indenture by those who
shall own the same from time to time, the provisions of each Bond and the provisions of the Indenture applicable to
such Bond shall be deemed to be and shall constitute a contract between the City and the Owner of such Bond.
No Recourse on Bonds
Neither the members of the City nor the officers or employees of the City shall be individually liable on the
Bonds or in respect of any undertakings by the City under the Indenture, any Supplemental Indenture or any Bond.
Paying Agent
The City appoints the Trustee as a Paying Agent for the Bonds of each Series, and may at any time or from
time to time appoint one or more other Paying Agents having the qualifications set forth in the Indenture as an
additional Paying Agent for the Bonds of one or more Series.
The Trustee shall signify its acceptance of the duties and obligations imposed upon it by the Indenture,
including the duties of Paying Agent for the Bonds, by the execution and the delivery of the Indenture to the City
and by such execution and delivery the Trustee shall be deemed to have accepted such duties and obligations with
respect to all the Bonds thereafter to be issued, but only, however, upon the terms and conditions set forth in the
Indenture and no implied covenants shall be read into the Indenture against the Trustee. Each Paying Agent other
than the Trustee shall signify its acceptance of the duties and obligations imposed upon it by the Indenture by
executing and delivering to the City and to the Trustee a written acceptance thereof The Principal Offices of the
Paying Agents are designated as the respective offices or agencies of the City for the payment of the principal and
any applicable Redemption Price of the Bonds.
General Provisions for Issuance of Bonds
All (but not less than all) the Bonds of each Series shall be executed by the City for issuance under the
Indenture and delivered to the Trustee and thereupon shall be authenticated by the Trustee and by it delivered to the
City or upon its order, but only upon the receipt by the Trustee of the following items (upon which the Trustee may
conclusively rely in determining whether the conditions precedent for the issuance and authentication of such Series
of Bonds have been satisfied):
(1) An executed counterpart of the Indenture, as amended to the date of the initial delivery of
such Series of Bonds, and an executed counterpart of the Supplemental Indenture authorizing the issuance
of such Series of Bonds, which Supplemental Indenture shall specify: (i) the sources of payment for the
Bonds of such Series other than the Trust Estate, if any; (ii) the Series designation of such Bonds; (iii) the
authorized principal amount of the Bonds of such Series; (iv) the purposes for which such Series of Bonds
are being issued, which, for Bonds other than the Bonds, shall be one of the purposes specified in the
provisions of the Indenture relating to additional bonds or refunding bonds; (v) the date or manner of
determining the date of the Bonds of such Series; (vi) the maturity date or dates of the Bonds of such Series
and either the principal amount of the Bonds of such Series maturing on each such maturity date or the
method for determining such principal amount (vii) which, if any, of the Bonds of such Series shall
constitute Serial Obligations and which, if any, shall constitute Tenn Obligations; (viii) the interest rate or
F. a
rates on the Bonds of such Series or the manner of determining such interest rate or rates; (ix) the Interest
Payment Dates for the Bonds of such Series or the manner of establishing such Interest Payment Dates; (x)
the Authorized Denominations of, and the manner of numbering and lettering, the Bonds of such Series;
(xi) the Redemption Price or Prices, if any, and, subject to the applicable provision of the Indenture, the
redemption terms for the Bonds of such Series; (xii) the Sinking Fund Installments, if any, for the Bonds of
such Series which constitute Term Obligations, provided that each Sinking Fund Installment, if any, shall
fall upon an Interest Payment Date for the Bonds of such Series; (xiii) if any of the Bonds of such Series
constitute Tender Indebtedness: (A) the source of payment of the Purchase Price of such Bonds, (B) the
terms and conditions, including Purchase Price, for the exercise by the Owners or Beneficial Owners of
such Bonds of the purchase, (C) any extension options granted with respect to such Bonds and (D) the
terms and conditions, including Purchase Price, upon which the Bonds of such Series shall be subject to
mandatory tender for purchase; (xiv) if the Bonds of such Series are not to be Book -Entry Bonds, a
statement to such effect; (xv) if the Bonds of such Series are Tax -Exempt Securities, the account in the
Rebate Fund established for such Series and the terms and conditions thereof; (xvi) the application of the
proceeds of the sale of such Series of Bonds including the amount, if any, to be deposited in the funds and
accounts under the Indenture; (xvii) the forms of the Bonds of such Series and of the certificate of
authentication thereon; and (xviii) the appropriate funds and accounts, if any, relating to such Series of
Bonds established under such Supplemental Indenture;
(2) An Opinion of Bond Counsel, dated the date of the initial delivery of such Series of
Bonds, to the effect that the Indennue, as amended to such date, as supplemented by the Supplemental
Indenture authorizing the issuance of such Series of Bonds, constitutes the valid and binding obligation of
the City;
(3) With respect to any Additional Bonds other than the Bonds, the Trustee shall have
received the certificate with respect to the satisfaction of the conditions for the Issuance of Additional
Parity Obligations contained in the Indenture;
(4) With respect to any Refunding Bonds, the Trustee shall have received a copy of the
Opinion of Bond Counsel required by the Indenture; and
(5) Such further documents, moneys and securities as are required by the applicable
provisions of the Indenture or of the Supplemental Indenture authorizing the issuance of such Series of
Bonds.
After the original issuance of Bonds of any Series, no Bonds of such Series shall be issued except in lieu of
or in substitution for other Bonds of such Series pursuant to the Indenture.
Additional Bonds
One or more Series of Additional Bonds may be issued, authenticated and delivered upon original issuance
for the purpose of paying all or a portion of the Costs of any Capital Improvement or Capital Asset. Additional
Bonds may be issued in a principal amount sufficient to pay such Costs, including making of any deposits into the
finds or accounts required by the provisions of the Indenture and providing amounts for Costs of Issuance of such
Additional Bonds.
Refunding Bonds
One or more Series of Refnding Bonds may be issued, authenticated and delivered upon original issuance
for the purpose of refunding all or any portion of the Outstanding Parity Obligations. Refunding Bonds may be
issued in a principal armount sufficient to accomplish such refunding including providing amounts for the Costs of
Issuance of such Refitnding Bonds, and the making of any deposits into the funds and accounts required by the
applicable provisions of the Indenture.
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Refunding Bonds of each Series shall be authenticated and delivered by the Trustee only upon receipt by
the Trustee (in addition to the documents required by the Indenture) of an Opinion of Bond Counsel to the effect that
the Parity Obligations (or the portion thereof) to be refunded are deemed paid pursuant to the Issuing Instrument
authorizing such Parity Obligations. Such Opinion of Bond Counsel may rely upon an Accountant's Certificate as
to the sufficiency of available funds to pay such Parity Obligations. The Trustee may conclusively rely on such
Opinion of Bond Counsel in determining whether the conditions precedent for the issuance and authentication of
such Series of Refunding Bonds have been satisfied.
Conditions to Issuance of Parity Obligations
Without regard to the last paragraph under this heading, the City may, at any time and from time to time,
issue or enter into a transaction under a Qualified Swap Agreement, the Net Payments under which shall constitute
Parity Obligations, provided (i) the transaction shall relate to a principal amount of Outstanding Parity Obligations
or investments held under an Issuing Instrument for Parity Obligations, in each case as specified by an Authorized
City Representative; (ii) the notional amount of the transaction shall not exceed the principal amount of the related
Parity Obligation or the amount of such investments, as applicable; and (iii) either: (x) at the time of entering into
the transaction, the counterparty (or a guarantor of the counterparty's obligations under the transaction) shall be
rated at least "Aa" by Moody's or "AA" by S&P and the Qualified Swap Agreement shall include the Collateral
Requirements; or (y) the City has received a Rating Confirmation from each Rating Agency then rating Parity
Obligations at the request of the City with respect to such transaction.
Without regard to the last paragraph under this heading, the City may, at any time and from time to time,
issue Refunding Parity Obligations provided that the Trustee receives an Opinion of Bond Counsel to the effect that
the Parity Obligations to be refunded are deemed paid pursuant to the Issuing Instrument authorizing such Parity
Obligations.
Without regard to the last paragraph under this heading, the City may, at any time and from time to time,
enter into Credit Support Agreements or otherwise become obligated for Credit Provider Reimbursement
Obligations with respect to Parity Obligations.
The City may, at any time and from time to time, issue any Additional Parity Obligations, provided the City
obtains or provides either (x) a certificate or certificates, prepared by the City or at the City's option by an
Independent Engineer, showing: (i) that the Adjusted Net Revenues for the applicable Calculation Period, which
Calculation Period shall be selected by the City in its sole discretion, shall have amounted to at least 1.25 times the
Maximum Adjusted Annual Debt Service on all Parity Obligations to be Outstanding immediately after the issuance
of the proposed Additional Parity Obligations; and (ii) that the Net Revenues for such applicable Calculation Period
shall have amounted to at least 1,00 times the Maximum Adjusted Annual Debt Service on all Parity Obligations to
be Outstanding immediately after the issuance of the proposed Additional Parity Obligations; or (y) a certificate or
certificates, prepared by the City or at the City's option by an Independent Engineer, showing: (i) that the projected
Adjusted Net Revenues during each of the five complete Fiscal Years beginning with the first Fiscal Year following
the issuance of such Parity Obligations in which interest thereon is not capitalized, in whole or in part, shall have
amounted to at least 1.25 times the Maximum Adjusted Annual Debt Service on all Parity Obligations to be
Outstanding during the applicable Fiscal Year; and (ii) that the projected Net Revenues during each of the five
complete Fiscal Years beginning with the first Fiscal Year following the issuance of such Parity Obligations in
which interest thereon is not capitalized, in whole or in part, shall have amounted to at least 1.00 times the
Maximum Adjusted Annual Debt Service on all Parity Obligations to be Outstanding during the applicable Fiscal
Year. For purposes of preparing the certificate or certificates described in clause (x) of this subsection, the City and
any Independent Engineer shall utilize and rely on financial statements prepared by the City which have been
subject to audit by an Independent Certified Public Accountant but may utilize and rely upon the books and records
of the City or any financial statements prepared by the City which have not been subject to audit by an Independent
Certified Public Accountant if audited financial statements for the particular Calculation Period selected by the City
are not available. .
B-18
Conditions of issuance of Subordinate Obligations
The City may, at any time or from time to time, issue Subordinate Obligations without satisfying the
requirements of the Indenture relating to Parity Obligations for any purpose in connection with the Electric System,
including, without limitation, the financing of a part of the cost of acquisition and construction of any Capital
Improvement or the refunding of any Subordinate Obligations or Outstanding Parity Obligations (or portions
thereof). Such Subordinate Obligations may be secured by a pledge of Revenues and amounts in the Light and
Power Fund, provided that any such pledge shall be, and shall be expressed to be, subordinate and junior in all
respects to the pledge of the Revenues and amounts in the Light and Power Fund securing such Parity Obligations as
may be Outstanding from time to time, including Parity Obligations issued after the issuance of such Subordinate
Obligations. Such Subordinate Obligations may be payable from Net Revenues and amounts in the Light and Power
Fund other than the Operating Reserve, provided that any such payment shall be, and shall be expressed to be,
subordinate and junior in all respects to the payment from such sources of such Parity Obligations as may be
Outstanding from time to time, including Parity Obligations issued after the issuance of such Subordinate
Obligations.
The issuing Instrument for Subordinate Obligations shall contain provisions (which shall be binding on all
owners of such Subordinate Obligations) not more favorable to the owners of such Subordinate Obligations than the
following:
(1) If an Event of Bankruptcy with respect to the City shall occur and be continuing, the
owners of all Outstanding Parity Obligations shall be entitled to receive payment in full in cash of all
principal, interest and all other payments due with respect to all such Parity Obligations, including any
Termination Payments, before the owners of the Subordinate Obligations are entitled to receive any
payment from the Net Revenues and amounts in the Light and Power Fund with respect to the Subordinate
Obligations.
(2) In the event that any Subordinate Obligation is declared due and payable before its
expressed maturity because of the occurrence of an event of default (under circumstances when the
provisions of (1) above shall not be applicable), the owners of all Parity Obligations Outstanding at the
time such Subordinate Obligation so becomes due and payable because of such event of default, shall be
entitled to receive payment in full in cash of all principal, interest and all other payments due with respect
to all such Parity Obligations before the owners of such Subordinate Obligation are entitled to receive any
accelerated payment from Net Revenues and amounts in the Light and Power Fund with respect to such
Subordinate Obligation. For purposes of this subdivision (2), a Termination Payment with respect to a
Public Finance Contract which is not a Qualified Swap Agreement shall not be considered a declaration of
amounts due and payable before expressed maturity even if declared due and payable because of the
occurrence of an event of default.
(3) If any default with respect to any Outstanding Parity Obligation shall have occurred and
be continuing (under circumstances when the provisions of (1) above shall not be applicable), the owners of
all Outstanding Parity Obligations shall be entitled to receive payment in full in cash of all principal,
interest and all other payments due with respect to all such Parity Obligations as the same become due and
payable in accordance with the provisions of the Issuing Instrument authorizing the issuance of such Parity
Obligations before the owners of the Subordinate Obligations are entitled to receive, subject to the
provisions of (5) below, any payment from the Net Revenues and amounts in the Light and Power Fund
with respect to the Subordinate Obligations.
(4) No Bondowner or owner of other Outstanding Parity Obligations shall be prejudiced in
his right to enforce subordination of the Subordinate Obligations by any act or failure to act on the part of
the City or the Trustee.
(5) The Subordinate Obligations may provide that the provisions (1), (2), (3) and (4) above
are solely for the purpose of defining the relative rights of the Owners of the Bonds and the owners of all
other Outstanding Parity Obligations on the one hand, and the owners of Subordinate Obligations on the
other hand, and that nothing therein shall impair, as between the City and the owners of the Subordinate
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Obligations, the obligation of the City, which may be unconditional and absolute, to pay to the owners of
such Subordinate Obligations the principal thereof and premium, if any, and interest thereon in accordance
with their terms, nor shall anything in the Indenture prevent the owners of the Subordinate Obligations
from exercising all remedies otherwise permitted by applicable law, or under the Subordinate Obligations
or the Issuing Instruments authorizing the Subordinate Obligations, upon default under such Subordinate
Obligations or Issuing Instruments, subject to the rights under (1), (2), (3) and (4) above of the Owners of
Outstanding Bonds and the owners of other Outstanding Parity Obligations to receive payment from the
Net Revenues and amounts in the Light and Power Fund otherwise payable or deliverable to the owners of
the Subordinate Obligations; and the Subordinate Obligations may provide that, insofar as a. trustee, fiscal
agent or paying agent for such Subordinate Obligations is concerned, the foregoing provisions shall not
prevent the application by such trustee, fiscal agent or paying agent of any moneys deposited with such
trustee, fiscal agent or paying agent for the purpose of the payment of or on account of the principal (and
premium, if any) and interest on such Subordinate Obligations if such trustee, fiscal agent or paying agent
did not have knowledge at the time of such application that such payment was prohibited by the foregoing
provisions.
Any Subordinate Obligations may have such rank or priority with respect to any other Subordinate
Obligations as may be provided in the Issuing Instrument, authorizing the issuance or securing of such Subordinate
Obligations and may contain such other provisions as are not in conflict with the provisions of the Indenture.
Credit Provider Bonds
Subject only to the provisions of the Indenture relating to bonds constituting special obligations,
notwithstanding any other provision contained in the Indenture to the contrary, Bonds which are Credit Provider
Bonds shall have terms and conditions, including terms of maturity, payment, prepayment and interest rate, as shall
be specified in the applicable Credit Support Agreement.
Funds and Accounts
Establishment. To ensure the payment when due and payable, whether at maturity or upon redemption or
upon acceleration, of the principal of, Redemption Price, if any, and interest on the Bonds, the Indenture establishes
the following finds and accounts, to be held and maintained by the Trustee and applied as provided in the Indenture
for so long as any of the Bonds are Outstanding: the City of Vernon Electric System Debt Service Fund, comprised
of an Interest Account, a Principal Account and a Sinking Fund Account; the City of Vernon Electric System
Redemption Fund; the City of Vernon Electric System Debt Service Reserve Fund; the City of Vernon Electric
System Rebate Fund; and the City of Vernon Electric System Expense Stabilization Fund.
Debt Service Fund. (a) From the moneys paid by the City pursuant to the provisions of the Indenture
relating to payments of interest, principal and Sinking Fund Installments due with respect to Outstanding Bonds by
the City, the Trustee, upon receipt of such moneys, shall deposit the following amounts in the following specified
accounts within the Debt Service Fund: (1) For deposit in the Interest Account, an amount equal to the interest
payable on the Outstanding Bonds on the applicable Interest Payment Date; (2) For deposit in the Principal Account,
an amount equal to the principal of the Outstanding Bonds maturing on the applicable maturity date; and (3) For
deposit in the Sinking Fund Account, an amount equal to the Sinking Fund Installment due on the applicable
Sinking Fund Installment due date.
(b) From the moneys paid by the City pursuant to the provisions of the Indenture relating to other types of
payments due with respect to Outstanding Bonds by the City, the Trustee, upon receipt of such moneys, shall deposit
the following amounts in the following specified accounts within the Debt Service Fund: (1) For deposit in the
Interest Account, an amount equal to the interest on the Outstanding Bonds then payable; and (2) For deposit in the
Principal Account, an amount equal to the principal of the Outstanding Bonds then payable.
(c) In the event that Bonds which are Term Obligations purchased or redeemed at the option of the City are
deposited with the Trustee for the credit of the Sinking Fund Account not less than forty-five (45) days prior to the
due date for any Sinking Fund Installment for such Bonds, such deposit shall satisfy (to the extent of 100% of the
principal amount of such Bonds) any obligation of the City to make a. payment to the Trustee pursuant to the
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Indenture, with respect to such Sinking Fund Installments. Any Bond so deposited with the Trustee shall be
cancelled and shall no longer be deemed to be Outstanding for any purpose. Upon making the deposit with the
Trustee of Bonds which are Term Obligations as provided in the Indenture, the City may specify the dates and
amounts of Sinking Fund Installments for such Bonds as to which the City's obligations to make a payment to the
Trustee pursuant to the Indenture shall be satisfied.
(d) Except as described below: (i) amounts deposited in the Interest Account shall remain therein until
expended for the payment of interest on the Bonds; (ii) amounts deposited in the Principal Account shall remain
therein until expended for the payment of principal of the Bonds; and (iii) amounts deposited in the Sinking Fund
Account shall remain therein until expended for the redemption or payment at maturity from Sinking Fund
Installments of Bonds which are Tenn Obligations.
(e) The Trustee shall apply amounts in the Interest Account to the payment when due of interest on the
Outstanding Bonds. The Trustee shall apply amounts in the Principal Account to the payment when due of principal
of the Outstanding Bonds. The Trustee shall apply amounts in the Sinking Fund Account to the redemption (or
payment at maturity) of the Bonds which are Term Obligations.
In the event one or more Paying Agents have been appointed for the Bonds, moneys may be transferred by
the Trustee to such Paying Agents from the appropriate account in the Debt Service Fund for deposit into a special
trust account to ensure the payment when due of the principal of, Redemption Price, if any, and interest on the
Bonds. In the event that any principal of, Redemption Price or interest on, any Bond has been paid from amounts
made available pursuant to a Credit Support Instrument, amounts in the appropriate accounts in the Debt Service
Fund with respect to such Bond, and any such amounts transferred by the Trustee from the Debt Service Fund to a
Paying Agent for such Bond pursuant to the Indenture, shall be paid to the applicable Credit Provider as a
reimbursement of the amounts so paid.
Redemption Fund From the moneys paid by the City pursuant the provisions of the Indenture relating to
payments by the City, the Trustee shall deposit in the Redemption Fund an amount equal to the Redemption Price of
the Bonds to be redeemed. Said moneys shall be set aside in said Fund and shall be applied on or after the
redemption date to the payment of the Redemption Price of the Bonds to be redeemed and, except as otherwise
provided in the Indenture, shall be used only for that purpose. In the event one or more Paying Agents have been
appointed for the Bonds which are to be redeemed with moneys in the Redemption Fund, amounts in the
Redemption Fund may be transferred from such Fund by the Trustee to the Paying Agent for the Bonds to be
redeemed for deposit into a special trust account held by such Paying Agent to ensure the payment when due the
Redemption Price of the Bonds to be redeemed. In the event that the Redemption Price of a Bond has been paid by
a Credit Provider pursuant to a Credit Support Instrument, amounts in the Redemption Fund with respect to such
Redemption Price, and any such amounts transferred by the Trustee from the Redemption Fund to a Paying Agent
for such Bonds pursuant to the Indenture, shall be paid to such Credit Provider as a reimbursement of the amounts so
paid. If, after all of the Bonds designated for redemption have been redeemed and cancelled or paid and cancelled,
there are moneys remaining in the Redemption Fund, said moneys shall be transferred to the Interest Account
provided, however, that if said moneys are part of the proceeds of Refunding Obligations said moneys shall be
applied as provided in the Issuing Instrument authorizing the issuance of such Refunding Obligations.
Debt Service Reserve Fund. The Indenture provides the Trustee shall draw upon or otherwise take such
action as is necessary in accordance with the terms of the Reserve Financial Guaranties on deposit in the Debt
Service Reserve Fund to receive payments with respect thereto (including the giving of notice as required
thereunder): (i) on any date on which moneys will be required to be withdrawn from the Debt Service Reserve Fund
and applied to the payment of principal or Redemption Price of, or interest on, any Bonds and such withdrawal
cannot be met by amounts on deposit in the Debt Service Reserve Fund; (ii) on the first Business Day which is at
least ten (10) days prior to the expiration date of each Reserve Financial Guaranty, in an amount equal to the
deficiency which would exist in the Debt Service Reserve Fund if such Reserve Financial Guaranty expired, unless a
substitute Reserve Financial Guaranty with an expiration date not earlier than I80 days after the expiration date of
the expiring Reserve Financial Guaranty is acquired prior to such date or the City deposits finds in the Debt Service
Reserve Fund before such date so that the amount in the Debt Service Reserve Fund on such date (without regard to
such expiring Reserve Financial Guaranty) is at least equal to the Debt Service Reserve Requirement.
B-21
Rebate Fund. Each Supplemental Indenture authorizing a Series of Bonds which are Tax -Exempt
Securities shall establish an account in the Rebate Fund in connection with such Series. Each such account in the
Rebate Fund shall have such terms and conditions as shall be provided in the Supplemental Indenture establishing
such account.
Investment of Certain Funds. Moneys held in the Debt Service Fund and the Redemption Fund shall be
invested and reinvested by the Trustee to the fullest extent practicable in securities described in clauses (a) through
(c) of the definition of "Permitted Investments" in the Indenture which mature not later than such times as shall be
necessary to provide moneys when reasonably expected to be needed for payments to be made from such Funds.
Moneys held in the Debt Service Reserve Fund shall be invested and reinvested by the Trustee to the fullest extent
practicable in securities described in clauses (a), (b), (c), (g), 0) and (m) of the definition of "Permitted Investments"
in the Indenture which mature, or which may be drawn upon without penalty, at any time upon not more than two
Business Days notice not later than five years from the time of such investment. Moneys held in the Expense
Stabilization Fund may be invested and reinvested in Pennitted Investments which mature or which may be drawn
upon without penalty at any time upon not more than two Business Days notice, not later than ten years from the
time of such investment. The Trustee shall make all such investments of moneys held by it in accordance with
directions of an Authorized City Representative, which directions shall be consistent with the Indenture and
applicable law, and which directions shall be written.
Interest or other income any Fund created under the Indenture shall be paid into such Fund.
In making any investment in any Permitted Investments with moneys in any Fund established under the
Indenture, the Trustee may combine such moneys with moneys in any other Fund but solely for the purposes of
making such investment in such Investments and providedthat any amount so combined shall be separately
accounted for.
Nothing in the Indenture shall prevent any Permitted Investments acquired as investments of moneys in any
Fund from being issued or held in book -entry form on die books of the Department of the Treasury or the Federal
Reserve System of the United States.
Valuation and Sale oflnvestments. Obligations purchased as an investment of moneys in any Fund shall be
deemed at all times to be a part of such Fund and any profit realized from the liquidation of such investment shall be
credited to such Fund and any loss resulting from the liquidation of such investment shall be charged to the
respective Fund.
In computing the amount in the Debt Service Reserve Fund for any purpose under the Indenture,
obligations purchased as an investment of moneys in the Debt Service Reserve Fund are to be valued at the
amortized cost thereof.
Except as otherwise provided in the Indenture, the Trustee may sell or present for redemption, or otherwise
liquidate any security purchased as an investment, and take all actions necessary to draw funds under any such
investment, whenever it shall be necessary in order to provide moneys to meet any payment or transfer from any
Fund held by it or in accordance with directories of an Authorized City Representative, which directions shall be
consistent with the Indenture and applicable law and which directions shall be written. Any security purchased as an
investment may be credited on a pro-rata basis to more than one Fund and need not be sold in order to provide for
the transfer of amounts from one Fund to another, provided that such obligation is an appropriate Permitted
Investment for the purposes of the Fund to which it is to be transferred. The Trustee shall not be liable or
responsible for snaking any such investment in the manner provided above or for any loss resulting from any such
investment. The City acknowledges that to the extent regulations of the Comptroller of the Currency or other
applicable regulatory entity grant the City the right to receive brokerage confirmations of security transactions as
they occur, the City specifically waives receipt of such confirmations to the extent permitted by law. The Trustee
will furnish the City periodic cash transaction statements which include detail for all investment transactions made
by the Trustee under the Indenture.
B-22
Covenants
Compliance with Indenture. The City shall punctually pay the Bonds in strict conformity with the terms of
the Indenture and the Bonds, and shall faithfully observe and perform all the agreements, conditions, covenants and
terms contained in the Indenture required to be observed and performed by it, which obligations shall be absolute
and unconditional but which shall be special obligations of the City as provided in the Indenture.
Collection q/'Rates and Charges. The City shall have in effect at all times rules and regulations requiring
each consumer or customer located on any premises connected with the Electric System to pay the rates and charges
applicable to the Electric Service provided to such premises and providing for the billing thereof and for a due date
and a delinquency date for each bill. The City shall not permit any part of the Electric System or any facility thereof
to be used or taken advantage of free of charge by any corporation, firm or person, or by any public agency
(including the United States of America, the State of California and any city, county, district, political subdivision,
public corporation or agency of any thereof). Nothing in the Indenture shall prevent the City, in its sole and
exclusive discretion, from permitting other parties from selling electricity to retail customers within the service area
of the Electric System; provided, however, that permitting such sales shall not relieve the City of its obligations
under the Indenture.
Application of Light and Power Farad. During each Fiscal Year, and subject to the provisions of the
Indenture requiring amounts in the Light and power Fund to be applied to amounts due under the Indenture, the City
may apply amounts in the Light and Power Fund, other than the Revenues for such Fiscal Year, to any lawful
purpose as determined by the City; provided that so long as an Event of Default has occurred and is continuing, or
the Trustee otherwise has control of amounts in the Light and Power Fund, no amounts may be paid from the Light
and Power Fund except for Operation and Maintenance Expenses, amounts required to be paid in such Fiscal Year
pursuant to the Indenture and the Issuing Instrument for any Parity Obligations or the Issuing Instruments for
Subordinate Obligations, or when such payment has been certified by an Independent Engineer as being consistent
with Prudent Utility Practice.
Creation of Prior Liens on Trust Estate, The City shall not issue any bond, note, or other evidence of
indebtedness payable from or secured by the Trust Estate or any part thereof on a basis which is in any manner prior
or superior to the lien on, pledge of and security interest in the Trust Estate securing the Outstanding Bonds pursuant
to the Indenture; or (ii) except for Parity Obligations with respect to the Revenues and/or amounts in the Light and
Power Fund, in any manner on a parity with the lien on, pledge of and security interest in the Revenues and amounts
in the Light and Power Fund securing the Outstanding Bonds pursuant to the Indenture. Nothing in the Indenture
shall prevent the City from issuing Subordinate Obligations in accordance with Section 2.08.
Against Encumbrances. The City shall pay or cause to be paid when due all sums of money that may
become due or purporting to be due for any labor, services, materials, supplies or equipment furnished, or alleged to
have been furnished, to or for the City in, upon, about or relating to the Electric System and shall keep the Electric
System free of any and all liens against any portion of the Electric System. In the event any such lien attaches to or
is filed against any portion of the Electric System, the City shall cause each such lien to be fully discharged and
released at the time the performance of any obligation secured by any such lien matures or becomes due, except that
if the City desires to contest any such lien it may do so if contesting such lien shall not materially impair operation
of the Electric System. If any such lien shall be reduced to final judgment and such judgment or any process as may
be issued for the enforcement thereof is not promptly stayed, or if so stayed and such stay thereafter expires, the City
shall forthwith pay or cause to be paid and discharged such judgment.
Sale or Other Disposition of Property. The City shall not sell, transfer or otherwise dispose of any of the
works, plant, properties, facilities or other part or rights of the Electric System or any real or personal property
comprising a part of the Electric System if such sate, transfer or disposition would cause the City to be unable to
satisfy the requirements of the provisions of the Indenture relating to rates for electric service.
Operation and Maintenance of the Electric System; Budgets. The City shall maintain and preserve the
Electric System in good repair and working order at all times and shall operate the Electric System in an efficient
and economical manner and shall pay all Operation and Maintenance Expenses as they become due and payable.
B-23
The City shall prepare, not later than the last day of each Fiscal Year, a Budget for the Electric System
approved by the City Council setting forth the estimated Revenues, Operation and Maintenance Expenses, scheduled
Debt Service and other payments estimated to be paid from the Revenues and amounts in the Light and Power Fund
during the next succeeding Fiscal Year. The Electric System Budget for any Fiscal Year may be amended at any
time during such Fiscal Year provided that such amended Budget shall include all payments coming due in such
Fiscal Year with respect to Obligations payable from Revenues or amounts in the Light and Power Fund. In the
event the City fails to have a Budget approved by the City Council as required by the Indenture with respect to any
Fiscal Year, then references in the Indenture to the amount of Operation and Maintenance Expenses included in the
Budget as of any time shall be deemed to be the Operation and Maintenance Expenses in the latest Budget approved
by the City Council as adjusted for an inflation factor equal to ten percent for each Fiscal Year from the approval of
such Budget by the City Council to the applicable time of determination of the Operation and Maintenance Expenses
included in the Budget.
Insurance. The City shall procure and maintain such insurance relating to the Electric System which it
shall deem advisable or necessary to protect its interests and the interests of the Trustee and the Owners of the
Bonds, which insurance shall afford protection in such amounts and against such risks as are usually covered in
connection with public electric utility systems similar to the Electric System; provided, that any such insurance may
be maintained under a self-insurance program so long as such self-insurance is maintained in the amounts and
manner as is, in the opinion of an accredited actuary, actuarially sound. All policies of insurance required to be
maintained under the Indenture shall provide that the Trustee shall be given thirty (30) days' written notice of any
intended cancellation thereof or reduction of coverage provided thereby.
Payment of Taxes and Compliance with Governmental Regulations. The City shall pay and discharge all
taxes, assessments and other governmental charges which may hereafter be lawfully imposed upon the Electric
System or any part thereof when the same shall become due. The City shall duly observe and conform with all valid
regulations and requirements of any governmental authority relative to the operation of the Electric System or any
part thereof, but the City shall not be required to comply with any regulations or requirements so long as the validity
or application thereof shall be contested in good faith and contesting such validity or application shall not materially
impair the operations or financial condition of the Electric System or the performance of the City under the
indenture and all Outstanding Bonds.
Tax Covenants. (a) The City covenants it shall not take any action, or fail to take any action, if any such
action or failure to take action would adversely affect the Tax-exempt status of interest on any Bond under Section
103 of the Code. Without limiting the generality of the foregoing, the City shall comply with the requirements of
the Tax Certificate, if any, delivered in connection with the issuance of each Series of Bonds.
In the event that at any time the City is of the opinion that, in order to comply with its obligations under
paragraph (a) above, it is necessary or helpful to restrict or limit the yield on the investment of any moneys in any of
the Funds held by the Trustee pursuant to the Indentuure, the City shall so instruct the Trustee in writing, and cause
the Trustee to take such action as may be necessary in accordance with such instructions.
(b) Notwithstanding any. provisions of the indentuure, if the City shall provide to the Trustee an Opinion of
Bond Counsel to the effect that any specified action required under the Indenture or a Tax Certificate is no longer
required or that some further or different action is required to maintain the Tax-Exermpt status of the Bonds under
Section 103 of the Code, the City and the Trustee may conclusively rely on such opinion in complying with the
requirements of the Indenture and of the applicable Tax Certificate, and the covenants under the Indenture shall be
deemed to be modified to that extent.
(c) The covenants described in the foregoing shall survive payment in full or discharge of the Bonds.
Amendments to Indenture
Amendments Permitted. (a) Subject to the provisions of paragraph (d) below, the provisions of the
Indenture or of any Supplemental Indenture and the rights and obligations of the City and of the Owners of the
Outstanding Bonds and of the Fiduciaries may be modified, amended or supplemented from time to time and at any
time by a Supplemental Indenture or Supplemental Indentures, with the written consent of each Credit Provider
➢-24
whose consent is required by a Supplemental Indenture or a Credit Support Agreement, when the written consent of
the Owners of at least a majority in aggregate principal amount of the Bonds then Outstanding shall have been filed
with the Trustee; or if less than all of the Outstanding Bonds are affected, the written consent of the Owners of at
least a majority in aggregate principal amount of all affected Outstanding Bonds; provided that if such modification,
amendment or supplement shall, by its terms, not take effect so long as any Bonds of any particular Series and
maturity remain Outstanding, and, with respect to Bonds which are Tender Indebtedness if the conditions of
paragraph (d) below are satisfied, the consent of the Owners of such Bonds shall not be required and such Bonds
shall not be deemed to be Outstanding for the purpose of any the calculation of Outstanding Bonds. No such
modification, amendment or supplement shall (1)reduce the aforesaid percentage of Bonds the consent of the
Owners of which is required to effect any such modification, amendment or supplement without the consent of the
Owners of all of the Bonds then Outstanding; (2) extend the fixed maturity of any Bond, or reduce the principal
amount thereof, or reduce the amount of any Sinking Fund Installment therefor, or extend the due date of any such
Sinking Fund Installment, or reduce the rate of interest on any Bond or extend the time of payment of interest
thereon, without the consent of the Owner of each Bond so affected; (3) except as otherwise provided with respect to
a Bond constituting Tender Indebtedness in the Supplemental Indenture authorizing such Bond and subject to the
satisfaction of the conditions of subsection (g) of this Section, reduce the Redemption Price due on the redemption
of any Bond or change the date or dates when any Bond is subject to redemption; or (4) modify the rights or
obligations of any Fiduciary without the consent of such Fiduciary.
It shall not be necessary for the consent of the Owners to approve the particular form of any Supplemental
Indenture, but it shall be sufficient if such consent shall approve the substance thereof.
Unless waived by the Owner of an affected Bond or Bonds, prior to the entry into any Supplemental
Indenture by the City and the Trustee for any of the purposes described under this heading, the City shall cause
notice of the proposed Supplemental Indenture to be mailed, by first class mail, postage prepaid, to the Owners of all
Outstanding Bonds (or the affected Outstanding Bonds) at their addresses appearing on the Bond Register. Such
notice shall briefly set forth the nature of the proposed Supplemental Indenture and shall state that copies thereof are
on file at the office of the Trustee for inspection by each Owner of an Outstanding Bond,
Whenever, at any time after the date of the mailing of notice of the proposed entry into a Supplemental
Indenture pursuant to the foregoing, the City shall have received an instrument or instruments in writing executed in
accordance with the Indenture by or on behalf of the Owners of not less than a majority in aggregate principal
amount of the Bonds then Outstanding, or if less than all of the Outstanding Bonds are affected, by the Owners of
not less than a majority in aggregate principal amount of the affected Outstanding Bonds, which instrument or
instruments shall refer to the proposed Supplemental Indenture described in the notice of the proposed Supplemental
Indenture and shall consent to such Supplemental Indenture in substantially the form referred to in such notice,
thereupon, but not otherwise, the City and the Trustee may enter into such Supplemental Indenture in substantially
such form, without liability or responsibility to any Owner of any Bond, whether or not such Owner shall have
consented thereto.
(b) The Indenture or any Supplemental Indenture may be supplemented from time to time and at any time
by a Supplemental Indenture or Supplemental Indentures, which the City and the Trustee may enter into with the
consent of each Credit Provider whose consent is required by a Supplemental Indenture or a Credit Support
Agreement but without the consent of the Owner of any Bond, to provide for the issuance of a Series of Additional
Bonds or a Series of Refunding Bonds in accordance with the terms and conditions of the Indenture, and
establishing the terms and conditions thereof, including the rights of any Credit Provider for such Additional Bonds
or Refunding Bonds, which may include permitting such Credit Provider to act for and on behalf of the Owners of
such Additional Bonds or Refunding Bonds for any or all purposes of the Indenture except that no such Credit
Provider shall be authorized to extend the fixed maturity of any Bond, or reduce the principal amount thereof, or
reduce the amount of any Sinking Fund Installment therefor, or extend the due date of any such Sinking Fund
Installment, or reduce the rate of interest on any Bond or extend the time of payment of interest thereon, without the
consent of the Owner of each Bond so affected; or except as otherwise provided with respect to a Bond constituting
Tender Indebtedness in the Supplemental Indenture authorizing such Bond and subject to the satisfaction of the
conditions of paragraph (g) below, reduce the Redemption Price due on the redemption of any Bond or change the
date or dates when any Bond is subject to redemption.
B-25
(c) The Indenture and any Supplemental Indenture and the rights and obligations of the City, the
Fiduciaries and the Owners of the Outstanding Bonds may also be modified, amended or supplemented from time to
time and at any time by a Supplemental Indenture or Supplemental Indentures, which the City and the Trustee may
enter into with the consent of each Credit Provider whose consent is required by a Supplemental Indenture or a
Credit Support Agreement but without the consent of any Owners of Bonds (but with the consent of any affected
Fiduciary), so long as such modification, amendment or supplement shall not materially, adversely affect the
interests of the Owners of the Outstanding Bonds, including without limitation, for any one or more of the following
purposes:
(i) to add to the covenants and agreements of the City contained in the Indenture
other covenants and agreements thereafter to be observed, or to surrender any right or power in the
Indenture reserved to or conferred upon the City;
(ii) to pledge, provide or assign any additional security for the Bonds (or any portion
thereof), including transferring control of the amounts in the Light and Power Fund to the Trustee; provided
that if the City transfers control of the amounts in the Light and Power Fund to the Trustee, the Trustee
shall return such control at the request of the City only if no Event of Default has occurred and is
continuing and if such return has been consented to by the Owners of a majority in aggregate principal
amount of the Bonds then Outstanding and with the consent of each Credit Provider whose consent is
required by a Supplemental Indenture or a Credit Support Agreement;
(iii) to add to the covenants and agreements of the City contained in the Master
Indenture or a Supplemental Indenture other covenants and agreements thereafter to be observed, to pledge,
provide or assign any security for the Bonds (or any portion thereof), or to surrender any right or power in
the Indenture reserved to or conferred upon the City;
(iv) to make such provisions for the purpose of curing any ambiguity, inconsistency or
omission, or of curing or correcting any defective provision, contained in the Indenture or a Supplemental
Indenture, or in regard to matters or questions arising under the Indenture or a Supplemental Indenture, as
the City may deem necessary or desirable; or
(v) to modify, amend or supplement the Indenture or a Supplemental Indenture in such
manner as to permit the qualification of the Indenture under the Trust Indenture Act of 1939, as amended,
or any similar federal statute hereafter in effect, and to add such other terms, conditions and provisions as
may be permitted by said act or similar federal statute.
(d) Notwithstanding anything to the contrary contained in the Indenhue, the provisions of the Indenture or
any Supplemental Indenture may also be modified, amended or supplemented by a Supplemental Indenture or
Supplemental Indentures, including amendments which would otherwise be described in paragraph (a) above,
without the consent of the Owners of Bonds constituting Tender Indebtedness if either (i) the effective date of such
Supplemental Indenture is a date on which such Bonds are subject to mandatory tender for purchase pursuant to the
Indenture or (ii) the applicable notice described in the Indenture is given to Owners of such Bonds at least thirty (30)
days before the effective date of such Supplemental Indenture, and on or before such effective date, the Owners of
such Bonds have the right to demand purchase of such Bonds pursuant to the Indenture.
(e) If the Supplemental Indenture authorizing the issuance of a Series of Bonds provides that a Credit
Provider for all or any portion of the Bonds of such Series shall have the right to consent to Supplemental Indentures
which require the consent of the Owners of the Bonds of such'Series pursuant to the Indenture, then for the purposes
of sending notice of any proposed Supplemental Indenture and for determining whether the Owners of the requisite
percentage of Bonds have consented to such Supplemental Indenture, but subject to the provisions of paragraph (b)
above, references to the Owners of such Bonds shall be deemed to be to the applicable Credit Provider.
(f) For purposes of the foregoing, it shall not be necessary that consents of the Owners of any particular
percentage of Outstanding Bonds of any affected Series be obtained but it shall be sufficient for such purposes if the
consent of the Owners of a majority in aggregate principal amount of the combination of affected Outstanding
Bonds shall be obtained.
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(g) Notwithstanding anything to the contrary contained in the Indenhue, if authorized by the Supplemental
Indenture authorizing the issuance of a Bond constituting Tender Indebtedness, any premium due on the redemption
of such Bond and the date or dates when such Bond is subject to redemption may be modified or amended as
provided in such Supplemental Indenture if either: (i) the effective date of such modification or amendment is a date
on which such Bond is subject to mandatory tender for purchase pursuant to such Supplemental indenture; or (ii)
notice of such modification or amendment has been mailed to the Owner of such Bond at the address set forth in the
Bond Register at least thirty (30) days before the effective date of such modification or amendment and on or before
such effective date, the Owner of such Bond has the right to demand purchase of such Bond pursuant to such
Supplemental Indenture.
Upon the City and the Trustee entering into any Supplemental Indenture pursuant to the Indenture, the
indenture shall be deemed to be modified, amended or supplemented in accordance therewith, and the respective
rights, duties and obligations under the Indenture of the City, the Fiduciaries and all Owners of Outstanding Bonds
shall thereafter be determined, exercised and enforced subject in all respects to such modification, amendment and
supplement, and all the terms and conditions of any such Supplemental Indenture shall be deemed to be part of the
terms and conditions of the indenture for any and all purposes.
For purposes of modifications, amendments and supplements to the Indenture, Bonds owned or held by or
for the account of the City, or any funds of the City, shall not be deemed Outstanding for the purpose of consent or
other action or any calculation of Outstanding Bonds provided for in the Indenture, and the City shall not be entitled
with respect to such Bonds to give any consent or take any other action provided for in the Indenture as an Owner of
Bonds. At the time of any consent or other action taken under the Indenture, the City shall furnish the Trustee a
certificate of an Authorized City Representative upon which the Trustee may rely, describing all Bonds so to be
excluded.
Defeasance
Bonds (or portions of Bonds) for the payment or redemption of which moneys shall have been set aside and
shall be held in trust by an Escrow Agent at the maturity date or redemption date or other date when the Owner is
entitled to receive the principal thereof, as applicable, shall be deemed to have been paid within the meaning and
with the effect expressed in the provisions of the Indenture relating to payment of bonds upon defeasance. Any
Outstanding Bond (or any portion thereof such that both the portion thereof which is deemed paid and the portion
which is not deemed paid pursuant to the Indenture shall be in an Authorized Denomination) shall prior to the
maturity, redemption date or other payment date thereof, be deemed to have been paid within the meaning and with
the effect expressed in the provisions of the Indenture relating to payment of bonds upon defeasance (except that the
obligations described under the applicable provisions of the htdentre relating to payment of bonds and the giving of
the notices of the redemption of Bonds to be redeemed as provided in the Indenture shall continue) if (1) in case said
Bond (or portion thereof) is to be redeemed on any date prior to maturity, the City shall have given the Trustee
irrevocable instructions to give notice of redemption of such Bond (or portion thereof) on said date as provided in
the Indenture, (2) there shall have been deposited with an Escrow Agent either moneys in an amount which shall be
sufficient, or Defeasance Securities, the principal of and the interest on which when due shall provide moneys
which, together with the moneys, if any, held by such Escrow Agent for such purpose, shall be sufficient, in each
case as evidenced by an Accountant's Certificate, to pay when due the principal amount of, and any redemption
premiums on, said Bond (or portion thereof) and interest due and to become due on said Bond (or portion thereof)
on and prior to the redemption date, maturity date or other payment date thereof, as the case may be, and (3) if such
Bond (or portion thereof) is not to be paid or redeemed within 60 days of the date of the deposit required by
(2) above, the City shall have given the Trustee, in form satisfactory to it, instructions to mail, as soon as practicable,
by first class mail, postage prepaid, to the Owner of such Bond, at the last address, if any, appearing upon the Bond
Register, a notice that the deposit required by (2) above has been made with an Escrow Agent and that said Bond (or
the applicable portion thereof) is deemed to have been paid in accordance with the Indenture and stating such date
upon which moneys are to be available for the payment of the principal amount of, and any redemption premiums
on, said Bond. Any notice given pursuant to (3) above with respect to Bonds which constitute less than all of the
Outstanding Bonds of any Series and maturity shall specify the letter and number or other distinguishing mark of
each such Bond. Any notice given pursuant to (3) above with respect to less than the fill principal amount of a
Bond shall specify the principal amount of such Bond which shall be deemed paid pursuant to the Indenture and
notify the Owner of such Bond that such Bond must be surrendered as provided in the Indenture. The receipt of any
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notice required by this paragraph shall not be a condition precedent to any Bond being deemed paid in accordance
with this paragraph and the failure of any Owner to receive any such notice shall not affect the validity of the
proceedings for the payment of Bonds in accordance with the Indenture. Neither Defeasance Securities nor moneys
deposited with an Escrow Agent pursuant to the Indenture, nor principal or interest payments on any such
Defeasance Securities, shall be withdrawn or used for any purpose other than, and shall be held in trust for, the
payment of the principal amount of, and any redemption premiums on, said Bonds and the interest thereon; provided
that any cash received from principal or interest payments on such Defeasance Securities deposited with an Escrow
Agent, (A) to the extent such cash shall not be required at any time for such payment, as evidenced by an
Accountant's Certificate, shall be paid over upon the written direction of an Authorized City Representative,
including a transfer to the City free and clear of any trust, lien, pledge or assignment securing said Bonds, and (B) to
the extent such cash shall be required for such payment at a later date, shall, to the extent practicable, at the written
direction of an Authorized City Representative, be reinvested in Defeasance Securities maturing at times and in
amounts, which together with the other funds to be available to the Escrow Agent for such purpose, shall be
sufficient to pay when due the principal amount of, and any redemption premiums on, said Bonds and the interest to
become due on said Bonds on and prior to such redemption date, maturity date or other payment date thereof, as the
case may be, as evidenced by an Accountant's Certificate.
Nothing in the Indenture shall prevent the City from substituting for the Defeasance Securities held for the
payment or redemption of Bonds (or portions thereof) other Defeasance Securities which, together with the moneys
held by the Escrow Agent for such purpose, as evidenced by an Accountant's Certificate, shall be sufficient to pay
when due the principal amount of, and any redemption premiums on, the Bonds (or portions thereof) to be paid or
redeemed, and the interest due on the Bonds (or portions thereof) to be paid or redeemed at the times established
with the initial deposit of Defeasance Securities for such purpose provided that the City shall deliver to the Escrow
Agent a Favorable Opinion of Bond Counsel with respect to such substitution.
If there shall be deemed paid pursuant to the Indenture less than all of the fall principal amount of a Bond,
the City shall execute and the Trustee shall authenticate and deliver, upon the surrender of such Bond, without
charge to the Owner of such Bond, a new Bond or Bonds for the principal amount of the Bond so surrendered which
is deemed paid pursuant to the Indenture and another new Bond or Bonds for the balance of the principal amount of
the Bond so surrendered, in each case of like Series, maturity and other terms, and in any of the Authorized
Denominations.
Upon the deposit with an Escrow Agent, in trust, at or before maturity or the applicable redemption date, of
money or Defeasance Securities in the necessary amount to pay or redeem Outstanding Bonds (or portions thereof),
and to pay the interest thereto to such maturity or redemption date, as applicable, (provided that, if such Bonds are to
be redeemed prior to the maturity thereof, notice of such redemption shall have been given as provided in the
Indenture or provision satisfactory to the Trustee shall have been made for giving such notice), all liability of the
City in respect of such Bonds shall cease, terminate and be completely discharged, except that the City shall remain
liable for such payment but only from, and the Bondowners shall thereafter be entitled only to payment (without
interest accrued thereon after such redemption date or maturity date, as applicable) out of, the money and
Defeasance Securities deposited with the Escrow Agent as aforesaid for their payment, subject, however, to the
provisions of the Indenture relating to transfers to the City's general fund and bonds deemed paid; provided that no
Bond which constitutes Tender Indebtedness shall be deemed to be paid within the meaning of the Indenture unless
the Purchase Price of such Bond, if tendered for purchase in accordance with the Indenture, could be paid when due
from such moneys or Defeasance Securities (as evidenced by an Accountant's Certificate) or a Credit Support
Instrument is provided in connection with such Purchase Price.
Events of Default; Remedies
Events of'Default. Each of the following shall constitute an Event of Default under the Indenture: (i) if
default shall be made in the payment of the principal or Redemption Price of or Sinking Fund Installment for, or
interest on, any Outstanding Bond, when and as the same shall become due and payable, whether on an Interest
Payment Date, at maturity, by call for redemption, or otherwise; (ii) if default shall be made by the City in the
performance or observance of any other of the covenants, agreements or conditions on its part in the Indenture or in
the Outstanding Bonds contained, and such default shall continue for a period of 120 days after written notice
thereof to the City by the Trustee or to the City and to the Trustee by the Owners of not less than 10% in principal
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amount of the Bonds Outstanding; provided, however, if such default is such that it can be corrected by the City but
not within the applicable period specified above, it shall not constitute an Event of Default if corrective action is
instituted by the City within thirty (30) days of the City's receipt of the notice of the default required by this
paragraph and diligently pursued until the default is corrected; or (iii) an Event of Bankruptcy shall have occurred
and be continuing with respect to the City; or (iv) if an event of default (as defined in the applicable Issuing
Instrument) shall have occurred and be continuing with respect to any Parity Obligation.
Application of Revenues and Other Moneys After Default. (a) Notwithstanding anything to the contrary
contained in the Indenhue, including Article V of this Indenture, the City covenants that if an Event of Default shall
happen and shall not have been remedied, the City, upon the demand of the Trustee, shall cause control of amounts
in the Light and Power Fund to be transferred to the Trustee and shall cause to be paid over to the Trustee by the
first Business Day of each month, all Revenues received by the City with respect to the preceding month.
(b) During the continuance of an Event of Default, the Trustee shall apply all Revenues and amounts
in the Light and Power Fund received by or available to the Trustee pursuant to any right given or action taken under
the provisions of the Indenture, in the following order of priority:
First: To the payment of the reasonable and proper charges, expenses and liabilities of
the Fiduciaries, including reasonable fees of counsel, and the payment of the reasonable and
proper charges, expenses and liabilities of the fiduciaries for Parity Obligations, including
reasonable fees of counsel.
Second: To the payment of the Operation and Maintenance Expenses.
Third: To the payment of the principal and Redemption Price of and interest on the
Outstanding Bonds, and the principal and redemption price of and interest on the other
Outstanding Parity Obligations, then due and payable; provided however, that in the event the
amount of Net Revenues and amounts in the Light and Power Fund available for such payment are
not sufficient to make all the payments required by this clause, the Trustee shall apply the Net
Revenues and available amounts in the Light and Power Fund to the payment of the principal and
Redemption Price of and interest on all Outstanding Parity Obligations then due and payable
ratably (based on the respective amounts to be paid), without any discrimination on preferences.
Fourth: To the payment of any Termination Payments due and. payable under the
Qualified Swap Agreements; provided however, that in the event the amount of Net Revenues and
available amounts in the Light and Power Fund are not sufficient to snake all the payments
required by this clause with respect to all Qualified Swap Agreements, the Trustee shall apply the
Net Revenues and available amounts its the Light and Power Fund to the payment of the
Termination Payments then due and payable under all Qualified Swap Agreements ratably (based
on the respective amounts to be paid), without any discrimination on preferences.
Fifth: To the transfer to the Debt Service Reserve Fund for the Bonds and to each debt
service reserve fiord for other Outstanding Parity Obligations, the amount, if any, necessary so that
the amount on deposit in the Debt Service Reserve Fund shall equal the Debt Service Reserve
Requirement and the amount in each debt service reserve fond for other Outstanding Parity
Obligations shall equal the amount required to be on deposit in such debt service reserve fund
under the applicable Issuing Instrument; provided that that in the event the amount of Net
Revenues and amounts in the Light and Power Fund available for such payment are not sufficient
to make all the payments required by this clause, the Trustee shall apply the Net Revenues and
available amounts in the Light and Power Fund to the transfer to the Debt Set -vice Reserve Fund
and each debt service reserve fund for other Outstanding Parity Obligations ratably (based on the
respective amounts to be paid), without any discrimination or preferences,
Sixth: To the payment of amounts due with respect to outstanding Subordinate
Obligations (which shall not include Termination Payments for Qualified Swap Agreements) in
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accordance with the provisions of the Issuing Instrument pursuant to which such Subordinate
Obligations have been issued.
(c) In the event that on any date all payments required to be made from Net Revenues and amounts in
the Light and Power Fund available for such payment are not made in full as required by this Section, then no
payment shallbe made which has a priority under this Section lower than the delinquent payment until all
delinquent payments with a higher priority have been made in full.
(d) If and whenever all overdue installments of interest on all Outstanding Bonds and Outstanding
Parity Obligations, together with the reasonable and proper fees, charges, expenses and liabilities of the Trustee and
any other fiduciary for Parity Obligations, including reasonable fees of counsel, and all other sums payable for the
account of the City under the Indenture, including the principal and Redemption Price of. all Outstanding Bonds and
Outstanding Parity Obligations and unpaid interest on all Outstanding Bonds and Outstanding Parity Obligations
which shall then be payable, shall be paid for by the account of the City, or provision satisfactory to the Trustee shall
be made for such payment, and all defaults under the Indenture, die Outstanding Bonds and the Outstanding Parity
Obligation shall be made good or secured to the satisfaction of the Trustee or provision deemed by the Trustee to be
adequate shall be made therefor, the Trustee, at the request of the City and with the consent of the Owners of a
majority in aggregate principal of the Bonds then Outstanding and with the consent of each Credit Provider whose
consent is required by a Supplemental Indenture or a Credit Support Agreement, shall transfer control of amounts in
the Light and Power Fund to the City and pay over all unexpended Revenues in the hands of the Trustee (except
Revenues deposited or pledged, or required by the terms of the Indenture to be deposited or pledged, with the
Trustee), and thereupon the City and the Trustee shall be restored, respectively, to their former positions and rights
under the Indenture. No such payment by the Trustee nor such restoration of the City and the Trustee to their former
positions and rights shall extend to or affect any subsequent default under the Indenture or impair any right
consequent thereon.
(e) The Trustee may in its discretion establish special record dates for the determination of the
Owners of Bonds for various purposes hereof, including without limitation, payment of defaulted interest and giving
direction or consent to the Trustee.
Right to Accelerate Upon Default. Notwithstanding anything contrary in the Indenture or in the Bonds,
upon the occurrence of an Event of Default, the Trustee may, with the consent of each Credit Provider whose
consent is required by a Supplemental Indenture or a Credit Support Agreement, and shall, at the direction of the
Owners of a majority in principal amount of Outstanding Bonds (other than Bonds owned by or on behalf of the
City) by written notice to the City, declare the principal of the Outstanding Bonds and the interest thereon to be
immediately due and payable, whereupon such principal and interest shall, without further action, become and be
immediately due and payable.
Appointment of Receiver. If an Event of Default shall happen and shall not have been remedied, and upon
the filing of a suit or other commencement of judicial proceedings to enforce the rights of the Trustee and of the
Owners of the Bonds under the Indenture, the Trustee shall be entitled to make application for the appointment of a
receiver or custodian of the Revenues and amounts in the Light and Power Fund, pending such proceedings, with
such power as the court making such appointment shall confer.
Enforcement Proceedings. (a) If an Event of Default shall happen and shall not have been remedied, then
and in every such case, the Trustee, by its agents and attorneys, may, with the consent of each Credit Provider whose
consent is required by a Supplemental Indenture or a Credit Support Agreement, proceed, and upon the written
request of the Owners of not less than a majority in principal amount of the Bonds at the time Outstanding (other
than Bonds owned by or on behalf of the City), with the consent of each Credit Provider whose consent is required
by a Supplemental Indenture or a Credit Support Agreement, after receiving indemnification satisfactory to it as set
forth in paragraph (d) below, shall proceed, to protect and enforce its rights and die rights of the Owners of the
Outstanding Bonds by a suit or suits in equity or at law, whether for damages or the specific performance of any
covenant contained in the Indenture, to enforce the security interest in, pledge of and lien on the Trust Estate granted
pursuant to the Indenture, or in aid of the execution of any power granted in the Indenture or any remedy granted
under applicable provisions of the laws of the State of California, or for an accounting by the City as if the City were
the trustee of an express trust, or in the enforcement of any other legal or equitable right as the Trustee, being
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advised by counsel, shall deem most effectual to enforce any of its rights or to require the City to perform any of its
duties under the Indenture.
(b) All rights of action under the Indenture may be prosecuted and enforced by the Trustee without the
possession of any of the Bonds or the production thereof in the trial or other proceedings, and any such suit or
proceedings instituted by the Trustee shall be brought in its own name as trustee of an express trust.
(c) If an Event of Default shall occur and be continuing, upon commencing a suit in equity or upon other
commencement of judicial proceedings by the Trustee to enforce any right under the Indenture, the Trustee shall be
entitled to exercise any and all rights and powers conferred in the Indenture and otherwise provided by law to be
exercised by the Trustee as the trustee of an express trust.
(d) Regardless of the happening of an Event of Default, the Trustee shall have power to, but unless
requested in writing by the Owners of a majority in principal amount of the Bonds then Outstanding and furnished
with reasonable security and indemnity, shall be under no obligation to, institute and maintain such suits and
proceedings as it may be advised shall be necessary or expedient to prevent any impairment of the security under the
Indenture by any acts which may be unlawful or in violation of the Indenture, and such suits and proceedings as the
Trustee may be advised shall be necessary or expedient to preserve or protect its interests and the interests of the
Owners of the Bonds.
(e) If the Trustee or any Owner or Owners of Outstanding Bonds have instituted any proceeding to enforce
any right or remedy under the indenture and such proceeding has been discontinued or abandoned for any reason, or
has been determined adversely to the Trustee or to such Owner or Owners, then and in every such case the City, the
Trustee and the Owners shall, subject to any determination in such proceeding, be restored severally and
respectively to their former positions under the Indenture, and thereafter all rights and remedies of the Trustee and
the Owners shall continue as though no such proceeding had been instituted.
Restriction on Owner's Action. (a) Except as otherwise provided in paragraph (b) below, no Owner of any
Bond shall have any right to institute any suit, action or proceeding at law or in equity for the enforcement of any
provision of the indenture or the execution of any Gust under the Indenture or for any remedy given under the
Indenture or existing at law or in equity or by statute unless such Owner shall have previously given to the Trustee
written notice of the happening of an Event of Default, as provided in the Indenture, and the Owners of at least
twenty-five percent in principal amount of the Bonds then Outstanding shall have filed a written request with the
Trustee, and shall have offered it reasonable opportunity, either to exercise the powers granted in the Indenture or by
the applicable laws of the State of California or to institute such action, suit or proceeding in its own name, and
unless such Owners shall have offered to the Trustee adequate security and indemnity against the costs, expenses
and liabilities to be incurred therein or thereby, and the Trustee shall have refused to comply with such request for a
period of 60 days after receipt by it of such notice, request and offer of indemnity, it being understood and intended
that no one or more Owners of Bonds shall have any right in any manner whatever by his or their action to affect,
disturb or prejudice the pledge created by the Indenture, or to enforce any right under the Indenture, except in the
manner therein provided; and that all proceedings at law or in equity to enforce any provision of the Indenture shall
be instituted, had and maintained in the manner provided in the Indenture and for the ratable benefit of all Owners of
the Outstanding Bonds, subject only to the provisions of the Indenture relating to Credit Providers.
(b) Nothing in the Indenture or in the Bonds contained shall affect or impair the obligation of the City,
which is absolute and unconditional, to pay on the respective due dates thereof and at the places therein expressed,
but solely from the Net Revenues, amounts in the Light and Power Fund available for such payment in accordance
with the indenture and the amounts in the Funds, other than the Rebate Fund, held by the Trustee under the
Indenture, the principal amount, or Redemption Price if applicable, of the Bonds, and the interest thereon, to the
respective Owners thereof, or affect or impair the right, which is also absolute and unconditional, of any Owner to
institute suit for the enforcement of any such payment from such sources.
Remedies Not Exclusive. No remedy by the terms of the Indenture conferred upon or reserved to the
Trustee or the Owners of the Bonds is intended to be exclusive of any other remedy, but each and every such
remedy shall be cumulative and shall be in addition to every other remedy given under the Indenture or existing at
law or in equity or by statute whether effective on or after the effective date of the Indenture. The assertion or
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employment of any right or remedy, under the Indenture or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Effect of Waiver and Other Circumstances. (a) No delay or omission of the Trustee or any Owner of a
Bond to exercise any right or power arising upon the happening of an Event of Default shall impair any right or
power or shall be construed to be a waiver of any such Event of Default or be an acquiescence therein; and every
power and remedy given by the Indenture to the Trustee or to the Owners of the Bonds may be exercised from time
to time and as often as may be deemed expedient by the Trustee or by the Owners of the Bonds.
(b) The Owners of not less than sixty percent in principal amount of the Bonds at the time Outstanding, or
their attorneys -in -fact duly authorized, may on behalf of the Owners of all of the Bonds, waive any Event of Default
and its consequences. No such waiver shall extend to any subsequent or Event of Default or impair any right
consequent thereon unless the provisions of this paragraph (b) have been satisfied with respect to such subsequent
Event of Default.
Notice of Default. The Trustee shall, within thirty (30) days after obtaining knowledge thereof, mail
written notice of the occurrence of any Event of Default to each Credit Provider, each Reserve Financial Guaranty
Provider and each Owner of Bonds then Outstanding at such Owner's address appearing in the Bond Register.
Credit Providers
Except as limited by the Indenture, a Supplemental Indenture authorizing a Series of Bonds may provide
that any Credit Provider providing a Credit Support Instrument with respect to Bonds of such Series may exercise
any right under the Indenture or the Supplemental Indenture authorizing the issuance of such Series of Bonds given
to the Owners of the Bonds to which such Credit Support Instrument relates in lieu of such Owners.
All provisions under the Indenture or a Supplemental Indenture authorizing the exercise of rights by a
Credit Provider with respect to Bonds of a Series, including without limitation actions relating to consents,
approvals, directions, waivers, appointments and requests, shall be deemed not to require or permit such consents,
approvals, directions, waivers, appointments, requests or other actions and shall be read as if the Credit Provider
were not mentioned therein (i) during any period during which there is a default by such Credit Provider under the
applicable Credit Support Instrument or (ii) after the applicable Credit Support Instrument shall for any reason cease
to be valid and binding on the Credit Provider, or shall be declared to be null and void by final judgment of a court
of competent jurisdiction, or after the Credit Support Instrument has been rescinded, repudiated or terminated (other
than in accordance with its terms), or after a receiver, conservator or liquidator has been appointed for the Credit
Provider; provided, however, that the payment of amounts due or that may become due (including without limitation
all indemnity payments) to the Credit Provider or any other person identified under such Credit Provider's Credit
Support Agreement pursuant to the terms of the Indenture, Supplemental Indenture and/or such Credit Support
Agreement shall continue in fill force and effect. The foregoing shall not affect any other rights of a Credit
Provider, including rights as the Owner of a Credit Provider Bond.
All provisions in the Indenture relating to the rights of a Credit Provider shall be of no force and effect if
there is no Credit Support Instrument in effect and all amounts owing to the Credit Provider under the Credit
Support Agreement have been paid.
Reserve Financial Guaranty Providers
All provisions under the Indenture or a Supplemental Indenture authorizing the exercise of rights by a
Reserve Financial Guaranty Provider with respect to Bonds of a Series, including without limitation actions relating
to consents, approvals, directions, waivers, appointments and requests, shall be deemed not to require or permit such
consents, approvals, directions, waivers, appointments, requests or other actions and shall be read as if the Reserve
Financial Guaranty Provider were not mentioned therein (i) during any period during which there is a default by
such Reserve Financial Guaranty Provider under the applicable Reserve Financial Guaranty or (ii) after the
applicable Reserve Financial Guaranty shall for any reason cease to be valid and binding on the Reserve Financial
Guaranty Provider, or shall be declared to be null and void by final judgment of a court of competent jurisdiction, or
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after the Reserve Financial Guaranty has been rescinded, repudiated or terminated, or after a receiver, conservator or
liquidator has been appointed for the Reserve Financial Guaranty Provider; provided, however, that the payment of
amounts due (including without limitation all indemnity payments) to the Reserve Financial Guaranty Provider
pursuant to the terms of the Indenture, any Supplemental Indenture, and/or any Reserve Financial Guaranty shall
continue in full force and effect. The foregoing shall not affect any other rights of a Reserve Financial Guaranty.
All provisions in the Indenture relating to the rights of a Reserve Financial Guaranty Provider shall be of no
force and effect if there is no Reserve Financial Guaranty Provider in effect issued by such Reserve Financial
Guaranty Provider and all amounts owing to such Reserve Financial Guaranty Provider under the Reserve Financial
Guaranty have been paid.
Unclaimed Moneys
Anything in the Indenture or any Supplemental Indenture to the contrary notwithstanding, any moneys held
by the Trustee, an Escrow Agent or any Paying Agent in trust for the payment and discharge of any of the Bonds
which remain unclaimed for two years after the date when such Bonds have become due and payable,. either at their
stated maturity dates, tender for purchase or by call for redemption, if such moneys were held by the Trustee, an
Escrow Agent or a Paying Agent at such date, or for two years after the date of deposit of such moneys if deposited
with the Trustee, an Escrow Agent or a Paying Agent after the date when such Bonds or the Purchase Price thereof
became due and payable, shall be repaid by such Trustee, Escrow Agent or Paying Agent to the City, as its absolute
property and free and clear of any test, lien, pledge or assignment securing said Bonds, and such Trustee, Escrow
Agent or Paying Agent shall thereupon be released and discharged with respect thereto and the Owners of such
Bonds shall look only to the City for the payment of such Bonds; provided, however, that before being required to
make any such payment to the City, the Trustee, the Escrow Agent or the Paying Agent, as applicable, shall, at the
expense of the City, mail, postage prepaid to the Owners of such Bonds, at the last address appearing upon the Bond
Register a notice that said moneys remain unclaimed and that, after a date named in said notice, which date shall be
not less than 30 days after the date of the mailing of such notice, the balance of such moneys then unclaimed shall be
returned to the City.
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APPENDIX C
BOOK -ENTRY ONLY SYSTEM
The information in this section concerning DTC and DTC's book -entry only system has been obtained
from sources that the City believes to be reliable, but the City takes no responsibility for the completeness or
accuracy thereof. The following description of the procedures and record keeping with respect to beneficial
ownership interests in the Bonds, payment of principal, premium, if any, accreted value, if any, and interest on the
Bonds to DTC Participants or Beneficial Owners, confirmation and transfers of beneficial ownership interests in the
Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based
solely on information provided by DTC.
The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the 2012
Bonds. The 2012 Bonds will be issued as filly -registered securities, registered in the name of Cede & Co. (DTC's
partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully -
registered bond certificate will be issued for each maturity of each series of 2012 Bonds, each in the aggregate
principal amount of such issue and will be deposited with DTC.
DTC, the world's largest securities depository, is a limited -purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code,
and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of
1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues,
corporate and municipal debt issues and money market instruments (firm over 100 countries) that DTC's
participants ("Direct Participants") deposit with DTC. DTC also facilitates the post -trade settlement among Direct
Participants of sales and other securities transactions in deposited securities, through electronic computerized book -
entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement
of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations. DTC is a wholly -owned subsidiary of The
Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities
Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC
is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both
U.S. and non-U.S. securities brokers and dealers, banks, trust companies and clearing corporations that clear through
or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants").
The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More
information about DTC can be found at www.dtcc.com and www,dtc.org.
Purchases of the 2012 Bonds under the DTC system must be made by or through Direct Participants, which
will receive a credit for the 2012 Bonds on DTC's records. The ownership interest of each actual purchaser of each
2012 Series Bond (`Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records.
Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are,
however, expected to receive written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Direct and Indirect Participant through which the Beneficial Owner entered
into the transaction. Transfers of ownership interests in the 2012 Bonds are to be accomplished by entries made on
the books of Direct or Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not
receive certificates representing their ownership interests in the 2012 Bonds, except in the event that use of the
book -entry system for the 2012 Bonds is discontinued.
To facilitate subsequent transfers, all 2012 Bonds deposited by Direct Participants with DTC are registered
in the name of DTC's partnership nominee, Cede & Co. or such other name as may be requested by an authorized
representative of DTC. The deposit of 2012 Bonds with DTC and their registration in the name of Cede & Co. or
such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual
Beneficial Owners of the 2012 Bonds; DTC's records reflect only the identity of the Direct Participants to whose
accounts such securities are credited, which may or may not be the Beneficial Owners. The Direct and Indirect
Participants will remain responsible for keeping account of their holdings on behalf of their customers.
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Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to
Indirect Participants and by Direct Participants and Indirect Participants to Beneficial Owners, will be governed by
arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.
Beneficial Owners of 2012 Bonds may wish to take certain steps to augment the transmission to them of notices of
significant events with respect to the 2012 Bonds, such as redemptions, tenders, defaults and proposed amendments
to the 2012 Bond documents. For example, Beneficial Owners of 2012 Bonds may wish to ascertain that the
nominee holding the 2012 Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In
the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that
copies of the notices be provided directly to them.
Redemption notices shall be sent to DTC. If less than all of the 2012 Bonds within an issue are being
redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to
be redeemed.
Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the 2012
Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures,
DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns
Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the 2012 Bonds are credited
on the record date (identified in a listing attached to the Omnibus Proxy).
Redemption proceeds, distributions and dividend payments on the 2012 Bonds will be made to Cede & Co.,
or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit
Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the City or the
Trustee, on payable date in accordance with their respective holdings shown on DTC's records. Payments by
Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case
with securities held for the accounts of customers in bearer form or registered in "street name," and will be the
responsibility of such Participant and not of DTC, nor its nominee, the Trustee, or the City, subject to any statutory
or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions
and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative
of DTC) is the responsibility of the City or the Trustee, disbursement of such payments to Direct Participants will be
the responsibility of DTC and disbursement of such payments to the Beneficial Owners shall be responsibility of
Direct and Indirect Participants.
DTC may discontinue providing its services as securities depository with respect to the 2012 Bonds at any
time by giving reasonable notice to the City or the Trustee. Under such circumstances, in the event that a successor
depository is not obtained, 2012 Bond certificates are required to be printed and delivered.
The City may decide to discontinue use of the system of book -entry only transfers through DTC (or a
successor securities depository). In that event, 2012 Bond certificates will be printed and delivered to DTC.
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APPENDIX D
PROPOSED FORM OF OPINION OF BOND COUNSEL
Upon delivery of the 2012 Bonds, Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the City, proposes
to render its final opinion in connection with the 2012 Bonds in substantially the following form:
[Date of Delivery]
City Council
City of Vernon
Vernon, California
City of Vernon
Electric System Revenue Bonds
2012 Series A and 2012 Taxable Series B
(Final Opinion)
Ladies and Gentlemen
We have acted as bond counsel to the City of Vernon, California (the "City") in connection with [he
issuance of $37,640,000 aggregate principal amount of City of Vernon Electric System Revenue Bonds, 2012 Series
A (the "2012 Series A Bonds") and $35,100,000 aggregate principal amount of City of Vernon Electric System
Revenue Bonds, 2012 Taxable Series B (the "2012 Series B Bonds" and, together with the 2012 Series A Bonds, the
"2012 Series Bonds"). The 2012 Series Bonds have been issued pursuant to the City of Vernon Municipal Facilities
Revenue Bond Law, constituting Article XI of the Vernon City Code (the `Bond Law") and an Indenture of Trust,
dated as of September 1, 2008 (as amended and supplemented, the "Indenture"), between the City and The Bank of
New York Mellon Trust Company, N.A., as trustee (the "Trustee"), as supplemented by the Third Supplemental
Indenture of Trust, dated as of January 1, 2012, between the City and the Trustee. Capitalized terms not otherwise
defined herein shall have the meanings ascribed thereto in the Indenture.
In such connection, we have reviewed the Charter, the Bond Law, the Indenture, the Tax Certificate,
certificates of the City, the Trustee and others, opinions of counsel to the City, the Trustee and others, and such other
documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein.
The Indenture provides that the Bonds, including the 2012 Series Bonds, are special obligations of the City,
secured by a pledge of, and payable solely from, the Trust Estate. The Indenture further provides that the Bonds,
including the 2012 Series Bonds, are not secured by a legal or equitable pledge of, or lien or charge upon, any
property of the City or any of its income or receipts except the pledge of the Trust Estate and that the pledge of
Revenues and amounts in the Light and Power Fund pursuant to the Indenture shall be on a parity with any pledge
thereof securing Parity Obligations.
The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court
decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by
actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine or to inform
any person whether any such actions are taken or omitted or events do occur or any other matters come to our
attention after the date hereof. Accordingly, this letter speaks only as of its date and is not intended to, and may not,
be relied upon or otherwise used in connection with any such actions, events or matters. Our engagement with
respect to the 2012 Series Bonds has concluded with their issuance, and we disclaim any obligation to update this
letter. We have assumed the genuineness of all documents and signatures presented to us (whether as originals or as
copies) and the due and legal execution and delivery thereof by, and validity against, any parties other than the City.
We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or
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certified in the documents and certificates, and of the legal conclusions contained in the opinions, referred to in the
second paragraph hereof Furthermore, we have assumed compliance with all covenants and agreements contained
in the Indenture and the Tax Certificate, including (without limitation) covenants and agreements compliance with
which is necessary to assure that future actions, omissions or events will not cause interest on the 2012 Series A
Bonds to be included in gross income for federal tax purposes. We call attention to the fact that the rights and
obligations under the 2012 Series Bonds, the Indenture and the Tax Certificate and their enforceability may be
subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws
relating to or affecting creditors' rights, to the application of equitable principles, to the exercise of judicial
discretion in appropriate cases and to the limitations on legal remedies against municipal corporations in the State of
California. We express no opinion with respect to any indemnification, contribution, penalty, arbitration, judicial
reference, choice of law, choice of forum, choice of venue, waiver or severability provisions contained in the
foregoing documents, nor do we express any opinion with respect to the state or quality of title to or interest in any
of the assets described in or as subject to the lien of the Indenture or the accuracy or sufficiency of the description
contained therein of, or the remedies available to enforce liens on, any of such assets. Our services did not include
financial or other non -legal advice. Finally, we undertake no responsibility for the accuracy, completeness or
fairness of the Official Statement or other offering material relating to the 2012 Series Bonds and express no opinion
With respect thereto.
Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following
opinions:
1. The 2012 Series Bonds constitute the valid and binding special obligations of the City.
2. The Indenture has been duly executed and delivered by, and constitutes the valid and binding
obligation of, the City. The Indenture creates a valid pledge, to secure the payment of the principal of and interest
on the 2012 Series Bonds, of the Trust Estate, subject to the provisions of the Indenture permitting the application
thereof for the purposes and on the terms and conditions set forth therein.
3. Interest on the 2012 Series A Bonds is excluded from gross income for federal income tax
purposes under Section 103 of the Internal Revenue Code of 1986, Interest on the 2012 Series A Bonds is not a
specific preference item for purposes of the federal individual or corporate altemative minimum taxes, although we
observe that it is included in adjusted cut -rent earnings when calculating corporate alternative minimum taxable
income, We are also of the opinion that interest on the 2012 Series Bonds is exempt from State of California
personal income taxes. We express no opinion regarding other tax consequences related to the ownership or
disposition of, or the accrual or receipt of interest on, the 2012 Series Bonds.
Faithfi ally yours,
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APPENDIX E
FORM OF CONTINUING DISCLOSURE AGREEMENT
The City of Vernon and the Bank of New York Mellon Trust Company, N.A. will enter into a Continuing
Disclosure Agreement relating to the 2012 Bonds in substantially the following form:
This Continuing Disclosure Agreement (this "Disclosure Agreement") dated as of January 1, 2012, is
executed and delivered by the City of Vernon, a municipal corporation and chartered city organized and existing
under and by virtue of the Constitution of the State of California and its Charter (the "City") and The Bank of New
York Mellon Trust Company, N.A., a national banking association duly organized and existing under and by virtue
of the laws of the United States of America, as Trustee (the "Trustee"), in connection with the issuance by the City
of its Electric System Revenue Bonds, 2012 Series A (the "2012 Series A Bonds") and its Electric System Revenue
Bonds, 2012 Taxable Series B (the "2012 Series B Bonds" and, together with the 2012 Series A Bonds, the "2012
Bonds").
WITNESSETH:
WHEREAS, the City has issued $37,640,000 aggregate principal amount of its 2012 Series A Bonds and
$35,100,000 aggregate principal amount of its 2012 Series B Bonds pursuant to an Indenture of Trust, dated as of
September 1, 2008, as heretofore supplemented and as amended and supplemented by a Third Supplemental
Indenture of Trust, dated as of January 1, 2012 (as amended and supplemented, the "Indenture"), each between the
City and. the Trustee;
NOW THEREFORE, for and in consideration of the mutual promises and covenants herein contained, the
parties hereto agree as follows:
SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and
delivered by the City and the Trustee for the benefit of the Owners (defined below) and Beneficial Owners (defined
below) of the 2012 Bonds and in order to assist the Participating Underwriter (defined below) in complying with the
Rule (defined below).
SECTION 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any
capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following
capitalized terms shall have the following meanings:
"Annual Report" shall mean any Annual Report provided by the City pursuant to, and as described in,
Sections 3 and 4 of this Disclosure Agreement.
"Beneficial Owner" shall mean any person which (a) has the power, directly or indirectly, to vote or
consent with respect to, or to dispose of ownership of, any 2012 Bonds (including persons holding 2012 Bonds
through nominees, depositories or other intermediaries), or (b) is treated as the owner of any 2012 Bonds for federal
income tax pin -poses.
"Disclosure Representative" shall mean the City Clerk, the City Administrator of the City, or such other
officer or employee of the City as the City shall designate in writing to the Trustee from time to time.
"Dissemination Agent" shall mean The Bank of New York Mellon Trust Company, N.A., acting in its
capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the City
and which has filed with the Trustee a written acceptance of such designation.
"Listed Events" shall mean any of the events listed in subsections (a) and (b) of Section 5 of this Disclosure
Agreement.
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"MSRB" shall mean the Municipal Securities Rulemaking Board or any other entity designated or
authorized by the SEC to receive reports pursuant to the Rule. Until otherwise designated by the MSRB or the SEC,
filings with the MSRB are to be made through the Electronic Municipal Market Access (EMMA) website of the
MSRB, currently located at http://emma.nisrb.org.
"Official Statement" shall mean the Official Statement, dated January 10, 2012, relating to the 2012 Bonds.
"Owner" shall mean, with respect to a 2012 Bond, the registered owner of such 2012 Bond as set forth in
the bond register maintained by the Trustee pursuant to the Indenture.
"Participating Underwriter" shall mean any of the original underwriter of the 2012 Bonds required to .
comply with the Rule in connection with offering of the 2012 Bonds.
"Responsible Officer" shall mean an officer of the Trustee at the corporate front office of the Trustee with
regular responsibility for the administration of matters related to the Indenture.
"Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as the same may be amended from time to time.
"State" shall mean the State of California.
SECTION 3. Provision of Annual Reports.
(a) The City shall, or, upon written direction, shall cause the Dissemination Agent to, not later than
180 days after the end of each Fiscal Year of the City (which Fiscal Year ends on June 30), commencing with the
report for the 2011-12 Fiscal Year, provide to the MSRB an Annual Report which is consistent with the
requirements of Section 4 of this Disclosure Agreement. The Annual Report may cross-reference other information
as provided in Section 4 of this Disclosure Agreement; provided that the audited financial statements of the City's
Electric System may be submitted separately from the balance of the Annual Report and later than the date required
above for the filing of the Annual Report if they are not available by that date. If the City's Fiscal Year changes, it
shall give notice of such change in a filing with the MSRB. The Annual Report shall be submitted on a standard
form in use by industry participants or other appropriate form and shall identify the 2012 Bonds by name and CUSIP
number.
(b) Not later than fifteen (15) Business Days prior to the date specified in subsection (a) of this
Section, the City shall provide the Annual Report to the Dissemination Agent and the Trustee (if the Trustee is not
the Dissemination Agent). If by such date the Trustee has not received a copy of the Annual Report, the Trustee
shall contact the City and the Dissemination Agent to determine if the City is in compliance with the first sentence
of this subsection (b).
(c) If the Trustee is unable to verify that an Annual Report has been provided to the MSRB by the
date required in subsection (a) of this Section, the Trustee shall, in a timely manner, send or cause to be sent to the
MSRB a notice in substantially the form attached as Exhibit A.
(d) The Dissemination Agent shall file a report with the City and the Trustee (if the Trustee is not the
Dissemination Agent) certifying that the Annual Report has been provided pursuant to this Disclosure Agreement
and stating the date it was provided.
SECTION 4. Content of Annual Reports. The City's Annual Report shall contain or include by
reference the following:
(a) The audited financial statements of the City's Electric System for the prior fiscal year, including a
statement of net assets, a statement of revenues, expenses and changes in net assets, and a statement of cash flows,
all of which shall be prepared in accordance with generally accepted accounting principles as promulgated from
time to time by the Government Accounting Standards Board. Such financial statements may be included as part of
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the City's general purpose financial statements. If the Electric System's audited financial statements are not
available by the time the Annual Report is required to be filed pursuant to subsection (a) of Section 3 hereof, the
Annual Report shall contain unaudited financial statements in a format similar to the financial statements required
for the fiscal year being audited, and the audited financial statements shall be filed in the same manner as the Annual
Report when they become available.
(b) An update of the information contained in the tables with the following headings in the Official
Statement for the most recently ended fiscal year:
(i) "CITY OF VERNON ELECTRIC SYSTEM RESOURCES USED TO SATISFY
CITY'S LOAD REQUIREMENT";
(ii) "CITY OF VERNON ELECTRIC SYSTEM AVERAGE BILLING PRICE (CENTS
PER KILOWATT-HOUR)';
(iii) "CITY OF VERNON ELECTRIC SYSTEM CUSTOMERS, RETAIL SALES,
REVENUES AND DEMAND'; and
(iv) "CITY OF VERNON ELECTRIC SYSTEM HISTORICAL REVENUE, EXPENSES
AND DEBT SERVICE COVERAGE UNDER INDENTURE".
Any or all of the items listed above may be set forth in one or a set of documents or may be included by
specific reference to other documents, including official statements of debt issues with respect to which the City is
an `obligated person" (as defined by the Rule), which have been made available to the public on the MSRB's
website. The City shall clearly identify each such other document so included by reference.
SECTION 5. Renortine of Sianiticant Events.
(a) Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of the
occurrence of any of the following events with respect to the 2012 Bonds not later than ten business days after the
occurrence of the event:
(i) Principal and interest payment delinquencies;
(ii) Unscheduled draws on debt service reserves reflecting financial difficulties;
(iii) Unscheduled draws on credit enhancements reflecting financial difficulties;
(iv) Substitution of credit or liquidity providers, or their failure to perform;
(v) Issuance by the Internal Revenue Service of proposed or final determination of taxability
or of a Notice of Proposed Issue (IRS Form 5701 TEB);
(vi) Tender offers;
(vii) Defeasances;
(viii) Rating changes; or
(ix) Bankruptcy, insolvency, receivership or similar event of the obligated person.
Note: for the purposes of the event identified in subparagraph (ix) above, the event is considered to occur
when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an
obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or
federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the
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assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing
governmental body and officials or officers in possession but subject to the supervision and orders of a
court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement
or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all
of the assets or business of the obligated person.
(b) The City shall give, or cause to be given, notice of the occurrence of any of the following events
with respect to the 2012 Bonds, if material, not later than ten business days after the occurrence of the event:
(i) Unless described in subparagraph S(a)(v), adverse tax opinions or other material notices
or determinations by the Internal Revenue Service with respect to the tax status of the
2012 Bonds or other material events affecting the tax status of the 2012 Bonds;
(ii) Modifications to rights of Owners or Beneficial Owners;
(iii) Optional, unscheduled or contingent 2012 Bond calls;
(iv) Release, substitution, or sale of property securing repayment of the 2012 Bonds;
(v) Non-payment related defaults;
(vi) The consmnmation of a merger, consolidation, or acquisition involving an obligated
person or the sale of all or substantially all of the assets of the "obligated person," other
than in the ordinary course of business, the entry into a definitive agreement to undertake
such an action or the termination of a definitive agreement relating to any such actions,
other than pursuant to its terms; or -
(vii) Appointment of a successor or additional trustee or the change of name of a trustee.
(c) The Trustee shall, as soon as reasonably practicable, upon a Responsible Officer's obtaining actual
knowledge of the occurrence of any of the Listed Events contact the Disclosure Representative, inform such person
of the event, and request that the City promptly notify theTrustee in writing whether or not to report the event
pursuant to subsection (e) of this Section. The Trustee shall have no duty to determine the materiality of any such
Listed Events. For purposes of this Disclosure Agreement, "actual knowledge" of the occurrence of such Listed
Events shall mean actual knowledge by a Responsible Officer.
(d) Whenever the City obtains knowledge of the occurrence of a Listed Event described in subsection
(b) of this Section, the City shall determine if such event would be material under applicable federal securities laws.
(e) If the City learns of the occurrence of a Listed Event described in subsection (a) of this Section, or
determines that knowledge of a Listed Event described in subsection (b) of this Section would be material under
applicable federal securities laws, the City shall within ten business days of occurrence file a notice of such
occurrence with the MSRB. Notwithstanding the foregoing, notice of the Listed Event described in subsections
(a)(vii) or (b)(iii) of this Section need not be given under this subsection (e) any earlier than the notice (if any) of the
underlying event is given to Owners of affected 2012 Bonds pursuant to the Indenture.
SECTION 6. Format for Flings with MSRB. Any report or filing with the MSRB pursuant to this
Disclosure Agreement must be submitted in electronic format, accompanied by such identifying information as is
prescribed by the MSRB.
SECTION 7. Termination of Reporting Obligation. The City's and the Trustee's obligations under this
Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the
2012 Bonds.
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SECTION 8. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination
Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such
Dissemination Agent, with or without appointing a successor Dissemination Agent; provided the Trustee shall
receive written notice of such appointment, engagement and discharge at the time thereof. The Dissemination Agent
shall not be responsible in any manner for the content of any notice or report prepared by the City pursuant to this
Disclosure Agreement. If at any time there is not any other designated Dissemination Agent, the City shall be the
Dissemination Agent. The Dissemination Agent may resign by providing thirty days written notice to the City and
the Trustee.
SECTION 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement,
the City, the Dissemination Agent and the Trustee may amend this Disclosure Agreement (and the Trustee and the
Dissemination Agent shall agree to any amendment so requested by the City provided, neither the Trustee nor the
Dissemination Agent shall be obligated to enter into any such amendment that modifies or increases its duties or
obligations hereunder) and any provision of this Disclosure Agreement may be waived, provided that the following
conditions are satisfied:
(a) If the amendment or waiver relates to the provisions of subsection (a) of Section 3 hereof, Section
4 hereof or subsection (a) of Section 5 hereof, it may only be made in connection with a change in circumstances
that arises from a charge in legal requirements, change in law, or change in the identity, nature or status of an
obligated person with respect to the 2012 Bonds, or the type of business conducted;
(b) The undertaking herein, as amended or taking into account such waiver, would, in the opinion of
nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original
issuance of the 2012 Bonds, after taking into account any amendments or interpretations of the Rule, as well as any
change in circumstances; and
(c) The amendment or waiver either (i) is approved by the Owners of the 2012 Bonds in the same
manner as provided in the Indenture for amendments to the Indenture with the consent of Owners, or (ii) does not, in
the opinion of nationally recognized bond counsel, materially impair the interests of the Owners or Beneficial
Owners of the 2012 Bonds.
In the event of any amendment or waiver of a provision of this Disclosure Agreement, the City shall describe such
amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the
amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the
presentation) of financial information or operating data being presented by the City. In addition, if the amendment
relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall
be given in a filing with the MSRB, and (ii) the Annual Report for the year in which the change is made should
present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements
as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting
principles.
SECTION 10. Additional Information. Nothing in this Disclosure Agreement shall be deemed to
prevent the City from disseminating any other information, using the means of dissemination set forth in this
Disclosure Agreement or any other means of communication, or including any other information in any Annual
Report or notice required to be filed pursuant to this Disclosure Agreement, in addition to that which is required by
this Disclosure Agreement. If the City chooses to include any information in any Annual Report or notice in
addition to that which is specifically required by this Disclosure Agreement, the City shall have no obligation under
this Agreement to update such information or include it in any future Annual Report or notice of occurrence of a
Listed Event or any other event required to be reported.
SECTION 11. Default. in the event of a failure of the City or the Trustee to comply with any provision
of this Disclosure Agreement, the Trustee shall at the written request of any Participating Underwriter or the Owners
of at least 25% of the aggregate principal amount of One Outstanding 2012 Bonds, and upon provision of
indemnification satisfactory to the Trustee, or any Owner or Beneficial Owner of a 2012 Bond may, take such
actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to
cause the City or the Trustee, as the case may be, to comply with its obligations under this Disclosure Agreement. A
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default under this Disclosure Agreement shall not be deemed an Event of Default under the Indenture, and the sole
remedy under this Disclosure Agreement in the event of any failure of the City or the Trustee to comply with this
Disclosure Agreement shall be an action to compel performance.
SECTION 12. Duties, Immunities and Liabilities of Trustee and Dissemination Agent. Article VIII of
the Master Indenture is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were
(solely for this purpose) contained in the Indenture and the Trustee and Dissemination Agent shall be entitled to the
protections and limitations from liability afforded the Trustee thereunder. The Dissemination Agent and Trustee
shall have only such duties hereunder as are specifically set forth in this Disclosure Agreement, and the City agrees
to indemnify and save the Dissemination Agent and Trustee, their officers, directors, employees and agents,
harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or
performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of
defending against any claim of liability, but excluding liabilities, costs and expenses (including attorneys fees) due
to the Dissemination Agent's or Trustee's respective fraud, violation of law, whether willful or negligent, negligence
or willful misconduct. The Dissemination Agent shall be paid compensation by the City for its services provided
hereunder in accordance with its schedule of fees as amended from time to time and all expenses, legal fees and
advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The
Dissemination Agent and the Trustee shall have no duty or obligation to review any information provided to them
hereunder and shall not be deemed to be acting in any fiduciary capacity for the City, the Owners or any other party.
The Dissemination Agent shall have no duty to prepare any information report nor shall the Dissemination Agent be
responsible for filing any report not provided to it by the City in a timely manner and in a form suitable for filing.
The obligations of the City tinder this Section shall survive resignation or removal of the Dissemination Agent and
payment of the 2012 Bonds, The City's payment obligations under this Disclosure Agreement shall be payable
solely from the Light and Power Fund.
SECTION 13. Notices. Any notices or communications to or among any of the parties to this Disclosure
Agreement may be given as follows:
To the City: City of Vernon
4305 Santa Fe Avenue
Vernon, California 90058
Attention: City Administrator
To the Trustee and Dissemination The Bank of New York Mellon Trust
Agent: Company, N.A.
700 South Flower Street, Suite 500
Los Angeles, California 90017
Attention: Corporate Trust Department
Any person may, by written notice to the other persons listed above, designate a different address or telephone
number(s) to which subsequent notices or communications should be sent.
SECTION 14. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the City, the
Trustee, the Dissemination Agent, the Participating Underwriter and Owners and Beneficial Owners from time to
time of the 2012 Bonds, and shall create no rights in any other person or entity.
SECTION 15. Governing Law. This Disclosure Agreement shall be interpreted, governed by and
construed for all purposes in accordance with the laws of the State for contracts executed and to be performed in the
State.
SECTION 16. Counterparts. This Disclosure Agreement may be executed in several counterparts, each
of which shall be an original and all of which shall constitute but one and the same instrument.
E-6
IN WITNESS WHEREOF, the parties hereto have executed this Disclosure Agreement as of the date first
above written. -
ATTEST:
City Clerk
APPROVED AS TO FORM:
0
Chief Deputy City Attorney
CITY OF VERNON
LE
Mark C. Whitworth
City Administrator
THE BANK OF NEW YORK MELLON TRUST
COMPANY, N.A., as Trustee
Un
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Authorized Signatory
EXHIBIT A
NOTICE TO MSRB OF FAILURE TO FILE ANNUAL REPORT
Name of Issuer: City of Vernon
Name of Bond Issue: City of Vernon Electric System Revenue Bonds, 2012 Series A
and City of Vernon Electric System Revenue Bonds, 2012 Taxable Series B
Date of Issuance: January 19, 2012
NOTICE IS HEREBY GIVEN that the City of Vernon (the "City") has not provided an Annual Report
with respect to the above -named Bonds as required by 6.02 of the Third Supplemental Indenture of Trust, dated as
of January 1, 2012, between the City and The Bank of New York Mellon Trust Company, N.A., as trustee (the
"Trustee"), amending and supplementing the Master Indenture of Trust between the City and the Trustee, dated as of
September 1, 2008, and by Section 3 of the Continuing Disclosure Agreement, dated as of January 1, 2012, between
the City and the Trustee. [The City anticipates that the Annual Report will be filed by j
Dated:
cc: City of Vernon
THE BANK OF NEW YORK MELLON TRUST
COMPANY, N.A., as Trustee, on behalf of the City of
Vernon
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CONTINUING DISCLOSURE AGREEMENT
This Continuing Disclosure Agreement (this "Disclosure Agreement') dated as of
January 1, 2012, is executed and delivered by the City of Vernon, a municipal corporation and
chartered city organized and existing under and by virtue of the Constitution of the State of
California and its Charter (the "City") and The Bank of New York Mellon Trust Company, N.A.,
a national banking association duly organized and existing under and by virtue of the laws of the
United States of America, as Trustee (the "Trustee"), in connection with the issuance by the City
of its Electric System Revenue Bonds, 2012 Series A (the "2012 Series A Bonds") and its
Electric System Revenue Bonds, 2012 Taxable Series B (the "2012 Series B Bonds" and,
together with the 2012 Series A Bonds, the "2012 Bonds").
WITNESSETH:
WHEREAS, the City has issued $37,640,000 aggregate principal amount of its 2012
Series A Bonds and $35,100,000 aggregate principal amount of its 2012 Series B Bonds pursuant
to an Indenture of Trust, dated as of September 1, 2008, as heretofore supplemented and as
amended and supplemented by a Third Supplemental Indenture of Trust, dated as of January 1,
2012 (as amended and supplemented, the "Indenture"), each between the City and the Trustee;
.NOW THEREFORE, for and in consideration of the mutual promises and covenants
herein contained, the parties hereto agree as follows:
SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is
being executed and delivered by the City and the Trustee for the benefit of the Owners (defined
below) and Beneficial Owners (defined below) of the 2012 Bonds and in order to assist the
Participating Underwriter (defined below) in complying with the Rule (defined below).
SECTION 2. Definitions. In addition to the definitions set forth in the Indenture, which
apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this
Section, the following capitalized terms shall have the following meanings:
"Annual Report" shall mean any Annual Report provided by the City pursuant to, and as
described in, Sections 3 and 4 of this Disclosure Agreement.
"Beneficial Owner" shall mean any person which (a) has the power, directly or indirectly,
to vote or consent with respect to, or to dispose of ownership of, any 2012 Bonds (including
persons holding 2012 Bonds through nominees, depositories or other intermediaries), or (b) is
treated as the owner of any 2012 Bonds for federal income tax purposes.
"Disclosure Representative" shall mean the City Clerk, the City Administrator of the
City, or such other officer or employee of the City as the City shall designate in writing to the
Trustee from time to time.
"Dissemination Agent" shall mean The Bank of New York Mellon Trust Company, N.A.,
acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent
designated in writing by the City and which has filed with the Trustee a written acceptance of
such designation.
OHS West261393277.4
"Listed Events" shall mean any of the events listed in subsections (a) and (b) of Section 5
of this Disclosure Agreement.
"MSRB" shall mean the Municipal Securities Rulemaking Board or any other entity
designated or authorized by the SEC to receive reports pursuant to the Rule. Until otherwise
designated by the MSRB or the SEC, filings with the MSRB are to be made through the
Electronic Municipal Market Access (EMMA) website of the MSRB, currently located at
http://emma.msrb.org.
"Official Statement" shall mean the Official Statement, dated January 10, 2012, relating
to the 2012 Bonds.
"Owner" shall mean, with respect to a 2012 Bond, the registered owner of such 2012
Bond as set forth in the bond register maintained by the Trustee pursuant to the Indenture.
"Participating Underwriter" shall mean any of the original underwriter of the 2012 Bonds
required to comply with the Rule in connection with offering of the 2012 Bonds.
"Responsible Officer" shall mean an officer of the Trustee at the corporate front office of
the Trustee with regular responsibility for the administration of matters related to the Indenture.
"Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as the same may be amended from time
to time.
"State" shall mean the State of California.
SECTION 3. Provision of Annual Reports.
(a) The City shall, or, upon written direction, shall cause the Dissemination Agent to,
not later than 180 days after the end of each Fiscal Year of the City (which Fiscal Year ends on
June 30), commencing with the report for the 2011-12 Fiscal Year, provide to the MSRB an
Annual Report which is consistent with the requirements of Section 4 of this Disclosure
Agreement. The Annual Report may cross-reference other information as provided in Section 4
of this Disclosure Agreement; provided that the audited financial statements of the City's
Electric System may be submitted separately from the balance of the Annual Report and later
than the date required above for the filing of the Annual Report if they are not available by that
date. If the City's Fiscal Year changes, it shall give notice of such change in a filing with the
MSRB. The Annual Report shall be submitted on a standard form in use by industry participants
or other appropriate form and shall identify the 2012 Bonds by name and CUSIP number.
(b) Not later than fifteen (15) Business Days prior to the date specified in subsection
(a) of this Section, the City shall provide the Annual Report to the Dissemination Agent and the
Trustee (if the Trustee is not the Dissemination Agent). If by such date the Trustee has not
received a copy of the Annual Report, the Trustee shall contact the City and the Dissemination
Agent to determine if the City is in compliance with the first sentence of this subsection (b).
OHS West:261393277.4 2
(c) If the Trustee is unable to verify that an Annual Report has been provided to the
MSRB by the date required in subsection (a) of this Section, the Trustee shall, in a timely
manner, send or cause to be sent to the MSRB a notice in substantially the form attached as
Exhibit A.
(d) The Dissemination Agent shall file a report with the City and the Trustee (if the
Trustee is not the Dissemination Agent) certifying that the Annual Report has been provided
pursuant to this Disclosure Agreement and stating the date it was provided.
SECTION 4. Content of Annual Reports. The City's Annual Report shall contain or
include by reference the following:
(a) The audited financial statements of the City's Electric System for the prior fiscal
year, including a statement of net assets, a statement of revenues, expenses and changes in net
assets, and a statement of cash flows, all of which shall be prepared in accordance with generally
accepted accounting principles as promulgated from time to time by the Government Accounting
Standards Board. Such financial statements may be included as part of the City's general
purpose financial statements. If the Electric System's audited financial statements are not
available by the time the Annual Report is required to be filed pursuant to subsection (a) of
Section 3 hereof, the Annual Report shall contain unaudited financial statements in a format
similar to the financial statements required for the fiscal year being audited, and the audited
Financial statements shall be filed in the same manner as the Annual Report when they become
available.
(b) An update of the information contained in the tables with the following headings
in the Official Statement for the most recently ended fiscal year:
(i) "CITY OF VERNON ELECTRIC SYSTEM RESOURCES USED TO
SATISFY CITY'S LOAD REQUIREMENT';
(ii) "CITY OF VERNON ELECTRIC SYSTEM AVERAGE BILLING
PRICE (CENTS PER KILOWATT-HOUR)';
(iii) "CITY OF VERNON ELECTRIC SYSTEM CUSTOMERS, RETAIL
SALES, REVENUES AND DEMAND"; and
(iv) "CITY OF VERNON ELECTRIC SYSTEM HISTORICAL REVENUE,
EXPENSES AND DEBT SERVICE COVERAGE UNDER INDENTURE".
Any or all of the items listed above may be set forth in one or a set of documents or may
be included by specific reference to other documents, including official statements of debt issues
with respect to which the City is an "obligated person" (as defined by the Rule), which have been
made available to the public on the MSRB's website. The City shall clearly identify each such
other document so included by reference.
OHS West261393277.4
SECTION 5. Reporting of Significant Events.
(a) Pursuant to the provisions of this Section 5, the City shall give, or cause to be
given, notice of the occurrence of any of the following events with respect to the 2012 Bonds not
later than ten business days after the occurrence of the event:
difficulties;
difficulties;
person.
(i) Principal and interest payment delinquencies;
(ii) Unscheduled draws on debt service reserves reflecting financial
(iii) Unscheduled draws on credit enhancements reflecting financial
(iv) Substitution of credit or liquidity providers, or their failure to perform;
(v) Issuance by the Internal Revenue Service of proposed or final
determination of taxability or of a Notice of Proposed Issue (IRS Form
5701 TEB);
(vi) Tender offers;
(vii) Defeasances;
(viii) Rating changes; or
(ix) Bankruptcy, insolvency, receivership or similar event of the obligated
Note: for the purposes of the event identified in subparagraph (ix) above, the event is
considered to occur when any of the following occur: the appointment of a receiver, fiscal
agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy
Code or in any other proceeding under state or federal law in which a court or
governmental authority has assumed jurisdiction over substantially all of the assets or
business of the obligated person, or if such jurisdiction has been assumed by leaving the
existing governmental body and officials or officers in possession but subject to the
supervision and orders of a court or governmental authority, or the entry of an order
confirming a plan of reorganization, arrangement or liquidation by a court or
governmental authority having supervision or jurisdiction over substantially all of the
assets or business of the obligated person.
(b) The City shall give, or cause to be given, notice of the occurrence of any of the
following events with respect to the 2012 Bonds, if material, not later than ten business days
after the occurrence of the event:
(i) Unless described in subparagraph 5(a)(v), adverse tax opinions or other
material notices or determinations by the Internal Revenue Service with
OHS West:2613932774 4
respect to the tax status of the 2012 Bonds or other material events
affecting the tax status of the 2012 Bonds;
(ii) Modifications to rights of Owners or Beneficial Owners;
(iii) Optional, unscheduled or contingent 2012 Bond calls;
(iv)
Bonds;
(v)
Release, substitution, or sale of property securing repayment of the 2012
Non-payment related defaults;
(vi) The consummation of a merger, consolidation, or acquisition involving an
obligated person or the sale of all or substantially all of the assets of the
"obligated person," other than in the ordinary course of business, the entry
into a definitive agreement to undertake such an action or the termination
of a definitive agreement relating to any such actions, other than pursuant
to its terms; or
(vii) Appointment of a successor or additional trustee or the change of name of
a trustee.
(c) The Trustee shall, as soon as reasonably practicable, upon a Responsible Officer's
obtaining actual knowledge of the occurrence of any of the Listed Events contact the Disclosure
Representative, inform such person of the event, and request that the City promptly notify the
Trustee in writing whether or not to report the event pursuant to subsection (e) of this Section.
The Trustee shall have no duty to determine the materiality of any such Listed Events. For
purposes of this Disclosure Agreement, "actual knowledge" of the occurrence of such Listed
Events shall mean actual knowledge by a Responsible Officer.
(d) Whenever the City obtains knowledge of the occurrence of a Listed Event
described in subsection (b) of this Section, the City shall determine if such event would be
material under applicable federal securities laws.
(e) If the City learns of the occurrence of a Listed Event described in subsection (a)
of this Section, or determines that knowledge of a Listed Event described in subsection (b) of
this Section would be material under applicable federal securities laws, the City shall within ten
business days of occurrence file a notice of such occurrence with the MSRB. Notwithstanding
the foregoing, notice of the Listed Event described in subsections (a)(vii) or (b)(iii) of this
Section need not be given under this subsection (e) any earlier than the notice (if any) of the
underlying event is given to Owners of affected 2012 Bonds pursuant to the Indenture.
SECTION 6. Format for Flines with MSRB.
pursuant to this Disclosure Agreement must be submitted
such identifying information as is prescribed by the MSRB.
OHS West261393277.4
Any report or filing with the MSRB
in electronic format, accompanied by
SECTION 7. Termination of Reporting Obligation. The City's and the Trustee's
obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior
redemption or payment in full of all of the 2012 Bonds.
SECTION 8. Dissemination Agent. The City may, from time to time, appoint or
engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure
Agreement, and may discharge any such Dissemination Agent, with or without appointing a
successor Dissemination Agent; provided the Trustee shall receive written notice of such
appointment, engagement and discharge at the time thereof. The Dissemination Agent shall not
be responsible in any manner for the content of any notice or report prepared by the City
pursuant to this Disclosure Agreement. If at any time there is not any other designated
Dissemination Agent, the City shall be the Dissemination Agent. The Dissemination Agent may
resign by providing thirty days written notice to the City and the Trustee.
SECTION 9. Amendment: Waiver. Notwithstanding any other provision of this
Disclosure Agreement, the City, the Dissemination Agent and the Trustee may amend this
Disclosure Agreement (and the Trustee and the Dissemination Agent shall agree to any
amendment so requested by the City provided, neither the Trustee nor the Dissemination Agent
shall be obligated to enter into any such amendment that modifies or increases its duties or
obligations hereunder) and any provision of this Disclosure Agreement may be waived, provided
that the following conditions are satisfied:
(a) If the amendment or waiver relates to the provisions of subsection (a) of Section 3
hereof, Section 4 hereof or subsection (a) of Section 5 hereof, it may only be made in connection
with a change in circumstances that arises from a change in legal requirements, change in law, or
change in the identity, nature or status of an obligated person with respect to the 2012 Bonds, or
the type of business conducted;
(b) The undertaking herein, as amended or taking into account such waiver, would, in
the opinion of nationally recognized bond counsel, have complied with the requirements of the
Rule at the time of the original issuance of the 2012 Bonds, after taking into account any
amendments or interpretations of the Rule, as well as any change in circumstances; and
(c) The amendment or waiver either (i) is approved by the Owners of the 2012 Bonds
in the same manner as provided in the Indenture for amendments to the Indenture with the
consent of Owners, or (ii) does not, in the opinion of nationally recognized bond counsel,
materially impair the interests of the Owners or Beneficial Owners of the 2012 Bonds.
In the event of any amendment or waiver of a provision of this Disclosure Agreement, the City
shall describe such amendment in the next Annual Report, and shall include, as applicable, a
narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in
the case of a change of accounting principles, on the presentation) of financial information or
operating data being presented by the City. In addition, if the amendment relates to the
accounting principles to be followed in preparing financial statements, (i) notice of such change
shall be given in a filing with the MSRB, and (ii) the Annual Report for the year in which the
change is made should present a comparison (in narrative form and also, if feasible, in
OHS West:261393277.4 6
quantitative form) between the financial statements as prepared on the basis of the new
accounting principles and those prepared on the basis of the former accounting principles.
SECTION 10. Additional Information. Nothing in this Disclosure Agreement shall be
deemed to prevent the City from disseminating any other information, using the means of
dissemination set forth in this Disclosure Agreement or any other means of communication, or
including any other information in any Annual Report or notice required to be filed pursuant to
this Disclosure Agreement, in addition to that which is required by this Disclosure Agreement.
If the City chooses to include any information in any Annual Report or notice in addition to that
which is specifically required by this Disclosure Agreement, the City shall have no obligation
under this Agreement to update such information or include it in any future Annual Report or
notice of occurrence of a Listed Event or any other event required to be reported.
SECTION 11. Default. In the event of a failure of the City or the Trustee to comply
with any provision of this Disclosure Agreement, the Trustee shall at the written request of any
Participating Underwriter or the Owners of at least 25% of the aggregate principal amount of the
Outstanding 2012 Bonds, and upon provision of indemnification satisfactory to the Trustee, or
any Owner or Beneficial Owner of a 2012 Bond may, take such actions as may be necessary and
appropriate, including seeking mandate or specific performance by court order, to cause the City
or the Trustee, as the case may be, to comply with its obligations under this Disclosure
Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default
under the Indenture, and the sole remedy under this Disclosure Agreement in the event of any
failure of the City or the Trustee to comply with this Disclosure Agreement shall be an action to
compel performance.
SECTION 12. Duties, Immunities and Liabilities of Trustee and Dissemination
Agent. Article VIII of the Master Indenture is hereby made applicable to this Disclosure
Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the
Indenture and the Trustee and Dissemination Agent shall be entitled to the protections and
limitations from liability afforded the Trustee thereunder. The Dissemination Agent and Trustee
shall have only such duties hereunder as are specifically set forth in this Disclosure Agreement,
and the City agrees to indemnify and save the Dissemination Agent and Trustee, their officers,
directors, employees and agents, harmless against any loss, expense and liabilities which they
may incur arising out of or in the exercise or performance of its powers and duties hereunder,
including the costs and expenses (including attorneys fees) of defending against any claim of
liability, but excluding liabilities, costs and expenses (including attorneys fees) due to the
Dissemination Agent's or Trustee's respective fraud, violation of law, whether willful or
negligent, negligence or willful misconduct. The Dissemination Agent shall be paid
compensation by the City for its services provided hereunder in accordance with its schedule of
fees as amended from time to time and all expenses, legal fees and advances made or incurred by
the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent
and the Trustee shall have no duty or obligation to review any information provided to them
hereunder and shall not be deemed to be acting in any fiduciary capacity for the City, the Owners
or any other party. The Dissemination Agent shall have no duty to prepare any information
report nor shall the Dissemination Agent be responsible for filing any report not provided to it by
the City in a timely manner and in a form suitable for filing. The obligations of the City under
this Section shall survive resignation or removal of the Dissemination Agent and payment of the
OHS West:261393277.4 7
2012 Bonds. The City's payment obligations under this Disclosure Agreement shall be payable
solely from the Light and Power Fund.
SECTION 13. Notices. Any notices or communications to or among any of the parties
to this Disclosure Agreement may be given as follows:
To the City: City of Vernon
4305 Santa Fe Avenue
Vernon, California 90058
Attention: City Administrator
To the Trustee and The Bank of New York Mellon Trust
Dissemination Agent: Company, N.A.
700 South Flower Street, Suite 500
Los Angeles, California 90017
Attention: Corporate Trust Department
Any person may, by written notice to the other persons listed above, designate a different address
or telephone number(s) to which subsequent notices or communications should be sent.
SECTION 14. Beneficiaries. This Disclosure Agreement shall inure solely to the
benefit of the City, the Trustee, the Dissemination Agent, the Participating Underwriter and
Owners and Beneficial Owners from time to time of the 2012 Bonds, and shall create no rights in
any other person or entity.
SECTION 15. Governine Law. This Disclosure Agreement shall be interpreted,
governed by and construed for all purposes in accordance with the laws of the State for contracts
executed and to be performed in the State.
SECTION 16. Counteraarts. This Disclosure Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall constitute but one and the
same instrument.
OHS Wesr.261393277.4
IN WITNESS WHEREOF, the parties hereto have executed this Disclosure Agreement
as of the date first above written.
CITY OF VERNON
Mark C. Whitworth
City Administrator
AS TO FORM:
��
0
THE BANK OF NEW YORK MELLON
TRUST COMPANY, N.A., as Trustee
By: ^
Authorize ignatory
OHS Wese261393277
EXHIBIT A
NOTICE TO MSRB OF FAILURE TO FILE ANNUAL REPORT
Name of Issuer: City of Vernon
Name of Bond Issue: City of Vernon Electric System Revenue Bonds, 2012 Series A
and City of Vernon Electric System Revenue Bonds, 2012 Taxable
Series B
Date of Issuance: January 19, 2012
NOTICE IS HEREBY GIVEN that the City of Vernon (the "City") has not provided an
Annual Report with respect to the above -named Bonds as required by 6.02 of the Third
Supplemental Indenture of Trust, dated as of January 1, 2012, between the City and The Bank of
New York Mellon Trust Company, N.A., as trustee (the "Trustee"), amending and
supplementing the Master Indenture of Trust between the City and the Trustee, dated as of
September 1, 2008, and by Section 3 of the Continuing Disclosure Agreement, dated as of
January 1, 2012, between the City and the Trustee. [The City anticipates that the Annual Report
will be filed by .]
Dated:
THE BANK OF NEW YORK MELLON TRUST
COMPANY, N.A., as Trustee, on behalf of the City
of Vernon
cc: City of Vernon
OHS West:261393277.4 A -I
CITY OF VERNON
MN
THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A.,
as Trustee
ESCROW AGREEMENT
Dated as of January 1, 2012
Relating to
City of Vemon
Electric System Revenue Bonds
2009 Series A maturing August 1, 2012
OHS Wes1:261383851.5
ESCROW AGREEMENT
THIS ESCROW AGREEMENT, dated as of January 1, 2012, by and between
the CITY OF VERNON, a municipal corporation and chartered city of the State of California
(the "City") and THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., a
national banking association organized and existing under and by virtue of the laws of the United
States of America, in its capacity as successor trustee (the "Trustee") under the Indenture
(capitalized terms used herein shall have the meanings given such terms pursuant to Section 1
hereof),
WITNESSETH:
WHEREAS, pursuant to the Indenture, the City authorized and issued its Electric
System Revenue Bonds, 2009 Series A, maturing on August 1, 2012 which remain outstanding in
the aggregate principal amount of $28,680,000; and
WHEREAS, for the purpose of providing for the payment of the Refunded Bonds
in accordance with Article IX of the Master Indenture, the City has caused a portion of the
proceeds of the 2012 Bonds to be deposited into the Escrow Fund as provided in Section 2
hereof, and
WHEREAS, the Trustee is to apply amounts in the Escrow Fund to the purchase
of the Initial Escrow Securities; and
WHEREAS, the Initial Escrow Securities will mature at such times and in such
amounts as to provide cash in the Escrow Fund which, together with the other available cash held
by the Trustee in the Escrow Fund, has been certified in the Verification Report to be sufficient
to pay the Escrow Requirements;
NOW, THEREFORE, the City and the Trustee hereby agree as follows:
Section 1. Definitions. Capitalized terms used in this Escrow Agreement and not
otherwise defined herein shall have the meanings given such terms in the Indenture of Trust,
dated as of September 1, 2008, between the City and The Bank of New York Mellon Trust
Company, N.A., as successor Trustee. The following shall have the meanings set forth below for
all purposes of this Escrow Agreement:
"2009 Series A Bonds" means the City of Vernon Electric System Revenue
Bonds, 2009 Series A.
"2012 Bonds" means the City of Vernon Electric System Revenue Bonds, 2012
Taxable Series B.
"City" means the City of Vernon, California.
"Escrow Fund" means the City of Vernon 2012 Electric System Revenue Bonds
Escrow Fund established pursuant to Section 2 hereof.
OHS Ww:261383851.5 -I-
"Escrow Securities" means, to the extent they are legal investments for funds of
the City under the laws of the State of California, non -callable direct obligations of the United
States of America.
"Escrow Requirements" means the moneys required to: (i) pay the principal of the
Refunded Bonds on August 1, 2012; (ii) pay the accrued interest on the Refunded Bonds due on
February 1, 2012 and August 1, 2012.
hereto.
"Indenture" means the Master Indenture, as amended and supplemented.
"Initial Escrow Securities" means the Escrow Securities listed in Schedule A
"Refunded Bonds" means the 2009 Series A Bonds maturing on August 1, 2012.
"Remaining Escrow Requirements" means, as of any date, the Escrow
Requirements coming due on and after such date.
"Verification Agent" means Grant Thornton LLP, certified public accountants.
"Verification Report" means the verification report, dated January 19, 2012,
prepared by the Verification Agent in connection with the deposit of certain of the 2012 Bond
proceeds and other funds in the Escrow Fund.
Section 2. Establishment, Funding and Maintenance of Escrow Fund.
(a) The Trustee agrees to establish a separate irrevocable fund designated as
the City of Vernon 2012 Electric System Revenue Bonds Escrow Fund. The Trustee shall
maintain the Escrow Fund until the termination of this Escrow Agreement pursuant to Section 9
hereof and hold the Escrow Securities and moneys therein at all times as a special and separate
trust fund wholly segregated from all other securities, investments or moneys on deposit with or
otherwise held by the Trustee.
(b) There has been deposited with the Trustee the sum of $30,050,542.49,
which is derived from the proceeds of the 2012 Bonds, which amount is to be deposited in the
Escrow Fund and invested and disbursed in accordance with this Escrow Agreement.
(c) All Escrow Securities and moneys in the Escrow Fund are hereby
irrevocably transferred to the Trustee on behalf of the owners of the Refunded Bonds to secure
the payment of the Escrow Requirements when due in accordance with this Escrow Agreement.
(d) The City acknowledges that it has no right, title or interest in or to any
money, Escrow Securities, or other property held in the Escrow Fund, notwithstanding any
provision of the Indenture or any other document or agreement relating to the Refunded Bonds to
the contrary. Under no circumstances shall any such money, securities, or other property be paid
or delivered to or for the order of the City, except that nothing herein shall preclude or limit the
transfer of amounts in accordance with Section 5 hereof.
OHS Wu061383851.5 -2-
Section 3. Investments of Moneys in the Escrow Fund.
(a) On the date hereof, $29,362,142.00 of the money on deposit in the Escrow
Fund is to be invested in the Initial Escrow Securities. The Trustee acknowledges and agrees that
it has received the amount set forth in Section 2(b) above and hereby agrees to use
$29,362,142.00 of such moneys to purchase on the date hereof the Initial Escrow Securities from
the vendor and at the prices set forth in Schedule A hereto, and, subject to the provisions of
Section 4 below, to hold the remaining balance of such deposit in the amount of $688,400.49
uninvested as cash. The City and the Trustee shall each take all remaining necessary action to
have the Initial Escrow Securities issued and registered in the name of the Trustee, for the
account of the Escrow Fund.
(b) The Trustee shall not be liable or responsible for any loss resulting from
any investment made pursuant to this Escrow Agreement and in full compliance with the
provisions hereof.
(c) The Trustee acknowledges receipt of the Verification Report, in
satisfaction of the requirements of clause (ii) of subsection (b) of Section 9.02 of the Master
Indenture with respect to an Accountant's Certificate, and the Trustee may conclusively rely upon
the conclusions of the Verification Report to the effect that the Initial Escrow Securities mature
in such amounts and at such times as shall be necessary and sufficient, together with other
moneys in the Escrow Fund, to pay the Escrow Requirements when due.
(d) The Trustee shall hold all Escrow Securities in the Escrow Fund, and the
money received from time to time as principal and interest thereon or otherwise with respect
thereto, in trust to be applied as provided in this Escrow Agreement and shall collect the
principal of and interest on such Escrow Securities, and all amounts payable with respect thereto,
promptly as such amounts become due.
Section 4. Provision for the Payment of the Refunded Bonds. The City hereby
elects to discharge and provide for the payment of the Refunded Bonds in accordance with
Article IX of the Master Indenture as provided in this Escrow Agreement. The City hereby
requests and irrevocably instructs the Trustee, and the Trustee hereby agrees, to apply the moneys
in the Escrow Fund to the payment of the Escrow Requirements when due as follows: (i) pay the
principal of the Refunded Bonds on August 1, 2012; and (ii) pay on February 1, 2012 and August
1, 2012 the interest payable on the Refunded Bonds on such date. The City hereby further
requests and irrevocably instructs the Trustee to give notice of the deposit of funds hereunder
pursuant to Section 9.02 of the Master Indenture with respect to the Refunded Bonds in
accordance with Section 9.02 of the Master Indenture. The Trustee acknowledges that this
Escrow Agreement constitutes irrevocable instructions to apply the amounts received in
connection with the Escrow Securities credited to the Escrow Fund, and any other amounts in the
Escrow Fund, to the payment of principal of and interest on the Refunded Bonds as set forth in
the Escrow Requirements.
Section 5. Reinvestment and Transfer of Funds. Any cash received from principal
or interest payments on the Escrow Securities which shall be required at any time to pay the
014S West261383851.5 -3-
Remaining Escrow Requirements shall, at the written request of an Authorized City
Representative, be reinvested in Escrow Securities maturing at times and in amounts which,
together with the other funds to be available in the Escrow Fund to pay the Remaining Escrow
Requirements, shall be sufficient to pay when due the Remaining Escrow Requirements, as
evidenced by an Accountant's Certificate.
Any money remaining in the Escrow Fund after the payment of all Escrow
Requirements shall be transferred to the Interest Account in the Debt Service Fund.
Section 6. Fees and Costs.
(a) The Trustee's annual fees and costs for acting as Trustee under this
Escrow Agreement are to be agreed upon by the Trustee and the City and paid by the City. The
annual fees and costs of the Trustee for any other duties to be carried out by it under the
Indenture shall continue as previously agreed upon between the Trustee and the City.
(b) The Trustee shall also be entitled to additional reasonable fees and
reimbursements for costs incurred, to be paid by the City, including but not limited to legal and
accountants' services, in connection with any litigation not arising from the Trustee's negligence
or willful misconduct which may at any time be instituted involving this Escrow Agreement.
(c) The fees of and the costs incurred by the Trustee shall in no event be
deducted or payable from or constitute a lien against the Escrow Fund, any Escrow Securities
credited to the Escrow Fund or any moneys in the Escrow Fund, including without limitation the
Initial Escrow Securities and any proceeds thereof.
Section 7. Indemnification. The City hereby assumes liability for and hereby agrees
(whether or not any of the transactions contemplated hereby are consummated) to indemnify,
protect, save and hold harmless the Trustee and its respective successors, assigns, agents and
servants from and against any and all liabilities, obligations, losses, damages, penalties, claims,
actions, suits, costs, expenses and disbursements (including legal fees and disbursements) of
whatsoever kind and nature which may be imposed on, incurred by, or asserted against, at any
time, the Trustee (whether or not also indemnified against by any other person under any other
agreement or instrument) and in any way relating to or arising out of the execution and delivery
of this Escrow Agreement, the establishment of the Escrow Fund, the retention of the moneys
therein and any payment, transfer or other application of moneys or securities by the Trustee in
accordance with the provisions of this Escrow Agreement, or as may arise by reason of any act,
omission or error of the Trustee made in good faith in the conduct of its duties; provided,
however, that the City shall not be required to indemnify the Trustee against its own negligence
or willful misconduct. The indemnities contained in this Section shall survive the termination of
this Escrow Agreement or the resignation or removal of the Trustee.
Section 8. Resignation of Trustee; Replacement of Trustee. The Bank of New
York Mellon Trust Company, N.A. has entered into this Escrow Agreement in its capacity as
Trustee under the Indenture and shall remain a party to this Escrow Agreement until a successor
trustee is appointed Trustee under the Indenture. If a successor trustee is appointed as Trustee
OHS We t261383851.5 -4-
under the Indenture, such successor shall automatically and without the necessity of any further
act by the City, The Bank of New York Mellon Trust Company, N.A. or the successor trustee be
deemed a party to this Escrow Agreement in its capacity as Trustee under the Indenture. In that
event The Bank of New York Mellon Trust Company, N.A. shall transfer to such successor
trustee all Escrow Securities and moneys then held by The Bank of New York Mellon Trust
Company, N.A. hereunder.
Section 9. Termination. This Escrow Agreement shall terminate when all moneys
are transferred from the Escrow Fund as provided herein.
Section 10. Rights, Duties and Obligations of Trustee. Subject to the provisions of
Sections 3 and 5 hereof, moneys held by the Trustee hereunder are to be held and applied for the
payment of the Escrow Requirements when due in accordance with the terms hereof. The rights,
duties and obligations of the Trustee shall, except as otherwise expressly provided herein, be
governed by the applicable provisions of the Indenture which by this reference are hereby
incorporated into this Escrow Agreement as if set forth in full herein.
Section 11. Severability. If any section, paragraph, sentence, clause or provision of
this Escrow Agreement shall for any reason be held to be invalid or unenforceable, the invalidity
or unenforceability of such section, paragraph, sentence, clause or provision shall not affect any
of the remaining provisions of this Escrow Agreement. The provisions of this Escrow Agreement
shall be unalterable, subject to the provisions of Section 12 hereof.
Section 12. Amendment. The parties hereto may, without the consent or notice to the
Owners of the Refunded Bonds, enter into such agreements supplemental to this Escrow
Agreement as shall not adversely affect the rights of such Owners hereunder for any of the
following purposes:
(a) to cure any ambiguity or formal defect or omission in this Escrow
Agreement; or
(b) to grant or confer upon the Trustee for the benefit of the Owners of the
Refunded Bonds any additional rights, remedies, powers or authority that may lawfully be
granted to or conferred upon the Trustee.
The Trustee shall enter into such agreements only upon receipt by the Trustee of,
and shall be entitled to rely conclusively upon, an Opinion of Bond Counsel to the effect that any
such agreement complies with this Section.
Section 13. Execution of Counterparts. This Escrow Agreement may be executed in
any number of counterparts, each of which shall for all purposes be deemed to be an original and
all of which shall together constitute but one and the same instrument.
Section 14. Notices. All notices, certificates or other communications hereunder shall
be sufficiently given and shall be deemed given (i) if hand delivered or delivered by courier,
when delivered to the appropriate notice address, or (ii) if mailed by first class mail, postage
prepaid, six business days after deposit in the United States mail addressed to the appropriate
OHS West:261383851.5 -5-
notice address. The parties listed below may, by notice given hereunder, designate any further or
different addresses to which subsequent notices, certificates or other communications shall be
sent. Any notice required or permitted hereunder shall be directed to the following notice
address:
As to the City of Vernon
City: 4305 South Santa Fe Avenue
Vernon, California 90058
Attention: City Administrator
As to the The Bank of New York Mellon Trust Company, N.A.
Trustee: 700 South Flower Street, Suite 500
Los Angeles, California 90017-4104
Attention: Corporate Trust
Re: City of Vernon
2012 Escrow Fund
Section 15. Governing Law; Venue. This Escrow Agreement shall be construed in
accordance with and governed by the constitution and the laws of the State of California
applicable to contracts made and performed in the State. This Escrow Agreement shall be
enforceable in the State, and any action arising out of this Escrow Agreement shall be filed and
maintained in the Los Angeles County Superior Court, Los Angeles, California, unless the City
waives this requirement.
Section 16. Immunities and Liabilities of Trustee.
(a) The Trustee undertakes to perform only such duties as are expressly and
specifically set forth in this Escrow Agreement and no implied duties or obligations shall be read
into this Escrow Agreement against Trustee.
(b) The Trustee shall not have any liability hereunder except to the extent of
its own negligence or willful misconduct. In no event shall the Trustee be liable for any special
indirect or consequential damages. The Trustee shall have no duty or responsibility under this
Escrow Agreement in the case of any default in the performance of the covenants or agreements
of any other party contained in the Indenture; provided that, notwithstanding any such default, the
Trustee shall apply the moneys in the Escrow Fund to the Escrow Requirements when due as
provided in this Escrow Agreement. The Trustee is not required to resolve conflicting demands
to money or property in its possession under this Escrow Agreement.
(c) The Trustee may consult with counsel of its own choice (which may, be
counsel to the City), and the written opinion of such counsel shall be full and complete
authorization to take or suffer in good faith any action hereunder in accordance with such opinion
of counsel.
OHS West:261383851.5 -6-
(d) The Trustee shall not be responsible for any of the recitals or
representations contained herein or in the Indenture, other than recitals or representations
specifically made by the Trustee.
(e) The Trustee may become the owner of, or acquire any interest in, any of
the Refunded Bonds or any bonds or other securities of the City with the same rights that it
would have if it were not the Trustee and may engage or be interested in any financial or other
transaction with the City.
(f) The Trustee shall not be liable for the accuracy of any calculations
provided as to the sufficiency of the moneys or securities deposited with it to pay the Escrow
Requirements when due.
(g) The Trustee shall not be liable for any action or omission of the City under
this Escrow Agreement or the Indenture.
(h) Whenever in the administration of this Escrow Agreement the Trustee
shall deem it necessary or desirable that a matter be proved or established prior to taking or
suffering any action hereunder, such matter (unless other evidence in respect thereof be herein
specifically prescribed) may, in the absence of negligence or willful misconduct on the part of the
Trustee, be deemed to be conclusively proved and established by a certificate of any authorized
representative of the City, and such certificate shall, in the absence of negligence or willful
misconduct on the part of the Trustee, be full warrant to the Trustee for any action taken or
suffered by it under the provisions of this Escrow Agreement upon the faith thereof.
(i) The Trustee may conclusively rely as to the truth and accuracy of the
statements and correctness of the opinions and the calculations provided to it in connection with
this Escrow Agreement and shall be protected in acting, or refraining from acting, upon any
written notice, instruction, request, certificate, document or opinion furnished to the Trustee in
connection with this Escrow Agreement and reasonably believed by the Trustee to have been
signed or presented by the proper party, and it need not investigate any fact or matter stated in
such notice, instruction, request, certificate or opinion.
Q) The liability of the Trustee to make the payments required by Section 4
and Section 5 shall be limited to the moneys and Escrow Securities in the Escrow Fund.
(k) No provision of this Escrow Agreement shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the performance or
exercise of any of its duties hereunder, or in the exercise of its rights or powers.
(1) The Trustee may execute any of the trusts or powers hereunder or perform
any duties hereunder either directly or by or through agents, attorneys, custodians or nominees.
(m) The Trustee agrees to accept and act upon instructions or directions
pursuant to this Escrow Agreement sent by unsecured e-mail, facsimile transmission or other
similar unsecured electronic methods, provided, however, that, the Trustee shall have received an
incumbency certificate listing persons designated to give such instructions or directions and
OHS WesC261383851.5 -7-
containing specimen signatures of such designated persons, which incumbency certificate may be
amended and replaced by the City. If the City elects to give the Trustee e-mail or facsimile
instructions (or instructions by a similar electronic method), the Trustee's reasonable
understanding of such instructions shall be deemed controlling. The Trustee shall not be liable
for any losses, costs or expenses arising directly or indirectly from the Trustee's reliance upon
and compliance with such instructions notwithstanding such instructions conflict or are
inconsistent with a subsequent written instruction. The City agrees to assume all risks arising out
of the use of such electronic methods to submit instructions and directions to the Trustee,
including without limitation the risk of the Trustee acting on unauthorized instructions, and the
risk of interception and misuse by third parties but excluding the risk of the Trustee's negligence
or willful misconduct.
OHS West:261383851.5 -8-
IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement
to be signed in their respective names by their duly authorized officers, all as of the day and year
first above written.
ATTEST:
M
CITY OF VERNON
By:
ory Burnett
City Treasurer
THE BANK OF NEW YORK MELLON TRUST
COMPANY, N.A., as Trustee
By: ZA�=V�� —
Authorized Officer
Of IS Wcs1:261383851 -9-
Type of
Security
US Treasury
SLGS*
Schedule A
Initial Escrow Securities
Investments to be purchased on January 19, 2012
Maturity Interest
Date Par Amount Rate Purchase Price
Vendor
08/01/2012 $29,362,142.00 0.040% $29,362,142.00 US Treasury
* United States Treasury Obligation State and Local Government Series
OHS West:261383851.5 A-1
The Depository Trust Company
A subsidiary of The Depository Trust 3 Clearing Corporation
BLANKET ISSUER LETTER OF REPRESENTATIONS
(To be Completed by Issuerl
City of Vernon
IN.mc of L.ur� I
D,tel
[For Municipal Issues:
Underwriting Department —Eligibility; 50th Floor]
(For Corporate Issues:
General Counsel's Office; 49th Floor)
The Depository Trust Company
55 Water Street
New York. NY 10041-0099
Ladies and Gentlemen:
This letter sets forth our understanding with respect to all issues (the "Securities") that Issuer
shall request be made eligible for deposit by The Depository Trust Company ("DTC").
To induce DTC to accept the Securities as eligible for deposit at DTC, and to set in accordance
with DTCs Rules with respect to the Securities. Issuer represents to DTC that Issuer will comply
with the requirements stated In DTCs Operational Arrangements, as they may be amended from
time to time.
Note: Very truly yours,
Sdwdule A contains Agaments drat DTC behem sooty
rarely describe DTC, the medtod of efleeftbook entry
bmifers of securities dlwibtxed ttuouph and car- City of Vemon
fain related matters. � I
Received and Accepted:
�' (nut �'a SignaNm)
TH SITORYTRUM111TANY Bruce V. Malkenhorst
,..� (PrintNam)
(Sato Add")
Vernon, California 90058
(CRY) (State) Quntry) (Zip )
40 DTCC (323 ) 583-8811
(P Num r)
rev saposaWT nvxf a
Cfearla/ 0"Paratim (E4ftA A roe
Ima
s< Iti-DULF t
(To Blanket Issuer Letter of Representations)
SAMPLE OFFERING DOCUMENT LANGUAGE
DESCRIBING BOOK -ENTRY -ONLY ISSUANCE
(Ili cpai ed by DTC—bracketed material may be applicable qn4 to cert.un nsues)
1. The Depoutor) Trust Compan) ( DTC ) New York NY will act as secunties depositon for the
securities (the Secunnes ) Tito Securities will he issued as fully registered securities registered in the
name of Cede & Co (DTC s partnership nominee) or such other name m may be requested bs an author
lied representatise of DTC One fully registered Security certificate will be issued for [each issue of] the
Securities [each) in the aggregate principal amount of such issue,and will be deposited a,ith DTC IIf
however, the aggregate principal amount of (any) issue exceeds $500 million, one certificate will be issued
with respect to each $500 million of principal amount, and an additional certificate will be issued with
respect to any remaining principal amount of such issue )
2. DTC, the world's largest depository, is a hmued-purpose trust company organized under the New
York Banking Law, a "banleng organization' within the meemng of the New York Banking Law a member
of the Federal Reserve System, a "clearing corporation' within the meaning of die Ness York Uniform
Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange AM of 1934 DTC holds and provides asset servicing for over 2 million issues of U S
and non-U S equity issues, corporate and municipal debt issues, and money market instruments from
over 85 countries that DTC's participants ("Direct Participants") deposit with DTC DTC also facilitates
the post -trade settlement among Direct Participants of sales and other securities transactions in deposited
securities, through electronic computerized book -entry transfers and pledges between Direct
Participants' accounts Thu eliminates the need for physical movement of securities certificates Direct
Participants include both U S and non-U S securities brokers and dealers, banks, trust companies, clear-
ing corporations, and certain other organizations DTC is a wholly -owned subsidiary of The Depository
That & Clearing Corporation ("DTCC") DTCC, in turn, is owned by a number of Direct Participants of
DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing
Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC,
MBSCC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc, the
American Stock Exchange LLC, and the National Association of Securities Dealers, Inc Access to the
DTC system is also available to others such as both U S and non-U S securities brokers and dealers,
banks, trust companies, and clearing corporstrors; that clear through or maintain a custodial relationship
with a Direct Participant, either du'ectlyor indirectly (Indirect Participants") DTC has Standard & Poor's
highest rating AAA The DTC ]Rules applicable to its Participants are on file with the Securities and
Exchange Commusnon More information about DTC can be found at www,dtxeom
3. Purchases of Securities under flue DTC system must be made by or through Direct Participants,
which will receive a credit for the Securities on DTO records The ownership interest of each actual pur-
chaser of each Security ("Benef cull Owner")s in turn to be recorded on the Direct and Indirect
Participants' records Beneficial Owners will not receive written confirmation from DTC of their purchase
Beneficial Owners are, however, expected to receive written confirmations providing details of the transits -
ton, as well as periodic statements of their holdings, from the Director Indirect Parbapant through which
the Benefioal Owner entered into the transaction 7hinafers of ownership interests in the Securities are to
be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of
Beneficial Owners Beneficial Owners will not receive certificates representing their ownership interests in
Securities, except in the event that use of the book -entry system for the Securities is discontinued
4. To facilitate subsequent transfers, all Securities deposited by Direct Participants with DTC are regs
tared in the name of DTC's partnership nominee, Cede & Go, or such other name as may be requested
by an authorized representative of DTC The deposit of Secunties with DTC and their registration in the
mere of Cede & Co or such other DTC nommee do not effect any change in beneficial ownership DTC
has no knowledge of the actual Beneficial Owners of the Securities, DTC's records reflect onlythe identity
of the Direct Participants to whose accounts such Securities are credited which may or may not be the
Beneficial Owner% Me Directand Indirect Participants Nvill remain responsible for keeping account of
their holdings on behalf of their ontomers
5 Conve)ancc of notices and other communications by DTC to Direct Participanh by Direct
Participants to Indirect Participants and by Direct Participants and Indirect Participants to Beneficial
Owners will be governed by arrangements among them subject to au% Statutory or hegulatog require
menu as mat be in effect from time to time [Beneficial Owners of secunuer ma) wish to take certain
steps to augment the transmission to them of notices of significant exents Nash respect to the Secunues
such as redemptions tenders defaults and proposed amendments to the Security documents For exam
ple Beneficial Owners of Secunties may wish to ascertain that the uommee holding die Securities for
their benefit has agreed to obtain and transmit notices to Beneficial Owners In the alternative Beneficial
Owners may wash to provide their names and addresses to the registrar and request that copies of notices
be provided directly to them [
16 Redemption notices shall be sent to DTC If less than all of the Securities within an issue are being
redeemed DTCs practice is to determine by lot the amount of the interest of each Direct Participant in
such issue to be redeemed )
1. Nether DTC nor Cede & Co (nor any other DTC nominee) wdl consent or vote with respect to
Securities unless authorized bya Direct Participant in accocordancewith DTC's Procedures Under its usual
procedures, DTC masts an Omnibus Proxy to Issuer as soon as possible after the record date The
Omnibus Proxy assigas Cede & Co Is consenting or voting rights to thou Direct Participants to whose
accounts Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy)
S. Redemption proceeds, distributions, and dividend payments on the Securities will be made to Cede
& Co, or such other nominee as maybe requested by an authorized representative of DTC DTC's prat-
nee is to credit Direct Patticipsiats' accounts upon DTM receipt of funds and corresponding detail infor-
mation from Issuer or Agent, on payable date in accordance with their respective holdings shown on
DTCs records Payments by Participants to Beneficial Owners will be governed by standing instructions
and customary practices, as is the case with securities hell for the accounts of customers in bearer form or
registered to "street name," and will be the responsibility of such Participant and not of DTC [nor its nom-
mee], Agent, or Issuer, sublets to any statutoryor regulatory requirements as may be in effect from time to
time Payment of redemptson proceeds, distributions. and dividend payments to Cede & Co (or such
other nominee as may be requested by an authorised representative of DTC) is the responsdnlity of Issuer
or Agent, disbursement of such payments to Diract Partreipaats will be the responsibility of DTC, and dhs-
bursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect
Participants
[9. A Beneficial Owner shall give notice to elect to have its Securities purchased or tendered, through
its Participant, to [Tender/RemarkeGng] Agent, and shall effect delivery of such Seeanties by causing the
Direct Participant to transfer the Participant's interest in the Securities, on DTCs records, to
[Tender/Remarketing) Agent 11be requirement for physical delivery of Securities in connection with an
optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the
Securities are transferred by Direct Participants on DTC's records and followed by a book -entry credit of
tendered Securities to (Tender/Remarketmo Agent's DTC account J
10. DTC may diswatmue provx hng its services as depository with respect to the Securities at any time
by giving reasonable notice to Issuer or Agent Under such circumstances, in the event that a successor
depository is not obtained, Security certificates are required to be printed and delivered
1. Issuer may decide to discontinue use of the system of book -entry transfers through DTC (or a sun
oessor securities depository) In that event, Security certificates will be printed and delivered
12. The information in this section concerning DTC and DTCs book -entry system has been obtained
from sources that issuer believes to be reliable, but Issuer takes no responsibility for the accuracy thereof
STANDARD
&POOR'S
November 23, 2011
City of Vernon
4305 Santa Fe Avenue
Vernon, CA 90058
Attention: Mr. Carlos Fandino, President
One Market
Steuart Tower, 15th Floor
San Francisco, CA 94105.1000
tel415 371.5000
reference no.: 1191265
Re: US$37,640,000 Vernon, California, Electric Revenue Bonds, Series 2011A
US$35,100,000 Vernon, California, Electric Revenue Refunding Bonds, Series 2011B
Dear Mr. Fandino:
Pursuant to your request for a Standard & Poor's rating on the above -referenced issuer, we have
reviewed the information submitted to us and, subject to the enclosed Terms and Conditions, have
assigned a rating of "A-". Standard & Poor's views the outlook for this rating as stable. A copy of
the rationale supporting the rating is enclosed.
The rating is not investment, financial, or other advice and you should not and cannot rely upon
the rating as such. The rating is based on information supplied to us by you or by your agents but
does not represent an audit. We undertake no duty of due diligence or independent verification of
any information. The assignment of a rating does not create a fiduciary relationship between us
and you or between us and other recipients of the rating. We have not consented to and will not
consent to being named an "expert" under the applicable securities laws, including without
limitation, Section 7 of the Securities Act of 1933. The rating is not a "market rating" nor is it a
recommendation to buy, hold, or sell the obligations.
This letter constitutes Standard & Poor's permission to you to disseminate the above -assigned
rating to interested parties. Standard & Poor's reserves the right to inform its own clients,
subscribers, and the public of the rating.
Standard & Poor's relies on the issuer/obligor and its counsel, accountants, and other experts for
the accuracy and completeness of the information submitted in connection with the rating. This
rating is based on financial information and documents we received prior to the issuance of this
letter. Standard & Poor's assumes that the documents you have provided to us are final. If any
subsequent changes were made in the final documents, you must notify us of such changes by
sending us the revised final documents with the changes clearly marked.
To maintain the rating, Standard & Poor's must receive all relevant financial information as soon
as such information is available. Placing us on a distribution list for this information would
Page 12
facilitate the process. You must promptly notify us of all material changes in the financial
information and the documents. Standard & Poor's may change, suspend, withdraw, or place on
CreditWatch the rating as a result of changes in, or unavailability of, such information. Standard &
Poor's reserves the right to request additional information if necessary to maintain the rating.
Please send all information to:
Standard & Poor's Ratings Services
Public Finance Department
55 Water Street
New York, NY 10041-0003
Standard & Poor's is pleased to be of service to you. For more information on Standard & Poor's,
please visit our website at www.standardandpoors.com. If we can be of help in any other way,
please call or contact us at nvnublicfinance%astandardandnoors.com.Thank you for choosing
Standard & Poor's and we look forward to working with you again.
Sincerely yours,
Standard & Poor's Ratings Services
a Standard & Poor's Financial Services LLC business.
dm
enclosures
cc: Mr. Craig Underwood, President
Bond Logistix
STANDARD
&POOR'S
Standard & Poor's Ratings Services
Terms and Conditions Applicable To Public Finance Ratings
You understand and agree that
General. The ratings and other views of Standard & Poor's Ratings Services ("Ratings Services") are statements of
opinion and not statements of fact. A rating is not a recommendation to purchase, hold, or sell any securities nor does it
comment on market price, marketability, investor preference or suitability of any security. While Ratings Services
bases its ratings and other views on information provided by issuers and their agents and advisors, and other
information from sources it believes to be reliable, Ratings Services does not perform an audit, and undertakes no duty
of due diligence or independent verification, of any information it receives. Such information and Ratings Services'
opinions should not be relied upon in making any investment decision. Ratings Services does not act as a "fiduciary"
or an investment advisor. Ratings Services neither recommends nor will recommend how an issuer can or should
achieve a particular rating outcome nor provides or will provide consulting, advisory, financial or structuring advice.
All Rating Actions in Ratings Services' Sole Discretion. Ratings Services may assign, raise, lower, suspend, place on
CreditWatch, or withdraw a rating, and assign or revise an Outlook, at any time, in Ratings Services' sole discretion.
Ratings Services may take any of the foregoing actions notwithstanding any request for a confidential or private rating or
a withdrawal of a rating, or termination of this Agreement. Ratings Services will not convert a public rating to a
confidential or private rating, or a private rating to a confidential rating.
Publication. Ratings Services reserves the right to use, publish, disseminate, or license others to use, publish or
disseminate the rating provided hereunder and any analytical reports, including the rationale for the rating, unless you
specifically request in connection with the initial rating that the rating be assigned and maintained on a confidential or
private basis. If, however, a confidential or private rating or the existence of a confidential or private rating
subsequently becomes public through disclosure other than by an act of Ratings Services or its affiliates, Ratings
Services reserves the right to treat the rating as a public rating, including, without limitation, publishing the rating and
any related analytical reports. Any analytical reports published by Ratings Services are not issued by or on behalf of you
or at your request. Notwithstanding anything to the contrary herein, Ratings Services reserves the right to use, publish,
disseminate or license others to use, publish or disseminate analytical reports with respect to public ratings that have been
withdrawn, regardless of the reason for such withdrawal. Ratings Services may publish explanations of Ratings Services'
ratings criteria from time to time and nothing in this Agreement shall be construed as limiting Ratings Services' ability
to modify or refine its ratings criteria at any time as Ratings Services deems appropriate.
Information to be Provided by You. For so long as this Agreement is in effect, in connection with the rating provided
hereunder, you warrant that you will provide, or cause to be provided, as promptly as practicable, to Ratings Services
all information requested by Ratings Services in accordance with its applicable published ratings criteria. The rating,
and the maintenance of the rating, may be affected by Ratings Services' opinion of the information received from you
or your agents or advisors. You further warrant that all information provided to Ratings Services by you or your agents
or advisors regarding the rating or, if applicable, surveillance of the rating, as of the date such information is provided,
(i) is true, accurate and complete in all material respects and, in light of the circumstances in which it was provided, not
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warranties in this paragraph shall constitute a material breach of this Agreement.
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PF Ratings U.S. (05/17/11)
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PP Ratings U.S. (05/17/11)
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PP Ratings U.S. (05/17/11)
A / OODY'S % Wudd Trade Ccmcr
O♦/11 11 11Jl`2$0 Greenwich Srrccr
New York, NY 10007
INVESTORS SERVICE WWW. Tnbpd YR. CO III
December 20, 2011
Mr. Carlos Fandino
City of Vernon Electric Enterprise
City Of Vernon Dept of Light and Power
4305 S. Santa Fe Avenue
Vernon, CA 90058
Dear Mr, Fandino:
We wish to inform you that on December 2, 2011, Moody's Investors Service reviewed and assigned
a rating of Baal to City of Vernon Electric Enterprise, Electric System Revenue Bonds, Series 2011
A.
13nal. to City of Vernon Electric Enterprise, F,lectric System Revenue Bonds, Series 2011 B.
In order for us to maintain the currency of our ratings, we request that you provide ongoing disclosure
of current financial and statistical information.
Moody's will monitor this rating and reserves the right, at its sole discretion, to revise or withdraw
this rating at any time in the future.
The rating, as well as any revisions or withdrawals thereof, will be publicly disseminated by Moody's
through normal print and electronic media and in response to verbal requests to Moody's Rating
Desk.
Should you have any questions regarding the above, please do not hesitate to contact me or the
analyst assigned to this transaction, Kevork Khrimian at 212-553-4837.
Sincerely,
Eric Hoffmann
Senior Vice President
CC: Craig Underwood
Bond 1,ogistix; 1,1A,
777 Soulh Figueroa. Slrcel
Los Angeles, CA90017-5855
REPORT OF PROPOSED DEBT ISSUANCE
California Debt and Investment Advisory Commission For Office Use Only
915 Capitol Mall, Room 400, Sacramento, CA 95814
P.O. Box 942809, Sacramento, CA 94209-0001 CDIAC NO.: _-
Tel.: (916) 6533269 FAX (916) 654-7440
Completion and timely submittal of this form to the California Debt and Investment Advisory Commission
(CDIAC) at the above address will assure your compliance with existing California State law and will assist in
the maintenance of a complete database of public debt in California. ']hank you for your cooperation.'
ISSUER NAME: Cjly of Vernon
ISSUE NAME: City of Vemon Islcstrie System Revenue Hands 2011 Series A
Please specify type/name of project: 2011 Series A
PROPOSED SALE DATE: December 20. 2011 PRINCIPAL TO BE SOLD: $45.000,000
IS ANY PORTION OF THE DEBT FOR REFUNDING?=
® No ❑ Yes, proposed amount for refunding $
Issuer Contact:
Name: Rey Burnett
Title: Director of Finance and City Treasurer
Address: City of Vernon 4305 Santa Pe Avenue Vernon California 90058
Phone. (32M 583-8811 Issuer l-ocated In I.os Angeles County
Filing Contact:: Name of Individual (represendng: ® Bond Counsel, ❑ Issuer, ❑ Financial Advisor, or ❑ Lead Underwriter) who
completed this forth and may be contacted for information: .
Name. Scan J Baxter, Pr 'ect Manaecr for Eugene Carron Egg.
Firm/Agency: Orrick f lerrington & Sutcliffe LLP
Address: 777 South Fiperoa Street Suite 00 Lost Angeles California 90017
Phone: (213) 612-2171 E-mail: sba utter r(7i nrrick.com
Send acknowledgement/topics to: Stan J. Baxter
FINANCING PARTICIPANTS:
BOND COUNSEL Orrick. I IcrinMon & Sutcliffe LLP
FINANCIAL ADVISOR: BI.X Group LLC
UNDERWRTI'ER\PURCIIASER: E1. De i.a Rosa & Co.. Inc.
IS THE INTEREST ON THE DEBT TAXABLE?
Under State law: ® NO (tax-exempt) ❑ Y11S (taxable)
Under Fedcral law: ® NO (tax-exempt) ❑ YES (taxable)
If the issue is federally tax-exempt, is interest a specific preference
item for the purpose of alternative minimum tax?
❑ Yes, preference item ® No, not a preference item
TYPE OF SALE: ❑ Competitive ® Negotiated
I .fu/inn 8855(yf of I/x Cubfornia Gmnmmmt Cbk rtquim /Ix icwer o/eny propared men• public ddt Arne login uritlrn no6or of dr am1mod mle Is Nx CDhTICno Lkr duo 30
any,pno to dx .m/e. Under Cakfomia Coemment God, ,fee/ion 8855(i), " Alm iomr e(any mmpubkb deb/ issue rhall, n v /ekr 1/mn 45 dy:r alms t/x ugning ojUx bnndpur/mrc
mnmui in a negotiaed orpnmre ftnanang, orofler dx rmrptance nfa bid in a eompen1hr fiffenng, submit a repot offrnnLrak and o1firlal rtaiemmt to rlx rommiuina. 77x C'ononadon
may rquir iafmmafim to be .rrebmilted in the rpod offinul rak that is tvarid, md aprneriaIt."
2 Asian 515RI(r)(2)(B) of //x CA hfmnia Corrmment Cade rgion f ilxet any lain ogrng .selling rfundlng bonds at pram sck or on a negotiated basis dull read a ai*xem statement,
urilun ise see.Er after ilm bondr am W4 to the CDIAC expbdmfng fix rayons xdry Ox /av/ogmry defrrn/ned Is jell tbs bomdr at prnule .rak or on a negonaled bona instead of of
public ode.
I OCSSFl:497547.1
CDIAC: Report of proposed Debt Issuance Page 2
TYPE OF DEBT INSTRUMENT
NOTE
❑ Bond anticipation (BAN)
❑ Grant obligation(GAN)
❑ Other note (please specify below.) (OTI IN)
❑ Revenue anticipation (ItAN)
❑ Tax allocation (1'ALN)
❑ Tax and revenue anticipation (I'RAN)
❑ Tax anticipation (FAN)
❑ Commercial piper (CP)
❑ Certificates of participation/leases (COPI.)
❑ Other (Please specify bclnw.) (O'1'1I)
please specify if "Other note/Other bond/Other" was checked:
SOURCE(S) OF REPAYMENT
❑ Bond proceeds (BDl'R)
❑ General fund of issuing jurisdiction (GNI+D)
❑ Grants (GRN-1)
❑ Intergovernmental tramfcn other than grants (rrGV)
❑ Local obligations (LOB)
❑ private obligor payments (POP)
❑ Other (Please specify.) (OT1-IS):
PURPOSE(S) OF FINANCING
❑ Cash Flow, interim financing (CFII)
❑ project, interim financing (Plb)
❑ College/university housing (CLII-1)
❑ Multifamily housing (MFl-I)a
❑ Single-family housing (SFID3
❑ Health care facilities (1ICI)
❑ hospital (I IOSP)
❑ Other/multiple. health care purposes (equipment;
ctc.)(OMI IC)
❑ College/university, facility (CUI)
❑ K-12 school facility(KSCI I)
❑ Other/multiple education uses (equipment, etc.)(OMED)
❑ Student brans (SLC)
❑ Redevelopment, multiple uses (RD)
❑ Commercial development (CMDV)
❑ Industrial development (INDV)
❑ pollution control (PC)
please Specify type/name of project if different from above:
BOND
❑ Conduit revenue (Private obligor) (CRB)
❑ General obligation (GOB)
❑ Limited tax obligation Q:1'013)
❑ Other bond (Please specify below.) (OTI IB)
❑ Public IC:ISC rcvcnuc (PLRA)
❑ Revenue (Pool) (It")
® Revenue (Public enterprise) (I)FRB)
❑ Sales tax revenue (STRB)
❑ Special assessment (SAB)
❑ Tax allocation (FAB)
❑ Property, tax revenues (PIVIX7
® Public enterprise revenues 01,M)
❑ Sales tax revenues (SAT11)
❑ Special assessments (SA)
❑ Special tax revenues (SP'I'It)
❑ Tax -increment (N)
❑ Airport (APR-1)
❑ Bridges and highways (BRI-II)
❑ Convention center (CCl'R)
❑ Equipment (EQUP)
❑ . Flood control/storm drainage (IrLDS)
❑ Multiple capital improvements and public works (MCAP)
❑ Other capital improvements and public works (OCAI)
❑ Parking (PRKG)
❑ Parks/open space (PRKO)
❑ ports and marinas (PRTS)
® Power generation/transmission (PWIt)
❑ Prisonx/jails/correctional facilities (PRSN)
❑ Public building (PB)
❑ public transit (FIR)
❑ Recreation and sports facilities (1tCSP)
❑ Seismic safety improvements/repair (SSI)
❑ Solid warm recovery facilities (SWS'l)
❑ Street construction and improvements (SCI)
❑ Wastewater collection and treatment (WSI\X)
❑ Water supply/storage/distribution (Writ)
❑ Insurance/pension funds (]IT)
❑ Other than listed above (O-fl I)s
/ Gnoiu /M'J/gmrmmrn/ irn/rcr n//x�uri,/g baud, Jn ngvim/!n nhidn a nni/inr/im/ fir nu //v Jlnrr braimr Jr/r.rliq /,, l/xir rrunplinmr eilh haum, Ir/wninG /r7ui/nuu//.r
nnM rn i.uuon,x of Ilu bmrdr //I ///yttaY n/Irlr- /N'rnNl/ifJm/I)' lH/Irrl/rq.
UOCSSPI:497547.1
REPORT OF PROPOSED DEBT ISSUANCE
California Debt and Investment Advisory Commission For Office Use Only
915 Capitol Mall, Room 400, Sacramento, CA 95814
P.O. Box 942809, Sacramento, CA 94209-0001 CDIAC NO.:
Tel.: (916) 653.3269 FAX: (916) 654-7440
Completion and timely submittal of this form to the Califomia Debt and Investment Advisory Commission
(CDIAC) at the above address will assure your compliance with existing California State law and will assist in
the maintenance of a complete database of pubbc debt in California. Thank you for your cooperation.'
ISSUER NAME: Cipr of Vernon
ISSUE NAME; City of Vernon Electric System Revenue Bonds, 2011 Taxable Series B
Please specify type/name of project: 2011 'Taxable Series B
PROPOSED SALE DATE: December 20. 2011 PRINCIPAL TO BE SOLD: $40-000,000
IS ANY PORTION OF THE DEBT FOR REFUNDING?a
❑ No ® Yes, proposed amount for refunding $33,000.000
Issuer Contact:
Name: Ito" But
Tide: Director of Finance and City Treasurer
Address: City of Vernon. 4305 Santa Ee Avenue. Vernon,California 90058
Phone: (323) 583-8811 Issuer Located 10 Iers Angeles County
Filing Contact: Name of Individual (representing: ® Bond Counsel, ❑ Issuer, ❑ Financial Advisor, or ❑ Lead Underwriter) who
completed this form and may be contacted for information:
Name: Sccan. 1. Baxter. Project Manager for Eugene Carron Esq.
Firm/Agency: Orrick, I Icrrington & Sutcliffe IJ,F
Address: 777 South Figueroa Street. Suite 3200, Los Angcics. California 90017
Phone: (213) 612-2171 E-mail: sbaxter0orrick.com
Send acknowledgement/copies to: Sean J. Baxter
FINANCING PARTICIPANTS: -
BOND COUNSEL: Orrick. llerrinmii & Sutcliffe TIT
FINANCIAL ADVISOR: AI.XGrounl.I.0
UNDI.-RWRI'I'ER\PURCIIAS[!R: E.I. De La ]loss & C
IS THE INTEREST ON THE DEBT TAXABLE?
Under State law: ®, NO (tax-exempt) ❑ YRS (taxable)
Under Federal law: ❑ NO (tax-exempt) 0 YES (taxable)
If the issue is federally tax-exempt, is interest a specific preference
item for the purpose of alternative minimum tax?
❑ Yes, preference item ❑ No, not a preference item
TYPE OF SALE: ❑ Competitive ® Negotiated
I See "in 88550) of t/x C.ck/conic Gnrrrnmenl Cash nquinr tlu isruer of arty pmpwed new pxbk'r debt iswe ingim anlies nmire of l/s propared rale !o dx CDIAC no b ler!!wn 30
days pnor /o l/x rak. Coder Cak/omia GotnnmenI Cmle .Frain ,4833(i), "Ilk iuurr of any nevpubb'r debl heir .elan//, na Me dun 45 rhyr afkr //a.dgninq of the lmnd pxrzlxtre
m./mr/ in a negaiia/ed orpri,isa firm ing, or after l/x anrplano of a bid in a rnmpelilbr gfeerfgq, rub nd a mpoN g(linal rak and o/fiacl sianmenl In lax mmmixubn. 1'/x C.'runmicrmn
may mquirr information /a be.mbm/[led in /be mpaN off,nal role ]hut ii mnriderrd appsnpna/e "
1 Serlinn 33383(e)(2)f11) of the Cr/fixniu Got rmars I C.'ak ngwins dwl any /oral area .rr/k'eg rzfunding bonds at prituie .w/e or an a ngolialed Lurie AW lend a annen rtolemenl,
uitbin ma arekr a/kr /h bnndr urn sole( to l/x C.'D/i1C rapLu'ning !br rzuronr rv/ry //x /ors/ ygenry brims rd to jell t/x band, a/peiw/e .,ale or on a nrga/iamd baw innlead of of
pubk2 rak.
DOf ISS1 1:497547.1
CDI \C, Renort of Proposed Debt Issuance Pane
TYPE OF DEBT INSTRUMENT
NOTE
❑ Pond anticipation (BAN)
❑ Grant obligation (GAN)
❑ Other note (Please specify below.) (OTI IN)
❑ Revenue anticipation (RAN)
❑ Tax allocation (1'ALN)
❑ Tax and revenue anticipation (111AN)
❑ Tax anticipation (I'AN)
❑ Commercial paper (CP)
❑ Certificates of partieiparion/leases (COPI)
❑ Other (Please specify below.) (O'1'1 I)
Please specify if "Other note/Other bond/Other' was checked:
SOURCE(S) OF REPAYMENT
❑ Bond proceeds (BDF'R)
❑ General fund of issuingjurisdiction (GNFD)
❑ Grants (GIN'I)
❑ Intergovernmental transfers other than grants (ITG\�
❑ Local obligations (I.OB) -
❑ Private obligor payments (POP)
❑ Other (Please specify.) (OTI IS):
PURPOSE(S) OF FINANCING
❑ Cash Flow, interim financing (CPIF)
❑ Project, interim financing (Plb)
❑ College/university, housing (CUlf)
❑ Multifamily housing (MFI-Ip
❑ Single-family housing (SFI-Ip
❑ health care facilities 0-ICI)
❑ 1lospital (NOSP)
❑ Other/multiple health care purposes (equipment,
ctc.)(OMIiC)
❑ College/university facility (CUP)
❑ K-12 school facility (KSCI-I)
❑ Other/multiple education uses (equipment, ctc.)(OMED)
❑ Student loans (SI.C)
❑ Redevelopment, multiple uses (RD)
❑ Commercial development (CMUV)
❑ Industrial development (INDV)
❑ pollution control OnC )
Please Specify type/name of project if different from above:
BOND
❑ Conduit revenue (Private obligor) (CRP)
❑ General obligation (GOP)
❑ Limited tax obligation O.TOB)
❑ Other bond (Please specify below.) (0'11113)
❑ Public lease revenue (PLIU3)
❑ Revcnuc (Pool) (RB)
® Revenue (Public enterprise) (PVRP)
❑ Sales tax revenue (YIUB)
❑ Special assessment (SAB)
❑ Tax allocation (I'AB)
❑ property tax revenues (PRTX)
® Public enterprise revenues (P191)
❑ Sales tax revenues (SATIi)
❑ Special amessments (SA)
❑ Special tax revenues (SIr17t)
❑ 'Pax -increment (II)
❑ Airport (APR71)
❑ Bridges and highways (BR1-II)
❑ Convention center (CCTIi)
❑ Equipment (EQUP)
❑ Flood control/storm drainage (FLDS)
❑ Multiple capital improvements and public works (MCAP)
❑ Other capital improvements and public works (OCAP)
❑ Parking (PRKG)
❑ Parks/open space (PRKO)
❑ Ports and marinas (PATS)
® power generation/transmission(PWR)
❑ Prisons/jails/correctional facilities (31iSN)
❑ Public budding (PB)
❑ Public rransit (VIR) .
❑ Recreation and sports facilities (RCSP)
❑ Seismic safety improvements/repair (SSI)
❑ Solid waste recovery facilities (SWS'1)
❑ Street construction and improvements (SCI)
❑ Wastewater collection and treatment (WS'M
❑ Water supply/storage/distribution (WI R)
❑ Insurance/pension funds (IPI-)
❑ Other than listed above (Cyll Ds
i Cbndic /rx'alAy"gnumdrl inuelx n/Louring bn 1, air ngxi rd In nA/nin /anti dx S/al, 7'nrdwm "lle Ib, /n ilh /lw ,1'/a/r &.0,e rrp,Yinq r,q d r en[r
ptiar In irrwanrr 4 rlr lmndc m/inon.r ringk,- ar mub1a?n/y /anrwq.
DOOSS11:497347.1
Bill Lockyer
STATE OF CALIFORNIA Stale Treasurer and Chair
CALIFORNIA DEBT AND INVESTMENT ADVISORY COMM ISSION
915 CAPITOL MALL ROOM 400
PO BOX 942809
SACRAMENTO CA 94209.0001
TELEPHONE: (916) 653.3269
FAX: (916) 654-7440
November 22, 2011
TO: Sean J Baxter
Orrick Herrington & Sutcliffe
777 South Figueroa St. Suite 3200
Los Angeles, CA 90017-5855
FROMryvl�rk (bell, Executive Director
I 11J
RE: ACKNOWLEDGEMENT OF REPORT OF PROPOSED DEBT ISSUANCE
California Government Code Section 8855 requires written notice to be given to the California Debt and
Investment Advisory Commission (CDIAC) no later than 30 days prior to the proposed sale of any public
agency debt issue.
CDIAC acknowledges receipt of your notice of the following proposed debt issuance:
CDIAC Num ber:
Issuer:
Project:
Proposed Amount:
Proposed Sale Date:
Date Notice Recieved:
2011-1467
Vernon
Series A
$45,000,000
December 20, 2011
November 21, 2011
Issuers may electronically file the Report of Final Sale through CDIAC's website, using the following information:
CDIAC Number: 2011-1467
Password: 115500
A CDIAC Number and Password will be provided for each electronic filing of the Report of Proposed Debt
Issuance. This information is unique to this filing and must be used for any subsequent reporting under this CDIAC
Number.
Please submit the Report of Final Sale and the Official Statement/Offering Memorandum or other Bond Documents
in accordance with Government Code Section 8855 on this issue within 45 days of the signing of the bond purchase
contract or the acceptance of a bid to purchase the debt, to www.treasurer.ca.gov/cdiac/reporting.asp under the
heading "Reporting Forms". Official Statements/Offering Memorandums or other Bond Documents can be sent by
e-mail to CDIAC_issuance@treasurer.ca.gov.
Any questions regarding reporting requirements may be directed to CDIAC's Data Unit at (916) 653-3269.
Cc: Rory Burnett
Director of Finance/City Treasurer
Bill Lockyer
STATE OF CALIFORNIA Stale Treasurer and Chair
CALIFORNIA DEBT AND INVESTMENT ADVISORY COMM ISSION
915 CAPITOL MALL ROOM 400
PO BOX 942809
SACRAMENTO CA 94209-0001
TELEPHONE: (916)653-3269
FAX: (916) 654.7440
November 22, 2011
TO: Sean J Baxter
Orrick Herrington & Sutcliffe
777 South Figueroa St. Suite 3200
Los Angeles, CA 90017-5855
FROMt
IIIIark Camp I, Executive Director
RE: ACKNOWLEDGEMENT OF REPORT OF PROPOSED DEBT ISSUANCE
California Government Code Section 8855 requires written notice to be given to the California Debt and
Investment Advisory Commission (CDIAC) no later than 30 days prior to the proposed sale of any public
agency debt issue.
CDIAC acknowledges receipt of your notice of the following proposed debt issuance:
CDIAC Number:
Issuer:
Project:
Proposed Amount:
Proposed Sale Date:
Date Notice Recieved:
2011-1471
Vernon
Series B
$40,000,000
December 20, 2011
November 21, 2011
Issuers may electronically file the Report of Final Sale through CDIAC's website, using the following information:
CDIAC Number: 2011-1471
Password: 115500
A CDIAC Number and Password will be provided for each electronic filing of the Report of Proposed Debt
Issuance. This information is unique to this filing and must be used for any subsequent reporting under this CDIAC
Number.
Please submit the Report of Final Sale and the Official Statement/Offering Memorandum or other Bond Documents
in accordance with Government Code Section 8855 on this issue within 45 days of the signing of the bond purchase
contract or the acceptance of a bid to purchase the debt, to www.treasurer.ca,gov/cdiae/reporting.asp under the
heading "Reporting Forms". Official Statements/Offering Memorandums or other Bond Documents can be sent by
e-mail to CDIAC_issuance@treasurer.ca.gov.
Any questions regarding reporting requirements may be directed to CDIAC's Data Unit at (916) 653-3269.
Cc: Rory Burnett
Director of Finance/City Treasurer
REPORT OF FINAL SALE
California Debt and Investment Advisory Commission For Office Use Only
915 Capitol Mail, Room 400, Sacramento, CA 95914
P.O. Box 942809, Sacramento, CA 94209.0001
Tel.: (916) 653-3269 FAX: (916) 654-7440
Under Califomis Government Code 4•etinn 8855(i), "'Me issuer of any new public debt issue shall, not
later than 45 daps after the sitming of the band purchase contract in a nc806ated or private financing, or
after Lite acceptance of a bid in a competitive offering, .submit a report of final sale and official statement to
the Commission. The Comnussion may require information to be submitted in the report of final sale that
is considered appropriate." CDIAC NO #: 9011-1467
ISSUER NAME:_ily of Vernon
(If pool bond, list participants)
ISSUE NAME: (-iN of Vernon 1=Aces is OVtcm Revenue Bonds. 2012 Serms \
IF THIS IS A POOLED FINANCING, WHICH ISSUANCE STATUTE IS IT AUTHORIZED UNDER?
71) Marks -Roos Local Bond Pooling Act ❑2) JPA Law ❑3) Installment Sales Agreement, Lease ❑4) Housing Revenue Bond
Law & Industrial Development Bond Law ❑S) Other
WILL A VALIDATION ACTION BE PURSUED? ® No ❑ Yes ❑ Unknown
ACTUAL SALE DATE: lanuary 10 2012 PRINCIPAL SOLD: $37.040 000
IS ANY PORTION OF THE DEBT FOR REFUNDING?'
® No ❑ Yes, refunding amount (including costs) $
Issuer Contact;
Name: Rory Burn
Title Citv7-rcaaurer
Address: City of Vernon. 4305 Santa Fc Avenue. Vernon. California 90058
Phone. (323) 583-8811 ISSUER LOCATED 1N Los A ytdes COUNTY
Filing Contact^ Name of Individual (representing: ® Bond Counsel, ❑ Issuer, ❑ Financial Advisor, or ❑ Lead Underwriter) who
completed this form and may be contacted for information:
Name:_ Scan J. Baxter for Gerald Kim. 17,ul
Firm/Agency: Orrick. Herrington & Sutcliffe 1.1,11
Address: _7777_S. Figueroa St.. Suite 3200 Los Angeles, CA 90017
Phone: (213) 612-2171 E-mail: ,bane aiorrick com
Send acknowledgement/copies to: Scan J Baxter
Name of individual to whom an invoice for the CDIAC issue fee should be sentr
Name. Ralph I lolmes. principal
Address: 456 hlontPnmcry Street 19th Floor. San Francisco, CA 94104
Seelion 53583(c)(2)(B) of the California Gownilaeu/ Code requires that mg local agency telling refunding bondf al plimle sale ar oil a llegolialed bafis ihall te//d a
lure!/en iralemenl, williin lav weeks offer /Ge bonds are sold, to the CDIAC explaining The reasons wly /Ge /oral ngeng delenzimed to sell/be bonds al private role or
sat a negolialed bath instead of a1 public sale.
2 TGis fee is nal/meiZed �, Seelian 9850 of the California Government Code and if ,baged to /Ge /earl nndenmi/er or pnrcGaser olTbe i.riue. 'I'/re lee is rrdminiNmliue/p
feu by 1Ge Commission, TGe e'nnru/fee ithrdnle may be oldamed from CD1,4C.
UOCSVI:497529.1
CDIAC: Report of Final Sale Pagg2
FINANCING PARTICIPANTS (Firm Name)
FINANCIAL. ADVISOR: BI.X Group I,LC
LEAD UNDI3RWIII'PI:R/PURCIIASFR: De la Rosa & CO.
BOND COUNSEL: Orrick. IIcrrindm& SutcWC I.I,P
T'RUSI EF/PAYING AGENT: The Bank of New York Mellon
"Crust Company. N.A.
MATURITY SCHEDULE
❑ Attached E Included in Official Statement
MATURITY STRUCTURE
❑ Scrial (S) ❑'Germ (1)
E Serial and term bonds or two or more term (B)
FINAL MATURITY DATE: r1mpo 1 2041
FIRST OPTIONAL CALL DATE: August 1. 2N2 -
SENIOR/SUBORDINATE STRUCTURE ❑ Yes E No
OFFICIAL STATEMENT/OFFERING MEMORANDUM:
E Enclosed ❑ None prepared
WAS THE ISSUE INSURED OR GUARANTEED?
E No
❑ Bond Insurance (1)
❑ Letter of Credit (L)
❑ State Intercept Program (1)
❑ Other (0)
GUARANTOR: N/A
ENHANCEMENT EXPIRATION DATE: N/A
INDICATE CREDIT RATING:
(For example, "AAA" or "Ara"
❑ Not Rated
N Rated
Standard & Pools: A -
Fitch:
Moody's: Baal
Other:
REASON FOR NEGOTIATED REFUNDINGS
If the issue is a negotiated refunding, indicate the reason(s) why the
bonds were issued at a private or negotiated versus a competitive
sale.
❑ (1) Timing of the sale provided more Flexibility than a public sale
❑ (2) Mor, cost savings were expected to be realized than a Public .Sale
❑ (3) More flexibility in debt structure was available than a public sale
❑ (4) Issuer able to work with participants familiar with issue/r than a public
sale
❑ (5) :\II of the nhnvc
❑ (6) Other (please specify)
OFFICE LOCATION (City/State)
Lei Angeles. California
San Francisco California
Los Angeles. California
Los A ngdes, Califurnin
IS THE INTEREST ON THE DEBT EXEMPT FROM
TAXATION?
Under State Law: ❑ No (taxable) E Yes (tax-exempt)
Under Federal Law: ❑ No (taxable) E Yes (tax-exempt)
If the issue is federally tax-exempt, is interest a specific preference
item for the purpose of alternative minimum tax? ❑ Yet, E No
INTEREST TYPE: ❑ NIC E TIC ❑ Variable
INTEREST COST: 5.4247%
CAPITAL APPRECIATION BOND: ❑ Yes E No
ISSUANCE COSTS AND FEES:
A) Management Fee
$N/A
B) Total Taltcdown
SN/A
C) Underwriter Expenses
$N/A
Underwriter Spread or Discount
$263,828.74
D) Bond Counsel
$177,022.20
L) Disclosure Counsel
SN/A
F) Financial Advisor
$225,840.00
G) Rating Agency
S36.857.61
10 Credit Enhancement
$N/A
1) Trustee I-ce
S2.377.91
J) Other Expenses
$34,125.81
Total Issuance Costs
S476.223.53
K) ORIGINAL ISSUE PREMIUM
$199,159.15
L) OIUGINAL ISSUE DISCOUNT
SN/A
h1) NETORIGINAL ISSUE.
DISCOUNT/PREMIU1111
S199,159.15
FOR OFFICE USE ONLY
FEE: $
DOCSCFI:497527.1
REPORT OF FINAL SALE
California Debt and Investment Advisory Commission For Office Usc Only
915 Capitol Mall, Room 400, Sacramento, CA 95814
P.O. Box 942809, Sacramento, CA 94209-0001
'rel.: (916) 653-3269 FAX: (916) 654-7440
Under California Government Code Section 8855(i), `Mv issuer Oran .
fan)• nem public debt issue shall, not
I:ner than 45 Jays after the sipOng of the bond purchase contract in a negotiated or priratc linAnCing, or
after the acceptance era bid in a compctitiro offering, submit a report of fool sale and official staternau to
the Commission. The Commission mac require information to be submitted in the report of final sale thin
is considered appropriate" CDIAC NO #t 2011-1471
ISSUER NAME: City of Vernon
(If pool bond, list participants)
ISSUE NAME: City of Vernon Electric System Rcvcnuc Bonds. 2012 Taxable Scrici B
IF THIS IS A POOLED FINANCING, WHICH ISSUANCE STATUTE IS IT AUTHORIZED UNDER?
❑1) Marks -Roos Local Bond Pooling Act ❑2) JPA Law ❑3) Installment Sales Agreement, Lease ❑4) Housing Revenue Bond
Law & Industrial Development Bond Law ❑5) Other
WILL A VALIDATION ACTION BE PURSUED? E No ❑ Ycs ❑ Unknown
ACTUAL SALE DATE: lanuory 10 2012 PRINCIPAL SOLD: $35.100.000
IS ANY PORTION OF THE DEBT FOR REFUNDING?'
❑ No E Yes, refunding amount (including costs) $30.050.542.29
Issuer Contact:
Name: Rcrry Bur
Titles L_ityTreasurer
Address: C! of Vernon,4305 Santa Fc Avenue Vernon,California 90058
Phone. 023) 583-8811 ISSUER LOCATED IN Los Anlrcics COUNTY
Filing Contact:: Name of Individual (representing: E Bond Counsel, ❑ Issuer, []Financial Advisor, or ❑ Lead Underwriter) who
completed this form and may be contacted for information:
Name: Scan 1. Baxter for Gerald Kim Pisq.
Firm/Agency: Orrick. Herrington & Sutcliffe LIT
Address: 777 S. Figueroa St.. Suite 3200, I,os Angcles CA 90017
Phone (213)612-2171 E-mail: tiWacrOlorrick.com
Send acknowledgement/topics to: Scan 1. Baxter
Name of individual to whom an invoice for the CDIAC issue fee should be sent:2
Name: Ralph I lulmcs principal
Address: 456 \tan koncry Street. 19th Floor Sat Franc scn CA 94104
Section 53383(c)(2)(6) of the Cailfornia Government Code requires, that any local agrney selling rfunrlr7rg Londe ai priwNe tale or on a negotiated basis shall surd a
wnllen statement, wilbrn two weeks after the bonds art sold, to the CDIAC explaining ibe morons, why the !oral ageng delennrued to sell the boats al privnh sale or
on a negotiated basis instead of al public sale.
2 This fee is artborited by Section 8856 of the California Government Code and i.r dialed to the lead underwriter or pnrbaser of lbe hint. The fee is administrativeii•
fei by the Commission. The ciineiri fee relied ele may be oblained from CDIAC.
DOCSSh1:497529.1
CDIAC: Report of Final Sale Page 2
FINANCING PARTICIPANTS (Firm Name)
FINANCIAL ADVISOR: BLX Group LI.0
I.I:r\D UNUIiRWRI'1'IiR/PURL:IIASIiR: Dc l,a Rosa & Co.
BOND COUNSEL: Orrick. I Ierrington & Sutcliffe I.1.11
T'RUSTEIi/PAYING AG1iNT: The Bank of New York McBnn
MATURITY SCHEDULE
❑ Attached ® Included in Official Statement
MATURITY STRUCTURE
® Serial (S) ❑ Tcrm (1)
❑ Serial and term bonds or two or more term (B)
FINAL MATURITY DATE: August 1. 2026
FIRST OPTIONAL CALL DATE: August 1. 2022
SENIOR/SUBORDINATE STRUCTURE ❑ Yes ® No
OFFICIAL STATEMENT/OFFERING MEMORANDUM:
® Enclosed ❑ None prepared -
WAS THE ISSUE INSURED OR GUARANTEED?
®No
❑ Bond Insurance (1)
❑ Letter of Credit (L)
❑ State Intercept Program (1)
❑ Other (0)
GUARANTOR: N/A
EXPIRATION DATE: N/A
INDICATE CREDIT RATING:
(For example, "AAA" or "Aaa"
❑ Not hated
® Rated
Standard & Poor's: A -
Fitch:..__
Moody's: Baal _
Other:
REASON FOR NEGOTIATED REFUNDINGS
If the issue is a negotiated refunding, indicate the reason(s) why the
bonds were issued at a private or negotiated versus a competitive
Nile.
❑ (I) Timing of the sale provided more flexibility than a public sale
❑ (2) %lore cost saving¢ were expected to be realized than a public sale
❑ (3) i\lore Flexibility in debt structure was available than a public sale
❑ (4) Issuer able to work with participants familiar with issue/r than a public
sale
® (5) All of the above
❑ (6) Other (please specify)
OFFICE LOCATION (City/State)
LosAngeles- .cles. Cnl'fornia
San Francisco California
Los Angcics. California
Los Angeles. California
IS THE INTEREST ON THE DEBT EXEMPT FROM
TAXATION?
Under ',;rate law: ❑ No (taxable) ® Yes (tax-exempt)
Under Federal Law: 0 No (taxable) ❑ Yes (tax-exempt)
If the issue is federally tax-exempt, is interest a specific preference
item for the purpose of alternative minimum tax? ❑ Yes ❑ No
INTEREST TYPE: ❑ NIC ® TIC ❑ Variable
INTEREST COST: 6.8907%
CAPITAL APPRECIATION BOND: ❑ Yes ® No
ISSUANCE COSTS AND FEES:
A) Management Fee
SN/A
B) Total Takedown
$N/A
C) Underwriter l3xpcnscs
SN/A
Underwriter Spread or Discount
$281,286.82
D) Bond Counsel
$157.977.80
13) Disclosure Counsel
$N/A
P) Financial Advisor
$210,600.00
G) Bating Agency
$32.892.39
1-1) Credit Enhancement
$N/A
1) 'Trustee Fee
$2,122.09
J) Other lixpenscs
S32.924.86
Total Issuance Costs
$436-517.14
K) ORIGINAL ISSUI.i I)IU;MiUM
SN/A
L) ORIGINAL ISSUE: DISCOUNT
S(1.331 653 55)
M) NI:1' ORIGINAL, ISSUE
DISCOUNT/PREMIUM
S(1.331.653.55)
FOR OFFICE USE ONLY
FEE: $
DOC.CS1 1:497529.1
$37,640,000 $35,100,000
CITY OF VERNON CITY OF VERNON
ELECTRIC SYSTEM REVENUE BONDS ELECTRIC SYSTEM REVENUE BONDS
2012 SERIES A 2012 TAXABLE SERIES B
CERTIFICATE OF CITY CLERK
I, Willard G. Yamaguchi, City Clerk of the City of Vernon (the "City"), HEREBY
CERTIFY as follows:
1. That attached hereto as Exhibit A is a true and complete copy. of Resolution
No. 2011-185, duly adopted by the City Council of the City at a meeting duly called and duly
held on November 15, 2011, at which meeting a quorum was present and acting throughout.
Such resolution has not been modified, amended or repealed and is in full force and effect in the
form attached hereto as Exhibit A;
2. that attached hereto as Exhibit B is a copy of the Charter of the City of Vernon.
Said copy is a true, complete and correct copy of said Charter and said Charter has not been
modified, amended or repealed and is in full force and effect in the form attached hereto as
Exhibit B;
3. that attached hereto as Exhibit C is a copy of the City of Vernon Municipal
Facilities Revenue Bond Law, enacted as Ordinance No. 1004 of the City of Vernon and
constituting Article XI of the City Code of the City of Vernon. Said copy is a true, complete and
correct copy of said Vernon Municipal Facilities Revenue Bond Law and said Vernon Municipal
Facilities Revenue Bond Law has not been supplemented, modified or amended and is in full
force and effect in the form attached hereto as Exhibit C;
4. that attached hereto as Exhibit D is a copy of those portions of the City of Vernon
Administrative Code relating to the Vernon Electric System. Said copy is a true, complete and
correct copy of such portions of the City of Vernon Administrative Code, are all provisions of
the City of Vernon Administrative Code relating to the Vernon Electric System and such
provisions have not been supplemented, modified or amended and are in full force and effect in
the form attached hereto as Exhibit D; and
5. that attached hereto as Exhibit E is a copy of the Investment Policy of the City of
Vernon. Said copy is a true, complete and correct copy of said Investment Policy and said
Investment Policy has not been modified, amended or repealed and is in full force and effect in
the form attached hereto as Exhibit E.
OHS Wmt:261409670.2
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the sea] of the City
this 19th day of January, 2012.
CITY OF VERNON
0
[SEAL]
01IS Wes1:261409670.2 -2-