The Sacramento Bee report Wednesday announcing 20,000 acre feet of water sales by PCWA to Westland Water is remarkable and corroborates all the analysis that we’ve been doing since 2005 - but few believed until now. Here’s the numbers and logic trail

1. The contract is essentially less than 1 year - very short term - at $125/acre foot. Proceeds to PCWA $2.5 million - enough to dent the bill for the Colfax sewers

2. Any long term contract, such as the existing PERPETUAL Zone 3 contract or a PG&E renewed Zone 1 contract in 2013, would be at multiples of that price.

3. I’ve checked my estimates with some experts. Based on this short term contract as a yardstick - a reasonable long term contract price could be $500/acre foot – or more – simply because only long term contracts can support property development.

4. Simple math would then value the ZONE 3 contract for 25,000 acre feet/year IN PERPETUITY at $451 million. It’s a jewel which belongs to Zone 3! – at least hopefully until November 6th and beyond

5. BUT, in 2013, PG&E can impose the same price on PCWA as part of the Zone 1 contract renegotiations. Or much higher if they aggressively seek to recover the simultaneous loss of electricity cash flow from the Middle Fork when the PG&E “take or pay” contract lapses. I conservatively estimate this lost PG&E cash flow at $54 million p.a.

6. PCWA ACCORDING TO THEIR OWN PROFORMAS IN 2008 DEBT PROSPECTUSES forecast paying only $995,000 for water in 2012. That’s a blended average of about $11/acre foot including Zone 3 water which is essentially free.

7. If the $500/acre foot materializes, PCWA would have to increase its projected water revenues in 2013 by $43 million or 65% to recover that cost increase.

8. Even using PCWA’s optimistic PROFORMA’s, in order to comply with debt service covenants – water rates might have to increase as much as 88% - OR MORE

9. PG&E in turn would have then still only recovered 80% of the lost electricity cash flow in higher priced water sales.

CONCLUSIONS

• These represent violent price increases in water costs to Placer consumers - which could go higher with inflation and water shortages such as those highlighted in all the major California newspapers today.

• These increases would easily trigger debt covenant default - unless passed on to all of you.

• I suspect that the November 6th meeting set for rate increases by PCWA, 2 days after a long election, is a further consolidation step between Zone 1 and 3 so as to blend water costs. Consequently previously near free Zone 3 water will disappear.

• I also suspect that Ed Tiedemann, PCWA’s legal counsel has given some legal advice to that effect. As he has gone underground until post election – we will never know.

• My view all along has been that PCWA should cut a package deal NOW with PG&E combining water and electricity. What chips did we have in the negotiations with them was the problem.

• I’m leaning towards the idea that PCWA should rely on what it really brought to the table in 1963 on the Middle Fork which was – TAX EXEMPT DEBT STATUS!

• The interest savings to PG&E on 3.5% tax exempt loans since 1963 through to today could be in excess of $500 million and a huge bargaining chip - and credible!

• Placer County Water Agency unfortunately, with the current Board, will never accept this because of their addiction to the perpetual “KOOL-AID” and the myth that the Middle Fork is all theirs.

• If Ben Mavy does not get elected next week – this subject will never be heard of again until 6 weeks from 2013 in November 2012

** As PCWA Director Lowell Jarvis famously said at the Special Districts meeting we attended with Bruce Kranz back in early 2006 – “Why are you shining a light on this – we want to keep it quiet”

REMEMBER PCWA HAVE NOT RESPONDED TO THE FOLLOWING QUESTIONS AND ISSUES:

1. Otis Wollan's apparent failure to properly disclose conflicted income

2. Whether PCWA shares some responsibility for that

3. Whether the November 6th meeting for rate approvals – two days after the election - is a further step in consolidating Zones 1 and 3

4. Whether the water sold to Westlands, directly or indirectly, is sourced from Zone 3.