1) Zone 3 of Placer County Water Agency has aging water infrastructure and deficiencies identified in a 2005 report. It relies on wells in fractured rock for water supply. 2) Zone 3 has a perpetual contract for 25,000 acre-feet/year of essentially free water from PCWA, valued at an estimated $500 million. This water rights can be leveraged to finance infrastructure upgrades. 3) The proposal is to define a comprehensive capital improvement plan for Zone 3's water and sewage infrastructure, then implement it through a public-private partnership that would design, build, finance and operate the upgrades while maintaining public control.

1. Using Private Capital to retrofit PCWA Zone 3 water related infrastructure By Yavapai Regional Capital – a regional infrastructure merchant bank Working Draft for comments

2. Background 2005 LAFCO Municipal Service Review identified serious deficiencies in water infrastructure in Zone 3 Wells in fractured rock supply most of the well water Sewage and water can interact in Zone 3 Zone 3 is a potential “Katrina Fire” Upper canal flumes are fragile needing investment A fire chute containing I-80, UP Rail and fuel pipelines Zone 3 historically has been the garden of Placer County – potentially some of the most valuable real estate in North America from Auburn to Lake Tahoe 2 Yavapai Regional Capital March 2010

3. PCWA Zones 3 Placer County is approximately the size of Rhode Island District 5 corresponds closely to PCWA Zone 3

4. PCWA Zone 3 = District 5 4 I-80, Union Pacific Railroad and fuel line

6. 100,400 aft/pa

7. Renegotiate in 2013

9. License in 2013

10. Unregulated market

11. Est. value $1Bn

13. Essentially free

14. For ever

15. Est value $500mm

16. No curtailment[?]

17. $100mm Advance Sales/Production Payment

18. Fair value of “scrap” if no FERC license as 2nd way out$100 mm 30-yr Loan Joint Powers Authority [Grantor Trust] 50/50 County/PCWA Sponsorship Profits after debt service split 50/50 $1.3 Bn County Managed Fund [Special Districts]

19. Background With a new District 5 PCWA Director, Zone 3 now benefits from its own Zone Advisory Council Zone 3 is a separate statutory entity within PCWA Benefits from its own dedicated 25,000 acre ft/pa “almost free” water contract – for ever Essentially equivalent to free gasoline for ever for residents for use within Zone 3 Water is worth more than gasoline 6 Yavapai Regional Capital March 2010

20. Background Comparable transactions equate value of free perpetual [renewable] water at $500million This is equity belonging to Zone 3 residents It’s a real crown jewel Unlike the Middle Fork it does not depend on A future license Prior debt service claims Unregulated power markets This equity can be leveraged with intelligent debt 7 Yavapai Regional Capital March 2010

21. The Zone 3 contract Dated November 17th 1982 Not just a sales contract but also conveys property Water goes with the land Potentially immune from statewide cut-backs 25,000 acre feet/p.a. 1st 13,000 acre feet/p.a. is free Complex rebate system after that At certain volumes – PG&E pays PCWA Price can be NEGATIVE 8 Yavapai Regional Capital March 2010

22. The Zone 3 ambition Key is to define plan and inherent business risk Engineer CIP without financial constraints Design the project of your dreams Balance complementary needs of Drinking water & sewage maximizing technology Fire safety needs for water along I-80 corridor Biomass as fuel load controller CIP and financial plan will determine financial leverage of $500mm equity 9 Yavapai Regional Capital March 2010

23. The Zone 3 ambition 2-3 x believed achievable = $2Billion With MF completion guarantee 5x possible Up to $3bn - or more See letter to Brian Martin 12/7/05 Bigger bank for the buck because of no prevailing wages with MHAAA structure 10

24. Key issues How to optimally ring fence Zone 3 Interaction of Zone 1&3 systems means mutuality must be factored in – physical redundancy has value! This is NOT secession How to allocate costs of canal rebuilds between Zones 1/3 – particularly upper stretches Zone 3 could rent new infrastructure to Zone 1 Credit-worthiness of other PCWA counterparties 11 Yavapai Regional Capital March 2010

25. Key Issues Zone 3 is analogous to a publicly held corporation with substantial minority interests These must be protected by arms-length dealings No big deal - a balanced negotiation Experienced advisers on both sides is normal Fairness opinions will be needed Integrating PCWA engineering 12 Yavapai Regional Capital March 2010

26. Key Issues Environmental and anti-growth issues to be dealt with Except PCWA District 5 voters spoke in November 2008 We want water!!! Take positive aggressive stance on environmental issues with good engineering Convince populace it’s good long term business As is integrated regional planning Don’t create “islands” of poor infrastructure 13 Yavapai Regional Capital March 2010

27. Action Plan Public Policy Must not be seen as privatization See following slide for new hybrid public-private Retains electoral control Legal analysis is key Define engineering plan together with PCWA Financial plan and credit analysis Attract equity investors and debt Organize “buy-in” 14 Yavapai Regional Capital March 2010

28. Action Plan - Time frame 2010 – Continue building grass roots base in Zone 3 Persuade PCWA Zone 3 appoints adviser before year-end 2011 – Legal, Financial and Engineering Due Diligence 2011 – Target CIP and Financial Plan by year-end 2012 – Implement Financial Plan & Financial Close 2012 – Financial Close by year-end 2013-2018 - IMPLEMENT IN 5 MODULES[say] 15

29. Public Policy 16 Traditional U.S. Water Model Investor owned utility [Cost plus] Public Agency CPUC Electors OR MHAAA & Zone 3 model – True Public Private Partnership Design, Build, Finance & Operate Vehicle Public Agency Contract Electors

31. Counter guaranteed by MF assets

32. Until completion2013 Sponsors include private investors Zone 3 Commercial Bank Project Finance Loan Design Build Finance Operate Vehicle $1.3 Bn County Managed Fund [Special Districts] Refinance at completion

33. Why YRC? YRC was inspired by MHAAA World-class team who understand local coffee shops Transparency Public Policy Engineering Finance Complex Transaction Management Buy-in expertise – selling complex “toothpaste” 18

34. What it takes Engineering must drive the project Financial engineering comes second An ambitious Zone 3 CIP Ambition – rewards are enormous A new model for regional development Jobs and property values the potential prize A “P3” win for California – after SR125! 19

35. Some key players Homeland Security & Fire Chiefs Fire insurers – invest now rather than pay later! Schwarzenegger/David Crane Tom McClintoch/Karin Glenn Union Pacific Railroad Jet Fuel pipeline owners Lead equity investors Squaw Valley Olympic sponsors potentially 20