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Comprehensive Annual Financial Report

For The Fiscal Years Ended June 30, 2013 and 2012

THE METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA

COMPREHENSIVE ANNUAL FINANCIAL REPORT

FOR THE FISCAL YEARS ENDED JUNE 30, 2013 AND 2012

Prepared by:

Office of the Chief Financial Officer


COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEARS ENDED JUNE 30, 2013 AND 2012

TABLE OF CONTENTS

INTRODUCTORY SECTION (Unaudited) Letter of Transmittal ............................................................................................................................... i GFOA Certificate of Achievement ...................................................................................................... v Organization Chart ................................................................................................................................ vi Board of Directors ................................................................................................................................ vii

FINANCIAL SECTION Independent Auditors’ Report .............................................................................................................. 1 Management’s Discussion and Analysis (Unaudited) ........................................................................ 3 Basic Financial Statements:

Statements of Net Position ............................................................................................................ 14 Statements of Revenues, Expenses, and Changes in Net Position .......................................... 17 Statements of Cash Flows .............................................................................................................. 18 Notes to Basic Financial Statements ............................................................................................ 21

Required Supplementary Information (Unaudited) ......................................................................... 73

STATISTICAL SECTION (Unaudited) Table 1: Ten-Year Summary of Net Position by Component – Accrual Basis ....................... 74 Table 2: Ten-Year Summary of Changes in Net Position – Accrual Basis ..................... ...... ...75 Table 3: Ten-Year Summary of Water Sales Revenues by Component – Accrual Basis ....... 76 Table 4: Water Sales Rate Structure................................................................................................ 77 Table 5: Principal Water Sales Customers – Accrual Basis ......................................................... 78 Table 6: Ten-Year Summary of Property Tax Levies and Collections – Cash Basis .............. 79 Table 7: Ten-Year Summary of Assessed Valuations and Property Tax Rates ....................... 80 Table 8: Ten-Year Summary of Assessed Valuation Within Metropolitan’s Service Area -

By Counties ............................................................................................................................................... 81 Table 9: Ten-Year Summary of Ratios of General Obligation Debt to

Net Assessed Valuations, Outstanding Debt to Total Household Income, and Amounts of General Obligation and Revenue Bond Debt Per Capita ......................... 82

Table 10: Direct and Overlapping Bonded Debt as of June 30, 2013 ........................................ 83 Table 11: Ten-Year Summary of Legal Debt Margin Information .............................................. 84 Table 12: Ten-Year Summary of Revenue Bond Debt Service Coverage .................................. 85 Table 13a: Last Ten Years – Demographic Statistics ...................................................................... 86 Table 13b: Principal Employers within Service Area ....................................................................... 87 Table 14: Ten-Year Summary of Operating Information ............................................................. 88 Table 15: Projects Completed as of June 30, 2013 ......................................................................... 89 Table 16: Major Construction Contracts in Progress as of June 30, 2013 – Accrual Basis ..... 90

Introductory Section

December 18, 2013

Chairman and Members of the Board of Directors, The Metropolitan Water District of Southern California:

We are pleased to present the Comprehensive Annual Financial Report for The Metropolitan Water District of Southern California (Metropolitan) for the fiscal years ended June 30, 2013 and 2012.

Management assumes full responsibility for the completeness and reliability of the information contained in this report, based upon a comprehensive framework of internal control that it has established for this purpose. Because the cost of internal control should not exceed anticipated benefits, the objective is to provide reasonable, rather than absolute, assurance that the basic financial statements are free of any material misstatements.

KPMG LLP, an independent public accounting firm, has issued an unmodified opinion on Metropolitan’s basic financial statements for the years ended June 30, 2013 and 2012. The independent auditors’ report is located at the front of the financial section of this report.

Management’s discussion and analysis (MD&A) immediately follows the independent auditors’ report and provides a narrative introduction, overview, and analysis of the basic financial statements. MD&A complements this letter of transmittal and should be read in conjunction with it.

Profile of Metropolitan

Metropolitan is a public agency and a quasi-municipal corporation, which was created by an act of the state Legislature in 1928. Metropolitan’s primary purpose is to provide a supplemental supply of water for domestic and municipal uses at wholesale rates to its member public agencies, most member agencies have other sources of water. Metropolitan is comprised of 26 member agencies including 14 cities, 11 municipal water districts, and one county water authority. Its service area spans some 5,200 square miles, and includes all or portions of the six counties of Los Angeles, Orange, Riverside, San Bernardino, San Diego, and Ventura. There are about 300 cities and numerous unincorporated areas in its service area. In any year, Metropolitan provides 40 to 60 percent of the water used by the over 18 million Southern Californians who reside within its service area. Metropolitan imports water from two principal sources, Northern California, via the California Aqueduct, and the Colorado River, via the Colorado River Aqueduct owned by Metropolitan In addition to water sales revenues, Metropolitan is expressly empowered under the Metropolitan Water District Act to levy and collect taxes on all taxable property

Office of the General Manager

700 N. Alam eda Street, Los Angeles, California 90012 • Mailing Address: Box 54153, Los Angeles, California 90054-0153 • Telephone (213) 217-6000

within its boundaries for the purpose of carrying on its operations and paying its obligations. Currently, property taxes levied by Metropolitan are applied solely to the payment of Metropolitan’s outstanding general obligation bonds and a portion of Metropolitan’s capital payments under its water service contract with the State of California.

Metropolitan is governed by a 37-member Board of Directors (Board), with each member agency having at least one representative on the Board. Representation and voting rights are based upon the assessed valuation of real property within each member agency’s service area. The Board elects the Chair and Secretary, and the Vice Chairs are appointed by the Chair. Generally, Board officers are limited to two consecutive two-year terms.

Metropolitan’s budget system incorporates features of program budgeting, management by objectives, and performance reporting, which provide for funding, analysis, review, and control. Operating budgets are prepared by each department and group biennially. Each program and its required resources are reviewed by management and, upon acceptance, are incorporated into the overall budget for approval by the Board. Costs are maintained by project and activity, and expenditures are controlled by Board-approved appropriations. Each month, variances between budget estimates and actual receipts and expenditures are identified and evaluated. This review is performed as one of several control measures to assure progress in meeting Metropolitan’s goals and program objectives. Metropolitan’s budgetary accounting method changed from a cash basis to a modified accrual basis beginning fiscal year 2012-13, to provide a better match of revenues and expenses. Under the modified accrual basis of accounting, revenues are recognized in the fiscal year in which they are earned and certain expenses are recognized when incurred.

Metropolitan’s Economic Condition

Local economy

Metropolitan’s service area has an economic base that is diversified and well positioned to participate in U.S. and world economic growth over the next ten years. In 2012, the economy of the Six County Area was larger than all but fifteen nations of the world, ranking between South Korea and Indonesia, with an estimated gross domestic product of just under $1.1 trillion1. In 2013, the major sectors of the economy providing employment in the six county area were government; professional and business services, which include architecture, design, computer, research and development, advertising, legal, accounting, internet-related and management services; educational and health services; leisure and hospitality; and retail trade and manufacturing. Educational and health services and leisure and hospitality have shown the largest growth since 20002. The six county area has an above-average share of four additional fast-growing sectors – wholesale trade and transportation, tied to the area’s projected growth in foreign trade; information which includes motion pictures; and the tourism component of leisure and hospitality, tied to growth in disposable income in the U.S. and worldwide. Longer-term, international trade has been a leading growth sector in the Six County Area, with Los Angeles and Long Beach ports being the nation’s leading port complex in terms of trade volume, the eighth largest port complex in the world, and the largest outside of Asia.

1 Source: Countries – World Bank; U.S. Bureau of Economic Analysis; California and Six County Area – U.S. Department of Commerce. 2 Source: California Employment Development Department (EDD).

The Six County Area has an employed labor force of approximately 8.2 million. The Six County Area had 21.3 million residents in 2012, approximately 56 percent of the State’s population. High housing prices and large job losses have contributed to slowing population growth since 2005, yet the population grew by 1.7 million residents between 2000 and 2010. It is anticipated that the Six County Area’s population will increase to 26.1 million by 2035.

Long-term financial planning

Metropolitan currently has several major construction projects underway. These projects involve expansion and rehabilitation of existing facilities and construction of new facilities to provide for resource development, meet future water demands, ensure system reliability as well as enhance operational efficiency, and comply with water quality regulations. The estimated cost, excluding contingencies, of Metropolitan’s capital investment plan from June 30, 2013 through fiscal year 2017 totaled approximately $1.45 billion, as set forth in the adopted biennial budget for fiscal years 2012-13 and 2013-14, including escalations for inflation of 2.77 percent per year for projects for which formal construction contracts have not been awarded.

Metropolitan’s capital investment plan is regularly reviewed and updated. Implementation and construction of specific elements of the program are subject to Board approval, and the amount and timing of borrowings will depend upon, among other factors, status of construction activity and water demands within Metropolitan’s service area. Major projects in the capital investment plan include oxidation retrofit projects for the water treatment facilities and improvement projects for the Weymouth and Diemer water treatment plants and the Colorado River Aqueduct facilities.

Funding of the capital investment plan is accomplished with external and internal resources. The Board has adopted an internal funding objective to fund all capital program expenditures required for replacements and refurbishments of Metropolitan facilities from current revenues. The amount of internal funding is determined by the Board as part of the biennial budget process. The remainder of capital program expenditures is funded primarily through the issuance of water revenue bonds payable from net operating revenues. Additional information on Metropolitan’s capital investment plan can be found in Note 9f of the Notes to the Basic Financial Statements.

Major initiatives Metropolitan faces a number of challenges in providing a reliable and high quality

water supply for southern California. These challenges include increased population growth in Metropolitan’s service area, increased competition for low-cost water supplies, variable weather conditions, and increased environmental regulations. Metropolitan’s resources and strategies for meeting these long-term challenges are identified in its Integrated Water Resources Plan (IRP).

The Board-adopted IRP was developed by Metropolitan, its member agencies, sub-agencies, and groundwater basin managers with the purpose of balancing local and imported water resources to meet the water supply reliability and water quality needs for the service area in a cost-effective and environmentally sound manner. In October 2010, the IRP

was updated (2010 IRP Update) enabling Metropolitan and its member agencies to manage future challenges and changes in California’s water conditions and to balance investments with water reliability benefits. The 2010 IRP Update seeks to provide regional reliability by stabilizing Metropolitan’s traditional imported water supplies and continuing to develop additional local resources. It also advances long-term planning for potential future contingency resources, such as storm water capture and large-scale seawater desalination.

Metropolitan will continue to add storage and conservation resources to its diverse water supply portfolio as well as focus on water quality improvements, including the addition of ozone and expansion of its treatment plants’ capacity. In addition, Metropolitan will work to stabilize its traditional imported water supplies. Commitment of the resources to achieve these goals will enable Metropolitan to meet its member agencies’ and the region’s water reliability and quality needs in a fiscally responsible manner.

Awards and Acknowledgments

The Government Finance Officers Association (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to Metropolitan for its comprehensive annual financial report (CAFR) for the fiscal year ended June 30, 2012. This was the nineteenth consecutive year that Metropolitan has received this prestigious award. In order to be awarded a Certificate of Achievement, Metropolitan published an easily readable and efficiently organized CAFR. This report satisfies both Generally Accepted Accounting Principles and applicable legal requirements.

A Certificate of Achievement is valid for a period of one year only. We believe that our current CAFR continues to meet the Certificate of Achievement Program’s requirements and we are submitting it to the GFOA to determine its eligibility for another Certificate of Achievement.

The preparation of this report would not have been possible without the efficient and dedicated services of the entire staff of the Office of the Assistant General Manager/Chief Financial Officer. I would like to express my appreciation to all staff that assisted and contributed to the preparation of this report. Credit must also be given to the General Manager and the Board for their unfailing support for maintaining the highest standards of professionalism in the management of Metropolitan’s finances. Any questions regarding the content of this report may be directed to the Controller, Thomas E. DeBacker at (213) 217-7505.

Respectfully,

Gary Breaux Assistant General Manager/Chief Financial Officer

METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIABOARD OF DIRECTORS

OFFICE OF GENERAL AUDITOR

ASSISTANT GENERAL MANAGER/CHIEF ADMINISTRATIVE OFFICER

ASSISTANT GENERAL MANAGER/CHIEF FINANCIAL OFFICER

Gary Breaux

ASSISTANT GENERAL MANAGER/CHIEF OPERATING OFFICER

Debra C. Man

ASSISTANT GENERAL MANAGER/STRATEGIC WATER INITIATIVES

Roger K. Patterson

DEPUTY GENERAL MANAGEREXTERNAL AFFAIRS

Dee Zinke

BAY/DELTA INITIATIVES

ManagerStephen Arakawa

COLORADO RIVER RESOURCES

ManagerWilliam Hasencamp

OFFICE OF GENERAL COUNSEL OFFICE OF THE GENERAL MANAGER

BUDGET & FINANCIAL PLANNING

CONTROLLER

TREASURY/DEBT MANAGEMENT

General Manager

Jeffrey Kightlinger

ETHICS OFFICE

General AuditorGerald C. Riss

Assistant General AuditorVacant

Group ManagerVacant

Group Manager/Chief EngineerGordon Johnson

General CounselMarcia L. Scully

Assistant General CounselSydney B. Bennion

Ethics Of�cer

Deena R. Ghaly

Gilbert F. Ivey

OFFICE OF THEBOARD OF DIRECTORS

EXECUTIVESTRATEGY

WASHINGTON D.C.SACRAMENTO

MEDIA & COMMUNICATIONS

CONSERVATION &COMMUNITY SERVICES

LEGISLATIVE SERVICESRESOURCE PLANNING& DEVELOPMENT

RESOURCE IMPLEMENTATION

FACILITY DEVELOPMENT

PROGRAM MANAGEMENT

INFRASTRUCTURE RELIABILITY

WATER TREATMENT

OPERATIONS SUPPORT SERVICESADMINISTRATIVE SERVICES

INFORMATION TECHNOLOGY

BUSINESS OUTREACH

TOTAL COMPENSATION

EMPLOYEE RELATIONS

WATER CONVEYANCE& DISTRIBUTION

WATER QUALITY

SAFETY &ENVIRONMENTAL SERVICES

POWER OPERATIONS & PLANNING

WATER OPERATIONS & PLANNING

ENGINEERING SERVICES GROUP

Group ManagerDeven Upadhyay

WATER RESOURCEMANAGEMENT GROUP

Group ManagerRoy Wolfe

BUSINESS TECHNOLOGY GROUP

Group ManagerFidencio Mares

As of June 30, 2013

HUMAN RESOURCES GROUP

Group ManagerJim Green

Assistant Group ManagerBrad Coffey

WATER SYSTEMOPERATIONS GROUP

Group ManagerJohn Clairday

REAL PROPERTY DEVELOPMENT& MANAGEMENT GROUP

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Officers of the Board of Directors(As of June 30, 2013)

ChairmanJOHN V. FOLEY

Vice Chair Vice Chair Vice Chair Vice ChairRANDY A. RECORD GLORIA D. GRAY JOHN W. MURRAY JR. DAVID D. DE JESUS

SecretaryJOHN T. MORRIS

REPRESENTATIVES OF MEMBER PUBLIC AGENCIES

Anaheim Inland Empire Utilities Agency San FernandoKRISTINE MURRAY MICHAEL CAMACHO SYLVIA BALLIN

Beverly Hills Las Virgenes Municipal Water San MarinoROBERT WUNDERLICH District JOHN T. MORRIS

GLEN D. PETERSONBurbank Santa AnaGLENN A. BROWN Long Beach DANIEL E. GRISET

SUJA LOWENTHALCalleguas Municipal WaterDistrict Los Angeles Santa MonicaGAIL L. PRINGLE DAVID W. FLEMING JUDY ABDO

AARON A. GRUNFELDCentral Basin Municipal Water JOHN W. MURRAY JR. Three Valleys MunicipalDistrict JESÚS E. QUIÑONEZ Water DistrictROBERT APODACA DAVID D. DE JESUSLETICIA VASQUEZ Municipal Water District of

Orange County TorranceCompton LINDA ACKERMAN BILL D. WRIGHTDIANA SANCHEZ BRETT R. BARBRE

LARRY D. DICK Upper San Gabriel ValleyEastern Municipal Water District JOHN V. FOLEY Municipal Water DistrictRANDY A. RECORD MICHAEL TOUHEY

PasadenaFoothill Municipal Water District CYNTHIA KURTZ West Basin Municipal WaterJAMES T. EDWARDS District

San Diego County Water Authority GLORIA D. GRAYFullerton KEITH LEWINGER EDWARD C. "ED" LITTLETHOMAS S. BABCOCK VINCENT MUDD

FERN STEINER Western Municipal WaterGlendale DOUG WILSON District of Riverside CountyLAURA FRIEDMAN THOMAS P. EVANS

Financial Section

KPMG LLP Suite 700 20 Pacifica Irvine, CA 92618-3391

KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative (“KPMG International”), a Swiss entity.

Independent Auditors’ Report

The Board of Directors The Metropolitan Water District of Southern California:

We have audited the accompanying financial statements of the Metropolitan Water District of Southern California (Metropolitan), as of and for the years ended June 30, 2013 and 2012, and the related notes to the financial statements, which collectively comprise Metropolitan’s basic financial statements as listed in the table of contents.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to Metropolitan’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Metropolitan’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the Metropolitan Water District of Southern California as of June 30, 2013 and 2012, the changes in its financial position and its cash flows for the years then ended in accordance with U.S. generally accepted accounting principles.

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Other Matters

Required Supplementary Information

U.S. generally accepted accounting principles require that the management’s discussion and analysis and the pension plan and other postemployment benefits supplementary information on pages 3 to 13 and 73 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 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

Supplementary and Other Information

Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise Metropolitan’s basic financial statements. The introductory and statistical sections are presented for purposes of additional analysis and are not a required part of the basic financial statements.

The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on them

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated October 15, 2013 on our consideration of Metropolitan’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Metropolitan’s internal control over financial reporting and compliance.

October 15, 2013

T H E M E T R O P O L I T A N W A T E R D I S T R I C T O F S O U T H E R N C A L I F O R N I A

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The following discussion and analysis of The Metropolitan Water District of Southern California’s (Metropolitan) financial performance provides an overview of the financial activities for the fiscal years ended June 30, 2013 and 2012. This discussion and analysis should be read in conjunction with the basic financial statements and accompanying notes, which follow this section.

DESCRIPTION OF BASIC FINANCIAL STATEMENTS

Metropolitan operates as a utility enterprise and maintains its accounting records in accordance with generally accepted accounting principles for proprietary funds as prescribed by the Governmental Accounting Standards Board (GASB). The basic financial statements include statements of net position, statements of revenues, expenses and changes in net position, and statements of cash flows. The statements of net position include all of Metropolitan’s assets, deferred outflows and liabilities, with the difference reported as net position, some of which is restricted in accordance with bond covenants or other commitments. The statements of revenues, expenses and changes in net position report all of Metropolitan’s revenues and expenses during the periods indicated. The statements of cash flows show the amount of cash received and paid out for operating activities, as well as cash received from taxes, debt financing, and investment income, and cash used for construction projects and principal and interest payments on borrowed money.

CONDENSED FINANCIAL INFORMATION

Condensed Schedule of Net Position

June 30,

(Dollars in millions)2013 2012

As Adjusted*2011

As Adjusted*Assets and deferred outflows

Capital assets, net $ 8,625.4 $ 8,624.4 $ 8,573.5 Other assets and deferred outflows 3,531.8 3,350.5 3,169.5Total assets and deferred outflows 12,157.2 11,974.9 11,743.0LiabilitiesLong-term liabilities, net of current portion 4,810.6 5,042.7 4,921.3Other liabilities 546.4 505.1 569.5 Total liabilities 5,357.0 5,547.8 5,490.8

Net positionInvested in capital assets and State Water Project costs, net of related debt 5,430.2 5,324.9 5,309.8Restricted 498.0 500.7 475.7 Unrestricted 872.0 601.5 466.7 Total net position $ 6,800.2 $ 6,427.1 $ 6,252.2

* Related to the adoption of Governmental Accounting Standards Board Statement No. 65, Items Previously Reported as Assets and Liabilities (GASB 65).

Capital Assets, Net

Net capital assets include plant, participation rights, and construction work in progress, net of accumulated depreciation and amortization.

Fiscal Year 2013 Compared to 2012. At June 30, 2013, net capital assets totaled $8.6 billion, or 70.9 percent of total assets and deferred outflows, which was $1.0 million higher than prior year. This net increase represents

MANAGEMENT’S DISCUSSION AND ANALYSISJune 30, 2013 and 2012


MANAGEMENT’S DISCUSSION AND ANALYSIS(CONTINUED)

June 30, 2013 and 2012

4

Metropolitan’s continued expenditures on the capital investment plan (CIP), partially offset by depreciation and amortization. CIP expenditures during fiscal year 2013 totaled $131.3 million (including $18.8 million of capitalized interest) and are described in the capital assets section on page 10.

Fiscal Year 2012 Compared to 2011. At June 30, 2012, net capital assets totaled $8.6 billion, or 72.0 percent of total assets and deferred outflows, which represents an increase of $50.9 million, or 0.6 percent, over the prior year due primarily to continued expenditures on the CIP, partially offset by depreciation and amortization. CIP expenditures during fiscal year 2012 totaled $194.8 million (including $57.3 million of capitalized interest).

Other Assets and Deferred Outflows

Other assets and deferred outflows include prepaid State Water Project costs, accounts receivable, inventories, deferred charges, deferred outflow of effective interest rate swaps, and cash and investments.

Fiscal Year 2013 Compared to 2012. At June 30, 2013, other assets and deferred outflows totaled $3.5 billion and were $181.3 million higher than the prior year. Prepaid State Water Project costs totaled $1.5 billion while cash and investments totaled $1.3 billion. Included in the increase from prior year were $170.0 million of higher cash and investments due primarily to $158.5 million, or 120.9 thousand-acre-feet (TAF) of increased water sales, $29.9 million higher deferred charges which included $14.7 million of higher Bay Delta Habitat expenses and $12.7 million more of water supply and storage programs cost due to Metropolitan taking advantage of storing surplus water at a reduced price, and $31.6 million increased water sales receivable as a result of higher water sales over prior year. These increases were partially offset by a $53.6 million lower deferred outflow of effective swaps due to an increase in fair value of interest rate swaps.

Fiscal Year 2012 Compared to 2011. At June 30, 2012, other assets and deferred outflows totaled $3.4 billion and were $181.0 million higher than the prior year. Prepaid State Water Project costs totaled $1.5 billion while cash and investments totaled $1.2 billion. Included in the increase from prior year was $33.3 million higher water sales receivable as a result of a Board-approved rate increase, and $44.5 million higher deferred charges related primarily to water supply and storage programs due to a higher allocation from the State Water Project. In addition, deferred outflow of effective swaps increased by $86.0 million due to a decrease in fair value of interest rate swaps.

Long-term Liabilities, Net of Current Portion

Long-term liabilities, net of current portion include long-term debt, net of current portion, postemployment benefits other than pensions, and fair value of interest rate swaps.

Fiscal Year 2013 Compared to 2012. At June 30, 2013, long-term liabilities, net of current portion, totaled $4.8 billion and were $232.1 million lower than the prior year. Long-term debt, net of current portion, decreased by $163.9 million due primarily to a $149.2 million paydown of bond principal. In addition, the fair value of interest rate swaps liability decreased by $53.0 million due to an increase in the fair value of swaps. See the long-term debt section below for additional information.

Fiscal Year 2012 Compared to 2011. Long-term liabilities, net of current portion, totaled $5.0 billion at June 30, 2012 and were $121.4 million higher than the prior year. Long-term debt, net of current portion, increased by $55.3 million due to the refunding of the 1999 Series B and C Variable Rate Water Revenue Bonds, which were



June 30, 2013 and 2012

5

classified as current in the prior year, offset by a $57.9 million paydown of bond principal. In addition, postemployment benefits other than pension (OPEB) increased by $32.3 million as the contributions made were less than the annual OPEB cost. Finally, the fair value of interest rate swaps liability increased by $39.4 million due to an $86.0 million decrease in the fair value of swaps, partially offset by a reduction of $38.0 million from a swap termination.

Other Liabilities

Other liabilities represent current liabilities that are due within one year. They include accounts payable, accrued liabilities, and the current portion of long-term liabilities.

Fiscal Year 2013 Compared to 2012. At June 30, 2013, other liabilities totaled $546.4 million, which were $41.3 million more than the prior year due primarily to a $35.1 million increase in postemployment benefits (OPEB) other than pensions due to OPEB costs exceeding contributions during fiscal year 2013.

Fiscal Year 2012 Compared to 2011. At June 30, 2012, other liabilities totaled $505.1 million, which were $64.4 million less than the prior year due to the defeasance of $100.0 million of 1999 Series B and C Variable Rate Water Revenue Bonds offset by a $30.4 million increase in the amount due to the Department of Water Resources for variable power resulting from higher water deliveries.

Invested in Capital Assets and State Water Project Costs, Net of Related Debt

Invested in capital assets and State Water Project costs, net of related debt include amounts expended on the Capital Investment Program and State Water Project, offset by debt issued for these purposes.

Fiscal Year 2013 Compared to 2012. At June 30, 2013, invested in capital assets and State Water Project costs, net of related debt totaled $5.4 billion and increased $105.3 million over the prior year due to Metropolitan’s continued efforts in its capital investment plan. Current year CIP expenditures are described in the capital assets section below.

Fiscal Year 2012 Compared to 2011. Invested in capital assets and State Water Project costs, net of related debt totaled $5.3 billion and increased $15.1 million over the prior year due to Metropolitan’s continued efforts in its capital investment plan..

Restricted Net Position

Restricted net position includes amounts restricted for debt service payments and operating expenses, both of which are required by bond covenants.

Fiscal Year 2013 Compared to 2012. At June 30, 2013, restricted net position totaled $498.0 million which was $2.7 million lower than fiscal year 2012.

Fiscal Year 2012 Compared to 2011. Restricted net position totaled $500.7 million at June 30, 2012, which was $25.0 million higher than fiscal year 2011. Included in the increase were $16.0 million and $10.0 million more set aside for principal and interest payments and operations and maintenance costs, respectively, partially offset by approximately $6.0 million of lower other restricted amounts.

Unrestricted Net Position

Unrestricted net position consists of net position items that do not meet the definition of “restricted” or “invested in capital assets and State Water Project costs, net of related debt”. Certain unrestricted net position items have been designated for purposes authorized by the Board.

Fiscal Year 2013 Compared to 2012. Unrestricted net position of $872.0 million increased $270.5 million from the prior year.

Fiscal Year 2012 Compared to 2011. Unrestricted net position of $601.5 million increased $134.8 million from the prior year.

Condensed Schedule of Revenues, Expenses, and Changes in Net Position

Year Ended June 30,


As Adjusted*2011

As Adjusted*

Water sales $ 1,311.2 $ 1,156.3 $ 1,035.4Readiness-to-serve charges 144.0 135.5 119.5Power recoveries 24.5 31.5 22.9

Operating revenues 1,479.7 1,323.3 1,177.8

Taxes, net 94.8 79.2 79.3 Investment income (loss) (.4) 4.1 2.0 Other, net 6.1 .6 22.0

Nonoperating revenues 100.5 83.9 103.3

Total revenues 1,580.2 1,407.2 1,281.1

Power and water costs (371.3) (384.0) (364.8) Operations and maintenance (419.8) (433.5) (394.9) Depreciation and amortization (265.4) (290.1) (286.4)

Operating expenses (1,056.5) (1,107.6) (1,046.1)

Bond interest, net of amount capitalized (150.2) (135.8) (135.7) Interest and adjustments on off-aqueduct power facilities (2.1) (2.6) (3.0)

Nonoperating expenses (152.3) (138.4) (138.7)

Total expenses (1,208.8) (1,246.0) (1,184.8)

Contributed capital 1.7 13.6 17.7

Cumulative effect of change in accounting principle — — (8.2)

Change in net position $ 373.1 $ 174.8 $ 105.8

* Related to the adoption of GASB 65.



June 30, 2013 and 2012

6

7

CHANGE IN NET POSITION

Operating Revenues

Metropolitan’s principal source of revenue is from water sales, which typically accounts for approximately 90 percent of operating revenues. Metropolitan’s primary sources of water supply are the Colorado River and the State Water Project.

Analytical Review of Operating Revenues

Fiscal Year 2013 Compared to 2012. Fiscal year 2013 operating revenues were $1.5 billion or $156.4 million higher than the prior year due primarily to $154.9 million of higher water sales as a result of additional sales of 144.2 TAF.

Fiscal Year 2012 Compared to 2011. Fiscal year 2012 operating revenues were $1.3 billion or $145.5 million higher than the prior year due to $120.9 million of higher water sales as a result of a Board approved rate increase along with a special program to sell groundwater replenishment to member agencies. In addition, a Board approved increase to the readiness-to-serve (RTS) charge resulted in $16.0 million of higher RTS revenues, and $8.6 million of higher power sales resulted from an increased allocation from the State Water Project.


June 30, 2013 and 2012




June 30, 2013 and 2012

8

Nonoperating Revenues

The primary source of nonoperating revenues is taxes.

Analytical Review of Nonoperating Revenues

Fiscal Year 2013 Compared to 2012. Nonoperating revenues for fiscal year 2013 totaled $100.5 million and were $16.6 million higher than the prior year due primarily to $15.6 million of additional property tax revenue resulting from the collection of delinquent taxes.

Fiscal Year 2012 Compared to 2011. Nonoperating revenues for fiscal year 2012 totaled $83.9 million and were $19.4 million lower than the prior year due to gains in fiscal year 2011 that did not occur in fiscal year 2012. The gains in fiscal year 2011 resulted from a sale of surplus land of $7.9 million and $4.3 million from deferred water delivery contract settlement.



June 30, 2013 and 2012

9

Operating Expenses

Operating expenses fall into three primary cost areas: power and water, operations and maintenance (O&M), and depreciation and amortization.

Analytical Review of Operating Expenses

Fiscal Year 2013 Compared to 2012. Fiscal year 2013 operating expenses of $1.1 billion were $51.1 million lower than prior year operating expenses and included $24.7 million of lower amortization expenses related to the Reid Gardner generating plant because it was taken out of service in fiscal year 2013, $13.8 million less in O&M due primarily to the one-time $9.6 million negotiated lump-sum payout in fiscal year 2012, and $12.7 million of lower power and water costs due to higher credits received from the Department of Water Resources.

Fiscal Year 2012 Compared to 2011. Fiscal year 2012 operating expenses of $1.1 billion were $61.5 million higher than prior year operating expenses and included $19.2 million of higher power and water costs, and $38.6 million more in O&M.

Power and water costs increased $19.2 million over the prior year due primarily to lower credits received from the Department of Water Resources. The $38.6 million increase in O&M included approximately $29.3 million of costs related to negotiated labor contracts: a lump-sum payout and additional OPEB and benefits costs.



June 30, 2013 and 2012

Nonoperating Expenses

Nonoperating expenses include interest expense on both bonds and debt related to the off-aqueduct power facilities (OAPF) (see Note 9e of Notes to Basic Financial Statements).

Analytical Review of Nonoperating Expenses

Fiscal Year 2013 Compared to 2012. Fiscal year 2013 nonoperating expenses of $152.3 million were $13.9 million higher than the prior year due primarily to a decrease in capitalized interest on assets constructed.

Fiscal Year 2012 Compared to 2011. Fiscal year 2012 nonoperating expenses of $138.4 million were $0.3 million lower than the prior year.

Capital Assets and Debt Administration

Capital assets include Metropolitan’s water infrastructure, land and buildings, as well as participation rights in various water programs.

10



June 30, 2013 and 2012

11

Schedule of Capital Assets June 30,

(Dollars in millions) 2013 2012 2011

Land, easements, and rights-of-way $ 555.7 $ 554.4 $ 554.0 Construction in progress 1,531.3 1,585.7 1,783.4 Parker power plant and dam 13.0 13.0 13.0Power recovery plants 177.1 176.8 176.7 Other dams and reservoirs 1,435.8 1,435.1 1,431.8 Water transportation facilities 3,329.0 3,177.2 3,050.4 Pumping plants and facilities 229.8 228.5 227.9 Treatment plants and facilities 2,038.0 1,994.1 1,786.2Other plant assets 923.3 915.6 849.4 Pre-operating expenses original aqueduct 44.6 44.6 44.6 Participation rights in other facilities 456.1 456.1 456.1

Gross capital assets 10,733.7 10,581.1 10,373.5 Less accumulated depreciation and amortization (2,108.3) (1,956.7) (1,800.0)

Capital assets, net $ 8,625.4 $ 8,624.4 $ 8,573.5

Net increase from prior year $ 1.0 $ 50.9 $ 109.3 Percent increase 0.0% 0.6% 1.3%

Fiscal year 2013 Compared to 2012. Net capital assets totaled approximately $8.6 billion and increased $1.0 million over the prior year due primarily to $131.3 million in new construction activity, partially offset by increased accumulated depreciation and amortization of $153.5 million.

The major capital asset additions for the current year, excluding capitalized interest, included:

• $36.2 million for the oxidation retrofit program at the filtration plants; this program is designed to reduce the level of disinfection byproducts in the treated water supplied by these plants in order to meet state and federal standards.

• $26.7 million for the improvements in infrastructure reliability at the treatment plants.

• $17.9 million for the Colorado River Aqueduct (CRA) reliability and containment programs; these programs were established to provide infrastructure reliability and regulatory compliance throughout the CRA conveyance system.

• $13.4 million for the distribution system’s rehabilitation program.

Metropolitan’s fiscal year 2014 capital budget includes plans to spend $294.6 million principally for the water treatment plants improvements program, the distribution system and rehabilitation projects, and the Colorado River Aqueduct reliability and containment programs. More detailed information about Metropolitan’s capital assets is provided in Notes 2, 4, and 9f of the Notes to Basic Financial Statements.

Fiscal year 2012 Compared to 2011. Net capital assets totaled approximately $8.6 billion and increased $50.9 million over the prior year due primarily to $194.8 million in new construction activity, partially offset by increased accumulated depreciation and amortization of $156.7 million.



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12

The major capital asset additions for the current year, excluding capitalized interest, included:

• $48.1 million for the oxidation retrofit program at the filtration plants; this program is designed to reduce the level of disinfection byproducts in the treated water supplied by these plants in order to meet state and federal standards.

• $35.3 million for the improvements in infrastructure reliability at the treatment plants.

• $15.9 million for the distribution system’s rehabilitation program.

LONG-TERM DEBT

Schedule of Long-term Debt, Including Current Portion

June 30,


As Adjusted*2011

As Adjusted*

General obligation bonds (a) $ 165.1 $ 196.5 $ 225.3 Revenue bonds (a) 4,450.6 4,607.1 4,731.1 Other long-term debt 12.2 13.1 14.1 Other, net (b) 56.8 32.4 (66.4)

$ 4,684.7 $ 4,849.1 $ 4,904.1

Increase/(decrease) from prior year $ (164.4) $ (55.0) $ 134.4Percent change (3.4)% (1.1)% 2.8%

(a) Includes refunding bonds.

(b) Consists of amortized bond discount, premiums, and deferred amounts on refunding debt.

* Related to the adoption of GASB65.

Fiscal Year 2013 Compared to 2012. At June 30, 2013, there was $4.7 billion in bonds outstanding and other long-term obligations, a net decrease of $164.4 million or 3.4 percent over the prior year. The decrease was due primarily to the paydown of bond principal and refunding transactions (see Notes 5 and 6 of Notes to Basic Financial Statements).

Fiscal Year 2012 Compared to 2011. At June 30, 2012, there was $4.8 billion in bonds outstanding and other long-term obligations, a net decrease of $55.0 million or 1.1 percent over the prior year. The decrease was due primarily to refunding transactions and maturities of existing debt.



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13

CREDIT RATINGS

Metropolitan’s credit ratings at June 30, 2013 are shown below.

Moody’sInvestors Service

Standard& Poor’s

FitchRatings

General obligation bonds Aaa AAA AAAWater revenue bonds-fixed rate Aa1 AAA AA+Water revenue bonds-variable rate VMIG 1 A-1+ F1+

FUTURE DEBT SERVICE

Metropolitan’s future debt service requirements through June 30, 2018 are shown on the following table.

14

June 30,

(Dollars in thousands)

2013

2012 As Adjusted Note 1r

ASSETS AND DEFERRED OUTFLOWS

Current Assets: Cash and investments, at fair value (Notes 1b and 3): Unrestricted (cost: $80,436 and $34,090 for 2013 and 2012, respectively) $ 80,145 $ 34,396 Restricted (cost: $463,610 and $520,996 for 2013 and 2012, respectively) 461,933 525,669

Total cash and investments 542,078 560,065

Receivables, net: Water sales 256,803 225,197 Annexation charges-current portion (Note 1e) 166 314 Interest on investments 5,944 4,961 Other (Note 1f) 19,696 25,539

Total receivables 282,609 256,011

Inventories (Note 1g) 116,138 111,900

Prepaid State Water Project costs-current portion (Notes 1h and 10) 111,952 128,187 Deposits, deferred charges, and other-current portion (Note 11) 2,554 6,317

Total current assets 1,055,331 1,062,480

Noncurrent Assets: Cash and investments, at fair value (Notes 1b and 3): Unrestricted (cost: $607,723 and $423,884 for 2013 and 2012, respectively) 605,525 427,687 Restricted (cost: $165,831 and $152,369 for 2013 and 2012, respectively) 173,343 163,195

Total cash and investments 778,868 590,882 Capital Assets (Note 2): Plant and equipment (Notes 1i and 9f) 10,277,629 10,125,002 Participation rights (Notes 1j and 4) 456,109 456,109

Total capital assets 10,733,738 10,581,111 Less accumulated depreciation and amortization (2,108,292) (1,956,723)

Total capital assets, net 8,625,446 8,624,388 Other assets, net of current portion: Prepaid State Water Project costs, net (Notes 1h and 10) 1,344,014 1,323,875 Deposits, deferred charges, and other (Note 11) 296,790 263,102 Annexation charges, net (Note 1e) 383 235 Total other assets 1,641,187 1,587,212

Total noncurrent assets 11,045,501 10,802,482

Deferred Outfl ows Deferred outfl ow of effective swaps 56,348 109,898

Total Assets and Deferred Outfl ows $ 12,157,180 $ 11,974,860

See accompanying notes to basic financial statements.


S TAT E M E N T S O F N E T P O S I T I O N


S TAT E M E N T S O F N E T P O S I T I O N

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June 30,


2013


LIABILITIES AND NET POSITION

Current Liabilities: Accounts payable and accrued expenses (Note 1k) $ 104,354 $ 116,240 Current portion of long-term debt (Notes 5 and 6) 258,216 258,767 Current portion of obligations for off-aqueduct power facilities (Notes 6 and 9e) 8,100 10,177 Current portion of accrued compensated absences (Notes 1l and 6) 18,600 18,813 Current portion of customer deposits and trust funds (Note 6) 15,833 10,973 Current portion of postemployment benefi ts other than pensions (Notes 6 and 8) 40,000 — Current portion of workers' compensation and third party claims (Notes 6 and 14) 16,200 8,314 Current portion of other long-term debt obligations (Note 6) 57 20 Accrued bond interest 83,152 79,937 Matured bonds and coupons not presented for payment 1,878 1,883 Total current liabilities 546,390 505,124

Noncurrent Liabilities (Note 6): Long-term debt, net of current portion (Note 5) 4,426,532 4,590,391 Obligations for off-aqueduct power facilities, net of current portion (Note 9e) 22,083 30,469 Accrued compensated absences, net of current portion (Note 1l) 25,356 25,990 Customer deposits and trust funds, net of current portion 53,288 48,176 Postemployment benefi ts other than pensions, net of current portion (Note 8) 156,349 161,222 Worker's compensation and third party claims, net of current portion (Note 14) 11,039 18,341 Fair value of interest rate swaps (Note 5f) 112,759 165,810 Other long-term debt obligations, net of current portion 3,204 2,299

Total noncurrent liabilities 4,810,610 5,042,698

Total liabilities 5,357,000 5,547,822

Commitments and Contingencies (Note 9)

Net Position (Note 13):

Invested in capital assets and State Water Project costs, net of related debt 5,430,218 5,324,930 Restricted for: Debt service 327,851 325,748 Other 170,138 174,823

Unrestricted 871,973 601,537

Total net position 6,800,180 6,427,038

Total Liabilities and Net Position $ 12,157,180 $ 11,974,860

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S TAT E M E N T S O F R E V E N U E S , E X P E N S E S A N D C H A N G E S I N N E T P O S I T I O N

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Year Ended June 30,


2013


Operating Revenues (Note 1c): Water Sales $ 1,311,232 $ 1,156,317 Readiness-to-serve charges 144,000 135,500 Power recoveries 24,507 31,533 Total operating revenues 1,479,739 1,323,350

Operating Expenses: Power and water costs 371,270 384,041 Operations and maintenance 419,761 433,548

Total operating expenses 791,031 817,589

Operating income before depreciation and amortization 688,708 505,761 Less depreciation and amortization (Note 2) (265,392) (290,098)

Operating income 423,316 215,663

Nonoperating Revenues (Expenses): Taxes, net (Note 1d) 94,803 79,241 Bond interest, net of $18,815 and $57,288 of interest capitalized in fi scal years 2013 and 2012, respectively (Note 1i) (150,224) (135,795) Investment income (loss), net (392) 4,153 Interest and adjustments on off-aqueduct power facilities obligations (Note 9e) (2,143) (2,609) Other, net 6,095 559

Total nonoperating expenses, net (51,861) (54,451)

Income before Contributions 371,455 161,212 Capital contributions, net (Note 1m) 1,687 13,588

Change in net position 373,142 174,800 Net position, beginning of year before restatement 6,427,038 6,263,722 Less: Cumulative effect of change in accounting principle (Note 1r) — (11,484)

Net Position, End of Year $ 6,800,180 $ 6,427,038


S TAT E M E N T S O F C A S H F L O W S

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Year Ended June 30,(Dollars in thousands) 2013 2012

Cash Flows from Operating Activities: Cash received from water sales $ 1,184,987 $ 1,000,392 Cash received from readiness-to-serve charges 144,985 133,943 Cash received from capacity charges 29,189 33,149 Cash received from power recoveries 26,251 31,045 Cash received from wheeling/exchange transactions 65,935 89,632 Cash paid for operating and maintenance expenses (199,230) (199,893) Cash paid to employees (192,589) (195,419) Cash paid for power and water costs (404,622) (396,770) Other cash flows from (for) operating activities (18,678) 2,021 Net Cash Provided by Operating Activities 636,228 498,100

Cash Flows from Noncapital Financing Activities: Proceeds from other collections 7,960 6,160 Cash paid for swap termination payment — (47,151) Net Cash Provided (Used) by Noncapital Financing Activities 7,960 (40,991)

Cash Flows from Capital and Related Financing Activities: Acquisition and construction of capital assets (119,691) (143,798) Payments for State Water Project costs (117,271) (150,453) Proceeds from long-term debt — 47,151 Proceeds from capital grants 1,063 17,608 Principal paid on long-term debt (149,250) (131,910) Interest paid on long-term debt (176,308) (189,745) Payments for other long-term obligations (13,996) (10,547) Proceeds from tax levy 96,491 90,068 Transfer from escrow trust accounts 7,669 5,210 Payment of rebatable arbitrage (6) (22) Proceeds from real estate sales — 9 Collection of notes receivable - land sales 139 139

Net Cash Used in Capital and Related Financing Activities (471,160) (466,290)

Cash Flows from Investing Activities: Purchase of investment securities (11,078,801) (9,918,278) Proceeds from sales and maturities of investment securities 10,895,943 9,904,420 Investment Income 9,381 13,914

Net Cash Provided (Used) by Investing Activities (173,477) 56

Net change in Cash and Cash Equivalents (449) (9,125)Cash and Cash Equivalents, Beginning of Year 599 9,724

Cash and Cash Equivalents, End of Year (Note 1b) $ 150 $ 599




S TAT E M E N T S O F C A S H F L O W S

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Year Ended June 30,(Dollars in thousands) 2013 2012

RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES

Operating Income $ 423,316 $ 215,663

Adjustments to reconcile Operating Income to Net Cash Provided by Operating Activities:

Depreciation and amortization expense 265,392 290,098

Increase in accounts receivable (27,676) (24,915)

(Increase) decrease in inventories (4,231) 5,794

Increase in deferred charges (34,557) (53,631)

Increase in accounts payable 15,973 64,085

Increase in other (1,989) 1,006

Total adjustments 212,912 282,437

Net Cash Provided by Operating Activities $ 636,228 $ 498,100

Signifi cant Noncash Investing, Capital, and Financing Activities: Refunding bond proceeds received in escrow trust fund $ 305,838 $ 882,148

Debt refunded through escrow trust fund with refunding bonds $ (298,055) $ (777,345)

Recognition of capital grants to be received $ 11,253 $ 10,629

Deferred loss on refunding debt $ (6,066) $ (36,687)

RECONCILIATION OF CASH AND INVESTMENTSTO CASH AND CASH EQUIVALENTS Unrestricted cash and investments (at June 30, 2013 and 2012 include $150 and $599 of cash, respectively) $ 685,670 $ 465,886

Restricted cash and investments 635,276 685,061

Total cash and investments, at fair value 1,320,946 1,150,947

Less: Carrying value of investments (1,320,796) (1,150,348)

Total Cash and Cash Equivalents $ 150 $ 599

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1. REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Reporting Entity

The Metropolitan Water District of Southern California (Metropolitan), a special district of the State of California, was organized in 1928 by vote of the electorates of several Southern California cities following adoption of the Metropolitan Water District Act (Act) by the California Legislature. Metropolitan’s primary purposes under the Act are to develop, store and distribute water, at wholesale, to its member public agencies for domestic and municipal purposes. Surplus water is sold for other beneficial uses, including agricultural use. Metropolitan’s service area comprises approximately 5,200 square miles and includes portions of the six counties of Los Angeles, Orange, Riverside, San Bernardino, San Diego, and Ventura. There are 26 independent member agencies of Metropolitan, consisting of 14 cities, 11 municipal water districts, and one county water authority. Metropolitan has no financial accountability for its member agencies. Metropolitan is governed by a 37-member Board of Directors (Board) comprised of representatives of the member agencies. Representation and voting rights are based on assessed valuations of property. Each member agency is entitled to have at least one representative on the Board plus an additional representative for each full five percent of the assessed valuation of real property within the jurisdictional boundary of each member agency. Changes in relative assessed valuation do not terminate any director’s term. Accordingly, the Board may, from time to time, have more than 37 directors. No single member agency has a voting majority.

The Metropolitan Water District Asset Financing Corporation (MWDAFC) was incorporated on June 19, 1996. The MWDAFC is a California nonprofit public benefit corporation formed to assist Metropolitan by acquiring, constructing, operating and maintaining facilities, equipment, or other property needed by Metropolitan and leasing or selling such property to Metropolitan. The MWDAFC is governed by a board of five directors, each of whom must be a member of Metropolitan’s Board. MWDAFC had no financial operations during fiscal years 2013 or 2012. MWDAFC is a component unit of Metropolitan and its activities will be blended with those of Metropolitan for financial reporting purposes when it commences operations.

(b) Principles of Presentation

Metropolitan operates as a utility enterprise and the accompanying basic financial statements reflect the flow of economic resources measurement focus and the full accrual basis of accounting. Under full accrual accounting, revenues are recorded when earned and expenses are recorded at the time liabilities are incurred regardless of the timing of related cash flows.

Metropolitan is accounted for as an enterprise fund and applies all applicable Governmental Accounting Standards Board (GASB) pronouncements in its accounting and reporting.

For purposes of the statements of cash flows, Metropolitan defines cash and cash equivalents as demand account balances, cash on hand, and non-negotiable time deposits. Metropolitan utilizes the direct method to present cash flows from operating activities.


NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2013 and 2012


NOTES TO BASIC FINANCIAL STATEMENTS(CONTINUED)

June 30, 2013 and 2012

22

All investments are stated at fair value, which is based on quoted market price or amortized cost, which approximates fair value.

Certain immaterial amounts reported in fiscal year 2012 have been reclassified to conform to the fiscal year 2013 presentation. Such reclassifications had no effect on the previously reported change in net position.

(c) Revenue Policies

Metropolitan’s principal source of revenue is from water sales, which include all revenues received from charges for the sale and availability of water, including water rates, a capacity charge, and wheeling/exchange transactions. Other sources of operating revenue include readiness-to-serve charges and hydroelectric power sales. Other revenues include ad valorem property taxes and investment income.

Beginning fiscal year 2011, water rates were established by the Board on a biennial basis. Water rates are supported by cost of service studies. Water rates are not subject to regulation by the California Public Utilities Commission or by any other local, state, or federal agency. Water is delivered to the member agencies on demand and revenue is recognized at the time of sale.

Metropolitan's rate structure includes separate rates for supply, treatment, conveyance and distribution, power, and demand management. It is designed to improve regional water resources management and accommodate a water transfer market. The rate structure also includes tiered pricing for supply, a capacity charge, a readiness-to-serve charge, and a financial commitment from Metropolitan's member agencies in the form of a purchase order.

Revenues from the capacity charge totaled $28.7 million and $33.0 million in fiscal years 2013 and 2012, respectively. Wheeling/exchange-type arrangements are transacted through Board-approved agreements. During fiscal years 2013 and 2012, wheeling/exchange revenues totaled $74.5 million and $90.9 million, respectively.

(d) Taxing Authority

Metropolitan is expressly empowered under the Act to levy and collect taxes on all taxable property within its boundaries for the purpose of carrying on its operations and paying its obligations, subject to certain limitations in the Act, the California Revenue and Taxation Code, and the California Constitution. Property taxes are levied annually by the Board as of July 1, using a lien date of March 1, and are payable by property owners in two equal installments that are due on November 1 and February 1, and become delinquent after December 10 and April 10, respectively. Property taxes levied by Metropolitan are billed and collected by the counties in its service area and are remitted to Metropolitan periodically throughout the year.



June 30, 2013 and 2012

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Property tax revenue is used to pay Metropolitan’s general obligation bond debt service and a portion of its obligations under its contract with the state for a water supply (the State Water Contract). Special taxes collected pursuant to pre-1978 annexation proceedings are also used for payments under the State Water Contract. In developing the annual tax levy, Metropolitan takes into account potential delinquencies, tax allocations to redevelopment agencies, and supplemental tax collections. Metropolitan recognizes property taxes receivable on July 1 of each fiscal year and recognizes revenue over the following 12-month period beginning July 1 through June 30 (the period for which the tax is levied). The property tax receivable is included in the basic financial statements, net of an allowance for doubtful accounts.

As a result of legislation enacted in 1984, tax levies in fiscal year 1991 and subsequent years, other than special annexation taxes, are restricted to the amount needed to pay debt service on Metropolitan’s general obligation bonds and Metropolitan’s proportionate share of general obligation bond debt service of the state under the State Water Contract. However, under the terms of the 1984 legislation, tax levies may exceed the limitation prescribed therein during periods of financial necessity. During fiscal year 2013, the Board suspended the tax rate limitations and maintained the tax rate for fiscal year 2014.

(e) Annexation Charges

Charges are collected for areas that annex to Metropolitan unless the areas annex to cities which are member agencies, in which case no charge is collected. Since fiscal year 1978, such charges have been paid in cash before completion of an annexation. Effective May 1996, the Board adopted regulations permitting payment of annexation fees in installments subject to Board approval. No annexations have yet been completed utilizing this payment method.

Prior to fiscal year 1978, annexation charges were primarily collected in installments, including interest on unpaid balances, through the levy of special ad valorem taxes. In May 2011, Metropolitan’s Board approved writing-off the balance of certain annexations where the tax levies have lasted longer and/or resulted in higher cumulative payments than originally anticipated due to factors including low assessed values, parcels becoming exempt from property taxes and the effect of interest charges compounding on prior interest charges. During fiscal year 2012, Metropolitan wrote-off $16.9 million of gross annexation receivables and reversed $11.8 million previously recorded as an allowance for uncollectible receivables, for a net write-off of $5.1 million. Prior to the May 2011 Board action, it was Metropolitan’s policy to record an allowance for uncollectible receivables on pre-1978 annexations when the principal and interest thereon cannot be collected within 50 years following the date of annexation. Accordingly at June 30, 2013 and 2012, annexation receivables of $549,300 were reflected in the basic financial statements, which are net of allowances of $154,000 and $0, respectively.

(f ) Other Receivables

Other receivables include amounts for taxes, hydroelectric power sales, the capacity and readiness-to-serve charges, and other billings.



June 30, 2013 and 2012

24

(g) Inventories

Metropolitan’s inventories are valued based on a moving-average cost. Expenditures are recorded when inventories are used. Components of inventories at June 30, 2013 and 2012 were as follows:

June 30,(Dollars in thousands) 2013 2012

Water in storage $ 104,617 $ 100,218 Operating supplies 11,521 11,682

Total inventories $ 116,138 $ 111,900

(h) Prepaid State Water Project Costs

Metropolitan participates in the State Water Project through cash payments, which provide Metropolitan prepaid capacity rights. Certain amounts of these cash payments are required to be made through 2035, but providecapacity rights through 2052. These payments are recorded as prepaid State Water Project costs and are amortized through June 30, 2052. Maintenance costs are expensed as incurred (see Note 10).

(i) Plant and Equipment

Metropolitan’s capital assets include plant and equipment, which are recorded at cost. Construction costs are capitalized if they exceed $50,000 and the asset has a useful life of at least five years. The cost of constructed assets includes labor, materials, certain general and administrative expenses, and interest incurred during construction periods. Depreciation is calculated using the straight-line method based on the estimated average useful lives of the assets, which are 25 to 80 years for storage and distribution facilities, 25 to 50 years for treatment plants and hydroelectric power recovery facilities, and 10 to 50 years for miscellaneous assets. Improvements or overhauls with aggregated costs that meet capitalization thresholds and that extend the useful life of an existing asset by at least five years are capitalized.

Major computer systems software, whether purchased or internally developed, is capitalized if the cost exceeds $250,000 and the useful life is at least three years. Vehicles and operating equipment are capitalized if the cost equals or exceeds $5,000 and the useful life is at least four years. Depreciation is calculated using the straight-line method based on the estimated useful lives and ranges from four to ten years.

(j) Participation Rights

Metropolitan participates in various storage and water management programs entitling it to certain water rights. Metropolitan's participation in these projects is through cash payments. Amounts spent for the construction of capital assets, such as pipelines, pumping facilities, storage facilities, etc., are recorded as participation rights, included in capital assets, and amortized over the life of the agreements. Certain projects also require payments for ongoing maintenance; those payments are charged to expense as incurred. (See Note 4.)



June 30, 2013 and 2012

25

(k) Disaggregation of Payable Balances

Accounts payable and accrued expenses at June 30, 2013 and 2012 were as follows:


Department of Water Resources (State Water Project): Capital, operating, maintenance, power, replacement $ 22,077 $ 33,432 Variable power 31,371 38,146 Vendors 31,784 31,449 Accrued power costs 2,029 2,152 Accrued salaries 3,667 3,890 Readiness-to-serve overcollection 2,717 1,187 Conservation credits 10,709 5,984

Total accounts payable and accrued expenses $ 104,354 $ 116,240

(l) Compensated Absences

Metropolitan’s employees earn vacation, sick, and compensatory leave in varying amounts depending primarily on length of service. Upon termination from Metropolitan service, employees are entitled to full payment for accrued vacation and compensatory leave at their final pay rates, and are entitled to payment for approximately one-half of their accrued sick leave at such rates. Metropolitan records its obligations for vacation, sick, and compensatory leave when earned by eligible employees based on current pay rates. The allocations to the current and long-term portions of these vested obligations were based on experience and projections of turnover.

(m) Capital Contributions

Capital contributions are comprised of federal, state, and private grants. These grants are typically of a reimbursable nature: Metropolitan first pays for the project and then the granting agency reimburses Metropolitan for its eligible expenses. The portion of the grants used for capital purposes are reflected as capital contributions in the statements of revenues, expenses and changes in net assets when they are earned, irrespective of the timing of the receipts. Examples of capital projects where grants are received include water treatment plant improvements, such as fluoridation, and water storage programs.

(n) Operating and Nonoperating Revenues and Expenses

Metropolitan’s primary purpose is to provide a supplemental supply of water for domestic and municipal uses. Accordingly, Metropolitan defines operating revenues as water sales, readiness-to-serve charges, and hydroelectric power recovery sales. Operating expenses include the cost of sales and services, administrative expenses, and depreciation and amortization on capital assets.

Revenues from property taxes and investment income, as well as interest expense on outstanding debt, are related to capital and financial activities and are defined as nonoperating revenues and expenses.



June 30, 2013 and 2012

26

(o) Restricted and Unrestricted Resources

When both restricted and unrestricted resources are available for use, it is Metropolitan’s practice to use restricted resources first, then unrestricted resources as they are needed.

(p) Use of Estimates

The preparation of basic financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the basic financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(q) Deferred Outflows and Implementation of Accounting Principle

In June 2011, GASB issued Statement No. 63, Financial Reporting of Deferred Outflows of Resources,

Deferred Inflows of Resources and Net Position (GASB 63). The statement requires that the difference between assets and liabilities be reported as net position. In addition, the impact of a deferred outflow of resources on net position must be explained as is done in the following paragraph. Metropolitan implemented GASB 63 in fiscal year 2012.

The unrestricted net position amount of $871,973,000 and $601,537,000 at June 30, 2013 and 2012, respectively, includes the effect of deferring the recognition of losses from the decline in market value of Metropolitan’s interest rate swaps. The deferred outflows of $56,348,000 and $109,898,000 at June 30, 2013 and 2012, respectively, would be recognized as an investment loss upon the early termination of the swaps. Metropolitan currently has no intention of terminating its interest rate swap agreements in advance of the contractual termination dates other than as described in footnote 5(f). The deferred outflow would also be recognized as an investment loss if the swaps were determined to no longer be effective hedges. Finally, if the bond associated with a swap is refunded, the deferred outflow would be reduced and the deferred loss on refunding increased by the same amount. The deferred loss on refunding would be amortized as a component of interest expense over the life of the old debt or the new debt, whichever is shorter.

(r) Bond Issuance and Marketing Costs and Implementation of Accounting Principle

In June 2012, GASB issued Statement No. 65, Items Previously Reported as Assets and Liabilities (GASB 65). This statement establishes accounting and financial reporting standards that reclassify, as deferred outflows of resources or deferred inflows of resources, certain items that were previously reported as assets and liabilities. GASB 65 requires debt issuance costs (except prepaid insurance costs) to be recognized as an expense in the period incurred. Previously, these costs were amortized over the life of the related debt issuance. Metropolitan implemented GASB 65 in fiscal year 2013 and restated its fiscal year 2012 basic financial statements. The cumulative impact of implementation of GASB 65 was a decrease of $14,684,000 and $11,484,000 on beginning net position for fiscal years 2013 and 2012, respectively.

(s) New Accounting Pronouncements

Management has evaluated new accounting pronouncements and determined that GASB Statement No. 68, Accounting and Financial Reporting for Pensions—an amendment of GASB Statement No. 27 (GASB 68) will have an impact on Metropolitan’s basic financial statements. The provisions of this statement are required to be implemented in fiscal year 2015. This statement provides requirements for how pension costs and


obligations are measured and reported in the basic financial statements. When an organization’s pension liability exceeds the pension plan’s net assets available for paying benefits, there is a net pension liability. Governments will now be required to report that amount as a liability in their basic financial statements. In addition, GASB 68 requires that projected benefit payments be discounted to their actuarial present value using a single rate that reflects (1) a long-term expected rate of return on pension plan investments to the extent that the pension plan’s fiduciary net position is projected to be sufficient to pay benefits and pension plan assets are expected achieve that rate and (2) a tax-exempt, high-quality municipal bond rate to the extent that the conditions under (1) are not met.

27



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28

2. CAPITAL ASSETS

Capital asset activity for the fiscal years ended June 30, 2013 and 2012 was as follows:

(Dollars in thousands) June 30, 2011 Additions

Capital assets not being depreciated:

Land, easements and rights-of-way $ 553,965 $ 540 Construction in progress 1,783,381 194,751

Total capital assets not being depreciated 2,337,346 195,291

Other capital assets: Parker power plant and dam 13,009 — Power recovery plants 176,752 — Other dams and reservoirs 1,431,833 3,307 Water transportation facilities 3,050,389 127,162 Pumping plants and facilities 227,873 635 Treatment plants and facilities 1,786,198 210,853 Power lines and communciation facilities 33,517 — Computer systems software 95,948 1,927 Miscellaneous 638,091 63,106 Major equipment 81,869 3,189 Pre-operating interest and other expenses of original aqueduct 44,595 — Participation rights in other facilities (Note 4) 456,109 —

Total other capital assets at historical cost 8,036,183 410,179

Accumulated depreciation and amortization: Parker power plant and dam (10,379) (163) Power recovery plants (74,729) (3,532) Other dams and reservoirs (230,646) (18,328) Water transportation facilities (599,301) (48,192) Pumping plants and facilities (66,012) (3,027) Treatment plants and facilities (414,344) (47,759) Power lines and communciation facilities (8,405) (412) Computer systems software (76,334) (5,463) Miscellaneous (110,806) (13,678) Major equipment (66,961) (5,522) Pre-operating interest and other expenses of original aqueduct (34,240) (1,036) Participation rights in other facilities (Note 4) (107,831) (13,651)

Total accumulated depreciation and amortization (1,799,988) (160,763)

Other capital assets, net 6,236,195 249,416

Total capital assets, net $ 8,573,541 $ 444,707

Depreciation and amortization was charged as follows:

Depreciation of water related assets Amortization of participation rights (Note 4)

Depreciation and amortization expense related to capital assets Amortization of prepaid State Water Project costs (Note 10) Plus: Net retirements adjusted to expense

Total depreciation and amortization expense



June 30, 2013 and 2012

29

Reductions June 30, 2012 Additions Reductions June 30, 2013

$ (103) $ 554,402 $ 1,982 $ (683) $ 555,701 (392,407) 1,585,725 131,303 (185,774) 1,531,254

(392,510) 2,140,127 133,285 (186,457) 2,086,955

— 13,009 — — 13,009 — 176,752 302 — 177,054 — 1,435,140 694 — 1,435,834

(331) 3,177,220 151,816 — 3,329,036 — 228,508 1,293 — 229,801

(2,970) 1,994,081 43,938 — 2,038,019 — 33,517 — — 33,517 — 97,875 2,205 — 100,080

(212) 700,985 345 — 701,330 (1,865) 83,193 7,152 (1,946) 88,399

— 44,595 — — 44,595 — 456,109 — — 456,109

(5,378) 8,440,984 207,745 (1,946) 8,646,783

— (10,542) (163) — (10,705)— (78,261) (3,554) — (81,815)— (248,974) (17,904) — (266,878)

307 (647,186) (46,173) — (693,359)— (69,039) (2,946) — (71,985)

1,314 (460,789) (38,778) — (499,567)— (8,817) (412) — (9,229)— (81,797) (6,479) — (88,276)

557 (123,927) (17,400) — (141,327) 1,850 (70,633) (5,019) 1,946 (73,706)

— (35,276) (1,036) — (36,312) — (121,482) (13,651) — (135,133)

4,028 (1,956,723) (153,515) 1,946 (2,108,292)

(1,350) 6,484,261 54,230 — 6,538,491

$ (393,860) $ 8,624,388 $ 187,515 $ (186,457) $ 8,625,446

$ 147,112 $ 139,864 13,651 13,651

160,763 153,515 128,187 111,952

1,148 (75)

$ 290,098 $ 265,392



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3. CASH AND INVESTMENTS

As a public agency, Metropolitan’s investment practices are prescribed by various provisions of the California Government Code and the Act, as well as by administrative policies. Metropolitan’s statement of investment policy is approved annually by the Board and describes the Treasurer’s investment authority, practices, and limitations. The basic investment policy objectives, in order of importance, are safety of principal, liquidity, and return on investment.

Cash and investments may or may not be restricted as to use, depending on the specific purposes for which such assets are held (see Notes 3d and 13).

A summary of Metropolitan’s deposit and investment policies, information on interest and credit risks, and restricted cash and investments is provided below.

(a) Deposits

The California Government Code requires California banks and savings and loan associations to secure a local government agency’s deposits by pledging government securities as collateral.

As of June 30, 2013 and June 30, 2012, Metropolitan’s deposits with financial institutions were $145,000 and $594,000, respectively, and cash on hand was $5,000.

(b) Investments

Metropolitan is permitted by State law and Board policy to invest in a variety of instruments including U.S. Treasury securities, federal agencies, repurchase agreements, negotiable certificates of deposit, bankers’ acceptances, prime commercial paper, asset and mortgage-backed securities, California local agency securities, including securities issued by Metropolitan, corporate notes, time deposits, investment contracts, shares of beneficial interest, and Local Agency Investment Fund (LAIF). As of June 30, 2013 and 2012, Metropolitan had the following investments at fair value:


U.S. Treasury securities $ 215,836 $ 204,897 U.S. Guarantees—GNMAs 11 13Federal agency securities 448,694 348,805Bankers' acceptances 116 —Prime commercial paper 174,179 202,033Corporate notes 98,303 150,711Negotiable certificates of deposit 168,917 40,000Shares of benefi cial interest 409 660Asset and mortgaged-backed securities 66,194 55,455Municipal bonds 101,721 97,774Local Agency Investment Fund 46,415 50,000

Total investments $ 1,320,795 $ 1,150,348



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Interest rate risk. In accordance with Metropolitan’s investment policy, interest rate risk was managed by limiting the duration of the various portfolio segments. Each segment has limitations on the amount of duration exposure (see the following for specific durations).

Internally Managed Segment

This segment of the portfolio was managed against the Bank of America Merrill Lynch 3-Month Treasury Bill Index approved by the Finance and Insurance Committee. For fiscal years 2013 and 2012, the benchmark was 0.24 and the portfolio weighted average duration was permitted to vary from the duration by plus or minus 0.20. As of June 30, 2013 and 2012, Metropolitan’s investments and portfolio durations for this segment were as follows:

June 30,

2013 2012

(Dollars in thousands) Fair Value Duration Fair Value Duration

U.S. Treasury securities $ 10,036 7.92 $ 10,397 8.95Federal agency securities $ 416,002 0.24 $ 293,368 0.61Bankers' acceptances $ 116 0.01 $ — —Prime commercial paper $ 174,179 0.01 $ 202,033 —Corporate notes $ 36,382 0.06 $ 89,810 0.22Negotiable certifi cates of deposit $ 168,917 0.01 $ 40,000 —Municipal bonds $ 17,474 0.07 $ 6,930 0.02Local Agency Investment Fund $ 46,415 — $ 50,000 —Weighted average duration 0.21 0.25

Externally Managed Segment

This segment of the portfolio was managed against the Bank of America Merrill Lynch, U.S. Corporate and Government, one to five years, A-Rated and above index approved by the Finance and Insurance Committee. For fiscal years 2013 and 2012, the benchmarks were 2.74 and 2.69, respectively, and the portfolio weighted average duration was permitted to vary from the duration by plus or minus 1.50. As of June 30, 2013 and 2012, Metropolitan’s investments and portfolio durations for this segment were as follows:

June 30,

2013 2012


U.S. Treasury securities $ 168,729 2.35 $ 156,328 1.94U.S. Guarantees-GNMAs $ 11 4.65 $ 13 5.00Federal agency securities $ 28,190 4.34 $ 50,518 3.73Corporate notes $ 61,521 2.86 $ 60,800 2.46Shares of beneficial interest $ 409 — $ 660 —Asset and mortgaged-backed securities $ 66,194 2.72 $ 55,455 3.54Weighted average duration 2.69 2.59



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Bond Reserves and Lake Mathews Segment

Investments in the bond reserves were managed based on the requirements, of each of the bond issues. The Lake Mathews trust funds were managed in a manner that preserved the principal and provided the necessary liquidity to pay its operating expenses. Per Board authorization, the Treasurer was authorized to invest these monies in excess of five years. As of June 30, 2013 and 2012, Metropolitan’s investments and portfolio durations for this segment were as follows:

June 30,

2013 2012


U.S. Treasury securities $ 37,071 6.41 $ 38,172 7.46Federal agency securities $ 4,502 0.30 $ 4,919 0.29Corporate notes $ 400 0.04 $ 101 0.16Municipal bonds $ 84,247 7.66 $ 90,844 6.94Weighted average duration 7.01 6.84

Credit risk. Credit risk was managed by purchasing investments with the nationally recognized credit ratings specified in Metropolitan's investment policy. Additionally, the policy required monitoring the credit ratings of securities held in the portfolio, and if the securities' credit ratings were downgraded, evaluating for potential sale. For certain securities, additional requirements included consideration of net worth, length of time in business, and specified market values.

Presented below is the minimum rating required, if applicable, by investment type pursuant to Metropolitan’s investment policy.

U.S. Government and Agencies – not applicable.

Bankers’ Acceptances, Prime Commercial Paper, Negotiable Certificates of Deposits, and Time Deposits – prime quality of the highest ranking or highest letter and numerical rating (A1, P1, F1 or higher) as provided by Moody’s Investors Service, Inc., Standard and Poor’s Ratings Services, and Fitch Ratings. Credit requirement may be waived for the maximum deposit that is insured by the Federal Deposit Insurance Corporation.

Repurchase Agreements – only with primary dealers in government securities or financial institutions with a Moody’s Investor’s Service, Inc. or equivalent, rating of “A” or better.

Investment Contracts – not applicable. Limited to guaranteed investment contracts, or agreements collateralized with U.S. Treasury or agency securities.

Corporate Notes – rating category of at least “A” or its equivalent or better by a nationally recognized rating service.

Asset and Mortgage-Backed Securities — issuer must have an “A” or higher rating for the issuer’s debt as provided by a nationally recognized rating service and the security must be rated in a category of “AAA” by a nationally recognized rating service.



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33

Local Agency Investment Fund – not applicable.

Shares of Beneficial Interest – highest ranking of the highest letter and numerical rating provided by not less than two nationally recognized rating agencies.

California Local Agency Securities – securities with a maturity in excess of five years must have credit rating of at least “AA” (may be insured) and an underlying credit rating of “A” or better by a nationally recognized rating service.

At June 30, 2013 and 2012, Metropolitan’s portfolio was invested in the following securities by rating:

June 30,

2013 2012

(Dollars in thousands) Rating Fair Value Fair Value

U.S. Treasury securities AAA (4) $ 215,836 $ 204,897U.S. Guarantees - GNMAs AAA 11 13Federal agency securities AAA (1) (4) 448,694 348,805Shares of benefi cial interest AAA 409 660Asset and mortgaged-backed securities AAA 66,194 55,455Corporate notes A(2)(5) 98,303 150,711Prime commercial paper A1/P1(2) 174,179 202,033Negotiable certifi cates of deposit F1(2) 168,917 40,000Bankers' acceptances F1(2) 116 —Municipal bonds A(2) 101,721 97,774Local Agency Investment Fund (3) 46,415 50,000 Total portfolio $ 1,320,795 $ 1,150,348

(1) Included $7.221 million posted collateral with Morgan Stanley, and $36.868 million posted as collateral with Morgan Stanley and JP Morgan Chase, pursuant to various agreements, at June 30, 2013 and 2012, respectively.

(2) A or better e.g. F1+, A1+, AA, or AAA.

(3) Local Agency Investment Fund is not rated.

(4) United States Treasuries and Federal Agencies are rated “AAA” by two nationally recognized rating agencies and “AA” by one nationally recognized rating agency.

(5) Included security, “A3” and “BBB+”, Hartford Life with book value of $2.204 million and fair value $2.224 million, rated by Moody’s and Standard and Poor’s, respectively.

Concentration of credit risk. In accordance with Metropolitan’s investment policy, the minimum requirements for limiting concentration of credit risk defined the maximum percent allowable for investment in each security type as well as the percent allowable for investment by issuer per type. Generally, the maximum allowable for investment by security type varied from 20 percent, for asset and mortgaged-backed securities, to 100 percent for U.S. Treasury and agency securities. The percentages of investments that can be purchased by a single issuer, within each security type, ranged from 5 percent, for asset-backed securities, to 10 percent for bankers’ acceptances.



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The following table identifies Metropolitan’s limits and the percent invested by security type at fair value as of June 30, 2013 and 2012.

InvestmentPolicy Percent of Portfolio

Limits 2013 2012

U.S. Treasury securities 100% 16.34% 17.81%U.S. Guarantees - GNMAs 100% — —Federal agency securities 100% 33.97 30.32Shares of beneficial interest 20% 0.03 0.06Asset and mortgaged-backed securities 20% 5.01 4.82Corporate notes 30% 7.44 13.10Prime commercial paper 25% 13.19 17.56Negotiable certifi cates of deposit 30% 12.79 3.48Bankers' acceptances 40% 0.01 —Municipal bonds 30% 7.70 8.50Local Agency Investment Fund N/A 3.52 4.35

Total portfolio 100.00% 100.00%

At June 30, 2013 and 2012, Metropolitan had the following investments (obligations of the U.S. government or obligations explicitly guaranteed by the U.S. government not listed) representing five percent or more of its net investments:

June 30,

(Dollars in thousands) 2013 2012

Federal Farm Credit Bank $ — 0.00% $ 77,686 6.87%Federal National Mortgage Association $ 208,355 15.82% $ 146,225 12.93%Federal Home Loan Mortgage Corporation $ 197,645 15.00% $ 106,533 9.42%

Custodial credit risk. At June 30, 2013 and 2012, Metropolitan’s investments were insured, registered or held, in Metropolitan’s name, in safekeeping at Metropolitan’s bank, which was not a counterparty to the investment transactions. Exceptions were $46.4 million and $50.0 million in deposits in the California State managed Local Agency Investment Fund as of June 30, 2013 and 2012. Exceptions also included $7.221 million posted as collateral with Morgan Stanley, and $36.868 million posted as collateral with Morgan Stanley and JP Morgan Chase, pursuant to various swap agreements, at June 30, 2013 and 2012, respectively.

The LAIF, created by California statute, is part of a pooled money investment account. The LAIF has oversight by the Local Investment Advisory Board, which consists of five members designated by statute. The Chairman is the State Treasurer, or his designated representative. Securities held with Morgan Stanley are required pursuant to various swap agreements.



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(c) Reverse Repurchase Agreements

Metropolitan was permitted, subject to conditions imposed by State law, to sell securities owned under written agreements and to buy back the securities on or before a specified date for a specified amount. No such reverse repurchase agreements were entered into during the fiscal years ended June 30, 2013 and 2012.

(d) Restricted Cash and Investments

Metropolitan has established a number of separate accounts, also referred to as funds, to provide for specific activities in accordance with special regulations, bond covenants, and trust arrangements. The accounts were classified as "restricted." Most restricted accounts had minimum cash and investment balance requirements and all were nondiscretionary in terms of the use of assets. Among other things, the restricted amounts provided for payments of debt service on Metropolitan's bonds; reserves for principal and interest on outstanding bonds; payments for arbitrage tax rebate; construction of capital assets; payment of Metropolitan's operations and maintenance expenses; and payment of the costs related to the closure and postclosure maintenance of Metropolitan's solid waste landfill facility.



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4. PARTICIPATION RIGHTS

Participation rights activity for the fiscal years ended June 30, 2013 and 2012 was as follows:

(Dollars in thousands) June 30, 2011 Additions

Participation rights:

Imperial Irrigation District $ 112,313 $ —

Palo Verde Irrigation District 82,804 —

Kern Water District 39,007 —

South County Pipeline 72,371 —

Semitropic Water Storage District 31,319 —

Arvin-Edison Water Storage District 47,187 —

Chino Basin 27,500 —

Orange County 23,000 —

Conjunctive Use Programs 20,608 —

Total 456,109 —

Accumulated amortization:

Imperial Irrigation District (43,071) (2,270)

Palo Verde Irrigation District (14,676) (2,343)

Kern Water District (2,084) (2,172)

South County Pipeline (16,722) (912)

Semitropic Water Storage District (11,529) (813)

Arvin Edison Water Storage District (11,484) (1,467)

Chino Basin (3,271) (1,454)

Orange county (2,688) (1,195)

Conjunctive Use Programs (2,306) (1,025)

Total (107,831) (13,651)

Participation rights, net $ 348,278 $ (13,651)



June 30, 2013 and 2012

Reductions June 30, 2012 Additions Reductions June 30, 2013

$ — $ 112,313 $ — $ — $ 112,313

— 82,804 — — 82,804

— 39,007 — — 39,007

— 72,371 — — 72,371

— 31,319 — — 31,319

— 47,187 — — 47,187

— 27,500 — — 27,500

— 23,000 — — 23,000

— 20,608 — — 20,608

— 456,109 — — 456,109

— (45,341) (2,270) — (47,611)

— (17,019) (2,342) — (19,361)

— (4,256) (2,172) — (6,428)

— (17,634) (912) — (18,546)

— (12,342) (814) — (13,156)

— (12,951) (1,467) — (14,418)

— (4,725) (1,454) — (6,179)

— (3,883) (1,195) — (5,078)

— (3,331) (1,025) — (4,356)

— (121,482) (13,651) — (135,133)

$ — $ 334,627 $ (13,651) $ — $ 320,976

37



June 30, 2013 and 2012

38

(a) Imperial Irrigation District

In December 1988, Metropolitan and the Imperial Irrigation District (lID) entered into a water conservation agreement that became effective in December 1989. Under the terms of the conservation agreement, Metropolitan paid for capital costs and continues to pay annual costs for specific conservation projects within IID. From 1998 to 2003, Metropolitan diverted from the Colorado River a quantity of water equal to the amount of water conserved by the conservation projects, which totaled between 104,940 and 109,460 acre-feet annually. Under the October 2003 amendment to an agreement and at the request of the Coachella Valley Water District (CVWD), 20,000 acre-feet of the total conserved volume was made available to CVWD. Under the May 2007 amendment to the agreement, at least 93,677 and 85,000 acre-feet will be/was available in calendar years 2013 and 2012, respectively (see Note 9b). The water must be used in the calendar year the water is conserved, unless stored in a Colorado River reservoir pursuant to a separate agreement.

As capital projects were completed, the costs contributed by Metropolitan were capitalized as participation rights in Metropolitan’s accounting records. The construction phase of this program was completed as of September 30, 1998, and the operation and maintenance phase commenced on October 1, 1998. The October 2003 amendment to the agreement extended the term through December 31, 2041 or 270 days beyond the termination of the Quantification Settlement Agreement plus any extension applicable over the agreement (see Note 9d). Participation rights for this project totaled $112,313,000 as of June 30, 2013 and 2012, and are amortized using the straight-line method over the remaining life of the agreement. Amortization expense totaled $2,270,000 in fiscal years 2013 and 2012.

(b) Palo Verde Irrigation District

In August 2004, Metropolitan entered into an agreement with Palo Verde Irrigation District (PVID) to implement a 35-year land management, crop rotation, and water supply program. This fallowing program commenced in January 2005 and will extend through July 2040 and will make available up to 130,000 acre-feet of water in certain years for transfer to Metropolitan from PVID.

Under the terms of the agreement, Metropolitan paid for all program start-up costs that have been capitalized as participation rights. These costs included sign-up payments to individual landowners, funding for a community improvement program and program setup costs.

Participation rights for this program totaled $82,804,000 as of June 30, 2013 and 2012, and are being amortized using the straight-line method over 35 years. Amortization expense totaled $2,342,000 and $2,343,000 infiscal years 2013 and 2012, respectively.

(c) Kern Water District

Metropolitan entered into an agreement with the Kern Water District for the development of a water management program. The agreement includes a Regulation Program and a Transportation Program. Under the terms of the Regulation Program, Kern Delta will regulate the storage and delivery for Metropolitan of up to 250,000 acre-feet of water and currently has 178,013 acre-feet in the program. The program is intended to provide a minimum recharge and return capability of 50,000 acre-feet annually. Construction of infrastructure is required in order to meet the program’s dry year minimum return. The transportation program provides Metropolitan with priority rights to convey water acquired by Metropolitan from third parties through the Kern-Delta facilities to the California Aqueduct for ultimate delivery to Metropolitan. This program terminates on December 31, 2029. The facilities became operational in June 2010.



June 30, 2013 and 2012

39

Participation rights for the Kern Delta totaled $39,007,000 as of June 30, 2013 and 2012, and are being amortized using the straight-line method over the remaining life of the agreement. Amortization expense totaled $2,172,000 in fiscal years 2013 and 2012.

(d) South County Pipeline

In 1989, Metropolitan entered into an agreement with two member agencies and one of their subagencies to participate in the construction of an upsized version of a 26-mile long pipeline serving the south Orange County portion of its service area. Participation in this project provides Metropolitan capacity to transport its water in the central part of its service area. Participation rights for this project totaled $72,371,000 as of June 30, 2013 and 2012. These participation rights are amortized using the straight-line method over 80 years. Amortization expense totaled $912,000 in fiscal years 2013 and 2012.

(e) Semitropic Water Storage District

In December 1994, Metropolitan entered into a water banking and exchange program with Semitropic Water Storage District and its improvement districts that entitles it to storage, withdrawal, and exchange rights for its State Water Project supplies. The agreement terminates in November 2035.

In 1999, Metropolitan became fully vested for 35 percent of the one million acre-foot banking project. Metropolitan has a storage allocation of 350,000 acre-feet and currently has 285,125 acre-feet in the program. Metropolitan is entitled to a minimum of 31,500 acre-feet per year of pump back capacity. In addition, assuming a 100 percent State Water Project allocation, Metropolitan is entitled to a minimum of 46,550 acre-feet per year of entitlement exchange rights. Finally, Metropolitan has the ability to use other banking partners’ rights when they are not being used. As a result, the potential maximum return capability for Metropolitan is estimated at 223,000 acre-feet per year assuming an 100 percent State Water Project allocation and usage of the other banking partners’ rights.

Participation rights for this program totaled $31,319,000 as of June 30, 2013 and 2012. These participation rights are amortized using the straight-line method over the remaining life of the agreement. Amortization expense totaled $814,000 and $813,000 in fiscal years 2013 and 2012, respectively.

(f) Arvin-Edison Water Storage District

In December 1997, Metropolitan entered into an agreement for a water management program with Arvin-Edison Water Storage District (Arvin-Edison). The agreement includes a regulation program, a transportation program, and a water quality exchange program. Under the terms of the regulation program, Arvin-Edison will regulate the storage and delivery for Metropolitan of up to 350,000 acre-feet of water and currently has 200,805 acre-feet in the program. The minimum estimated return capability for the Arvin-Edison program varies from 40,000 acre-feet per year to 75,000 acre-feet per year depending on hydrologic/groundwater conditions. Return water will be delivered to Metropolitan upon request through a new intertie pipeline to the California Aqueduct and by exchange of existing Arvin-Edison supplies in the California Aqueduct. In 2008, Metropolitan amended the agreement to construct the south canal improvement project that will improve the operational flexibility of the program as well as increase the ability to return high quality water to the California Aqueduct. The project was completed in early 2009. The agreement terminates on November 4, 2035 with provisions for automatic extension if all stored water has not been returned.



June 30, 2013 and 2012

40

The agreement also provides a transportation program whereby Metropolitan is provided priority rights to convey water acquired by Metropolitan from third parties through the Arvin-Edison facilities to the California Aqueduct for ultimate delivery to Metropolitan.

Participation rights for the Arvin-Edison program totaled $47,187,000 as of June 30, 2013 and 2012. These participation rights are amortized using the straight-line method over the longer life of the transportation program. Amortization expense totaled $1,467,000 in fiscal years 2013 and 2012.

(g) Chino Basin

In June 2003, Metropolitan entered into a groundwater storage agreement with Inland Empire Utilities Agency, Three Valleys Municipal Water District, and the Chino Basin Watermaster. Under the terms of the agreement, Metropolitan may store up to 25,000 acre-feet per year to a maximum of 100,000 acre-feet and may withdraw up to 33,000 acre-feet per year for overlying demand during dry, drought or emergency conditions. The facilities became operational during fiscal year 2009. As of June 2013, Metropolitan had no water in storage. The agreement terminates on March 1, 2028, unless the parties agree to extend for an additional maximum period of 25 years.

Participation rights in the Chino groundwater storage program totaled $27,500,000 as of June 30, 2013 and 2012. These participation rights are amortized using the straight-line method over the remaining life of the agreement. Amortization expense totaled $1,454,000 in fiscal years 2013 and 2012.

(h) Orange County

In 2003, Metropolitan entered into a groundwater storage agreement with the Orange County Water District and the Municipal Water District of Orange County to allow Metropolitan to store 66,000 acre-feet in the Orange County Basin. Metropolitan may store up to 16,500 acre-feet per year and withdraw up to 22,000 acre-feet for overlying demand during dry, drought, or emergency conditions. The facilities became operational during fiscal year 2009. As of June 2013, Metropolitan had 49,054 acre-feet in storage. The program included the construction of wells and barrier improvements for protection of groundwater supplies from seawater intrusion. The agreement terminates in June 2028, unless the parties agree to extend for an additional maximum period of 25 years.

Participation rights in the Orange County groundwater storage program totaled $23,000,000 as of June 30, 2013 and 2012. These participation rights are amortized using the straight-line method over the remaining life of the agreement. Amortization expense totaled $1,195,000 in fiscal years 2013 and 2012.

(i) Conjunctive Use Programs

Conjunctive use is the operation of a groundwater basin in coordination with a surface water system to increase total water supply availability, thus improving the overall reliability of supplies. Metropolitan has entered into seven agreements with its member agencies for conjunctive use programs whereby Metropolitan provides funding for construction of water storage and related facilities in exchange for water storage and withdrawal rights. The conjunctive use programs were funded with State Proposition 13 grant dollars. The seven projects are with Long Beach, Long Beach-Lakewood, Compton, Three Valleys, Three Valleys MWD-La Verne, Foothill MWD, and Western MWD-Elsinore Valley MWD. Collectively, these seven projects allow Metropolitan to store up to 45,889 acre-feet with storage of 11,472 acre-feet per year and withdrawal of



June 30, 2013 and 2012

41

15,296 acre-feet per year for overlying demand during dry, drought or emergency conditions. As of June 2013, Metropolitan had a total of 17,891 acre-feet in storage in these seven accounts. The term of each agreement is 25 years, unless the parties agree to extend for an additional maximum period of 25 years. Termination dates range from July 2027 to December 2031. The programs became operational during fiscal year 2009. Participation rights in these projects totaled $20,608,000 at June 30, 2013 and 2012. These participation rights are amortized using the straight-line method over the remaining lives of the agreements. Amortization expense totaled $1,025,000 in fiscal years 2013 and 2012.

5. Short-term and Long-term Debt

Metropolitan’s enabling Act specifies that its indebtedness shall be limited to 15 percent of the assessed value of all taxable property within Metropolitan’s service area. Existing outstanding debt of $4.628 billion and $4.817 billion at June 30, 2013 and 2012, respectively, represents less than one percent of the 2013-14 and 2012-13 total taxable assessed valuation of $2,183 billion and $2,097 billion, respectively.

Metropolitan’s long-term debt consists of general obligation and revenue bond issues as well as other obligations. The general obligation bonds are secured by Metropolitan’s authority to levy ad valorem property taxes in an unlimited amount for such purposes. The revenue bond obligations are special limited obligations of Metropolitan and are secured by a pledge of Metropolitan’s net operating revenues. Such obligations contain certain restrictive covenants, with which Metropolitan has complied. Substantially all of the bond issues contain call provisions. Substantially all of the debt proceeds have been, and are expected to continue to be, utilized to fund new facilities, improvements and betterments, and to refund outstanding bonds.

(a) Short-term Debt

Metropolitan may issue up to $400 million in commercial paper to fund a portion of its capital plan. As of and during the years ended June 30, 2013 and 2012, there were no commercial paper notes outstanding. Metropolitan may also issue other forms of short-term debt such as variable rate water revenue bonds (see Note 5c).

(b) General Obligation Bonds

In 1966, voters authorized Metropolitan to incur up to $850.0 million of general obligation bond indebtedness to finance a portion of Metropolitan’s capital plan. The original amounts, issued as Series A through H under the 1966 authorization, totaled $850.0 million at June 30, 2013 and 2012. Metropolitan has refunded a portion of these general obligation bond issues through the issuance of refunding bonds. A total of $165.1 million and $196.5 million in general obligation bonds and general obligation refunding bonds were outstanding at June 30, 2013 and 2012, respectively.

The general obligation and general obligation refunding bond issues include both serial and term bonds that mature in varying amounts through March 2037 at interest rates ranging from 0.5 percent to 5.0 percent. The term bonds are subject to mandatory redemption prior to maturity. All general obligation bonds maturing on or after the earliest applicable call date are subject to optional redemption prior to maturity, callable on interest payment dates, and subject to early redemption premiums.



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No general obligation bonds were issued during the fiscal years ended June 30, 2013 or 2012.

(c) Revenue Bonds

Pursuant to a 1974 voter authorization, additional funds, primarily for funding the capital investment plan, are obtained through the sale of water revenue bonds. Revenue bonds may be issued subject to certain conditions, including a requirement that the total of revenue bonds outstanding does not exceed the equity (net position) of Metropolitan as of the fiscal year end prior to such issuance. Metropolitan has refunded some of these revenue bonds through the issuance of refunding bonds. A total of $4.451 billion and $4.607 billion of revenue bonds and revenue refunding bonds were outstanding at June 30, 2013 and 2012, respectively.

Each fixed rate revenue and revenue refunding bond issue consists of either serial or term bonds or both that mature in varying amounts through July 2040 at interest rates ranging from 0.45 percent to 6.95 percent. The term bonds are subject to mandatory redemption prior to maturity. Substantially all revenue bonds maturing on or after the earliest applicable call date are subject to optional redemption prior to maturity, callable on interest payment dates, and subject to early redemption premiums.

No revenue bonds were issued during fiscal years ended June 30, 2013 or 2012.

(d) Bond Refundings and Defeasances

Metropolitan has issued Waterworks General Obligation Refunding Bonds, Water Revenue Refunding Bonds, and Special Variable Rate Water Revenue Refunding bonds to refund various issues of Waterworks General Obligation Bonds, Waterworks General Obligation Refunding Bonds, Water Revenue Bonds, and Water Revenue Refunding Bonds previously issued. The net proceeds from these sales were used to redeem the refunded bonds or to purchase U.S. Treasury securities that were deposited in irrevocable escrow trust accounts with a bank acting as an independent fiscal agent to provide for all future debt service on the bonds being refunded. As a result, those bonds are considered defeased and the related liabilities have been excluded from Metropolitan’s basic financial statements. At June 30, 2013 and 2012, outstanding general obligation bonds and revenue bonds (including prior year’s refundings) of $446,940,000 and $697,190,000, respectively, are considered to be defeased.

Refunding and defeasance transactions during fiscal year 2013 were as follows:

• On October 4, 2012, Metropolitan issued $60,035,000 of Water Revenue Refunding Bonds, 2012 Series F at a true interest cost of 2.56 percent, to refund $30,225,000 of Water Revenue Bonds, 2003 Authorization Series B-3 and $41,325,000 of Water Revenue Refunding Bonds, 2006 Series A-1 and 2006 Series A-2. Their maturities extend to July 1, 2028 and are subject to optional redemption provisions.



June 30, 2013 and 2012

43

• On December 27, 2012, Metropolitan issued $111,890,000 of Water Revenue Refunding Bonds, 2012 Series G at a true interest cost of 2.78 percent, to refund $50,000,000 of Water Revenue Bonds, 1997 Authorization, Series B, $50,000,000 of Water Revenue Bonds, 1997 Authorization, Series C and $37,705,000 of Water Revenue Bonds, 2003 Authorization Series B-4. Their maturities extend to July 1, 2031 and are subject to optional redemption provisions.

• On June 3, 2013, Metropolitan issued $87,445,000 of Special Variable Rate Water Revenue Refunding Bonds, 2013 Series D, at variable rates, to refund $88,800,000 of Water Revenue Bonds, 2000 Authorization Series B-2. Their maturities extend to July 1, 2035 and are subject to optional and mandatory redemption provisions.

Refunding and defeasance transactions during fiscal year 2012 were as follows:

• On September 27, 2011, Metropolitan issued $157,100,000 of Water Revenue Refunding Bonds, 2011 Series C at a true interest cost of 3.15 percent, to refund $8,300,000 of Water Revenue Bonds, 2003 Authorization Series B-1, $94,420,000 of Water Revenue Bonds, 2003 Authorization Series B-2 and $60,200,000 of Water Revenue Bonds, 2003 Authorization Series B-3. Their maturities extend to October 1, 2036 and are subject to optional redemption provisions, except for $29,300,000 maturing on October 1, 2027.

• On March 20, 2012, Metropolitan issued $181,180,000 of Water Revenue Refunding Bonds, 2012 Series A at a true interest cost of 3.48 percent, to refund $97,280,000 of Water Revenue Bonds, 2003 Authorization Series B-1 and $99,000,000 of Water Revenue Bonds, 2003 Authorization Series B-3. Their maturities extend to October 1, 2036 and are subject to optional redemption provisions.

• On April 27, 2012, Metropolitan issued $98,585,000 of Water Revenue Refunding Bonds, 2012 Series B-1 and B-2 (SIFMA Index Mode) at variable rates, to refund $100,000,000 of Water Revenue Bonds, 1999 Authorization, Series B and Series C. Their maturities extend to July 1, 2027 and are subject to an unscheduled mandatory tender, at Metropolitan’s discretion, beginning November 1, 2014 and are subject to mandatory and optional redemption provisions.

• On June 28, 2012, Metropolitan issued $190,600,000 of Water Revenue Refunding Bonds, 2012 Series C, $39,520,000 of Water Revenue Refunding Bonds, 2012 Series D (Federally Taxable) and $89,460,000 of Water Revenue Refunding Bonds, 2012 Series E-1, E-2, and E-3 (Term Mode), at a combined true interest costs of 4.84 percent, to refund $60,340,000 of Water Revenue Refunding Bonds, 2004 Series A-1 and A-2, $20,370,000 of Water Revenue Refunding Bonds, 2006 Series A-1 and A-2, $158,965,000 of Water Revenue Refunding Bonds, 2008 Series A-1, $52,155,000 of Water Revenue Refunding Bonds, 2008 Series A-2, $26,350,000 of Water Revenue Refunding Bonds, 2010 Series A, and to fund $47.15 million of swap termination payments. The maturities of the 2012 Series C, the 2012 Series D, and the 2012 Series E-1, E-2, and E-3 extend to July 1, 2021, January 1, 2016, July 1, 2032, July 1, 2035, and July 1, 2037, respectively.



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The 2012 Series C bonds are not subject to optional or mandatory redemption provisions. The 2012 Series D bonds are subject to optional redemption provisions. The 2012 Series E-1, E-2, and E-3 bonds aresubject to an unscheduled mandatory tender, at Metropolitan’s discretion, beginning July 1, 2014, July 1, 2015, and July 1, 2016, respectively, and are subject to mandatory and optional redemption provisions.

These refundings and defeasances were accomplished to take advantage of lower interest rates. In addition to realizing economic savings, Metropolitan also issued certain refunding bonds to eliminate or mitigate certain risks associated with managing its variable rate debt and interest rate swap portfolios. The transactions resulted in cash flow savings of $29.0 million and $55.4 million and economic gains (difference between the present values of the debt service payments on the old debt and new debt) of $11.0 million and $35.8 million for fiscal years 2013 and 2012, respectively. The difference between the book value of the old debt and the amount required to retire the debt is deferred and amortized over the original remaining life of the old debt or the life of the new debt, whichever is less.

(e) Other Long-term Debt

In November 2003, Metropolitan received $20.0 million through the state Department of Water Resources for oxidation retrofit facilities at the Mills Water Treatment Plant in Riverside County. This 20-year State Revolving Fund loan carries interest at 2.39 percent with the final payment due July 1, 2024. At June 30, 2013 and 2012, the outstanding balance was $12,161,000 and $13,117,000, respectively.



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(f) Interest Rate Swaps

Metropolitan has entered into 22 separate interest rate swap agreements of which 13 were outstanding as of June 30, 2013. Eleven of the agreements require that Metropolitan pay fixed interest rates and receive interest at variable interest rates which are Metropolitan’s hedging derivative instruments, and two require that Metropolitan pay a variable rate based on a tax-exempt index and receive a variable rate payment based on a taxable index, which are Metropolitan’s investment derivative instruments.

The table on the following page summarizes Metropolitan’s interest rate swap portfolio as of June 30, 2013, 2012, and 2011.



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AssociatedBond Issue1

NotionalAmount

EffectiveDate

FixedRate Paid

VariableRate Received

CounterpartyCredit Rating2

2001 Payor $ — 09/06/01 4.219% SIFMA3 less 35basis points

N/A

2001 Payor

—

09/06/01

4.219% SIFMA less 35basis points

N/A

2002 A Payor

88,695 09/12/02 3.300%

57.74% of1MoLIBOR5

Baa1/A-/A

2002 B Payor 33,180 09/12/02 3.300% 57.74% of1MoLIBOR

Aa3/A+/A+

2003 PayorC-1 - C-3

163,987

12/18/03 3.257%

61.20% of1 MoLIBOR

A2/A+/A+

2003 PayorC-1 - C-3

163,987

12/18/03 3.257% 61.20% of1 MoLIBOR

Aa3/A+/A+

2004 PayorA-1 - A-2

94,530

02/19/04 2.917% 61.20% of1 MoLIBOR

Baa1/A-/A

2004 C Payor 57,312

11/16/04 2.980% 61.55% of1 MoLIBOR

Baa1/A-/A

2004 C Payor 46,892

11/16/04 2.980% 61.55% of1 MoLIBOR

Baa2/A-/A

2005 Payor

58,548

07/06/05 3.360%

70.00% of3 MoLIBOR

Aa3/A+/A+

2005 Payor

58,548

07/06/05 3.360%

70.00% of3 MoLIBOR

Baa2/A-/A

2006 Payor 20,698

04/04/06 3.210%

63.00% of3 MoLIBOR

A2/A+/A+

2006 Payor 20,698 04/04/06 3.210% 63.00% of3 MoLIBOR

Aa3/A+/A+

2006 Payor — 04/04/06 2.911% 63.00% of3 MoLIBOR

N/A

2006 Payor —

04/04/06 2.911% 63.00% of3 MoLIBOR

N/A

Sub-total pay-fi xedreceive-variable 807,075 2004 Basis 125,000

05/19/04 SIFMA6 70% of 1MoLIBOR

+31.5 basis pointsAa3/A+/A+

2004 Re-Amended basis

125,000

05/19/04 SIFMA6 70% of 1MoLIBOR+31.5 basis points

Aa3/A+/A+

Sub-total pay-variable,receive-variable 250,000

Total swaps $ 1,057,075

1 These swaps lock in a fixed rate for an equivalent amount of variable rate debt.2 Credit Ratings—Moody’s Investors Service, Standard & Poor’s, and Fitch Ratings, respectively.3 The Securities Industry and Financial Markets Municipal Swap Index, previously known as Bond Marketing Index.4 Excludes accrued interest.5 London Interbank Offered Rate.6 Variable rate paid is based on the SIFMA index.



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SwapTermination

Fair Value as of 6/304 Change in Fair Value in FY

2013 2012 2011 2013 2012

07/01/20 $ — $ — $ (15,322) $ — $ 15,322

07/01/20

— — (15,322)

— 15,322

07/01/25

(13,410) (18,595) (11,643)

5,185 (6,952)

07/01/25 (4,963) (6,860) (4,308) 1,897 (2,552)

07/01/30 (25,981) (38,605) (19,670) 12,624 (18,935)

07/01/30 (25,981) (38,605) (19,670) 12,624 (18,935)

07/01/23 (11,167) (16,445) (13,157)

5,278 (3,288)

10/01/29 (6,599) (9,367) (6,555)

2,768 (2,812)

10/01/29 (5,372) (7,703) (5,308) 2,331 (2,395)

07/01/30 (7,460) (11,792) (5,285) 4,332 (6,507)

07/01/30 (7,530) (12,011) (5,408) 4,481 (6,603)

07/01/21 (2,540) (3,555) (2,885) 1,015 (670)

07/01/21 (2,540) (3,555) (2,885) 1,015 (670)

07/01/12 — — (159) — 159

07/01/12

— — (159)

—

159

(113,543) (167,093) (127,736) 53,550 (39,357) 07/01/14 392 641 679

(249) (38)

07/01/14

392

642

679

(250)

(37)

784 1,283 1,358 (499) (75)

$ (112,759) $ (165,810) $ (126,378) $ 53,051 $ (39,432)

48

Pay-Fixed, Receive-Variable

Objective of the Swaps: In order to take advantage of low interest rates in the marketplace, Metropolitan entered into eleven separate pay-fixed, receive-variable interest rate swaps at costs that were less than what Metropolitan otherwise would have paid to issue fixed rate debt in the tax-exempt municipal bond market.

Terms: The notional amounts of the swaps match the principal amounts of the associated debt in total. Metropolitan’s swap agreements contain scheduled reductions to outstanding notional amounts that are expected to approximately follow scheduled or anticipated reductions in the associated long-term debt (see Note 5g).

Fair Values: At June 30, 2013, all pay-fixed, receive-variable swaps had a negative fair value. Because the coupons on Metropolitan's variable rate bonds adjust to changing interest rates, the bonds do not have corresponding fair value changes. The fair values of the swaps were estimated using the zero-coupon method and exclude accrued interest. 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 spot rates implied by the current yield curve for hypothetical zero-coupon bonds due on the date of each future net settlement on the swaps.

Credit Risks: As of June 30, 2013, Metropolitan was not exposed to credit risk on the outstanding pay-fixed, receive-variable swaps that had negative fair values. However, should interest rates change and the fair values of the swaps become positive, Metropolitan would be exposed to credit risk to each swap counterparty in the amount of the derivatives' fair value. Should the counterparties to the transactions fail to perform according to the terms of the swap contract, Metropolitan would face a maximum possible loss equal to the fair market value of these swaps.

All swap agreements contain specific collateral requirements that are in effect for Metropolitan and the counterparties. The swaps require different collateral levels based on credit ratings and the fair value of the swap. Generally, the fair value threshold levels are also reduced as the credit ratings are reduced. Collateral on all swaps is to be in the form of U.S. government securities that may be held by the party posting the collateral. On June 30, 2013, Metropolitan had posted collateral of $7.2 million with one counterparty.

Each swap contains cross-default provisions that allow the nondefaulting party to accelerate and terminate all outstanding transactions and to net the transactions’ fair values into a single sum to be owed by, or owed to, the nondefaulting party.

As of June 30, 2013, Metropolitan has pay-fixed, receive-variable swap transactions with one counterparty in the amount of $276.0 million or 34.2 percent of the notional amount of Metropolitan’s outstanding pay-fixed, receive-variable swap transactions. This counterparty is rated Aa3/A+/A+ by Moody’s, Standard & Poor’s, and Fitch Ratings, respectively.



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Basis Risk: The interest rates on Metropolitan’s variable rate bonds are expected to be equivalent, but not necessarily equal to the variable rate payments received from counterparties on pay-fixed, receive-variable interest rate swaps. To the extent these variable payments differ, Metropolitan is exposed to basis risk. When the rates received from the counterparties are less than the rates on variable rate bonds associated with the respective swap transactions there is a basis loss. When the rates received from the counterparties are greater than the rates on variable rate bonds associated with the respective swap transactions there is a basis gain. As of June 30, 2013, the interest rates of the variable rate debt associated with these swap transactions were 0.09 percent, 0.09 percent, 0.05 percent, 0.09 percent, 0.09 percent, and 0.09 percent, respectively. Metropolitan’s variable rate payments received from the counterparties of these swaps were 0.11 percent, 0.12 percent, 0.12 percent, 0.12 percent, 0.17 percent, and 0.19 percent, respectively.

Termination Risk: Metropolitan may terminate any of the swaps if the other party fails to perform under the terms of the swap agreements. If any of the swaps are terminated, the associated variable rate bonds would no longer carry a synthetic fixed interest rate. Also, if at the time of termination the swap has a negative fair value, Metropolitan would be liable to the counterparty for a payment equal to the swap’s fair value. On June 28, 2012, Metropolitan exercised its optional termination provisions and terminated two swaps in their entirety and partially terminated seven swaps for a total notional amount of $322.2 million. The termination payment of $47.2 million was funded from a portion of the proceeds of the 2012 Series C, D, and E Water Revenue Refunding Bonds.

Tax Risk: As with other forms of variable rate exposure and the relationship between the taxable and tax-exempt markets, Metropolitan is exposed to tax risk should tax-exempt interest rates on variable rate debt issued in conjunction with the swaps rise faster than taxable interest rates received by the swap counterparties, due particularly to reduced federal or state income tax rates, over the term of the swap agreement.

Pay-Variable, Receive-Variable

Objective of the Swaps: The low interest rate environment during fiscal years 2004 through 2006 enabled Metropolitan to reduce the cost of Metropolitan’s debt obligations by taking advantage of the relationship between taxable and tax-exempt market indices. To take advantage of the market opportunity, Metropolitan currently has two SIFMA-to-LIBOR basis swap transactions to generate additional cash flow savings while preserving the call option value of its existing bonds. Metropolitan pays a variable rate based on the SIFMA or tax-exempt index and receives a variable rate based on a percentage of the LIBOR or taxable index.

Terms: On May 17, 2004, Metropolitan entered into two basis swap transactions (2004 Basis Swaps) with two counterparties. The terms of both swaps are 10 years and terminate in July 2014. The notional amount of each swap is $125.0 million. Under the terms of the swaps, Metropolitan pays a variable rate equal to the SIFMA Index and receives a variable rate based on 70.0 percent of the one-month LIBOR plus 31.5 basis points.



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50



June 30, 2013 and 2012

Fair Value: As of June 30, 2013, the two basis swaps each had a positive fair value of $392,000. The fair values were estimated using the zero-coupon method and excludes accrued interest. 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 spot rates implied by the current yield curve for hypothetical zero-coupon bonds due on the date of each future net settlement on the swaps.

Credit Risk: The swap’s fair value represents Metropolitan’s credit exposure to one counterparty as of June 30, 2013. Should the counterparty to this transaction fail to perform according to the terms of the swap contract, Metropolitan would face a maximum possible loss equivalent to the swap’s fair value. As of June 30, 2013, the swap counterparty was rated Aa3/A+/A+ by Moody’s, Standard & Poor’s, and Fitch Ratings, respectively.

Basis Risk: Since the payments received by Metropolitan for the basis swap transactions are based on a percentage of a taxable index and the payments made by Metropolitan are based on a tax-exempt index, the trading relationship exposes Metropolitan to basis risk as payments received by Metropolitan could be less than payments made by Metropolitan to the counterparties.

Tax Risk: As with other forms of variable rate exposure and the relationship between the taxable and tax-exempt markets, Metropolitan is exposed to tax risk should tax-exempt interest rates rise faster than taxable interest rates thereby resulting in narrower spreads between taxable and tax-exempt indices over the term of the swap agreement.

(g) Swap Payments and Associated Debt

Using rates as of June 30, 2013, debt service requirements on Metropolitan’s swap-related variable rate debt and net swap payments are as follows. As rates vary, variable rate bond interest payments and net swap payments will vary.

Variable Rate Bonds Interest Rate

(Dollars in thousands) Principal Interest Swaps, Net Total

Year ending June 30: 2014 $ 1,925 $ 904 $ 24,731 $ 27,560 2015 1,980 903 24,669 27,552 2016 7,565 897 24,445 32,907 2017 10,965 889 24,148 36,002 2018 11,445 880 23,789 36,114 2019-2023 359,140 3,631 90,769 453,540 2024-2028 341,665 2,107 33,660 377,432 2029-2031 72,390 354 2,925 75,669

Total $ 807,075 $ 10,565 $ 249,136 $ 1,066,776

51



June 30, 2013 and 2012

(h) Variable Rate Bonds

The variable rate bonds bear interest at daily and weekly rates ranging from 0.03 percent to 0.41 percent as of June 30, 2013 and 0.10 percent to 0.53 percent as of June 30, 2012. Metropolitan can elect to change the interest rate period of the bonds with certain limitations. With the exception of the Water Revenue Refunding Bonds, 2009 SIFMA Index Bonds Series A-1 and A-2, 2011 SIFMA Index Bonds Series A-1, A-2, A-3, and A-4, and the 2012 SIFMA Index Bonds Series 2012 B-1 and B-2, the bondholders have the right to tender bonds to the paying agent on any business day with either same day or seven days’ prior notice. The current terms of the 2009 SIFMA Index Bonds and the 2011 SIFMA Index Bonds Series A-1 and A-3 provide bondholders a right to tender bonds to the paying agent annually, for the 2011 SIFMA Index Bonds Series A-2 and A-4, every two years, and for the 2012 SIFMA Index Bonds, every three years. Metropolitan has entered into standby bond purchase agreements (SBPA’s) with several commercial banks to provide liquidity for six and eleven separate variable rate bond issues in the amount of $459.5 million and $702.8 million as of June 30, 2013 and 2012, respectively. In addition, Metropolitan has ten and nine series of variable rate bonds in the amount of $723.2 million and $636.6 million as of June 30, 2013 and 2012, respectively that are not supported by an SBPA.

The Bank Bonds that would be issued under the SBPA’s would bear interest that is payable at a rate, depending on the agreement, that is the higher of the “base rate” which is based on the prime rate or Federal Funds rate or LIBOR, plus a spread, as designated in each SBPA. The base rate is then adjusted upwards by between 2.0 percent and 8.0 percent. The principal of the Bank Bonds would be payable, depending on the agreement, from between six to ten equal semi-annual installments commencing between 180 days and one year after purchase by the bank. For eight series of variable rate bonds not supported by SBPA’s in the amount of $535.8 million, if the purchase price is not paid from the proceeds of remarketing or other funds, such bonds then will bear interest at a rate equal to the lower of (i) 12.0 percent and (ii) the higher of 8.0 percent or Prime Rate plus 3.0 percent until purchased by Metropolitan or redeemed pursuant to a special mandatory redemption. The principal amount of these new bonds would be payable in three equal installments at 18 month increments from the conversion of the bonds to a fixed rate.

The two series of self-liquidity variable rate bonds that are not supported by a SBPA, the $99.9 million, 2010 Series A, Special Variable Rate Water Revenue Refunding Bonds and the $87.4 million, 2013 Series D, Special Variable Rate Water Revenue Refunding Bonds, have no long-term take out provisions. The entire principal amount of $187.3 million may be tendered for purchase upon one week’s notice from bondholders. However, on March 21, 2013, Metropolitan entered into a Revolving Credit Agreement (“RCA”), by which Metropolitan may borrow up to $96.5 million to pay the purchase price (principal and accrued interest ) of any self-liquidity bonds tendered for purchase. The RCA permits repayment of any borrowed funds over a term-out period beginning 90 days after the RCA’s stated expiration date of March 31, 2016. As a result of the RCA, only $90.8 million of these self-liquidity bonds have been classified as current liabilities.

The 2010 Series A and 2013 Series D bonds that may be purchased from borrowings under the RCA have been classified as long-term obligations on the balance sheet, the same as all other variable rate bonds. Metropolitan intends to either renew the SBPA’s and RCA, or maintain the existing provisions of non-SBPA/RCA supported bonds, or exercise its right to require bond holders to tender the variable rate debt and issue refunding bonds.



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(i) Long-term Debt Obligation Summary

Interest rates on all outstanding fixed-rate obligations range from 0.45 percent to 6.95 percent. Interest on the variable rate debt is reset either daily or weekly based upon market conditions. Future principal and interest payments as of June 30, 2013 are as follows:

(Dollars in thousands) Principal Interest Total

Year ending June 30: 2014 $ 156,631 $ 165,223 $ 321,854 2015 145,256 158,546 303,802 2016 150,489 151,805 302,294 2017 158,694 144,407 303,101 2018 166,054 136,600 302,654 2019-2023 815,611 598,316 1,413,927 2024-2028 829,596 487,433 1,317,029 2029-2033 866,920 352,211 1,219,131 2034-2038 1,036,160 178,534 1,214,694 2039-2041 302,485 32,164 334,649

4,627,896 $ 2,405,239 $ 7,033,135 Unamortized bond discount, premium, and

deferred amount on refundings, net 56,852

Total debt 4,684,748 Less current portion (258,216)

Long-term portion of debt $ 4,426,532



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6. Long-term Liabilities

Long-term liability activity for the fiscal years ended June 30, 2013 and 2012 is shown on the following table. Payments on the bonds are made from the restricted debt service funds; other long-term debt, the off-aqueduct power facilities obligation, and the compensated absences liability will be liquidated primarily with water revenues.



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54

(Dollars in thousands)Maturity

DatesRange of

Interest Rates

June 30, 2011

AdditionsAs Adjusted

Note1r

Waterworks general obligation refunding bonds (Note 5b): 2002 Series A2003 Series A2004 Series A2005 Series A2009 Series A2010 Series A

3/1/20123/1/2012

3/1/12-3/1/153/1/12-3/1/213/1/12-3/1/283/1/13-3/1/37

4.00%3.75%-5.00%3.75%-5.00%

4.125%-5.000%3.00%-5.00%0.50%-5.00%

$ 3,895 13,355 60,480 64,335 43,785 39,485

$

——————

Total general obligation and general obligation refunding bonds 225,335 — Water revenue bonds (Note 5c):

1997 Series B-C1999 Series B-C2000 Series B-1-B-42003 Series B-1-B-22003 Series B-3-B-42005 Series A2005 Series C2006 Series A2008 Series A2008 Series B2008 Series C2008 Series D2010 Series A

7/1/287/1/23-7/1/277/1/29-7/1/35

10/1/23-10/1/3610/1/11-10/1/31

7/1/11-7/1/357/1/11-7/1/357/1/11-7/1/371/1/12-1/1/397/1/12-7/1/207/1/26-7/1/397/1/21-7/1/39

7/1/40

VariableVariableVariable

5.00%3.25%-5.00%4.00%-5.00%4.00%-5.00%4.00%-5.00%2.00%-5.00%2.00%-4.00%

5.752%-6.250%5.906%-6.538%

6.947%

100,000 100,000 266,400 200,000 259,105 90,735

181,620 396,295 200,000 21,615 78,385

250,000 250,000

—————————————

Water revenue refunding bonds (Note 5c): 1993 Series A-B2001 Series A2003 Series A2004 Series A-1-A-22004 Series B2006 Series A-1-A-22006 Series B2008 Series A-1-A-22008 Series B2008 Series C2009 Series A-1-A-22009 Series B2009 Series C2009 Series D2009 Series E2010 Series A2010 Series B2011 Series A-1-A-42011 Series B2011 Series C2012 Series A2012 Series B-1-B-22012 Series C2012 Series D2012 Series E-1-E-32012 Series F2012 Series G2013 Series D

7/1/14-7/1/217/1/11

7/1/11-7/1/147/1/11-7/1/237/1/11-7/1/167/1/11-7/1/217/1/11-7/1/377/1/11-7/1/377/1/11-7/1/227/1/11-7/1/237/1/20-7/1/307/1/20-7/1/307/1/29-7/1/35 7/1/12-7/1/217/1/12-7/1/20

10/1/11-10/1/297/1/14-7/1/287/1/16-7/1/367/1/12-7/1/20

10/1/13-10/1/3610/1/23-10/1/36

7/1/23-7/1/277/1/16-7/1/211/1/13-1/1/167/1/27-7/7/377/1/15-7/1/287/1/20-7/1/317/1/29-7/1/35

5.750%4.00%-5.375%3.25%-5.00%

Variable2.70%-5.00%

Variable3.75%-5.00%

Variable4.00%-5.00%3.00%-5.00%

Variable4.00%-5.00%

5.00%2.00%-5.00%3.75%-5.00%

Variable2.25%-5.00%

Variable0.45%-5.00%2.00%-4.00%3.25%-5.00%

Variable3.00%-5.00%

0.616%-2.00%2.50%-3.50%3.00%-5.00%3.00%-5.00%

Variable

105,185 20,880 28,360

156,965 192,145 73,895 35,190

402,210 128,070 67,410

208,365 106,690 91,165 81,065 26,050

127,770 88,845

228,875 167,855

—————————

— — — — ———————————————

157,100 181,180 98,585

190,600 39,520 89,460

———

Total water revenue and water revenue refunding bonds 4,731,145 756,445 Other long-term debt (Note 5e): State revolving fund loans 7/1/09—7/1/24 2.39%—2.80% 14,051 — Unamortized bond discount, premiums, and deferred amount on refundings, net (77,914) 149,297 Total long-term debt 4,892,617 905,742Other long-term liabilities (see table next page) 413,802 139,249 Total long-term liabilities $ 5,306,419 $ 1,044,991



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ReductionsAs Adjusted

Note1r

June 30, 2012As Adjusted

Note1r Additions Reductions June 30, 2013

AmountsDue Within

One Year

$ (3,895)

(13,355) (10,570)

(695) (275)

—

$ ——

49,910 63,640 43,510 39,485

$

——————

$

— —

(22,575) —

(4,835)(4,050)

$

——

27,335 63,640 38,675 35,435

$

——

20,245 3,535 5,025 4,005

(28,790) 196,545 — (31,460) 165,085 32,810

—(100,000)

— (200,000) (166,675)

(4,845) (6,620)

(325) (3,975)

————

100,000—

266,400 —

92,430 85,890

175,000 395,970 196,025 21,615 78,385

250,000 250,000

—————————————

(100,000)—

(88,800) —

(75,730) (5,035)

— (1,140) (4,055)(2,150)

———

——

177,600 —

16,700 80,855

175,000 394,830 191,970 19,465 78,385

250,000 250,000

————

8,160 5,235

— 1,670 4,140 2,190

— — —

—(20,880) (1,250)

(61,375) (34,830)(20,440) (11,135)

(214,830) (185)

(6,015)—————

(27,085)————————————

105,185 —

27,110 95,590

157,315 53,455 24,055

187,380 127,885 61,395

208,365 106,690 91,165 81,065 26,050

100,685 88,845

228,875 167,855 157,100 181,180 98,585

190,600 39,520 89,460

— — —

— — — — ——————————————— — — — — ——

60,035111,89087,445

——

(1,200) (1,060)

(36,495)(53,455)

— —

(190) (6,285)

———

(5,240)(2,465)

(765)——

(30,840)————

(940)————

105,185 —

25,910 94,530

120,820 —

24,055 187,380 127,695 55,110

208,365 106,690 91,165 75,825 23,585 99,920 88,845

228,875 137,015 157,100 181,180 98,585

190,600 38,580 89,460 60,035

111,890 87,445

——

14,130 —

32,875 — — —

285 6,530

— — —

5,435 2,565 3,374

— —

31,370 500 — — —

8,250 — — —

87,445

(880,465) 4,607,125 259,370 (415,845) 4,450,650 214,154

(934) 13,117 — (956) 12,161 486 (39,012) 32,371 54,593 (30,112) 56,852 10,766

(949,201) 4,849,158 313,963 (478,373) 4,684,748 258,216 (52,447) 500,604 90,846 (108,582) 482,868 98,790 $ (1,001,648) $ 5,349,762 $ 404,809 $ (586,955) $ 5,167,616 $ 357,006



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(Dollars in thousands) June 30,

2011 Additions Reductions June 30,


2013

AmountsDue Within

One Year

Off-aqueduct power facilities (Note 9e) $ 47,194 $ — $ (6,548) $ 40,646 $ — $ (10,463) $ 30,183 $ 8,100 Compensated absences 45,728 17,909 (18,834) 44,803 17,854 (18,701) 43,956 18,600 Customer deposits and trust funds 46,474 18,818 (6,143) 59,149 17,053 (7,081) 69,121 15,833 Other postemployment benefi ts (Note 8) 128,903 45,083 (12,764) 161,222 48,308 (13,181) 196,349 40,000 Workers' Compensation and third-party claims (Note 14) 16,790 17,983 (8,118) 26,655 6,611 (6,027) 27,239 16,200 Fair value of interest rate swaps 126,378 39,432 — 165,810 — (53,051) 112,759 — Other long-term liabilities 2,335 24 (40) 2,319 1,020 (78) 3,261 57

Total other long-term liabilities $ 413,802 $ 139,249 $ (52,447) $ 500,604 $ 90,846 $ (108,582) $ 482,868 $ 98,790

7. PENSION PLAN

(a) Plan Description

Metropolitan contributes to the California Public Employees’ Retirement System (CalPERS), an agent multiple-employer public employee defined benefit pension plan. All full-time Metropolitan employees are required to participate in CalPERS. CalPERS provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. CalPERS acts as a common investment and administrative agent for participating public entities within the State of California. A menu of benefit provisions as well as other requirements is established by State statutes within the Public Employee’s Retirement Law. Metropolitan selects optional benefit provisions from the benefit menu by contract with CalPERS and adopts those benefits through Board approval. CalPERS issues a separate comprehensive annual report. Copies of CalPERS’ annual financial report may be obtained from its Executive Office, 400 Q Street, Sacramento, CA 95811.

(b) Funding Policy

Active plan members are required to contribute 7.0 percent of their annual covered salary. Metropolitan contributes the full 7.0 percent for active plan members hired before January 1, 2012. Employees hired after January 1, 2012 contribute the full 7.0 percent. In addition, Metropolitan is required to contribute the actuarially determined remaining amount necessary to fund the benefits for its members. The actuarial methods and assumptions used are those adopted by the CalPERS Board of Administration. The required employer contribution rate for fiscal years 2013 and 2012 was 14.998 percent and 14.484 percent, respectively. The contribution requirements of the plan members are established by State statute and the employer contribution rate is established and may be amended by CalPERS.



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(c) Annual Pension Cost and Net Pension Obligation

Metropolitan’s annual pension cost and net pension obligation to CalPERS for fiscal year 2013 and the two preceding fiscal years were as follows:

June 30,(Dollars in thousands) 2013 2012 2011

Annual required contribution $ 40,736 $ 40,292 $ 36,444Interest on net pension obligation — — —Adjustment to annual required contribution — — —

Annual pension cost 40,736 40,292 36,444Less contributions made (40,736) (40,292) (36,444) Increase in net pension obligation — — —Net pension obligation beginning of year — — —

Net pension obligation end of year $ — $ — $ —

For fiscal year 2013, Metropolitan’s annual pension cost and contribution made were $40,736,000. The annual pension cost includes $12,775,000 for Metropolitan’s pickup of the employee’s 7.0 percent share. The required contribution was based on CalPERS June 30, 2010 actuarial valuation using the entry-age-normal actuarial cost method with the contributions determined as a percent of pay. This is the latest information available from CalPERS relating to the current fiscal year. The actuarial assumptions included (a) a 7.75 percent investment rate of return (net of administrative expenses), (b) projected annual salary increases that vary by age and duration of service, and (c) an inflation component of 3.0 percent. Metropolitan’s net pension obligation (asset) was being amortized as a level percentage of payroll on a closed 20-year period. Gains and losses that occurred in the operation of the plan were amortized over a 30 year rolling period. The actuarial value of CalPERS assets was determined using techniques that smooth the effect of short-term volatility in the market value of investments over a fifteen-year period (smoothed market value).

Three-Year Trend Information for CalPERS

(Dollars in thousands) Annual Pension

Cost (APC) Percentage of

APC Contributed Net Pension

Obligation (Asset)

Year ended June 30: 2011 $ 36,444 100% $ — 2012 $ 40,292 100% $ — 2013 $ 40,736 100% $ —

(d) Funded Status and Funding Progress

As of June 30, 2011, the most recent actuarial valuation date, the plan was 84.5 percent funded. The actuarial accrued liability for benefits was $1,674.3 million, and the actuarial value of assets was $1,415.6 million, resulting in an unfunded actuarial accrued liability (UAAL) of $258.7 million. The covered payroll (annual payroll of active employees covered by the plan) was $190.7 million, and the ratio of the UAAL to the covered payroll was 135.6 percent. This valuation reflects changes to the method for calculating the actuarial value of assets. These changes phase in over a three year period the impact of the 24.0 percent investment loss experienced by CalPERS in fiscal year 2009.

The schedule of funding progress, presented as required supplementary information (RSI) following the notes to the basic financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits.



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8. POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS

(a) Plan Description

Through CalPERS, Metropolitan offers medical insurance to active and retired employees, as well as their qualified dependents. The CalPERS plan is an agent multiple-employer plan governed by the Public Employees’ Medical & Hospital Care Act (PEMHCA). Under PEMHCA, health coverage for the employee continues into retirement. Current plans offered are PERS Care PPO, PERS Choice PPO, Blue Shield HMO, and Kaiser HMO. Benefit provisions are established through negotiations between Metropolitan and its various bargaining units, which also apply to retirees. This benefit was provided to 1,473 and 1,404 retired Metropolitan employees at June 30, 2013 and 2012, respectively. CalPERS issues a separate comprehensive annual report that includes financial statements for its Health Care Fund. Copies of CalPERS’ annual financial report may be obtained from its Executive Office, 400 Q Street, Sacramento, CA 95811.

(b) Funding Policy

Contribution requirements are negotiated between Metropolitan and its various bargaining units. During fiscal year 2013, Metropolitan contributed up to 90% of the PERS Care PPO Los Angeles regional basic plan rate towards all plans. Funding was on a pay-as-you-go basis for fiscal year 2013 and 2012. During fiscal years 2013 and 2012, Metropolitan contributed, net of participant contributions as determined by CalPERS, $13,181,000 and $12,764,000, respectively.

In its budget for fiscal years 2013 and 2014 the Board approved contributions to an irrevocable OPEB trust fund of $5.0 million and $10.0 million, respectively. During fiscal year 2013 the Board approved funding of an additional $25.0 million. Accordingly, Metropolitan established a trust with CalPERS in September of 2013 with an initial deposit of $40.0 million. Subject to Board approval, it is Metropolitan’s intent to fund the full annual required contribution (ARC) for all future years.

(c) Annual OPEB Cost and Net OPEB Obligation

Metropolitan’s annual other postemployment benefit (OPEB) cost is calculated based on the ARC of the employer, an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities over a defined period. In fiscal year 2008, a 30-year fresh start amortization replaced the previous fiscal year’s 20-year amortization period. Gains and losses were amortized over an open 15 year period.

The annual OPEB cost and net OPEB obligation at June 30, 2013, and the two preceding fiscal years, were as follows:


Annual required contribution $ 53,457 $ 49,200 $ 37,184Interest on net OPEB obligation 7,255 5,800 5,254Adjustment to annual required contribution (12,404) (9,917) (7,888)

Annual OPEB cost 48,308 45,083 34,550

Contributions made (13,181) (12,764) (11,927)

Increase in net OPEB obligation 35,127 32,319 22,623Net OPEB obligation, beginning of year 161,222 128,903 106,280 Net OPEB obligation, end of year $ 196,349 $ 161,222 $ 128,903



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For fiscal year 2013, Metropolitan’s annual OPEB cost was $48,308,000. Contributions made were equal to the pay-as-you-go amount and represented 27.3, 28.3, and 34.5 percent of the annual OPEB cost in fiscal 2013, 2012, and 2011, respectively. Adjustments to the annual required contribution include amortization of the unfunded UAAL and actuarial gains and losses. The amortization period for the unfunded UAAL is closed while the amortization period of actuarial gains and losses is open. The required contribution was based on the January 1, 2011 actuarial valuation using the entry-age-normal actuarial cost method with contributions determined as a level percent of pay. The actuarial assumptions included (a) a 4.5 percent investment rate of return, (b) a 3.0 percent inflation component, and (c) healthcare cost trend rates as follows: (i) Medicare – starting at 9.4 percent, grading down to 5.0 percent over nine years, (ii) Non-Medicare – starting at 9.0 percent, grading down to 5.0 percent over nine years. The assumptions used in the actuarial valuation are subject to future revisions as actual results are compared to past expectations and new assumptions are made about the future.

(d) Funded Status and Funding Progress

The funded status of the plan at January 1, 2011, was as follows:


Actuarial accrued liability (AAL) $ 545,476 Actuarial value of plan assets —

Unfunded actuarial accrued liability (UAAL) $ 545,476

Funded ratio (actuarial value of plan assets / AAL) 0.0%Covered payroll (active plan members) $ 187,368 UAAL as a percentage of covered payroll 291.1%

Actuarial valuations of the ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend.

The schedule of funding progress, presented as RSI following the notes to basic financial statements, presents multiyear trend information that shows whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.

9. COMMITMENTS AND CONTINGENCIES

(a) State Water Contract (see Note 10)Estimates of Metropolitan’s share of the projected fixed costs of the State Water Project (SWP) are provided annually by the State. The estimates are subject to future increases or decreases resulting from changes in planned facilities, refinements in cost estimates, and inflation. During the next five years, payments under the State Water Contract, exclusive of variable power costs, are currently estimated by the State to be as follows:



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(Dollars in thousands) State Water

Contract Payments

Year ending June 30: 2014 $ 399,973 2015 $ 368,468 2016 $ 357,877 2017 $ 359,515 2018 $ 351,465

According to the State’s latest estimates, Metropolitan’s long-term commitments under the contract, for capital and minimum operations and maintenance costs, including interest to the year 2035, are as follows:

(Dollars in thousands) State Water Contract

Long-Term Commitments

Transportation facilities $ 3,651,584 Conservation facilities 1,848,882 Off-aqueduct power facilities (see Note 9e) 77,416 East Branch enlargement 495,166 Revenue bond surcharge 655,816

Total long-term SWP contract commitments $ 6,728,864

Metropolitan intends to exercise its option to extend its agreement with the State through 2052, which will result in annual minimum operations and maintenance costs through 2052. In addition, the amounts shown above do not contain any escalation for inflation, are subject to significant variation over time because the amounts are based on a number of assumptions, and are contingent on future events. None of the estimated long-term commitments, other than the $30.2 million obligation related to loss accruals on certain off-aqueduct power facilities (see Note 9e), are recorded as liabilities in the accompanying basic financial statements.

Bay/Delta Regulatory and Planning Activities. The State Water Resources Control Board (State Board) is the agency responsible for setting water quality standards and administering water rights throughout California. Decisions of the State Board can affect the availability of water to Metropolitan and other water users throughout California. The State Board exercises its regulatory authority over Bay/Delta watershed supplies by means of public proceedings leading to regulations and decisions.

In September 2006, Governor Schwarzenegger established a Delta Vision Process to identify a strategy for managing the Delta as a sustainable resource. The process was tied to legislation that created a Blue Ribbon Task Force (BRTF) and cabinet-level committee (Delta Vision Committee) tasked with developing a durable vision for sustainable management of the Delta over the long term. The Delta Vision is anticipated to broaden the focus of past efforts and recommend actions that will address the full array of natural resource, infrastructure, land use, and governance issues necessary to achieve a sustainable Delta. The BRTF released its final Delta Vision Strategic Plan in October 2008. The Delta Vision Committee considered the BRTF’s final strategic plan and submitted its final implementation report to the Governor in January 2009. Subsequently, the Delta Reform Act of 2009 was enacted which created the Delta Stewardship Council, a seven member



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appointed body charged with developing a Delta Plan to support carrying out the Delta Vision. The Delta Stewardship Council completed the Delta Plan on September 1, 2013.

The Bay Delta Conservation Plan (BDCP), which began in 2007, is a voluntary collaboration of state, federal, and local water agencies, state and federal fish agencies, environmental organizations, and other interested parties to provide a comprehensive habitat conservation and restoration program for the Delta. In addition, the BDCP will provide the basis for permits under federal and state endangered species laws for activities covered by the plan based on the best available science, identify sources of funding, and provide for an adaptive management and monitoring program. It is expected that the final BDCP and associated environmental documentation will be released in 2014, and a permit decision in 2015.

Other issues such as the recent decline of some fisheries in the Delta and surrounding regions and certain operational actions in the Delta have significantly impacted Metropolitan’s water supply from the Delta. While the impact on future revenues of such potential actions is not known at this time, pumping restrictions in the Delta are in place to protect certain endangered species.

(b) Imperial Irrigation District

As of June 30, 2013, Metropolitan had advanced to the Imperial Irrigation District (IID) a total of $276.1 million for construction costs, operations and maintenance costs, and indirect costs of the conservation projects. Metropolitan remains obligated to pay IID for actual operation and maintenance costs for the remainder of this agreement through at least 2041, approximately $11.9 million in 2013. In return, Metropolitan will receive between 85,000-105,000 acre-feet of water annually depending upon the amount used by Coachella Valley Water District. A total of at least 93,677 and 85,000 acre-feet will be/was available in calendar years 2013 and 2012, respectively, for diversion by Metropolitan (see Note 4a).

(c) Sale of Water by the Imperial Irrigation District to

San Diego County Water Authority

In April 1998, the San Diego County Water Authority (SDCWA) and IID executed an agreement (Transfer Agreement) for SDCWA’s purchase from IID of Colorado River water that is conserved within IID. SDCWA is a Metropolitan member agency and the largest water purchaser from Metropolitan. In October 2003 the Transfer Agreement was revised as part of the Quantification Settlement Agreement (QSA) (see Note 9d). The amended Transfer Agreement sets the maximum transfer amount at 205,000 acre-feet in 2021, with the transfer gradually ramping up to that amount over an approximately twenty-year period, stabilizing at 200,000 acre-feet per year beginning in 2023.

No facilities exist to provide for delivery of water directly from IID to SDCWA. The Transfer Agreement provides that IID water be delivered to SDCWA through existing facilities owned by Metropolitan. On November 10, 1998, the boards of directors of Metropolitan and SDCWA authorized execution of an exchange contract, pursuant to which SDCWA makes available to Metropolitan at its intake at Lake Havasu on the Colorado River the conserved Colorado River water acquired by SDCWA from IID and water allocated to SDCWA that has been conserved as a result of the lining of the All-American and Coachella Canals. Metropolitan delivers an equal volume of water from its own sources of supply through portions of its delivery system to SDCWA. The deliveries to both Metropolitan and SDCWA are deemed to be made



June 30, 2013 and 2012

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in equal monthly increments. In consideration for the conserved water made available to Metropolitan by SDCWA, a lower rate is paid by SDCWA for the exchange water delivered by Metropolitan. The price payable by SDCWA is calculated using the charges set by Metropolitan’s Board from time to time to be paid by its member agencies for the conveyance of water through Metropolitan’s facilities (see Note 1c). SDCWA has challenged the validity of Metropolitan’s charges for conveyance of water that became effective January 1, 2011 and January 1, 2012, in San Diego County Water Authority v. Metropolitan Water District

of Southern California; et al. On June 8, 2012, SDCWA filed a new lawsuit challenging the rates adopted by Metropolitan on April 10, 2012 and effective on January 1, 2013 and January 1, 2014 (see Note 9g). The Exchange Agreement requires Metropolitan to pay the disputed portion of the amount paid by SDCWA under the Exchange Agreement and interest thereon to SDCWA, if SDCWA prevails in a dispute over the price payable by SDCWA under the Exchange Agreement.

The QSA agreements provided for delivery of 80,000 acre-feet of water conserved by IID in 2011. The delivery of conserved water fell short by 16,722 acre-feet. In accordance with the terms of the exchange contract, Metropolitan served SDCWA with a Notice of Default. The exchange contract provides that SDCWA will pay the lower water rate based on deliveries of exchange water that match the value of conserved water made available by IID in each calendar year. Metropolitan has invoiced SDCWA for its higher water rate on the 16,722 acre-feet of additional non-exchange water delivered in 2011. SDCWA paid this invoice under protest. Metropolitan has agreed to exchange with SDCWA up to an additional 16,722 acre-feet in 2012 if IID delivers that volume of conserved water after IID has met its 2012 obligation of 90,000 acre-feet. Metropolitan has issued a credit to SDCWA for its higher water rate on the 16,722 acre-feet of additional water delivered in 2012.

(d) Quantification Settlement Agreement

The Quantification Settlement Agreement (QSA) is part of the California Plan, which is a plan to reduce California’s use of Colorado River water to its basic apportionment of 4.4 million acre-feet per year when necessary through water conservation, transfers from higher priority agricultural users to Metropolitan’s service area, and storage programs. The QSA was executed in October 2003 and establishes Colorado River water use limits for IID, the Coachella Valley Water District (CVWD), and Metropolitan. It also provides for specific acquisitions of conserved water and water supply arrangements for up to 75 years and restores the opportunity for Metropolitan to receive any special surplus water.

On February 11, 2010, the Sacramento Superior Court issued its judgment in consolidated cases filed to determine or challenge the validity of the QSA and associated agreements. The court ruled that the QSA Joint Powers Agreement (pursuant to which IID, CVWD and SDCWA agreed to commit $163 million toward certain mitigation and restoration costs associated with implementation of the QSA and related agreements, and the State agreed to be responsible for any costs exceeding this amount) was invalid because the State’s commitment was unconditional in nature and, as such, violated the State’s debt limitation under the California Constitution. The court also invalidated eleven other agreements, including the QSA, because they were inextricably interrelated with the QSA Joint Powers Agreement.

In March 2010, Metropolitan, IID, CVWD, SDCWA, the State and others filed notices of appeal challenging various aspects of the trial court’s ruling. On December 7, 2011, the court of appeal issued its ruling reversing, in part, the trial court’s ruling. In particular, the court of appeal held the QSA Joint Powers Agreement to be constitutional. The court of appeal also rejected other challenges to this agreement and remanded the matter back to the trial court for further proceedings on the claims that had been dismissed as moot. A two-day bench trial was held on November 13, 2012. On June 4, 2013 the trial court issued its ruling, holding



June 30, 2013 and 2012

63

that IID had acted within its authority in executing these agreements and had complied with all substantive and procedural requirements imposed under State law. In addition, the court held that the environmental reviews conducted in support of the QSA and related agreements complied with CEQA and its implementing regulations in all respects. In short, the trial court rejected all of the claims asserted by opponents of the QSA. The court issued a final statement of decision and entered a final judgment on July 31, 2013. A number of parties, including the County of Imperial and the Imperial County Air Pollution Control District, have filed appeals challenging this decision on various grounds. Briefing on these appeals is expected to be complete in late spring or early summer 2014. The impact, if any, that this litigation might have on Metropolitan’s water supplies cannot be determined at this time.

(e) Abandoned Off-Aqueduct Power Facilities

The state Department of Water Resources (DWR) has financed the construction of certain off-aqueduct power facilities in order to provide power for water transportation purposes for the State Water Project system. Two geothermal facilities have been abandoned by DWR due to insufficient steam supply to operate the plants at their planned capacities. As a result of these actions by DWR, Metropolitan recorded losses of $204.1 million in prior fiscal years. Metropolitan’s estimated remaining long-term contractual obligations for these facilities as of June 30, 2013, which are based on the State’s latest estimates, including average interest of 5.2 percent through the year 2027, are shown in the following table (see Note 6):

(Dollars in thousands) Principal Interest Total

Year ending June 30: 2014 $ 8,100 $ 1,603 $ 9,703 2015 4,035 1,165 5,200 2016 3,286 948 4,234 2017 3,191 770 3,961 2018 1,230 600 1,830 2019-2023 8,694 1,883 10,577 2024-2027 1,647 134 1,781

Total obligations 30,183 $ 7,103 $ 37,286 Less current portion (8,100) Long-term portion of obligations $ 22,083

(f) Construction Programs and Contracts

The estimated cost, excluding contingencies, of Metropolitan's capital program for fiscal years 2013/14 through 2017/18 totals approximately $1.5 billion.

Over the next three years, approximately $901.5 million dollars is budgeted in the capital program, with over $397.0 million planned for the Weymouth Oxidation Retrofit Program (ORP), Chlorine Containment at the Chemical Unloading Facility, Diemer Basin Rehabilitation, Lakeview Pipeline repair, Weymouth Plant Filter Rehabilitation and Filter Building No. 1 Valve Replacement, Palos Verdes Reservoir Floating Cover Replacement, Second Lower Feeder PCCP Refurbishment, Jensen and Mills Plants Electrical System Improvements, and the Wadsworth Pumping Plant Control and Protection Upgrade.

The capital program also includes $137.6 million of estimated costs for facilities that may be required to meet current water quality standards (see Note 9h).



June 30, 2013 and 2012

64

Metropolitan had commitments under construction contracts in force as follows:June 30,

(Dollars in thousands) 2013 2012

Oxidation retrofit project $ 82,422 $ 104,008Weymouth plant power system upgrade 59 1,531Diemer plant fi lter media replacement — 1,102La Verne maintenance shops upgrade 12,284 17,678Copper basin reservoir outlet structure rehabilitation 1,876 2,820Eagle Rock tower and puddingstone spillway gates rehabilitation 17 2,298Colorado River aqueduct pumping plants disconnect switches — 1,661Weymouth plant emergency broadcast system rehabilitation 450 1,438Colorado River aqueduct transition structures and manhole cover replacement — 1,234Yorba Linda power plant turbine-generator 2,936 3,303Jensen plant fi lter effl uent chlorination — 1,200Jensen module no. 1 fi lter surface wash system upgrade 10,403 —Diemer fi nished water reservoir & east washwater tank seismic upgrade 5,409 —Diemer butterfl y valve replacement 3,033 —Jensen butterfl y valve replacement 1,913 —Weymouth fi lter outlet chemical trench 1,140 —Other 3,173 1,032Total $ 125,115 $ 139,305

These commitments are being financed with operating revenues and revenue bonds secured by Metropolitan’s net operating revenues.

(g) Claims and Litigation

On April 25, 2005, a group of 14 State Water Project contractors filed suit against the Department of Water Resources challenging the manner in which it allocates certain energy costs and revenues related to operation of the State Water Project. Among other things, these contractors alleged that the Department of Water Resources has been and is administering certain provisions of State Water Contract incorrectly, depriving them of “all benefits” derived from the sale or other disposal of electrical energy generated at the Hyatt-Thermalito power facility. The plaintiffs did not allege specific amounts for damages; however, success by plaintiffs could have resulted in shifting tens of millions of dollars in annual costs from State Water Project contractors located north of the Tehachapi Mountains to State Water Project contractors located south of the Tehachapi Mountains and on the Central Coast, including Metropolitan. Metropolitan and 12 other State Water Project contractors intervened in the litigation. After a trial limited to contract interpretation issues, on September 14, 2009, the court rejected all of the plaintiffs’ assertions and on April 19, 2010, the court dismissed all remaining claims without leave to amend. The court entered its final statement of decision and final judgment in favor of defendants on May 3, 2010. Plaintiffs filed a notice of appeal on July 1, 2010. The Court of Appeal affirmed the trial court’s judgment in favor of defendants on February 15, 2013. In its ruling, the Court of Appeal held that the Department of Water Resources acted within its statutory authority in the manner in which it treated Hyatt-Thermalito power revenues and that any contractual ambiguity regarding this treatment was properly resolved against the plaintiffs. The plaintiffs did not petition for review by the California Supreme Court.

SDCWA filed San Diego County Water Authority v. Metropolitan Water District of Southern California; et al. on June 11, 2010. The complaint alleges that the rates adopted by the Board on April 13, 2010, which became



June 30, 2013 and 2012

65

effective January 1, 2011 and January 1, 2012, misallocate State Water Contract costs to the System Access Rate and the System Power Rate, and thus to charges for transportation of water, and that this results in an overcharge to SDCWA by at least $24.5 million per year. The complaint alleges that all State Water Project costs should be allocated instead to Metropolitan’s Supply Rate, even though under the State Water Contract Metropolitan is billed separately for transportation, power and supply costs. It states additionally that Metropolitan will overcharge SDCWA by another $5.4 million per year by including the Water Stewardship Rate in transportation charges.

The complaint requests a court order invalidating the rates and charges adopted April 13, 2010, and that Metropolitan be mandated to allocate costs associated with State Water Project supplies and the Water Stewardship Rate to water supply charges. Rates in effect in prior years are not challenged in this lawsuit. Metropolitan contends that its rates are reasonable, equitably apportioned among its member agencies and lawful. Nevertheless, to the extent that a court invalidates Metropolitan’s adopted rates and charges, Metropolitan will be obligated to adopt rates and charges that comply with any mandates imposed by the court. Metropolitan expects that such rates and charges would still recover Metropolitan’s cost of service. As such, revenues would not be affected. If Metropolitan’s rates are revised in the manner proposed by SDCWA in the complaint, other member agencies may pay higher rates unless other actions are taken by the Board.

SDCWA filed its First Amended Petition for Writ of Mandate and Complaint on October 27, 2011, adding five new claims to this litigation, two of which were eliminated from the case on January 4, 2012. The three remaining new claims are for breach of the water exchange agreement between Metropolitan and SDCWA (see Note 9d) based on allegedly illegal calculation of rates; improper exclusion of SDCWA’s payments under this exchange agreement from calculation of SDCWA’s preferential rights to purchase Metropolitan supplies and illegality of “rate structure integrity” provisions in conservation and local resources incentive agreements between Metropolitan and SDCWA. SDCWA filed a Second Amended Petition for Writ of Mandate and Complaint on April 17, 2012, which contains additional allegations but no new causes of action. While believing that the three surviving claims added to the rate challenge lack merit, Metropolitan is unable to assess at this time the likelihood of success of these or any future claims or the potential impact on Metropolitan’s revenues or operations.

On June 8, 2012, SDCWA filed a new lawsuit challenging the rates adopted by Metropolitan on April 10, 2012 to become effective January 1, 2013 and January 1, 2014. The complaint contains allegations similar to those in the Second Amended Petition for Writ of Mandate and Complaint and new allegations asserting Metropolitan’s rates violate Proposition 26. Metropolitan contends that its rates adopted on April 10, 2012 are reasonable, equitably apportioned among its member agencies and lawful and were adopted under a valid rate structure and cost of service approach. Metropolitan is unable to assess at this time the likelihood of success of this litigation or any future claims or the potential impact on Metropolitan’s revenues or operations.

The Navajo Nation filed litigation against the Department of the Interior, specifically the Bureau of Reclamation and the Bureau of Indian Affairs, in 2003, alleging that the Bureau of Reclamation has failed to determine the extent and quantity of the water rights of the Navajo Nation in the Colorado River and that the Bureau of Indian Affairs has failed to otherwise protect the interests of the Navajo Nation. The complaint challenges the adequacy of the environmental review for the Interim Surplus Guidelines (adopted by the Secretary of the Interior in January 2001 for use through 2016 in determining if there is surplus Colorado River water available for use in California, Arizona and Nevada) and seeks to prohibit the Department of the



June 30, 2013 and 2012

66

Interior from allocating any “surplus” water until such time as a determination of the rights of the Navajo Nation is completed. Metropolitan and other California water agencies intervened in this action. In October 2004 the court stayed the litigation to allow negotiations among the Navajo Nation, federal defendants, Central Arizona Water Conservation District, State of Arizona and Arizona Department of Water Resources. After years of negotiations, a tentative settlement was proposed in 2012 that would provide the Navajo Nation with specified rights to water from the Little Colorado River and groundwater basins under the reservation, along with federal funding for development of water supply systems on the tribe’s reservation. The proposed agreement was rejected by tribal councils for both the Navajo and the Hopi, who are now seeking to intervene. On May 16, 2013, the stay of proceedings was lifted. On June 3, 2013, the Navajo Nation filed for leave to file a first amended complaint. The amended complaint added a legal challenge to guidelines adopted by the Secretary of the Interior in 2007 that allow Metropolitan, and other Colorado River water users, to store water in Lake Mead. Metropolitan has used these new guidelines to store over 500,000 acre-feet of water in Lake Mead that may be delivered at Metropolitan’s request in future years. Metropolitan will actively participate in the litigation to defend its rights under the Secretary of the Interior’s guidelines governing operation of the Colorado River. The impact of the litigation on Metropolitan, if any, cannot be adequately determined at this time.

A number of other suits and claims arising in the normal course of business are pending against Metropolitan. In the opinion of Metropolitan’s General Counsel, the adverse results, if any, of such legal actions on these suits and claims will not have a material effect on Metropolitan’s financial position, changes in net position, or liquidity.

(h) Drinking Water Quality Standards

Under the Safe Drinking Water Act Amendments of 1996, Congress required the United States Environmental Protection Agency to set new drinking water quality standards. New standards to control microbial pathogens and disinfection byproducts (DBPs) became effective in 2002. These rules are known as the Interim Enhanced Surface Water Treatment Rule and the Stage 1 Disinfectants/Disinfection By-Product Rule. These standards became more stringent in a second set of regulations effective 2006. The second set of regulations (the Stage 2 Disinfectants/Disinfection Byproducts Rule and the Long-Term 2 Enhanced Surface Water Treatment Rule) did not require additional capital investment by Metropolitan.

Metropolitan identified ozone disinfection as the most cost-effective option to minimize the production of DBPs and achieve other water quality objectives. Ozone is being installed as the primary disinfectant at all five of Metropolitan’s treatment plants. Ozone is in various stages of implementation. It is operational at the Mills, Jensen, and Skinner plants, is under construction at the Diemer and Weymouth plants. Construction should be completed at these two remaining plants in 2013 and 2016, respectively. The estimated cost of implementing ozone treatment at all five plants is approximately $1.2 billion.

(i) Reid Gardner Generating Station

Reid Gardner Generating Station (Plant) is a 557 megawatt coal-fired plant located near Moapa, Nevada. The Plant is owned and operated by Nevada Power Company (NPC). In 1983, the California Department of Water Resources (DWR) entered in to a Participation Agreement to import power from the Plant to serve the State Water Project energy needs. DWR’s interest in the Plant was set to terminate on July 25, 2013, but the parties have not yet completed negotiation of the termination agreement. DWR is finalizing negotiations with


67

NPC to establish the terms of the divestiture including DWR’s obligations to mitigate any environmental impacts associated with the electricity generated for DWR over the past thirty years. Metropolitan pays approximately 75% of DWR’s costs associated with the generation of electricity at the Plant and will pay this proportion of the mitigation costs. The parties are also awaiting approval of the divestiture by the Federal Energy Regulatory Commission

(j) Landfill Obligation

Federal and State laws and regulations require that Metropolitan perform certain maintenance and monitoring functions at its sole landfill site for 30 years after closure. They further require that a separate funding mechanism be established to ensure that sufficient funds are available for closure and postclosure costs. In October 1995, the landfill was closed and management’s estimate of closure and postclosure costs for this site totaled approximately $2.0 million. The required thirty-year postclosure maintenance and monitoring of the landfill officially started in January 1998, after the installation of the landfill’s final cover was completed. During fiscal year 2013, $21,000 was expended for postclosure maintenance and monitoring activities.

The actual cost of postclosure care may be higher due to inflation, changes in technology, or changes in landfill laws or regulations. Funding of these costs has been derived from a separate trust account that has been established for closure and postclosure costs. The balance of the trust account is sufficient to cover the landfill liability. At June 30, 2013 and 2012, approximately $838,000 and $859,000 net of interest receipts and disbursements were available, respectively, in this account.

(k) Purchase Commitments

Metropolitan has no firm obligations in the forward power markets.

10. PREPAID STATE WATER PROJECT COSTS

State Water Project activity for the fiscal years ended June 30, 2013 and 2012 was as follows:

(Dollars in thousands) June 30,



2013

State Water Project costs $ 4,299,037 $ 204,792 $ (54,745) $ 4,449,084 $ 164,348 $ (48,492) $ 4,564,940

Accumulated amortization (2,868,835) (128,187) — (2,997,022) (111,952) — (3,108,974)State Water Project costs, net $ 1,430,202 $ 76,605 $ (54,745) 1,452,062 $ 52,396 $ (48,492) 1,455,966 Less current portion (128,187) (111,952)

Noncurrent portion $ 1,323,875 $ 1,344,014

Metropolitan is one of 29 water suppliers contracting with the State of California for a system to provide water throughout much of California. Under the terms of the State Water Contract, as amended, Metropolitan is obligated to pay allocable portions of the cost of construction of the system and ongoing operations and maintenance costs through at least the year 2035, regardless of the quantities of water available from the project (see Note 9a). Metropolitan and the other contractors may also be responsible to the State for certain obligations of any contractor who defaults on its payments to the State.

Approximately 35 percent and 33 percent of Metropolitan’s total expenditures during fiscal years 2013 and 2012, respectively, pertained to its net payment obligations for the State Water Project. These payments were primarily based on the contractual water delivery request, the annually requested and actual deliveries received, and the cost of power required for such deliveries, offset by credits received from the project.


June 30, 2013 and 2012

68



June 30, 2013 and 2012

Management’s present intention is to exercise Metropolitan’s option to extend the contractual period to at least 2052, under substantially comparable terms. This corresponds to an estimated 80-year service life for the original facilities. The State is obligated to provide specified quantities of water throughout the life of the contract, subject to certain conditions.

The State has power generation facilities associated with its reservoirs and aqueducts. In addition to these power facilities, the State has, either on its own or through joint venture, financed certain off-aqueduct power facilities (OAPF). The power generated is utilized by the system for water transportation purposes. Power generated in excess of system needs is marketed to various utilities and California’s power market. The revenues resulting from sales of excess power reduce the costs of pumping. Metropolitan and the other water contractors are responsible for repaying the capital and operating costs of the OAPF regardless of the amount of power generated (see Note 9e).

Metropolitan defers its share of system construction costs as prepaid State Water Project costs when such costs are billed by the State (see Note 9a). Unamortized prepaid State Water Project costs essentially represent a prepayment for future water deliveries through the State system. Metropolitan’s share of system operations and maintenance costs is charged to expense.

Metropolitan amortizes a portion of prepaid State Water Project costs each month using a formula that considers the total estimated cost of the project, the estimated useful life, and estimated production capacity of the assets based upon information provided by the State of California. In fiscal year 2006, the formula was modified to use entitlements in place of deliveries as the production capacity estimate. Amortization expense totaled $112.0 million and $128.2 million in fiscal years 2013 and 2012, respectively.

11. DEPOSITS, DEFERRED CHARGES, AND OTHER

Balances at June 30, 2013 and 2012 were as follows:

June 30,(Dollars in thousands) 2013 2012Deferred water rights $ 220,687 $ 203,176 Deferred charges-Delta Habitat 51,306 36,636 Deferred charges-Bay/Delta 2,575 2,669 Prepaid expenses 3,594 4,780 Feasibility studies 12,921 15,354 Other 8,261 6,804

Total deposits, deferred charges and other 299,344 269,419Less current portion (2,554) (6,317)

Noncurrent portion $ 296,790 $ 263,102

(a) Deferred Water Rights

Metropolitan has entered into several water exchange and storage agreements with other agencies. These agreements provide Metropolitan with additional reliable water supplies to supplement deliveries of Colorado River and State Water Project water. Metropolitan is also actively pursuing other agreements, both within and outside its service area, to provide additional water supplies. The exchange and storage agreements generally provide for advance delivery of water during periods when water is available. At a later time when water is needed, these programs can then return water to improve Metropolitan’s reliability. Expenditures associated

69



June 30, 2013 and 2012


with these agreements have been recorded as deferred charges and are charged to cost of water as the rights are exercised. At June 30, 2013 and 2012, deferred water rights totaled approximately $220.7 million and $203.2 million, respectively, based on volumes of 1,147,000 acre-feet and 1,024,000 acre-feet, as of such dates.

(b) Delta Habitat Conservation and Conveyance

In March 2009, Metropolitan, other State Water Project contractors, federal Central Valley Project contractors, and the U.S. Department of Interior’s Bureau of Reclamation entered into funding agreements with the California Department of Water Resources. The agreements are known collectively as the Delta Habitat Conservation and Conveyance Program (DHCCP) Funding Agreement and the Bay Delta Conservation Plan and Delta Habitat Conservation and Conveyance Plan (BDCP - DHCCP) Supplemental Funding Agreement. Metropolitan’s three-year DHCCP agreement provides funding of approximately $35.0 million for Metropolitan’s share (24 percent). Metropolitan’s two-year BDCP-DHCCP agreement provides funding of approximately $25.0 million (25 percent). The funding provided by both agreements supports development of the BDCP through environmental analysis, planning and design of Delta conservation measures including Delta water conveyance options. If the BDCP is approved, including construction of new Delta water conveyance facilities, DWR intends to issue revenue bonds in an amount sufficient to reimburse Metropolitan for funds advanced through these agreements for planning and environmental studies. If the BDCP is not approved to proceed with construction, no reimbursement will occur.

(c) Deferred Charges—Bay/Delta

In December 1994, representatives from state and federal resource agencies, and urban, agricultural, and environmental agencies agreed to a set of principles to implement a protection plan for the San Francisco Bay/Delta Estuary. Among the principles was a commitment by agricultural and urban water agencies to fund $60.0 million to help initiate a comprehensive program to address nonoutflow-related impacts to the Bay/Delta environment. The Secretary of the Interior requested Metropolitan to guarantee $10.0 million annually for three years, for a total of $30.0 million, to be made available for the restoration fund created by the principles. Metropolitan’s final payment of its $30.0 million commitment was made in June 1998. Metropolitan’s contributions are accounted for as deferred charges that are charged to expense based on expenses by the restoration fund. The amount charged to expense totaled $160,000 and $549,000 for fiscal years ended June 30, 2013 and 2012, respectively. During fiscal year 2001, Metropolitan became trustee for the unspent funds, which totaled $2.6 million and $2.7 million at June 30, 2013 and 2012, respectively.

(d) Feasibility Studies/Reimbursable Projects

Metropolitan conducts studies to determine if construction projects are feasible. The costs of these studies are recorded as deferred charges until the study has been completed. If the study shows that the project is feasible, the study costs are capitalized as project costs. Otherwise, the study costs are charged to operating expense.

Reimbursable projects include work Metropolitan is contracted to perform for outside, non-related parties, and is subsequently billed for reimbursement.

12. DEFERRED COMPENSATION AND SAVINGS PLANS

For the benefit of its employees, Metropolitan has adopted a deferred compensation plan in accordance with Section 457 of the Internal Revenue Code. Generally, eligible employees may defer receipt of a portion of

70



June 30, 2013 and 2012

their salary until termination, retirement, death, or unforeseeable emergency. Until the funds are paid or otherwise made available to the employee, the employee is not obligated to report the deferred salary for income tax purposes.

Prior to November 2003, Metropolitan managed the investment of the funds. The plan assets, together with the corresponding liability, were included in the basic financial statements. In November 2003, the plan assets were transferred to a third-party administrator. Accordingly, at June 30, 2013 and 2012, neither the plan assets nor the related liability were included in the accompanying basic financial statements.

The third-party administrator coordinates the investment of the deferred amounts in available investment vehicles per the instructions of each participant. Metropolitan’s Treasurer serves as Trustee for the deferred compensation plan. Metropolitan is not liable to its employees for any losses that may be incurred in connection with their participation in this plan.

Metropolitan has established another compensation deferral arrangement in accordance with Section 401(k) of the Internal Revenue Code. The 401(k) Consolidated Savings Plan is available to substantially all employees. At June 30, 2013 and 2012, 1,473 and 1,559 employees participated in the consolidated 401(k) plan. Amounts deferred by participants, Metropolitan matching contributions, and accumulated earnings thereon are fully vested. Deferred amounts and matching contributions are transferred by Metropolitan each pay period to a third-party administrator who coordinates the investment of such proceeds in a variety of investment vehicles in accordance with the instructions of each participant. The Treasurer serves as Trustee for the savings plan. Metropolitan is not liable to its employees for any losses that may be incurred in connection with their participation in this plan.

Metropolitan has established a matching contribution program on behalf of each participating employee in the savings plan. Metropolitan’s contribution is subject to a maximum of 4.5 percent of the employee’s total cash compensation.

Contributions to the savings plan were as follows:


Employees $ 18,562 $ 20,146Metropolitan 7,433 7,585

$ 25,995 $ 27,731 Eligible payroll $ 190,555 $ 201,593

Employee contributions as percent of eligible payroll 9.7% 10.0%

13. NET POSITION

Net position is classified as either restricted, unrestricted, or invested in capital assets and State Water Project Costs, net of related debt.

71



June 30, 2013 and 2012

Net position that is invested in capital assets and State Water Project costs, net of related debt consist of capital assets, net of accumulated depreciation and amortization, and reduced by the outstanding balances of any bonds, notes, or other borrowings attributable to the acquisition or construction of those assets. Metropolitan's capital assets and State Water Project costs include plant and equipment, and participation rights (see Notes 2 and 4) and prepaid State Water Project costs (Notes 1h and 10). Approximately $5.4 billion and $5.3 billion were invested in capital assets and State Water Project costs, net of related debt at June 30, 2013 and 2012, respectively.

The restricted component of net position are those items that have external constraints placed on them by creditors, grantors, contributors, or laws or regulations of other governments, or imposed by law through constitutional provisions of enabling legislation. Restricted net position totaled $498.0 million and $500.6 million at June 30, 2013 and 2012, respectively, of which $5.7 million and $6.3 million were restricted by enabling legislation at June 30, 2013 and 2012, respectively.

The unrestricted component of net position are those items that do not meet the definition of “restricted” or “invested in capital assets and State Water Project costs, net of related debt.” Unlike the restricted net position, the Board has discretion in determining the use and establishing minimum/maximum balance requirements for the unrestricted cash and investment portion of net position. The Board may at any time change or eliminate amounts established for these purposes. Unrestricted net position totaled $872.0 million and $601.5 million at June 30, 2013 and 2012, respectively.

14. RISK MANAGEMENT

Liabilities are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities include an estimated amount for claims that have been incurred but not reported (IBNR). Claims liabilities are calculated considering the effects of inflation, recent claim settlement trends including frequency and amount of payouts, and other economic and social factors. Changes in the balances of claims liabilities during the past two fiscal years were as follows:


Unpaid claims, beginning of fiscal year $ 26,655 $ 16,790 $ 16,684Incurred claims (including IBNR) 6,611 17,983 5,243Claim payments and adjustments (6,027) (8,118) (5,137)

Unpaid claims, end of fiscal year 27,239 26,655 16,790Less current portion (16,200) (8,314) (5,559)

Noncurrent portion $ 11,039 $ 18,341 $ 11,231

72



June 30, 2013 and 2012

15. SUBSEQUENT EVENT

On July 2, 2013, Metropolitan issued $104,820,000 of Special Variable Rate Water Revenue Refunding Bonds, 2013 Series E (Flexible Index Mode), at variable rates, to refund $104,185,000 Water Revenue Refunding Bonds, 2009 Series A-1. Their maturities extend to July 1, 2030. The 2013 Series E bonds are subject to an unscheduled mandatory tender, at Metropolitan’s discretion, beginning September 30, 2013, and are subject to mandatory and optional redemption provisions.

73


REQUIRED SUPPLEMENTARY INFORMATION—UNAUDITEDJune 30, 2013 and 2012

Funding Progress of Pension Plan

The table below provides a three-year history of the funded status of Metropolitan’s pension plan. The information reflects the most recent actuarial valuation and the two preceding valuations from CalPERS.


ActuarialValuation Date

Entry AgeNormalAccruedLiability

ActuarialAsset Value

UnfundedLiability/

(ExcessAssets)

FundedRatio

CoveredPayroll

UnfundedActuarial Liability/

(Excess Assets) asPercentage of

Covered Payroll

June 30:

2009 $ 1,478,336 $ 1,287,444 $ 190,892 87.1% $ 195,181 97.8%

2010 $ 1,563,506 $ 1,351,073 $ 212,433 86.4% $ 192,519 110.3%

2011 $ 1,674,274 $ 1,415,596 $ 258,678 84.5% $ 190,711 135.6%

Funding Progress of Other Postemployment Benefits

The table below provides a history of the funded status of Metropolitan's OPEB obligation. The information reflects the most recent biennial actuarial valuation and the preceding biennial valuations .


ActuarialValuation Date

AccruedLiability

ActuarialAsset Value

UnfundedLiability

FundedRatio

CoveredPayroll

UnfundedActuarial

Liability asPercentage of

Covered Payroll

6/30/07 $ 393,476 $ — $ 393,476 0.00% $ 170,059 231.4%

1/1/09 $ 404,172 $ — $ 404,172 0.00% $ 192,816 209.6%

1/1/11 $ 545,476 $ — $ 545,476 0.00% $ 187,368 291.1%

See accompanying independent auditors’ report.

Statistical Section

STATISTICAL SECTION

This part of Metropolitan’s comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about Metropolitan’s overall financial health.

Contents Page

Financial Trends 74 These schedules contain trend information to help the reader understand how Metropolitan’s financial performance and well-being have changed over time.

Revenue Capacity 76 These schedules contain information to help the reader assess Metropolitan’s most significant own-source revenue, water sales. Schedules with information about Metropolitan’s property taxes are presented as well.

Debt Capacity 82 These schedules present information to help the reader assess the affordability of Metropolitan’s current levels of outstanding debt and Metropolitan’s ability to issue additional debt in the future.

Demographic Information 86 This schedule offers demographic indicators to help the reader understand the environment within which Metropolitan’s financial activities take place.

Operating Information 88 These schedules contain service and infrastructure data to help the reader understand how the information in Metropolitan’s financial report relates to the service Metropolitan provides.

Sources: Unless otherwise noted, the information in these schedules was derived from the comprehensive annual financial report for the relevant year.

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al Y

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nded

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30,

Sour

ce: O

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the

Chi

ef F

inan

cial

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icer

74

The

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able

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Pos

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(U

naud

ited)

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is (

3)

(Dol

lars

in m

illio

ns)

2013

2012

(4)

2011

(4)

2010

2009

(1)

2008

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2006

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2004

As A

djus

ted

As A

djus

ted

Rest

ated

Wat

er sa

les

1,31

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1,

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1,

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s-to

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inte

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ulat

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ct o

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204.

0$

69

.2$

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1$

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7.4

$

See

acco

mpa

nyin

g In

depe

nden

t Aud

itors

' Rep

ort.

(1) R

esta

tem

ent r

elat

es to

impl

emen

tatio

n of

Gov

ernm

enta

l Acc

ount

ing

Stan

dard

s Boa

rd (G

ASB

) Sta

tem

ent N

o. 5

3, A

ccoun

ting a

nd F

inan

cial R

epor

ting f

or D

eriva

tive I

nstru

ment

s.

T

his p

rono

unce

men

t req

uire

s der

ivat

ive

inst

rum

ents

to b

e re

porte

d at

thei

r fai

r val

ue o

n th

e st

atem

ents

of n

et p

ositi

on a

long

with

a re

late

d de

ferr

ed o

utflo

w to

be

reco

rded

for e

ffec

tive

hedg

es.

(2) O

ff-A

qued

uct P

ower

Fac

ilitie

s.(3

) Met

ropo

litan

impl

emen

ted

GA

SB S

tate

men

t No.

63,

Fin

ancia

l Rep

ortin

g of D

eferre

d O

utflo

ws of

Reso

urces

, Defe

rred

Inflo

ws of

Reso

urces

and

Net

Posit

ion, i

n fis

cal 2

012.

T

his p

rono

unce

men

t req

uire

s tha

t the

diff

eren

ce b

etw

een

asse

ts a

nd li

abili

ties b

e re

porte

d as

net

pos

ition

, the

refo

re, n

et a

sset

s are

now

refe

rred

to a

s net

pos

ition

.(4

) Adj

ustm

ent r

elat

es to

the

adop

tion

of G

ASB

No.

65,

Item

s Prev

iously

Rep

orted

as A

ssets

and

Liab

ilitie

s. T

his p

rono

unce

men

t req

uire

s deb

t iss

uanc

e co

sts (

exce

pt p

repa

id in

sura

nce

cost

s)

to b

e re

cogn

ized

as e

xpen

se in

the

perio

d in

curr

ed.

Fisc

al Y

ear

End

ed Ju

ne 3

0,

Sour

ce: O

ffic

e of

the

Chi

ef F

inan

cial

Off

icer

75

The Metropolitan Water District of Southern CaliforniaTable 3

Ten-Year Summary of Water Sales Revenues by Component (Unaudited)-Accrual Basis(Dollars in thousands)

Fiscal Year Ended Water Sales (1) Capacity Wheeling/

June 30, Treated Untreated Tier 2 (2) Charge Exchange Total

2013 805,277.9$ 399,865.2$ 2,914.9$ 28,704.0$ 74,469.7$ 1,311,231.7$ 2012 743,721.2 288,545.4 96.5 33,030.9 90,923.2 1,156,317.2 2011 712,766.0 230,404.8 4,026.8 34,373.2 53,848.0 1,035,418.8 2010 669,016.3 278,443.4 6,881.6 33,444.7 56,515.8 1,044,301.8 2009 619,490.9 328,083.3 23,922.5 32,608.0 28,026.0 1,032,130.7 2008 627,896.6 282,722.9 27,144.7 32,571.0 20,925.9 991,261.1 2007 652,572.8 257,249.6 6,693.5 32,271.4 14,395.1 963,182.4 2006 603,993.5 210,420.8 8,848.6 31,837.7 9,112.6 864,213.2 2005 555,500.3 206,555.1 11,131.5 30,046.2 6,919.3 810,152.4 2004 608,442.2 270,615.9 7,743.8 22,093.3 5,296.2 914,191.4

See accompanying Independent Auditors' Report.

(1) Water sales rates vary based on the program. See Table 4 for rates.(2) Tier 2 dollars reflect the premium paid by the member agency for water taken in excess of their maximum

purchase commitment. Either treated/untreated or both could have caused the agency to exceed their maximum.

Source: Office of the Chief Financial Officer76

2013 2012 2011 2010 2009 2008 2007 2006 2005 2004

Tier 1 Supply Rate 140$ 106$ 104$ 101$ 109$ 73$ 73$ 73$ 73$ 73$

Tier 2 Supply Rate 290 290 280 280 250 171 169 169 154 154

- - - - 25 - - - - - Water Supply Surcharge (2)

System Access Rate 223 217 204 154 143 143 143 152 152 163

Water Stewardship Rate 41 43 41 41 25 25 25 25 25 30

System Power Rate 189 136 127 119 110 110 90 81 81 60

Full Service Untreated:Tier 1 593 560 527 484 412 351 331 331 331 326 Tier 2 743 686 652 594 528 449 427 427 412 407

Replenishment Water Rate: (3)Untreated - 442 409 366 294 258 238 238 238 233 Treated - 651 601 558 436 390 360 335 325 300

Interim Agricultural Water Program (4)Untreated - 537 482 416 322 261 241 241 241 236 Treated - 765 687 615 465 394 364 339 329 304

Treatment Surcharge 254 234 217 217 167 157 147 122 112 92

Full Service Treated:Tier 1 847 794 744 701 579 508 478 453 443 418 Tier 2 997 920 869 811 695 606 574 549 524 499

Delta Supply Surcharge (2) - 58 51 69 - - - - - -

Capacity Charge ($ per cubic foot second) 6,400 7,400 7,200 7,200 6,800 6,800 6,800 6,800 6,800 6,100


(1) Rates are set on a calendar year basis.(2) The Delta Supply Surcharge was suspended after 2012.(3) Discussions on the replenishment program are continuing with the Member Agencies.(4) The Interim Agricultural Water Program was discontinued after 2012.


Water Sales Rate Structure (Unaudited)(Dollars per acre-foot-unless otherwise specified)

Calendar Year (1)



Principal Water Sales Customers (Unaudited) - Accrual Basis(Dollars in thousands)

Fiscal Year Ended Fiscal Year EndedJune 30, 2013 June 30, 2004

Amount % Rank Amount % RankTreated Water SalesMember Agency

MWD of Orange County 147,755.3$ 18.3 % 1 126,232.2$ 20.7 % 1West Basin MWD 98,246.6 12.2 2 62,112.7 10.2 3San Diego County Water Authority 91,385.7 11.3 3 106,041.7 17.4 2Calleguas MWD 90,035.5 11.2 4 49,403.5 8.1 4

Subtotal 427,423.1$ 53.0 % 343,790.1$ 56.4 %

Total Treated Water Sales 805,277.9$ 100.0 % 608,442.2$ 100.0 %

Untreated Water SalesMember Agency

City of Los Angeles 172,072.1$ 43.0 % 1 85,350.3$ 31.5 % 2San Diego County Water Authority 107,798.5 27.0 2 114,383.7 42.3 1

Subtotal 279,870.6$ 70.0 % 199,734.0$ 73.8 %

Total Untreated Water Sales 399,865.2$ 100.0 % 270,615.9$ 100.0 %

Tier 2 SalesMember Agency

City of Los Angeles 2,598.4$ 89.1 % 1 -$ 0.0 %San Diego County Water Authority - - 2,165.6 28.0 1Upper San Gabrial Valley MWD - - 983.0 12.7 2MWD of Orange County - - 949.1 12.3 3

Subtotal 2,598.4$ 89.1 % 4,097.7$ 53.0 %

Total Tier 2 Sales 2,914.9$ 100.0 % 7,743.8$ 100.0 %

Capacity ChargeMember Agency

San Diego County Water Authority 7,281.6$ 25.4 % 1 6,207.4$ 28.1 % 1City of Los Angeles 5,275.3 18.4 2 2,600.7 11.8 3MWD of Orange County 3,377.6 11.8 3 2,619.0 11.9 2

Subtotal 15,934.5$ 55.6 % 11,427.1$ 51.8 %

Total Capacity Charge 28,704.0$ 100.0 % 22,093.3$ 100.0 %

Wheeling/ExchangeMember Agency

San Diego County Water Authority 74,469.7$ 100.0 % 1 5,296.2$ 100.0 % 1Subtotal 74,469.7$ 100.0 % 5,296.2$ 100.0 %

Total Wheeling/Exchange 74,469.7$ 100.0 % 5,296.2$ 100.0 %

Total Water Sales 1,311,231.7$ 914,191.4$



The

Met

ropo

litan

Wat

er D

istr

ict o

f Sou

ther

n C

alifo

rnia

Tab

le 6

Ten

-Yea

r Sum

mar

y of

Pro

pert

y T

ax L

evie

s an

d C

olle

ctio

ns (U

naud

ited)

-Cas

h B

asis

(Dol

lars

in th

ousa

nds)

Perc

ent o

fPe

rcen

t of

Perc

ent o

fFi

scal

Yea

rO

utst

andi

ngC

urre

nt T

axes

Tota

l Tax

Del

inqu

ent

End

edTa

x C

olle

ctio

nsD

elin

quen

tC

olle

cted

toC

olle

ctio

ns to

Taxe

s to

Tota

lJu

ne 3

0,C

urre

ntD

elin

quen

tTo

tal (

1)Ta

xes (

2)To

tal T

ax L

evy

Tota

l Tax

Lev

yTa

x Le

vy20

1394

,963

$

92

,578

$

4,

076

$

96,6

54$

2,

671

$

97

.5%

101.

8%

2.8

%20

1292

,247

80

,775

9,

478

90

,253

4,07

6

87.6

97.8

4.4

2011

95,3

85

71,0

69

16,9

87

88,0

56

9,

478

74

.592

.39.

920

1010

7,89

2

82

,164

15

,083

97

,247

16,9

87

76.2

90.1

15.7

2009

109,

776

91,6

32

12,9

51

104,

583

15

,083

83

.595

.313

.720

0810

7,05

9

87

,670

11

,224

98

,894

12,9

51

81.9

92.4

12.1

2007

103,

913

81,3

15

13,6

47

94,9

62

11

,224

78

.391

.410

.820

0610

4,53

1

91

,042

4,

988

96

,030

13,6

47

87.1

91.9

13.1

2005

100,

114

88,2

01

8,76

1

96,9

62

4,

988

88

.196

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020

0499

,307

89

,178

3,

838

93

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8,76

1

89.8

93.7

8.8

See

acco

mpa

nyin

g In

depe

nden

t Aud

itors

' Rep

ort.

(1)

Tota

l tax

col

lect

ions

exc

lude

cas

h pa

ymen

ts o

n ne

w a

nnex

atio

ns.

(2)

Del

inqu

ent t

axes

show

n ar

e ne

t of t

he "

Allo

wan

ce fo

r Unc

olle

ctib

les"

det

erm

ined

by

hist

oric

al tr

ends

of c

olle

ctio

ns a

nd p

aym

ents

.

Tota

lTa

x Le

vy

Sour

ce: O

ffic

e of

the

Chi

ef F

inan

cial

Off

icer

79


Ten-Year Summary of Assessed Valuations and Property Tax Rates (Unaudited)(Dollars in billions)

SecuredFiscal Year Gross Net Property

Ended Assessed Homeowner's Assessed PercentageJune 30, Valuation (1) Exemption Valuation Tax Rate

2013 2,097.4$ 16.7$ 2,080.7$ 0.0035 %2012 2,067.5 16.9 2,050.6 0.00372011 2,049.1 17.1 2,032.0 0.00372010 2,081.9 17.2 2,064.7 0.00432009 2,120.9 17.2 2,103.7 0.00432008 2,015.4 17.1 1,998.3 0.00452007 1,839.5 16.9 1,822.6 0.00472006 1,642.2 17.0 1,625.2 0.00522005 1,478.0 16.8 1,461.2 0.00582004 1,359.5 16.6 1,342.9 0.0061


(1) Gross assessed valuations (before deduction of Homeowner's and Business Inventory Exemptions), as of August each year, of all secured and unsecured property within

Metropolitan's service area, as certified by the County Auditor-Controllers for the respective counties.


Fisc

al Y

ear E

nded

June

30,

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

Cou

nty

AV

(1)

% (2

)A

V

%

AV

%

A

V

%

AV

%

A

V

%

AV

%

A

V

%

AV

%

A

V

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Los A

ngel

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$

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990.

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92

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$

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nge

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entu

ra79

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8

79

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79

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3.9

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3.9

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4.0

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66

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54

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tal

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2,09

7.4

10

0.0

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,067

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10

0.0

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100

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081.

9 1

00.0

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2,12

0.9

100

.0

$ 2,

015.

4

100.

0 $

1,83

9.5

100

.0

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642.

2 1

00.0

$

1,47

8.0

100

.0

$ 1,

359.

5 1

00.0

See

acco

mpa

nyin

g In

depe

nden

t Aud

itors

' Rep

ort.

(1)

Ass

esse

d V

alua

tion.

(2)

Perc

ent o

f Tot

al A

sses

sed

Val

uatio

n w

ithin

Met

ropo

litan

.

The

Met

ropo

litan

Wat

er D

istr

ict o

f Sou

ther

n C

alifo

rnia

Tab

le 8

Ten

-Yea

r Sum

mar

y of

Ass

esse

d V

alua

tion

With

in M

etro

polit

an's

Ser

vice

Are

a - B

y C

ount

ies

(Una

udite

d)(D

olla

rs in

bill

ions

)

Sour

ce: O

ffic

e of

the

Chi

ef F

inan

cial

Off

icer

81

Acc

umul

ated

Una

mor

tized

N

etTo

tal

Reso

urce

s Bo

nd D

iscou

nt,

Net

Net

Fisc

al Y

ear

Ass

esse

dH

ouse

hold

Gen

eral

Tota

lRe

stric

ted

for

Prem

ium

, and

Tota

lN

etO

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andi

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nded

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blig

atio

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e O

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paym

ent

Def

erre

d A

mou

ntO

utst

andi

ngG

.O. D

ebt

Out

stan

ding

Deb

t per

June

30,

Popu

latio

n (1

)(N

AV

)(T

HI)

(G.O

.) D

ebt

Bond

Deb

tD

ebt

of P

rinci

pal

on R

efun

ding

s, ne

tD

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to N

AV

Deb

t to

THI

Cap

ita20

1318

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2,08

0,71

0,57

8$

$

n/a

165,

085

$

4,45

0,65

0$

4,

615,

735

$

(110

,535

)$

56

,852

$

4,56

2,05

2$

0.

01%

n/a

%24

9.4

$

2012

18,2

122,

050,

548,

909

n/a

196,

545

4,60

7,12

5

4,80

3,67

0

(104

,230

)

32

,371

4,

731,

811

0.

01n/

a25

9.8

2011

18,1

152,

031,

941,

577

886,

485,

607

225,

335

4,73

1,14

5

4,95

6,48

0

(90,

900)

(7

7,91

4)

4,78

7,66

6

0.01

0.54

264.

3

20

1018

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2,06

4,66

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5

86

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7,14

7

25

5,07

5

4,

591,

910

4,

846,

985

(8

7,07

5)

(104

,989

)

4,65

4,92

1

0.01

0.54

258.

3

20

0917

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2,10

3,70

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1

88

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2,89

9

29

3,42

5

4,

444,

705

4,

738,

130

(7

3,66

0)

(37,

684)

4,

626,

786

0.

010.

5225

7.9

2008

17,8

681,

998,

307,

349

872,

177,

560

327,

215

4,22

7,84

0

4,55

5,05

5

(63,

057)

(5

1,48

1)

4,44

0,51

7

0.02

0.51

248.

5

20

0717

,766

1,82

2,57

2,92

4

85

9,64

0,16

5

35

9,11

5

4,

279,

130

4,

638,

245

(4

5,45

0)

(54,

877)

4,

537,

918

0.

020.

5325

5.4

2006

17,6

881,

625,

256,

559

785,

710,

431

389,

565

3,53

1,38

0

3,92

0,94

5

(37,

555)

(8

9,29

6)

3,79

4,09

4

0.02

0.48

214.

5

20

0517

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1,46

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5,73

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74

7,06

2,21

2

41

9,39

0

3,

360,

470

3,

779,

860

(2

5,18

5)

(97,

087)

3,

657,

588

0.

030.

4920

7.4

2004

17,5

751,

342,

865,

312

695,

332,

860

447,

475

3,13

8,28

0

3,58

5,75

5

(32,

925)

(1

08,5

05)

3,

444,

325

0.

030.

5019

6.0

See

acco

mpa

nyin

g In

depe

nden

t Aud

itors

' Rep

ort.

(1)

Popu

latio

n da

ta is

repo

rted

for M

etro

polit

an's

serv

ice

area

. A

mou

nts r

efle

ct re

visio

ns b

ased

on

curr

ent d

ata

from

the

Stat

e of

Cal

iforn

ia D

epar

tmen

t of F

inan

ce a

nd/o

r rev

ision

s to

the

serv

ice

area

bou

ndar

ies.

n/a:

not a

vaila

ble

Ratio

s

The

Met

ropo

litan

Wat

er D

istr

ict o

f Sou

ther

n C

alifo

rnia

Tab

le 9

Ten

-Yea

r Sum

mar

y of

Rat

ios

of G

ener

al O

blig

atio

n D

ebt t

o N

et A

sses

sed

Val

uatio

ns, O

utst

andi

ng D

ebt t

o T

otal

Hou

seho

ld I

ncom

e, a

ndA

mou

nts

of G

ener

al O

blig

atio

n an

d R

even

ue B

ond

Deb

t per

Cap

ita (U

naud

ited)

(Am

ount

s in

thou

sand

s)

Sour

ce: O

ffic

e of

the

Chi

ef F

inan

cial

Off

icer

and

Sta

te o

f Cal

iforn

ia D

epar

tmen

t of F

inan

ce

82

The Metropolitan Water District of Southern CaliforniaTable10

Direct and Overlapping Bonded Debt (Unaudited)As of June 30, 2013

2012-13 Assessed Valuation: $2,097,369,921,305 (1)

Percentage DebtOVERLAPPING TAX AND ASSESSMENT DEBT: Applicable June 30, 2013Los Angeles County Flood Control District 94.850 $ 18,751,845 Community College Districts Various 8,944,187,724 Los Angeles Unified School District 99.639 10,906,181,041 San Diego Unified School District 99.950 2,364,825,691 Other Unified School Districts Various 9,227,687,185 High School and School Districts Various 4,204,457,980 City of Los Angeles 99.996 1,103,240,869 Other Cities Various 371,423,673 Irvine Ranch Water District Improvement Districts 99.999-100.0 536,998,744 Santa Margarita Water District Improvement Districts 100.0 156,670,000 Other Water Districts Various 75,424,933 Other Special Districts Various 683,574,758 Community Facilities Districts Various 7,114,179,206 1915 Act Bonds and Other Special Assessment District Bonds Various 1,412,570,535 TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT $ 47,120,174,184

METROPOLITAN WATER DISTRICT TOTAL DIRECT DEBT $ 165,085,000

TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $ 47,285,259,184

Percentage DebtOVERLAPPING GENERAL FUND DEBT: Applicable June 30, 2013Los Angeles County Obligations 92.969 $ 1,617,488,204 Orange County Obligations 99.884 512,008,625 Riverside County Obligations 64.219 635,316,970 San Diego County Obligations 96.552 1,130,759,333 Other Counties Obligations Various 845,959,961 City of Anaheim General Fund Obligations 99.820 538,107,126 City of Long Beach General Fund Obligations and Pension Obligations 100.0 235,860,000 City of Los Angeles General Fund and Judgment Obligations 99.996 1,845,866,163 City of Pasadena General Fund and Pension Obligations 100.0 608,280,406 City of San Diego General Fund Obligations 99.936 532,893,730 Other City General Fund Obligations Various 3,067,601,155 Water District General Fund Obligations Various 141,796,386 Los Angeles Unified School District Certificates of Participation 99.639 393,734,901 Other School District General Fund Obligations Various 1,861,873,775 Other Special District General Fund Obligations Various 307,440,808 TOTAL GROSS OVERLAPPING GENERAL FUND DEBT 14,274,987,543 Less: Obligations supported from other revenue sources 837,551,812 TOTAL NET OVERLAPPING GENERAL FUND DEBT $ 13,437,435,731

OVERLAPPING TAX INCREMENT DEBT (Successor Agencies) $ 9,267,779,271

GROSS COMBINED TOTAL DEBT $ 70,828,025,998 (2)

NET COMBINED TOTAL DEBT $ 69,990,474,186

(1) Excludes Orange County November 2012 unsecured adjustment.

Ratios to 2012-13 Assessed Valuation: Direct Debt ($165,085,000) 0.01% Total Direct and Overlapping Tax and Assessment Debt 2.25% Gross Combined Total Debt 3.38% Net Combined Total Debt 3.34%

Ratios to Redevelopment Incremental Valuation ($261,507,381,222): Total Overlapping Tax Increment Debt 3.54%

See accompanying Independent Auditors Report.

Source: California Municipal Statistics, Inc, San Francisco, California

(2) Debt instruments included are general obligation bonds, lease revenue bonds and certificates of participation (when supported by the general fund), pension obligation bonds, 1915 Act special assessment bonds and Mello-Roos Act special assessment bonds. Excluded are enterprise revenue bonds, mortgage revenue bonds, tax and revenue anticipation notes and non-bonded capital lease obligations. Qualified Zone Academy Bonds are included based on principal due at maturity.

83

The

Met

ropo

litan

Wat

er D

istr

ict o

f Sou

ther

n C

alifo

rnia

Tab

le 1

1T

en-Y

ear S

umm

ary

of L

egal

Deb

t Mar

gin

Info

rmat

ion

(Una

udite

d)(D

olla

rs in

mill

ions

)

15 P

erce

nt o

f Ass

esse

d V

alue

(1a)

2013

2012

(4)

2011

(4)

2010

2009

(3)

2008

2007

2006

2005

2004

As A

djus

ted

As A

djus

ted

Rest

ated

Deb

t lim

it31

4,60

6$

310,

122

$

30

7,35

9$

312,

280

$

31

8,12

9$

302,

307

$

27

5,92

7$

246,

331

$

22

1,70

3$

203,

919

$

Deb

t app

licab

le to

the

limit

(2)

4,62

8

4,

817

4,97

1

4,

875

4,73

0

4,

535

4,61

6

3,

866

3,72

3

3,

523

Lega

l deb

t mar

gin

309,

978

$

30

5,30

5$

302,

388

$

30

7,40

5$

313,

399

$

29

7,77

2$

271,

311

$

24

2,46

5$

217,

980

$

20

0,39

6$

Tota

l deb

t app

licab

le to

the

limit

as a

per

cent

age

of d

ebt l

imit

1.47

%1.

55%

1.62

%1.

56%

1.49

%1.

50%

1.67

%1.

57%

1.68

%1.

73%

100

Perc

ent o

f Equ

ity (1

b)

Deb

t lim

it6,

800

$

6,42

7$

6,

252

$

6,14

6$

6,

043

$

5,87

7$

5,

705

$

5,50

2$

5,

432

$

5,28

3$

Deb

t app

licab

le to

the

limit

(2)

4,45

1

4,

607

4,73

1

4,

592

4,44

5

4,

228

4,27

9

3,

531

3,36

0

3,

138

Lega

l deb

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gin

2,34

9$

1,

820

$

1,52

1$

1,

554

$

1,59

8$

1,

649

$

1,42

6$

1,

971

$

2,07

2$

2,

145

$

Tota

l deb

t app

licab

le to

the

limit

as a

per

cent

age

of d

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imit

65.4

5%71

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75.6

7%74

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73.5

5%71

.94%

75.0

0%64

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61.8

6%59

.40%

Lega

l Deb

t Mar

gin

Cal

cula

tions

for F

isca

l Yea

r End

ed Ju

ne 3

0, 2

013

15 P

erce

nt o

f Ass

esse

d V

alue

2012

-13

taxa

ble

asse

ssed

val

uatio

n2,

097,

370

$

Deb

t lim

it (1

5% o

f tot

al a

sses

sed

valu

e)31

4,60

6$

App

licab

le lo

ng-te

rm d

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s of J

une

30, 2

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4,62

8

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gal d

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argi

n30

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100

Perc

ent o

f Equ

ity (N

et P

ositi

on)

Net

pos

ition

of M

etro

polit

an a

s of J

une

30, 2

013

6,80

0$

Deb

t lim

it (1

00%

of e

quity

/net

pos

ition

)6,

800

$

Reve

nue

bond

s out

stan

ding

as o

f Jun

e 30

, 201

34,

451

Lega

l deb

t mar

gin

2,34

9$

See

acco

mpa

nyin

g In

depe

nden

t Aud

itors

' Rep

ort.

(1) T

he M

etro

polit

an W

ater

Dist

rict A

ct (A

ct) p

rovi

des f

or tw

o lim

itatio

ns o

n in

debt

edne

ss, w

hich

may

be

incu

rred

by

Met

ropo

litan

:(a

) Ind

ebte

dnes

s is l

imite

d to

15

perc

ent o

f the

ass

esse

d va

lue

of a

ll ta

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ty w

ithin

Met

ropo

litan

.(b

) Rev

enue

bon

ds li

mite

d to

100

% o

f equ

ity (n

et p

ositi

on) a

s of t

he e

nd o

f the

last

fisc

al y

ear p

rior t

o th

e iss

uanc

e of

such

bon

ds.

(2) T

he A

ct d

efin

es th

e ca

lcul

atio

ns fo

r deb

t lim

its b

ased

on

gros

s deb

t out

stan

ding

. A

ccor

ding

ly, d

ebt a

pplic

able

to th

e lim

it is

not n

ette

d fo

r app

licab

le re

serv

es.

(3) R

esta

tem

ent r

elat

es to

impl

emen

tatio

n of

Gov

ernm

enta

l Acc

ount

ing

Stan

dard

s Boa

rd S

tate

men

t No.

53,

Acco

untin

g and

Fin

ancia

l Rep

ortin

g for

Deri

vativ

e Ins

trume

nts.

Fisc

al Y

ear

End

ed Ju

ne 3

0,

Sour

ce: O

ffic

e of

the

Chi

ef F

inan

cial

Off

icer

(4) R

esta

tem

ent r

elat

es to

impl

emen

tatio

n of

Gov

ernm

enta

l Acc

ount

ing

Stan

dard

s Boa

rd S

tate

men

t No.

65,

Item

s Prev

iously

Rep

orted

as A

ssets

and

Liab

ilitie

s.

84

The

Met

ropo

litan

Wat

er D

istr

ict o

f Sou

ther

n C

alifo

rnia

Tab

le 1

2T

en-Y

ear S

umm

ary

of R

even

ue B

ond

Deb

t Ser

vice

Cov

erag

e (1

)(U

naud

ited)

(Dol

lars

in m

illio

ns)

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

Wat

er S

ales

(2)

1,28

3$

1,06

2$

996

$

1,

011

$

98

8$

968

$

89

2$

827

$

81

9$

843

$

A

dditi

onal

Rev

enue

s (2)

173

16

8

153

13

5

120

11

4

113

11

1

113

10

0

Tota

l Rev

enue

s1,

456

1,23

0

1,

149

1,14

6

1,

108

1,08

2

1,

005

938

93

2

943

O

pera

ting

Exp

ense

s(7

93)

(7

92)

(8

53)

(8

25)

(7

82)

(7

92)

(6

48)

(6

93)

(5

94)

(5

95)

N

et O

pera

ting

Reve

nues

663

43

8

296

32

1

326

29

0

357

24

5

338

34

8

Hyd

roel

ectri

c Po

wer

Rev

enue

s & O

ther

(3)

48

87

96

52

43

48

51

54

31

27

Inte

rest

on

Inve

stm

ents

(4)

(2)

11

17

19

32

46

33

26

27

23

A

djus

ted

Net

Ope

ratin

g Re

venu

es70

9

536

40

9

392

40

1

384

44

1

325

39

6

398

Bo

nds a

nd A

dditi

onal

Bon

ds D

ebt S

ervi

ce(2

98)

(2

97)

(2

77)

(2

44)

(2

23)

(2

19)

(2

00)

(1

76)

(1

57)

(1

59)

Su

bord

inat

e Re

venu

e O

blig

atio

ns(1

)

(1

)

(1

)

(1

)

(1

)

(1

)

(1

)

(1

)

(1

)

-

Fund

s Ava

ilabl

e fr

om O

pera

tions

410

$

23

8$

131

$

14

7$

177

$

16

4$

240

$

14

8$

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$

23

9$

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ios

Bond

s and

Add

ition

al B

onds

Deb

t Ser

vice

Cov

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381.

811.

481.

611.

801.

762.

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852.

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ebt S

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over

age

on a

ll O

blig

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371.

801.

471.

601.

791.

752.

191.

842.

512.

50

See

acco

mpa

nyin

g In

depe

nden

t Aud

itors

' Rep

ort.

(1) P

repa

red

on a

mod

ified

acc

rual

bas

is fo

r fisc

al y

ear 2

013

and

on a

cas

h ba

sis fo

r fisc

al y

ears

200

4-20

12.

(2) F

iscal

yea

rs 2

004-

2011

rest

ated

to in

clud

e w

heel

ing/

exch

ange

sale

s in

Wat

er S

ales

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ey w

ere

prev

ious

ly re

porte

d un

der A

dditi

onal

Rev

enue

s.(3

) Fisc

al y

ear 2

004

rest

ated

to in

clud

e ot

her r

ecei

pts.

(4) E

xclu

des i

nter

est a

pplic

able

to B

ond

Con

stru

ctio

n ac

coun

ts, E

xces

s Ear

ning

acc

ount

(s),

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er T

rust

acc

ount

s, an

d th

e D

efer

red

Com

pens

atio

n Tr

ust a

ccou

nt.

Fisc

al Y

ear E

nded

June

30,

(Res

tate

d)

Sour

ce: O

ffic

e of

the

Chi

ef F

inan

cial

Off

icer

85

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

Popu

latio

n (in

thou

sand

s) (1

)

Los

Ang

eles

Cou

nty

9,91

2

9,

858

9,

818

10

,409

10,3

47

10

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32

10

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3,04

4

3,01

0

3,15

5

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6

3,09

5

3,07

1

3,05

7

3,04

5

3,00

5

R

iver

side

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nty

2,24

4

2,

227

2,

190

2,

128

2,

106

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San

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3,13

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V

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4

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39,9

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depe

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ort.

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not a

vaila

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ces:

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ata

from

Sta

te o

f Cal

iforn

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epar

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inan

ce.

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mos

t rec

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or w

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rmat

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aila

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he e

ntire

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from

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artm

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mer

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nd C

ente

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tinui

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enda

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form

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labl

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a fr

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unity

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vey)

. Th

e m

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enda

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ch in

form

atio

n is

avai

labl

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2011

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) Dat

a fr

om U

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urea

u of

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tatis

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nd S

tate

of C

alifo

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elop

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artm

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ED

D).

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mos

t rec

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alend

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or w

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rmat

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ates

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flect

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Wat

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f Sou

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alifo

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enda

r Yea

r

Last

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phic

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tistic

s (U

naud

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depe

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ort.

n/a:

not a

vaila

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Not

e: T

he m

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ecen

t yea

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alifo

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inci

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mpl

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ithin

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a (U

naud

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enda

r Yea

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umm

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2011

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depe

nden

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' Rep

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Fisc

al Y

ear E

nded

June

30,

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ce: O

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the

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inan

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ta fr

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rior y

ears

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f wat

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plet

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